Philippines: How the digital play can reach out to the underbanked

With smartphone penetration standing at 65% in the Philippines, it far exceeds the country’s banked population of only 28%.This presents an opportunity for banks and fintechs to reach out to the underbanked and unbanked through a digital proposition. 

One of the underlying pain points of the underbanked in the Philippines is the inability to pay for the cost of financial transactions. Introducing a strong digital core and phasing out the bricks-and-mortar branches can lower the overhead costs and instead be passed on to consumers in the form of favourable rates and fees. Evidently, South Korea’s internet-only bank, Kakao Bank, is able to offer better deposit and loan rates than incumbent players by going branchless. The pure-play digital bank also promises consumers a low-cost, seamless, money-transfer service. Indeed, the shift towards digital is evident from an evolving consumer behaviour that banks cannot afford to ignore.

Another struggle for consumers in the Philippines is the proximity of bank branches. Some may be too far for those who live outside major cities and hinders their willingness to own a bank account. Given a high smartphone penetration rate, a digital proposition allows fintechs and banks to reach out to the geographically inaccessible areas of the Philippines. Southeast Asia’s largest lender, DBS, launched digibank India last year. Customers can open an account at any one of the 500 cafes with just their fingerprint and biometric ID cards. Leveraging on its strong digital play, digibank was able to accelerate acquisition growth, garnering 1 million customers within a year of its launch.

Digital platforms are crucial in customer engagement and present opportunities for cross-selling. RFi Group data shows that the digitally engaged customer holds 0.79 more unique banking products on average than one who is digitally unengaged.



However, the challenge for traditional banks to embrace the idea of “going digital” goes beyond merely a bank with digital lipstick. Embracing digital involves more than just slapping on a mobile banking app on the Google Play Store. Embracing digital involves change management. The leadership team must be able to envision the bank “going digital” and appreciate the value of it. Furthermore, the digital story should be the core of the banking proposition and customer journey. Rather than flooding consumers with various discounts, the question that banks need to address would be “can we personalize discounts that are relevant to each individuals’ needs and push them to consumers in real-time?” The three pillars of digital servicing lie in the creation of an end-to-end user experience that is fast, convenient and secure.

The underbanked and unbanked are an often-overlooked segment that may be potentially rewarding if the right digital proposition is employed. It will be interesting to observe if the Duterte government seeks to spearhead a cashless initiative to support the growth of digital banking and improve financial inclusion in the country.

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