On the application of financial technology (fintech) in the local banking industry
How do you assess the pace of fintech adoption in the Philippine banking sector, and how do you anticipate fintech will disrupt the global industry in the near future?
EDWIN BAUTISTA: The Central Bank of the Philippines is encouraging the adoption of fintech tools among banks and promoting their collaboration with fintech companies. For example, the National Retail Payment Systems framework allows online transfers between commercial banks via mobile platforms. Although the Philippines has not kept pace with other ASEAN members in implementing this technology, it has been adopted much faster than we anticipated.
In other countries, including Kenya and China, the market leapfrogged the use of cheques and went straight to electronic and cashless transactions. We aspire to emulate this in the Philippines. The geographical layout of the Philippines will facilitate this mobile disruption, benefitting individuals and micro-, small and medium-sized enterprises in underdeveloped regions where access to physical bank branches is limited. This in turn will strengthen rural banking and widen financial inclusion.
At the international level, I believe we are on the cusp of a new era. In the near future fintech innovations such as blockchain and the cryptocurrencies made possible by the technology are expected to increase their global presence. It is likely that countries such as Singapore and Thailand will lead the migration of clearing systems onto distributed ledgers that use blockchain technology. Stock exchanges will also look to adopt these systems. Unlike in the past, these new projects are sponsored by institutions or big banks in partnership with fintech companies.
In what ways is high internet, smart phone and social media penetration converging with fintech to enhance customer experience?
BAUTISTA: Fintech not only provides access to credit and payment processing through mobile devices, but it can also bring down interest rates as a result of the lower cost of banking operations. Specifically, fintech reduces the cost of underwriting, disbursement and collection, which account for the majority of operational costs, passing the savings onto consumers.
Social media is also tying into how banks operate, as there is now an alternative credit scoring model based on data science. This includes data that is collected from consumers’ social media footprint and other behavioural inputs, in addition to traditional collateral and income records. In this way, social media is helping shape a new way of measuring and evaluating risks, and the larger a customer’s digital footprint, the more accurate the credit analysis will be. This use of data is also set to benefit the customer, who will have access to a higher number of customised products and lower interest rates. Moreover, fintech companies and telecoms firms can use big data during the design of their money payment platforms to enhance user experience.
What potential is there for banks, fintech companies and telecoms firms to capitalise on new innovations, and how could collaboration advance adoption?
BAUTISTA: Banks have high potential to benefit from fintech, since they can leverage their equity several times: for every peso of equity, banks can lend up to 10 pesos. In comparison, telecoms companies have less equity and must therefore source funds from a traditional bank. As a result, they need a wider equity base than banks to achieve the same return on equity. Similarly, non-bank financial institutions operating with e-money must maintain the 1:1 equivalents on their balance sheet; unlike banks, they cannot lend cash.
These differences may lead to greater collaboration – and perhaps even acquisitions – among fintech companies, telecoms firms and banks. Alternatively, some banks may focus on developing their own fintech tools and thus provide competition for fintech companies. However, banks in the Philippines may face some obstacles in their adoption of fintech, including a consumer base that is hesitant to use innovative, unfamiliar technology.
Ultimately, collaboration between banks and fintech companies can be mutually beneficial: the institutions could engage in the efficient conversion between cash and digital currencies, while banks can reap a variety of other advantages from blockchain, mobile money and the like.