The COVID-19 pandemic transformed us in many ways. What used to be routine and familiar became bewildering and, at times, frustrating. Many of us struggled. And the banking industry, despite all the digitalization, felt the limitations and inadequacies of the banking ecosystem as the coronavirus spread across the world.
As physical distancing became mandatory, digital banking became a lifeline for most people. Just whip out your mobile phone or turn on your computer and you can do most of the financial transactions you need. It saved the day, to a great extent. But have we all embraced it?
Even if the Philippines became the global leader in the “Time Spent on Social Media” category in the We Are Social and Hootsuite’s Digital in 2017 report, the current digital banking landscape in the country is far from stellar.
According to the Unisys APAC Banking Insights Survey—which covered the Philippines, Australia, Hong Kong, Malaysia, New Zealand, Singapore and Taiwan—the Philippines is the only country in the region where the majority of consumers prefer to pay bills over the counter. The survey also showed that 17 percent of Filipino respondents preferred going into a branch even when simply checking their account balance.
Finastra, a global financial services software provider, explained that this reluctance of Filipinos to use digital banking is due to the lack of a compelling digital user experience.
That said, innovating digital platforms and simplifying the digital banking experience are crucial in facilitating the digital transformation movement in the Philippines.
But the pandemic has confirmed that digital banking is no longer just an option. Digital solutions offered convenient, quick and safe financial services from the comfort of their homes.
For us at the Bank of the Philippine Islands (BPI), we recorded a 25-percent jump in our retail digital transactions, including money transfers to other BPI accounts, interbank transfers, transactions with e-commerce partners and bills payments during the first two weeks of lockdown.
Digital supportOne bank recorded a 160-percent increase in daily sign-ups on its online banking and mobile banking platforms. Another one is entering the digital banking space via Komo to be launched in the third quarter of this year.
But we know that there’s still so much to do to encourage more people to embrace digital banking services. There is still some reluctance and fear. This presents an opportunity for us to create the right tools to overcome customer concerns about digital security and complexity with the help of the government and our regulators.
Under the Bangko Sentral ng Pilipinas’ (BSP) digital payments transformation roadmap 2020-2023, the BSP endeavors to promote an enabling regulatory environment that allows responsible innovation to flourish, promotes cyberresilience, and contributes to advancing the digitalization of the financial services industry especially amid the COVID-19 pandemic.
In fact, BSP Gov. Benjamin Diokno has declared a target to achieve at least 50 percent of retail payment transactions shifted to digital, and 70 percent of adult Filipinos having and using a transaction account. The adoption of the digital banking business model is predicated on robust, secure and resilient infrastructure with effective digital governance mechanisms.
The BSP has been pushing for the establishment of a national ID system as this will support its digital payment ecosystem under the National Retail Payment System.
Aligned with this direction of advancing the financial system’s digitalization initiatives, the government has a budget estimated at P2 billion to produce the national IDs, which according to the National Economic and Development Authority, remains on track. This ID will capture the biometrics of more than 100 million Filipino citizens as well as non-Filipino residents over a five-year period.
This will be a great help for us in the financial sector as digitalization, cybersecurity, and financial liberalization are issues foremost on bankers’ minds. The overall objective is to increase financial inclusion.
But as we digitally transform ourselves in order to continue providing relevant services to our clients, additional support or changes in the current Philippine regulatory environment to encourage the wide adoption of digital payments would help accelerate adoption. There is a need to build more reliable data highways, and legislation and enforcement can be strengthened to help curtail cybercrime and build more trust in digital transactions.
In BPI, for example, under the enhanced community quarantine (ECQ)/general community quarantine situation, we observed that corporate customers implemented BCP measures, which utilized digital channels to facilitate their urgent corporate payments without necessarily shifting to digital as the long-term way forward. We do not foresee that cash and check-based payments will be completely removed from corporate payments in the immediate future.
One of the major considerations or challenges of corporates in going digital is the handling of regulatory forms, such as official receipts and Bureau of Internal Revenue (BIR) Form 2307. Pre-ECQ, check-based payments were preferred to facilitate the control and exchange of these regulatory documents.
Current regulations surrounding the acceptance of electronic ORs requires updating on the part of the government. In fact, the pain points or challenges of adopting the E-OR include BIR auditors who still rely on original/physical ORs when conducting audits on companies. To add, existing BIR procedures on the accreditation of a company for E-invoicing and subsequent issuance of E-ORs are tedious. It discourages companies from pursuing this altogether.
Many corporates also cite the fact that check-based payments offer the customer legal remedies. Laws are clear with regards to the criminal liability and recourse to check issuers in the event that their check bounces. At present, there are no laws that clearly stipulate similar legal recourse for payments made digitally.
Collective transformation
As far as our digital systems are concerned, our infrastructure has always been ready to adapt to technology in order to provide our customers an efficient and convenient 24/7 digital banking experience.
But our digitalization journey will only be effective if the clients will also do their part in embracing digital transformation.
In short, this is going to be a collective transformation—businesses, their clients and their suppliers, i.e. the whole value chain.
Historically, the corporate space, or B2B payments, have been the slowest to digitalize. Based on the BSP’s Better than Cash Alliance report, the rate of digitization of B2B payments is 2.7 percent vis-à-vis the overall rate of digitization in the Philippines at 10 percent. However, major industry developments, which will change the landscape of B2B payments and corporate collections are coming.
One of these is the scheduled launch of Instapay 2.0 in 2021 under the BSP’s NRPS roadmap. The Instapay 2.0 framework will introduce an array of real time payments (RTP) initiatives, which will further accelerate the digitization of corporate payments and collections. Essentially, the RTP will facilitate interbank payments beyond the Peer to Peer (P2P) transfers we know today. It will expand the Instapay capabilities to Person to Biller (P2B), Business to Business (B2B), and Person to Merchant (P2M) payments.
Moreover, the RTP introduces next generation payment technologies, which will modernize Philippine payments. These include the adoption of Bills Pay QR and Request to Pay functionalities, which will revolutionize the current payments experience of both corporate and retail customers. The RTP initiatives will allow corporates to achieve real-time payments, straight through processing of transactions and automated reconciliation of payments.
Instapay 2.0 and RTP will transform the entire landscape of Philippine payments in the following years. In order for it to be successful, the collective participation among banks and electronic money issuers is imperative.
This simply means iterative transformation is crucial. Banks need to successfully execute digital strategies with the collaboration of other parties—banks, clients, regulatory bodies—to make this digital transformation work.
Banks have put in place the digital infrastructure. Now it’s time for businesses, including individuals, to change and commit to digital as well. Then regulatory bodies need to change, too, to promote new policies. The government must ensure that relevant laws and regulations are developed alongside technological developments to achieve this wide adoption of digital payments and transactions.
This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP. The author is head of corporate banking of BPI.