Interview: Cezar Consing
In what ways has the evolution of banking technologies changed the services offered by institutions?
CEZAR CONSING: Technology and digitalisation are key to reducing costs. Without these, banks can only serve large borrowers; but with the proper digital tools, it is possible to lower unit costs enough to serve those who require very small loans. With regards to investing in innovation, many banks are focused on their own operations: 80-90% of their IT spending is aimed at increasing their own capabilities, rather than collaborating with financial technology players.
One reason for this is that their technologies are still fairly basic. However, some domestic banks reinvest as much as 6-7% of their revenues in technology, on par in percentage terms with some of the biggest banks in the world. Digitalisation will be a key competitive advantage in the future. Only 14% of Filipino clients access their banks digitally; the ASEAN average is 50-60%, with some technologically advanced economies, such as Singapore, boasting a level of almost 100%. Digitalisation can also improve customer satisfaction.
How effective are the Philippines’ data privacy laws?
CONSING: The country’s data protection laws are among the strictest in the world, and data breaches are quickly dealt with. While this is a very good start, data privacy regulations here should probably become more industry-specific. The importance and uses of data differ from sector to sector, and regulations must be adapted to reflect these differences.
In banking it is essential to keep personal data confidential, but excessive regulations can hamper financial inclusion. If banks are not permitted to evaluate the information of potential clients, then access to financial services will be limited. Therefore, it is important to have a debate about the impact of data protection on financial inclusion. There are some conflicts between these goals, so we must strike a balance and determine which objective should be given more weight, and when.
To what extent can banking be made more inclusive?
CONSING: Only about 25% of Filipinos have bank accounts. Even those that have access to formal banking just make deposits, rather than borrow from their banks. Informal lending is common, and these lenders charge very high interest rates. A key focus for the industry is to increase the number of Filipinos that borrow from banks. Alongside the national ID plan, microfinancing will be key to achieving this. In this regard, banks must offer more cost-effective products than informal lenders.
The high degree of effort and narrow profit margins make it more appealing for banks to pursue big tickets, but microfinancing is a necessary component of financial inclusion. The low banking penetration rate indicates that there is considerable room for growth, and the market is large enough for both formal and informal lenders to profit from small credits.
What impact do you expect the national ID plan to have on the domestic banking industry?
CONSING: One of the biggest issues that banks face in the Philippines is the lack of know-your-client tools. The creation of a recognised, standardised, national identification document that includes all the key data about an individual that banks need will greatly facilitate the growth of financial inclusion. The Philippines needs this: many citizens do not have formal documents with reliable records, which prevents them from accessing even basic services and products.
The introduction of a national identification system in places like Hong Kong and India has proven to be extremely effective. While the plan’s opponents may highlight the price of the system or the potential risks to user privacy, these concerns will be offset by the benefits. Individuals’ digital footprints must be protected, but it is critical that banks have access to this data, to be able to bank the unbanked. This will increase the transparency of required processes across the industry.
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