Growth, resilience, shifts in consumer banking
Never has change been more pervasive and rapid than in the last seven months. The shifts in the way we lead our lives have been dramatic, that returning to our prepandemic ways seems unimaginable. What took years for different organizations to achieve, the pandemic was able to do or undo in record time.
Do you still remember the time when we entered this new decade with much hope and optimism? The Philippines was the sweetheart of Asia, experiencing years of uninterrupted economic growth buoyed by consumption and government spending as the country rallied behind Build, Build, Build.
The banking industry supported the country’s aspirations by financing start-ups and micro, small and medium enterprises, corporate business expansions, infrastructure projects, public private partnership, investments and construction. Urbanization created new skylines in Makati, BGC, Ortigas, Alabang, Cebu, Iloilo, Davao, Cagayan de Oro and in major cities all over the country.
This more widespread development also led to the increasing affluence of the middle class as the buildup of infrastructure enabled countryside progress. Malls, condominiums and masterplanned communities spurred progress. Consequently, vehicle and home sales increased significantly with the Filipinos’ increasing confidence in the future.
With benign interest rates, the banking industry supported the Filipino consumers’ dreams of having their own car and their own home, with auto loan financing growing at a compounded annual growth rate (CAGR) of 17.3 percent, and home loans at a CAGR of 14.4 percent, respectively. Likewise with consumer confidence on the rise, household expenditures increased, financed by credit card loans at a CAGR of 18.6 percent.
Savings growth
How did banks finance these loans? The growing affluence of Filipinos likewise led to higher savings.
The Banko Sentral ng Pilipinas (BSP) has launched a number of initiatives toward greater financial inclusion, which included financial education, easier account opening and digitalization. The Basic Deposit Account is one of the ways by which the BSP encouraged Filipinos to save and be part of the formal financial sector, reducing the costs of deposits for banks by eliminating reserve requirements and thereby allowing banks to offer a more affordable deposit product.
In the last five years, the number of deposit accounts grew by 9.7 percent year-on-year and the deposit volumes increased by 10 percent, allowing banks to fund the demand for loans.
The BSP’s mandate to migrate all cards—credit, debit, prepaid—to EMV further spurred increased activity in payments, as retail (shopping, dining), e-commerce, local and foreign travel generated more demand for electronic payments.
With BSP’s sponsorship of the National Retail Payment System, the Philippine Payments Management Inc. was established in 2017 followed by the launch of automated clearing houses Pesonet and Instapay that enabled interoperability among financial institutions, lowering the cost of funds transfers and payments for the Filipino consumer. In the last five years, credit card usage grew by 16 percent while debit card usage intensified by 37 percent.
Resilience
Consumer banking in the Philippines was touted to be the growth frontier of banking given the country’s young demographics and strong macroeconomic fundamentals. But while we could not have predicted COVID-19, the banking industry was better prepared, better organized and better capitalized. In the last five years, the industry has reinforced its risk management capabilities and corporate governance framework. Under the guidance of the BSP, banks have begun to adopt Basel III international standards for managing risks, requiring banks to maintain risk-based capital adequacy and liquidity ratios to promote stability in the financial system. This was supported by the establishment of credit bureaus to ensure strong credit risk management and also wider access to credit.
TransUnion Philippines was established by major banks with sizeable credit cards businesses as the first comprehensive private credit bureau. In 2018, the country’s first government-led credit bureau—Credit Information Credit—became finally operational, to promote more extensive and reliable information from contributing entities, which include not just banks but also telecommunications, government agencies and other lending institutions.
The pandemic may have held back the explosive growth in consumer banking but it also provided the needed stimuli for the behavioral and structural shifts required for the next decade. It was not a matter of “if” but a matter of “when.” It was not a matter of “why” but a matter of “how and how fast.”
In the recent years, we have already seen how the growth of digital transactions has begun to outpace branch transactions. In fact, for the first time in 2019, BPI Group’s branch transactions declined while digital transactions grew by 29 percent.
During the enhanced community quarantine, digital transactions accounted for as much as 90 percent of BPI’s transactions and are now beginning to settle at about 80 percent. As more business partners participate and more functionalities get ported to the online and mobile channels, we can expect digital transactions to continue outpacing branch transactions.
From Yolo to woke
A well-known belief among millennials and the Gen Z generation, prepandemic, is Yolo (You Only Live Once), which encourages a spending mindset. Social media was abuzz with posts and photos showing how the young enjoy their earnings by traveling, shopping (OOTD) and dining out. With the lockdown, there was heightened realization on the need to be “woke,” or aware of important issues, and be more socially responsible, helping others survive this pandemic, promoting environmental care, health and wellness, and spending time with family. During the pandemic, I was invited by ALTA, a newly formed organization comprised of senior high school and college students that promotes financial literacy among the youth, to talk about the importance of saving.
One principle has not changed when it comes to banking. It is “trust.”
Banking is a matter of trust especially when you are entrusting your hard-earned money to an institution to either safe keep or grow. Inherent in this trust is the high level of security and safety in the banks’ systems and processes, the high quality of its products and services, and the high standards of competence and knowledge of its personnel.
At the onset of the pandemic, there were banks that have been able to set themselves apart from the rest. These are the banks whose personnel are dedicated in serving their clients and assuring them of their assistance in the most challenging of times. These are the banks that reached out to their clients through their branch personnel and customer care teams and through social media, constantly communicating updates and advisories.
We in BPI know how critical it is for our customers to do their most important banking transactions from the safety and security of their homes, serving as their lifeline to the world outside. After all, more than pesos and centavos, wealth is ultimately measured by the quality and depth of our relationships. —CONTRIBUTED INQ
(The author is President of BPI Family Savings Bank and concurrently serves as Secretary of the Chamber of Thrift Banks)
