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Leveraging technology to encourage digital banking adoption in PH

Back End News talked to Mr. Frederic Ho, vice president of Jumio Asia Pacific, to discuss the rise and considerations of digital banking in the Philippines. Following the release of guidelines by the Bangko Sentral ng Pilipinas, digital banks or neobanks in Southeast Asia have entered the local market.

Mr. Ho discussed how traditional banks and neobanks can create a frictionless experience for clients while ensuring security by leveraging available technologies.

Jumio is an online mobile payments and identity verification company that provides card and ID scanning and validation products for mobile and web transactions.

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  • Why is it important to embrace technologies and innovation to help drive inclusive growth in the Philippines?

By embracing technology and innovation, the public and private sectors are able to increase the accessibility of basic and crucial goods and services to the general population.

For instance, digital banking is well-poised to play a key role in serving the needs of the unbanked population — especially considering one of the biggest hindrances to reaching unbanked communities is the inaccessibility of physical bank branches. In the Philippines, many locals cannot make the trip to a branch to open an account or deal with onboarding requirements. This problem is made even worse today, as continued lockdowns and movement restrictions extend across the country.

Digital banking eliminates the friction points consumers face in opening and maintaining a bank account by allowing anyone with an internet connection to transact with the bank and its onboarding requirements via mobile apps for enrolment and verification — thus simplifying the process.

The good news is that the Philippine government has already initiated a number of supportive programs to ensure that the growth potential of digital banking is fully realised. Among these are policies that help boost the accessibility and convenience of e-payments, such as the National Retail Payment System, PesoNet and InstaPay, as well as partnerships with banks to roll out digital banking licenses.

Beyond digital banks, traditional banks can also leverage such fintech services to drive financial inclusion, elevate their portfolio and future-proof their business. CIMB Bank Philippines, for instance, has leveraged Jumio’s AI-powered identity verification technology to support the opening of digital bank accounts. Their simple and convenient process saw almost 4 million sign ups in the country within about two years of operations, with 20% of new depositors marking CIMB as their first banking relationship. What’s more, 55% of their successful loan applicants quoted CIMB as their first bank loan.

  • What are the considerations that financial institutions need to bear in mind to ensure a successful rollout of digital finance services?

To ensure a successful rollout of digital banking, a key consideration is whether the country’s population is ready to adopt the service. The Philippines, for instance, presents the perfect environment for digital banking services to flourish, as it has the largest generation of young people, who are also some of the most digitally adept in the region.

However, financial institutions must also consider the need to create sophisticated online services that are easy to use, without compromising security. Often in their rush to make technology systems more secure, some organizations overlook convenience and ease of use for consumers, succumbing to adding extra steps (i.e., more friction) to the process. While more than half of consumers would likely bank more on a mobile app if it had stronger data security, 2 out of 3 will also abandon digital banking applications if the process is too time-consuming, onerous or clunky.

It is therefore important for financial institutions and market players to strike a delicate balance by choosing solutions that are easy to use, without adding unnecessary friction points for consumers. Doing so gives them the ability to provide consumers with a secure banking experience, where they can safely access their financial data and make transactions with ease.

  • What is the role that banks in the Philippines — traditional, digital and virtual — must play in helping to increase the accessibility of their services?

Banks in the Philippines — whether traditional, digital or virtual — must undertake the key role of providing financial services that offer greater convenience and value for all.

To do so successfully, it is imperative that they leverage the latest technologies that can specifically increase accessibility, and which can ultimately be turned into an opportunity to strengthen their competitive advantage. Examples include partnering with financial technology providers to offer tailored services such as micro loans, debit cards or prepaid cards that may be otherwise inaccessible for underserved consumers.

And, exciting developments are already underway. The country is witnessing an acceleration in digital banking, with many entrants striving to reach the unbanked and traditionally underserved segments. Incumbent traditional banks are also accelerating their transformation efforts, upgrading their digital platforms and expanding offerings in order to stay relevant in this increasingly competitive banking landscape and to meet changing customer expectations.

  • What does the future of digital banking in the Philippines look like?

With digital banking, a world of payment opportunities is now open for individuals and for businesses.

Remittance, for instance, is one of these areas. Traditionally, this process is filled with friction points including high transfer fees and long wait times for transfers to reach their destination, as well as the restriction of only being able to transact at a physical branch. They make money transfers a huge hassle, both for Filipinos working overseas where travelling to a branch is inconvenient, as well as for recipients who may be residing in remote places in the Philippines.

Digital banking addresses this challenge by enabling money transfer agencies to lower fees through reduced overhead costs and the cost of transferring cash, since all these processes have moved online. Transacting virtually also means that there is no longer a need to travel to local branches, which significantly reduces the time taken to remit money for consumers.

Real-time cross-border payments will also begin to rise in adoption. Recently, the Monetary Authority of Singapore (MAS) and the Bank of Thailand (BOT) connected their local payment systems, allowing banks to transfer funds “seamlessly and securely” between accounts in the two countries. This is an important step to connecting payment systems across Southeast Asia at scale in the future, enabling more bank customers to send money to their friends and families and to pay for goods and services quickly, simply and safely across borders.

  • What types of technologies will help these banks to increase growth and adoption?

To increase growth and adoption, it is crucial to implement technologies that enable a fully digitized operational process and customer-centric infrastructure that maintains a simple, frictionless process for consumers, while still assuring customers of regulatory compliance and protection against sophisticated online fraud. This is especially important for the Philippines, having experienced a surge in financial fraud last year.

Online identity verification and authentication are crucial steps to ensure that the right people are transacting behind the screen. However, while these technologies are a boon for productivity, it can be a double-edged sword. If not implemented correctly to achieve a seamless and reliable user experience, it risks damaging the company’s brand and turning prospects away from their services altogether. These examples are easily found when looking at reviews of digital banking or fintech apps — users are not shy to make their frustrations known publicly when they are not able to navigate or effectively open and maintain an account.

It is thus important to ensure that while companies are prioritizing security, they are also maintaining a frictionless and simple process. Jumio, for example, can help in this regard by allowing financial services firms to verify and authenticate their customer identities in a fast, seamless and secure manner.

Union Bank Philippines is a prime example of how digital banking services can be marketed toward the unbanked to drive adoption. Through its partnership with Jumio, the bank implemented a completely digital onboarding system leveraging facial recognition and certified liveness detection to securely identify individuals — all while maintaining a frictionless process that takes less than 5 minutes to be completed. With this initiative, Union Bank Philippines managed to open roughly the same number of accounts digitally as it has through its entire branch network — enabling it to acquire and service consumers at scale without expanding its physical footprint. It has also collaborated with rural banks in the archipelago to offer consumers a free banking-as-a-service model that leverages cloud and mobile technologies to drive financial inclusion across the Philippines. This approach saw more than 60% of its customers belonging to underserved segments, with almost 50% living outside urban areas.

  • What are the challenges of all-digital banks in a country like the Philippines? And how should they deal with those challenges?

A challenge for all-digital banks is in ensuring full accessibility and coverage for their services across the Philippines. However, as a sprawling archipelago of over 7,000 islands, the ability to deliver said coverage — entailing fast and reliable internet access in the Philippines — remains a huge undertaking.

However, progress is being made in this area. Average broadband connection speeds in the Philippines have almost doubled since 2021, and the entry of a third major telco player earlier this year is also set to further improve the speed and reliability of connections in the country over the next few years. These developments will no doubt boost the adoption of digital services, including banking, even among previously hard-to-reach segments of the population.

It is also important for the government to continue collaborating with digital banks and other industry players. As the market is still a relatively new venture when compared to traditional banking, it is far from saturated, and is still mired in complexities that impact their path to success. Finding opportunities to collaborate and encourage innovation will ensure that the industry can thrive in the Philippines, and future-proof itself for the years to come.

  • What should legacy/traditional banks look into so as not to be overtaken by all-digital banks?

The exponential increase in digital banking activity brings about a refreshed sense of urgency for traditional banks to transform, so as to adequately compete with new entrants. This means finding new ways to revamp processes that are optimized for an online audience — taking into account their unique needs and preferences.

For instance, when considering today’s digital consumers, simplicity and convenience is everything. They don’t want to wait an hour to create a new account. They want it completed in minutes — anytime, anywhere. However, it’s common for many financial players to simply clone the same customer onboarding process used in branch offices and replicate it on their website or mobile apps, without considering how technology could streamline and expedite the process.

While the overall customer experience in-branch and online may be similar in many aspects, there are some fundamental differences that have to be considered, such as inspection of identification and documents — which can all be transformed and refined when brought onto an online platform.

Additionally, just as how digital banking processes have improved financial services, there’s also an opportunity for banks to replicate some of the more efficient processes used in remote onboarding and repurpose them within a branch setting. For instance, many branch offices have iPads or tablets at teller stations, which can be leveraged to trigger online identity verification solutions that can check the authenticity of ID documents, perform address validation, ping government watchlists and exclusion lists, and even query credit bureaus in real-time.

It is crucial for traditional banks to evaluate their strategy and pick the right stack of technologies that can allow them to streamline and optimize user experience, and ultimately accentuate the services of the bank, rather than fully replace them.

Continue to innovate to encourage digital banking adoption

The public and private sectors both have a part to play in encouraging the adoption of digital banking through continued innovation, collaboration and education.

The Philippine government has been very supportive on this front, by encouraging innovation through a “test-and-learn” sandbox philosophy, which centers on active multi-stakeholder collaboration, risk-based proportionate regulation and consumer protection. Earlier this year, the government also formed a partnership between the Philippine Statistics Authority (PSA) and Land Bank of the Philippines (LBP), helping more than 3.5 million unbanked citizens get onboarded for transaction accounts — which were provided free of charge and with no initial deposit requirement.

Further efforts have also been made through agreements with Bank Indonesia and the Monetary Authority of Singapore to collaboratively promote digital financial innovation and facilitate collaboration on digital banking initiatives. The Philippines’ central bank (Bangko Sentral ng Pilipinas), too, has implemented a digital literacy program as part of its financial education advocacy that aims to increase public trust and confidence in the digital finance ecosystem and encourage the use of digital financial services by consumers.

It is great to see how the different sectors are already working together to drive the adoption of digital banking. These efforts will no doubt ensure that all consumers — including those who are struggling to receive basic banking services — benefits from digital banking services.