• The way forward

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    RUTH F. BLASCO

    Financial technology or ‘fintech’ is certainly becoming a major disruptive force in financial services, and in particular, redefining the traditional banking space.

    When I was a child, I would usually tag along with my parents when going to the bank and at a young age, my limited concept then of a banking institution was an airconditioned facility with teller-run counters that cater to clients. Normally outside and adjacent to the bank was a machine—mainly used for over-the-counter withdrawal transactions –more commonly known as the ATM. It was in the early 1980s when ATMs were successfully launched in the Philippines. Its services now cover transactions beyond simple cash withdrawals.

    Over the years, my notion of how a banking institution works and operates has evolved with the emergence, and being a first-hand user in certain instances, of more sophisticated products and ways to do banking such as mobile payments, debit card, banking kiosk, and e-wallet, to name a few.

    Fintech at a glance

    Fintech, in simple terms, refers to an industry that applies technology to improve financial activities. Fintech companies may pertain to start-ups or established financial and technology companies trying to replace or innovate the ways financial services are being offered by traditional financial institutions such as banks and insurance companies.

    Blockchain is one of the emerging technologies initially explored by the financial services sector. It can be viewed as a decentralized database that keeps records of digital transactions.

    Blockchain is commonly known as the technology behind the cryptocurrency ‘bitcoin.’ Currently, the most likely uses for blockchain in business are for the execution of payments and fund transfers. The increasing importance of artificial intelligence (AI) to banks is also now more widely felt, with banks recognizing how AI can help dramatically streamline their fundamental processes.

    In the local scene, the more popular fintech companies provide services such as secure online payment solution without the need for a credit card, credit scoring and identity verification technology, online pawnshop, linking of borrowers to various lending partners, and online financial comparison of deals for personal or housing loans and insurance, to name a few.

    Emerging technologies as enablers

    The change in financial services sector seems to be moving at a swift pace and so does the need for the industry to respond. Based on the recent PwC Global FinTech Report, the emerging technologies are enabling convergence. Financial institutions are currently concentrating on updating their legacy systems with emphasis on data analytics and mobile technology. As banks adopt new solutions, the focus is not just on enhancing client service but at the same time on improving efficiency, reducing costs, increasing security and making processes more agile. The emerging technologies on blockchain, AI, biometrics and identity management are on top of the priority list of large fintech and large financial institutions globally as most relevant to invest in within the next 12 months, as cited in the recent PwC report.

    Banking the unbanked

    In the Philippines, only two in 10 families have been saving their money in banks, as revealed in the latest Consumer Finance Survey of the Bangko Sentral ng Pilipinas (BSP). The survey shows that about 86 percent of Filipino households remain unbanked due to varied reasons—there are those who say they don’t have enough money to keep an account, some simply don’t feel the need to have a bank account, while for others, banks’ accessibility is a key factor.

    A deeper look by the BSP survey showed the need for stronger efforts toward financial inclusion and enhancement of financial education for Filipinos. In one survey also conducted by the BSP on financial inclusion, banks only accounted for 2 percent of the respondents’ preferred fund source. Family, relatives and friends as sources of funds topped the survey, accounting for about 62 percent, while informal lenders followed at 10 percent. This trend supports the expectation that the retail or consumer banking is a segment that will continuously be vulnerable to disruption in the next few years.

    Fintech is being seen as a way to advance financial inclusion in the country. Currently, a number of individuals are already turning to several fintech companies, as opposed to conventional banks, for payment and money transfer activities and to a certain extent, even for personal finance. Thus, it is not surprising to know that financial institutions are putting disruption at the center of their strategy. With the increasing competition suggested by fintech, financial institutions would want to focus on intuitive product design, ease of use for products offered, and accessibility.

    As they say, the only thing constant in this world is change and with the emergence of new trends in financial services, embracing the new technologies becomes inevitable. Our local financial services institutions undoubtedly have a number of intelligent, competent and analytical people.

    We’ve also seen how the banking industry has evolved and has been able to adapt to changes, and even surpassed major financial crises in the past. In these rapidly changing times, being able to effectively tap the said capabilities and to harness the opportunities brought about by emerging technologies, with focus on staying relevant, is perhaps, the way for financial institutions to continue to move forward.

    Ruth F. Blasco is a partner from Assurance and the Methodology Co-Leader of Isla Lipana & Co./PwC Philippines. Email your comments and questions to markets@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

    RUTH F. BLASCO

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