According to the World Bank, financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs; transactions, payments, savings, credit and insurance, delivered in a responsible and sustainable way.
This access to a transaction account is a first step toward broader financial inclusion as people are able to save money, and send and receive payments, and this account serves as a gateway to other financial services.
With 69% of its population with no access to financial services, and 96% of transactions still conducted in cash in the country, the Philippines is one of the lesser developed nations in terms of digital payments in Asia Pacific. The fact the country is an archipelago further hinders access with geographical constraints as bank branches are concentrated in urban areas with between 1.4-1.6 banks per 10,000 people, whilst rural areas have between 1-7 banks between 100,000 people (PIDS, 2017). Linked to this are the underlying infrastructure-related constraints whereby the lack of an established technological framework and very slow internet speeds limit connectivity. Combine the two and it is clear why access to financial products and services remains a challenge.
In terms of ambition, the Philippines is in a very good position, the country strives to improve both access to, and the financial products and services themselves. The Philippine government has recently rolled out a new development plan for 2017-2022 with the aim to continue to expand financial inclusion in order to reach wider rural areas. The plan targets increasing financial inclusion indicators such as the number of deposit accounts, number of access points per 10,000 adults, percentage of adults with a formal account and microfinance service availability. Alongside this, the government has also issued a strategy for financial inclusion (NSFI) to co-ordinate various efforts towards inclusive finance; including policy and regulation, financial education and consumer protection.
Interestingly, there is also a cultural barrier between the financially included and the underserved, which is the gender gap. The Philippines has a well-documented reverse gender gap, accredited as the most gender equal country in Asia in 2017. This is due to culture rather than campaigns targeted at women; in a traditional household the wife controls the finances and as such the family bank account is in her name. Despite this imbalance, the financial inclusion policies being rolled out will remain gender-neutral, instead targeting unserved and underserved market segments, such as lower income households, rural communities, indigenous people, fisherman and farmers, amongst others.
Ensuring product suitability is essential to the adoption of financial services, as is understanding the behaviours behind the current trends. Previous initiatives were based on incremental gains in access, however, this time the government is working closely with financial institutions (FIs) to offer digital innovations that are designed and priced specifically to meet the needs of different market segments.
Once such initiative is the roll out of a basic deposit account, to coincide with the development of a new ID system, offering the opportunity for the unserved and underserved to have the identification they need to open a basic bank account suited to their everyday requirements, hoping this will act as a gateway to other payment behaviours such as saving. Currently, according to the BSP financial inclusion report, only 43% of the adult population save and of these, a mere 33% have a savings account at a bank, whilst 68% choose to keep their savings at home.
However, a number of factors combine to make the Philippines an exciting payments landscape; the proactive government initiatives, the rising affluence in the country, the growth of the millennial demographic - 62% of which are regular internet users (BSP) with an interest in remote payments - and these combine into an ecosystem with a huge potential for growth.
The emphasis now lies with FIs of all sizes, banks and microfinance organisations to evaluate the needs of their untapped audiences and to leverage digital banking platforms to ensure these are met. By offering propositions that are relevant and add-value, the payment behaviours and habits of the nation can demonstrate significant change. Twin this with the government initiatives in play and the use of financial education programs, and the Philippines will continue move away from its dependence on cash progressively heading towards a financially inclusive future.