Poor user experience on mobile applications is just one of the many barriers that hamper the total adoption of digital banking in the Philippines, according to digital banking services provider Backbase.
In an email interview with Back End News, the fintech software provider said technological challenges like complex interfaces when paired with low awareness about the benefits of digital payments prevent the population from utilizing available digital banking services.
“The Philippines is still a largely cash-based economy, where cash-on-delivery remains the primary form of payment – up to 85% of all retail sales in the country are estimated to be through cash,” said Aileen Lopez-Sanchez, country sales manager for the Philippines at Backbase.
But digital or contactless transactions are becoming the norm during the pandemic to curb the spread of the virus. Citing data from the Bangko Sentral ng Pilipinas, Backbase said two electronic fund transfer services — InstaPay and PESONet — saw a combined increase of 18% growth and a 25% increase in value during the initial 45-day lockdown from mid-March to April 30 compared with the same period in 2019.
Across the Asia Pacific, Backbase said it sees “an accelerated pursuit of digital-first by banks.”
“Based on the ‘Fintech & Digital Banking 2025 Asia Pacific’ report co-published by Backbase and IDC, the top three factors driving customer loyalty are fast turnaround time, conversational banking, and personalization at scale,” said Riddhi Dutta, regional director of Asia at Backbase. “It is all about being even more customer-driven and platform-oriented, ultimately unleashing the potential of personalization at scale in the digital-first story.”
Traditional banks are now faced with multiple challenges caused by the pandemic. While the banks’ networks are a big asset especially for an emerging market like the Philippines, physical branches are getting to be irrelevant because some people prefer to do their transactions on a mobile app or online.
“Held back by traditional products, processes, and people, 38% of revenues of traditional banks are at risk by 2025 because of emerging new players and digital disruption in the industry,” Lopez-Sanchez said. “Digital challenges — neobanks and fintechs have been agile and quick in responding to customers’ need for flexibility, accessibility, and speed. Incumbents (banks) have not been able to match up to the speed of implementations that fintechs have. This arises from legacy views of the value chain and outdated technological architectures that form the foundation of their back-end environments.”
Digital-first banks, on the other hand, have become even more relevant in the sudden shift in lifestyle because of the pandemic.
Modern digital platform
“To meet the challenge of faster and efficient onboarding of new customers, banks need to invest in a modern digital platform that enables sharing of data, functionalities such as electronic KYC and identity verification with third parties — this can significantly accelerate the time to onboard new customers,” explained Dutta.
While neobanks (digital-only banks) offer conveniences such as no-fee accounts, high-speed signups, fuss-free onboarding, and intuitive user interface and functions, clients still hold back and view them as an alternative only. Having to contend with incumbent banks that built its reputation over centuries, neobanks still struggle with popularity, profitability, and competitive agility.
Still, neobanks and software providers like Backbase are bullish of consumers’ digital-first adoption not only because the new normal requires it but also because banking clients are realizing — albeit slowly — the advantages of leading a digital lifestyle.
“In the Philippines, 60% of bankable customers are willing to shift to other players that are more digital,” noted Lopez-Sanchez. “Customers are seeking truly omnichannel, and omni-experiences. This means banks need to focus on managing new ways to interact with customers instead of relying on mere transactions. This includes utilizing customer data analytics, and intelligent automation to anticipate and predict customers’ needs before they do. In doing so, banks can gain a competitive edge as they personalize content and deliver frictionless experiences within digital channels.”
“To deliver seamless customer journeys, banks need to ultimately have a modern core banking foundation,” Dutta said. “By 2025, 44% of the top 250 banks across the Asia Pacific will complete their ‘connected core’ transformation — working on platform-based and componentized modernization, and API-enablement.”
The core banking foundation simplifies the process by addressing data siloes, which Backbase said, “hinders banks from fully leveraging customer insights to improve services.”
“At Backbase, we call these internal silos which exist within the various departments in the bank as ‘channel islands’,” said Dutta. “These silos affect the entire customer life cycle management across onboarding, self-servicing, product development/provision, and digital marketing. To make the customer experience seamless, banks need to make this user journey into a horizontal offering by standardizing separate operations into a single platform.”
Backbase solves the problem of silos by providing a digital layer — the Backbase Digital-First Banking Platform — on top of existing systems. This future-proof solution allows banks to develop services once, and then disperse to all channels via a central platform. This typically boosts revenue by an impressive 20% in new sales and 15% in upselling to existing customers.
“The banks of the future will be built on a platform that is able to provide a single orchestration and aggregation layer, bringing together all the elements of a successful digital banking platform,” Lopez-Sanchez said. “To do this, banks need to invest in an agile and responsive architecture, solution landscape and capabilities that can reconfigure systems, operations and processes to adopt new services and tap into the new operating model.”