Living in the Philippines my whole life, I have witnessed first-hand how the lack of financial technology is detrimental to the development of a third-world country. Although the Philippines has adopted online banking practices, organized Fintech alliances, and implemented government policies surrounding strengthening financial technology in the country, we still have a long way to go when making this change meaningful and inclusive. According to a Standard & Poor’s survey regarding financial literacy in the Philippines, only 25% of Filipinos are financially literate. This is most likely tied to the fact that as of 2022, 25% of the Philippine population is considered middle class or higher, with greater access to education. Following this, as of 2021, only 2% of the population have credit cards. With so much room for growth, it has thus been my advocacy to spread financial literacy and financial technology in the country.
It is my firm belief that the proper integration of Fintech in the country is necessary to increase the quality of life in the Philippines because fixing e-payment systems and online banking stimulates commerce and helps the economy grow, deepening financial markets opens investment opportunities to broader populations, and making financial technology more accessible and inclusive breeds a wiser society.
The Current State of Cash Transactions in the Philippines
The Philippines is still heavily reliant on transacting using cash, with 70% still using cash as their primary mode of payment. The Philippine Central Bank has taken steps to encourage cashless transactions through the Bangko Sentral ng Pilipinas (Philippine Central Bank) Digital Payments Transformation roadmap for 2020-2023, with pillars surrounding digital payment streams, digital finance infrastructure, and digital governance standards. Following this, we have seen an uprise in the usage of online wallets and e-payments, with 60 million users of the national e-wallet, GCash, as of 2022. This uprise came with a fault, as there has been a 2324% spike in hacking attacks since 2019, with Filipinos losing 40 million US dollars from 2019-2021 due to these scams. Most of these scams are from data privacy breaches, where unregistered sim cards commit data scraping through applications like GCash and Viber. This could be the primary demotivating factor to transact cashless, along with the significant transaction fees that come with each transaction. Hopefully, the country will see a rise in cashless transactions that are both secure and void of additional transaction fees in the near future. Cashless transactions simplify the process of transacting in just a push of a few buttons, support efficiency and safety for users, and increase accuracy in keeping cash balances. This encourages users to save and track expenses in an uncomplicated way. Safe e-payment platforms also make it easier for individuals to start micro and small businesses without the hassle of tracking physical cash. Reducing the reliance on cash allows banks to distribute more cash to rural sectors of the country, which is essential considering 53% of the Philippine population is located in rural areas, where agriculture and fishery are their primary sources of income. It goes without saying that the rise of more reliable financial technology should accompany the acceptance of Filipinos of e-payment systems, with the number of users of digital payments expected to amount to 61 million by 2027.
The Benefits of Expanding Financial Markets
On expanding the use of digital platforms for financial transactions, financial markets are underutilized in the country. Currently, the Philippines has money and capital markets consisting only of short-term investments, equity markets, and foreign exchange markets. Compared to other Southeast Asian countries with derivative markets and regulated cryptocurrency platforms, the Philippines lags. The BSP 2021 Financial Inclusion Survey shows that only 10% of the population has at least one type of investment, 3% lower than the number of Filipinos who invest in 2019. Even more alarming, only 2% of the population avails of private insurance, with most only relying on the standard government insurance coverage for government employees and those employed in private firms. Thanks to the increasing presence of financial technology, the Philippines currently has online platforms for investing and availing insurance. However, stock market transactions are yet to be processed in real time, and online insurance policies are still susceptible to data breaches and scams. It is difficult for the ordinary Filipino to trust financial markets in the Philippines; in 2020, the Philippine Health Insurance Corporation, a government-owned insurance corporation, lost a whopping 275.5 million dollars from fraudulent schemes and mismanagement allegedly by the corporation's executive committee. With government structures proving unreliable, the skepticism surrounding investing and insurance is very much warranted. Still, developing more stable Fintech practices is also a hurdle to conquer. Investing in public markets supports businesses by funding their capital investments, and helping local companies expand provides more jobs to the population, which contributes to reducing unemployment in the country. Furthermore, investing puts more money in circulation and allocates resources more sustainably. Investing also benefits investors by helping them achieve their financial goals more efficiently through passive income. As Kundan Kishore, an expert in the Indian stock market, perfectly puts it, “A good financial market helps in the creation of wealth and provides a link between savings and investment that meet the short-term and long-term financial needs of both the household and corporate sector through efficient mobilization and allocation of surplus.”
Above these reasons, I believe the most significant benefit of making financial technology more widespread and inclusive is that access to more resources makes the population more well-informed about their options and opportunities. Education is the primary key to development; many lives could improve with the help of informed decision-making. Loan sharks are common in rural settings in the Philippines, lending at iniquitous rates that average 20% per week. As an impoverished, uninformed individual, this seems like one of the only ways to hold cash to suffice, living day by day, eventually falling completely in debt in a few months. With financial technology to help present better options to millions of Filipinos, people have better chances of saving money for themselves and their families without the burden of falling for scammers and loan sharks. Filipinos would also be less susceptible to letting greed and corruption slide because they would know when lavish displays of wealth do not align with the average salary of a government official. Corruption has always been a major player against the development of the Philippines; with a wiser society more accepting of newer developments, the incorporation of basic financial literacy and financial technology is ground zero towards empowering the nation.
The Solution: Inclusive Progress through Financial Technology
Financial technology equips low-income and third-world countries with the tools to advance by being a grassroots solution towards lessening the burden of poverty and opening various opportunities within arm’s reach. In properly strengthening e-payment systems, online banking, and the financial markets and making these technological developments accessible to most, if not all, Filipinos, we are not only influencing meaningful change to the individual users but also to the economy and society. Although a few percent of the Philippines are quick to adopt new practices, there is a deficiency when it comes to adequately integrating them into the country’s systems to prove beneficial to the economy and the masses. It is thus essential to advocate for meaningful change towards a more inclusive and forward society, not only for the countries that lead in the industry but for the rest of the world.
You can learn more about financing & scholarship options for our Master in Finance program here.