The banking industry has been around for centuries, but the rise of fintech has completely changed how banks operate.
Financial technology, or fintech, has brought about a revolution in the delivery, consumption, and management of financial services. In the Philippines, the rise of the digital economy has created a greenfield market for digital finance, presenting opportunities for traditional banks to grow and expand their services.
According to a report published by McKinsey & Company this year, the bankable population of the Philippines is projected to grow by 30%, from 65 million in 2022 to 85 million by 2030. Consequently, financial institutions are increasingly adopting modern technology to ensure more customer-centric, efficient, and convenient services.
Fintech has ushered in a new era of banking that is more accessible, especially for those who were previously unbanked or underbanked. The Bangko Sentral ng Pilipinas (BSP) aims to achieve 70% digital banking inclusion among Filipino adults and a 50% increase in digital retail transaction volume by the end of 2023.
Moreover, fintech delivers on what many millennials and Gen Zs demand — more pay options and convenience. Users can enjoy a seamless experience across all channels, including mobile, online, and in-person banking.
Enhancing convenience
The fintech industry in the Philippines is driven by the country’s booming digitalization and the ongoing efforts to promote financial inclusion. This factor raised expectations, including customers who demand fast-paced banking solutions.
According to McKinsey, 44% of the adult population in the Philippines remains unbanked. With the rise of fintech, individuals now have greater access to financial services, which promote economic growth and reduce poverty.
The growth of financial technology has led to the development of digital banking, which allows customers to access banking services through their mobile or computer devices. The Philippines follows suit from giant Asian countries, with several digital banks approved by the BSP before 2021.
Digital banking allows customers to perform transactions and manage their finances anywhere at any time. People can now open bank accounts, apply for loans, and make transactions online without visiting a physical bank.
Digital banking emerged with heightened consumer demands for more efficient ways to access banking records and complete financial transactions outside of local branches.
For instance, EastWest Bank, one of the traditional financial institutions in the Philippines, has been an early adopter of digital banking.
Komo by EastWest, launched in 2020, is the first exclusively digital banking service offered by a local bank in the country. Unlike traditional banking, Komo does not require maintaining balance. Komo also offers a savings account with a 2.5% interest rate, Visa debit cards, and digital checking accounts. Users also have unlimited free withdrawals at any EastWest automated teller machine (ATM) and up to four free monthly withdrawals for other BancNet ATMs.
This innovation gives customers greater control over their finances through self-service and real-time monitoring, which are significant benefits of online banking.
In addition, fintech opens opportunities for digital payments, allowing users to pay bills, transfer money, and buy goods online.
According to World Bank, the pandemic has led to an increased use of digital payments globally, with over 40% of adults in low- and middle-income economies making merchant in-store or online payments for the first time since the start of the pandemic.
In the Philippines, digital payments are fast gaining currency as consumers are starting to ditch cash after the pandemic.
According to a report by the BSP in 2022, digital payments have become increasingly popular, with a 42.1% growth of all retail payments by volume. In terms of value, digital payments represent 40.1% of all retail payments, amounting to US$78 billion.
The smartphone penetration rate and increasing internet users also drive the growth of digital payments in the Philippines. These trends are likely to continue as more people are expected to adopt mobile technology in the future.
Furthermore, innovation in the banking sector is a catalyst for the growth and success of the finance industry in the Philippines.
EastWest Bank has developed a digital payment channel with EastWest Pay App, a mobile payment application that allows EastWest Visa credit cardholders to pay by hovering their phone over a merchant’s point-of-sale terminal. The EastWest Pay App is the Philippines’ first mobile application that turns an NFC-capable Android device into a VISA EMV contactless card.
Unlike other mobile payment applications, the EastWest Pay App allows customers to pay in-store from their credit card account without loading the application before making a transaction. The mobile app also allows customers to access their credit balance, spending limit, and available credit limit.
This development proves that banks and financial institutions have increased their spending on technology to keep pace with consumer demand and provide efficient financial services.
The new financial system brought by EastWest Bank, alongside those from other players in the banking space, is the beginning of a change for the industry — opening opportunities to improve processes, grow revenue through expanded product offerings, and further inspire new strategies.
Therefore, a key element in fostering innovation in banking is the adoption of digital tools that enable advancements in both core processes and cultural innovation — implementing concrete measures to build more responsible and sustainable alternative models.
Maximizing opportunities
The onslaught of fintech and the recent pandemic has forced an increase in technology spending and adoption.
Moreover, financial technology speeds up transactions in the country, thereby hastening capital recovery and income generation.
According to McKinsey, weak information infrastructure and limited risk appetite have discouraged traditional banks from courting new market segments, especially with thin-file customers with small ticket sizes. However, traditional banks are increasingly maximizing the value of financial technology to improve their operations and customer experiences.
Since digital technologies has driven gains in financial access in emerging market, traditional banks are diversifying their product portfolios and offering technology-based services to improve their agility and competitiveness.
Based on a report published by the Asian Development Bank, improving platforms by leveraging newer technologies is the simplest form of attaining financial inclusion. Therefore, fintech can accelerate a broad-based economic growth and resilience towards financial inclusion and literacy. — Mhicole A. Moral
