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News Helping promote financial inclusion

Helping promote financial inclusion

One good thing that may be credited to the otherwise problematic pandemic is the rapid rise of the fintech industry. Lockdowns have spurred the adoption of digital financial services, away from the crowds and the long lines, or face to face engagements, risks that are avoided in the confines of one’s personal space. Thus, funding activity in fintech continues to climb record highs, seen to get stronger and stronger even in the post-pandemic era.

The industry has found fertile ground in the Philippines given the country’s second-to-the-most number of smartphones in use in Southeast Asia, next only to Indonesia.

According to the Philippine Venture Capital Report 2022, fintech leads Filipino startup funding two years in a row, with a total of US$680.1 million, or a 297% increase from the 2020 haul of US$171.07 million.

While funding was highly concentrated only in some “late-stage deals” (e.g., PayMaya, GCash), Q1 2022 looks to give another strong kick for the industry as more activity was announced early in the year.

With no less than Bangko Sentral ng Pilipinas Governor Benjamin Diokno pushing the button, the industry is set to record new heights as government leads the adoption of digital technology in financial services.

“The rationale behind the push for financial digitalization is two-fold. First, is robust economic growth. Technology speeds up financial transactions, thereby hastening capital recovery and income generation. Second is financial inclusion. Technology allows the underserved sectors-such as low-income earners and people from remote areas-to easily access affordable financial products and services, including credit for livelihood activities.

“The BSP launched last year the Digital Payments Transformation Roadmap-our blueprint for transforming the Philippines into a cash-lite society.

“Under this roadmap, we aim to achieve a shift of at least 50 percent of retail payments to digital transaction; and 70 percent of Filipino adults to have a formal financial account by 2023.

We are confident of hitting the twin goals,” Diokno stressed in a speech titled Financial digitalization – harnessing potentials for a better post-Covid Philippine economy at the HSBC “ASEAN Next – Dialogue on Digital Banks” on November 30, 2021.

In 2020, the Monetary Board approved the BSP’s “Digital Payments Transformation Roadmap” for 2020 to 2023 identifying two strategic goals

“First, is the strengthening of customer preference for digital payments by converting 50% of the total volume of retail payments into digital form and expanding the number of the financially included to 70% of Filipino adults by onboarding them to the formal financial system through the use of payment or transaction accounts,” the BSP said.

“The second is the availability of more innovative digital financial products and services designed to be responsive to the needs of consumers, enabled by a digital ID (Philippine Identification System or PhilSys), and supported by the availability of a next generation payment and settlement system to facilitate real-time processing of financial transactions,” it added.

Embedded in the roadmap is the development of digital payment streams, digital finance infrastructure and digital governance standards. Consequently, the roadmap resulted in the granting of six licenses.

The BSP itself is launching three new digital payment streams by end of the year: Bills Payment, allowing customers billed by different payment service providers to settle their bills: Request-t-Pay, which allow non-urgent bills like rents, loan amortizations and insurance premiums; and Direct Debit, which allows better management for recurring payments by authorizing the payee to pull funds from the account of the payer. Bill Payments and Request-to-pay will both use InstaPay, while Direct Debit will use PESONet.

BSP governor Benjamin Diokno said in November 2021 that registered electronic money accounts reached 138.8 million in 2020, while the number of basic deposit accounts totaled 7 million in the first quarter of 2021. This implies a financial inclusion rate of 53%, nearing the target of 70% the central bank has set for 2023.

As digital payments climb new highs, so have new signups for electronic accounts as in 2020, eight million accounts were created with mobile wallets such as GCash and PayMaya. By December 2021 approximately 70% of the Filipino adult population recorded 23 million daily logins and 15 million daily transactions in one mobile wallet.

The BSP, in January 2021, issued new regulations for virtual asset service providers under its licensing regime from those involved in exchange of fiat and digital assets to those involved in exchange between one of more forms of virtual assets. This was helped by the adoption of cryptocurrencies and digital assets.

The good with the bad

Indeed, a robust fintech industry is a boon to many, particularly MSMEs as they are allowed easier access to capital. The ease of service with which they offer all entities, individual or otherwise, makes fintech services the way of the times and the road which an ever-turning digital world is heading down.

Fintech does have a downside as technological advances open financial markets and individuals to new risks, cybercrime for one. But while some would hastily paint a doom and gloom scenario for the industry, further advancements in technology are seen to do well for security, coupled with proper management of innovations in fintech and full understanding of the risks, such bright prospects in the horizon would be hard to ignore.


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