Beyond inclusion: Paths to better financial health

POWER OF CREDIT The formal financial sector must work together to ensure every Filipino can build better financial health. —PHOTO FROM Transunion

We have come a long way when it comes to greater financial inclusion.

Recent updates from the Bangko Sentral ng Pilipinas (BSP) show that 70 percent of adult Filipinos are now banked. Having grown from 56 percent in 2021, this 14 percentage point jump is a significant milestone toward enabling all Filipinos to enjoy the benefits of being financially included.

While tremendous strides have been made toward achieving greater financial inclusion, it’s imperative that we work toward driving better financial health as well.

Similar as they may sound, financial inclusion and financial health are not synonymous. The former refers to people and businesses being able to access, use, and benefit from financial services, while the latter hints at a person’s capacity to handle both expected and unexpected expenses.

Financially healthy people can capably pay essential bills, afford their debt obligations, and build sufficient savings to use in case of emergencies. The formal financial sector must work together to ensure every Filipino can build better financial health. One way I believe we can make that happen is to expand greater access to credit.

Consumer credit demand is growing, but supply is yet to catch up

Consumer demand for credit continues to rise. We shared at the recent TransUnion Philippines Big Data Summit that TransUnion Philippines recorded an 89-percent increase in credit inquiries from the second quarter of 2022.

These inquiries were spread across multiple credit products from credit cards, personal loans, housing loans and auto loans, and most came from outside the National Capital Region (NCR). Despite strong demand, approval rates have only shown a slight uptick. At present, credit card penetration in the country is only at 25 percent. While credit cards have a longstanding presence in the country, growth for this product seems to be driven by existing customers.

However, we are seeing that the new-to-credit (NTC) market presents a viable opportunity for customer acquisitions. Additional findings shared at the Summit show that 26 percentof the credit inquiries received by TransUnion Philippines in the second quarter of 2023 were from the NTC segment.

Our research shows that credit demand from NTC Filipinos is higher now than it was prepandemic.

To accommodate this growing demand, I believe we need to empower lenders to confidently cast a wider net to give credit access to NTC Filipinos. To do so, we can help give lenders a clearer picture of who these prospective customers are and the levels of risk they present through the power of data.

The power of data for sustainable growth beyond financial inclusion

Mynard Mojica, deputy director of BS,P has highlighted the promotion of alternative data for credit evaluation as a priority initiative in the BSP’s National Strategy for Financial Inclusion.

Defined by The World Bank as data gathered from nontraditional data sources, alternative data such as telco data helps more people become visible in the formal financial system—especially NTC Filipinos eager to get started on their credit journeys.

If lenders leverage insights gathered from alternative data, Filipinos could benefit from more opportunities to enjoy the potentially life-changing power of having access to credit.

Whether it’s used to fund a first family home, a young person’s education, or to invest in a genius business idea, the information stewarded by TransUnion Philippines plays a vital role in using alternative data to help Filipinos realize their dreams in life. This is what it means when we use Information for Good: by working together, we can help more Filipinos live better.

There is a common saying in the financial inclusion community that goes “financial inclusion is not an end in itself – it is a means to an end or many ends”. I ascribe to this belief.

Certainly, the pursuit of greater financial inclusion opens doors for more people to enjoy access to credit and other important financial services. However, being financially included is just the beginning.

Through greater financial inclusion, I believe that it is possible for Filipinos to live in a time where good financial health is not a privilege for a certain few, but a right for all to enjoy. (The author is President and CEO of TransUnion Philippines).

Financial inclusion is not an end in itself—it is a means to an end or many ends. —FILE PHOTO