With the majority of the population unbanked or under-served, there’s certainly room for improvement in the current mainstream financial system in the Philippines.
As Lawrence Summer, president emeritus at Harvard University, explained earlier this year, it’s not just in the Philippines – worldwide mainstream finance “has not succeeded and is succeeding less well than it once did in its basic function of providing credit to people.”
If we dig a little deeper into some of the results from the 2015 nationwide baseline survey on financial inclusion, the need for change in the Philippines becomes even more apparent:
- 73% of the Philippine population is unbanked or financially under-served.
- Only 4 out of 10 Filipino adults save money. Of these, 68% keep their savings at home; 33% save in banks; 7.5% save in cooperatives; and 2.6% resort to group savings (paluwagan).
- About 47% of Filipino adults borrow, and most of their loans come from informal sources such as relatives and friends (62%) and informal lenders (10%). Only a few borrow from formal institutions such as lending/financing companies (14%), cooperatives (10.5%), microfinance nongovernment organizations (9.9%), and banks (4.4%).
So how do we get those underbanked Filipinos and an ever-expanding range of Mobile Financial Services (MFS) inter-twined and ready for the next level?
A vision of economic inclusion
The first step in taking the Philippines MFS market to the next level revolves around the vision of financial inclusion, which will see MFS evolving from a market perspective into a linchpin of inclusive banking services. Financial inclusion turns MFS into a market changer; it becomes the central platform for commerce that brings together a critical mass of buyers and sellers resulting in commercial hubs driving greater income generation, while also addressing market inefficiencies.
Up until now, financial inclusion has been reasonably successful in providing the unbanked and underbanked with a number of tools and services – mostly the ability to perform simple payment transactions and remittances which has served as the low barrier entry point into financial system. However many accounts are still dormant, there are still some great inefficiencies, and the associated costs are still high.
How to truly reach economic inclusion
There are a number of ways the vision of economic inclusion can be turned into reality. One example is by building different types of digital marketplaces, such as the bank of the future, Bank 3.0.
The new type of bank will herald a new generation of banking geared around MFS and would incorporate increased digitization in order to lower operational costs. At the same time, Bank 3.0 will drive an enhanced customer centric experience through an omni-channel and mobile-first environment. This would help create something sustainable and scalable for the future, and is something customers Filipinos both need and desire.
With the ability to use mobile payments/MFS anytime, anywhere, surprisingly even more pronounced in emerging markets (some 69% of survey respondents enjoy the convenience of a mobile money service compared to 59% in mature markets – see our white paper for the full results), there’s no question the time has come for true financial inclusion.
To learn more, click here to grab our free white paper that reveals the secrets to delivering MFS to the 60% of the global market that hasn’t yet taken the MFS plunge.
Amdocs is a Sponsor of Future Bank Asia 2016. Visit Amdocs this April 20-21 at Suntec Convention Centre, Singapore to find out more.