In the Philippines, financial inclusion remains a pressing issue, particularly in rural areas where access to financial services is limited. This lack of access can perpetuate a cycle of poverty that is difficult to overcome.
The traditional rural banking sector plays a vital role in serving these communities, but many face significant challenges in adapting to the rapid changes in the financial landscape.
On the other hand, fintech firms are emerging as game-changers in the financial services sector, and they have the potential to bridge the gap and improve financial inclusion in the country.
The Philippines fintech industry to grow rapidly
Fintech firms have disrupted the traditional banking industry and have quickly become popular in the Philippines, especially among the younger generation. With the fintech industry poised for growth in the upcoming years, experts anticipate that these firms can play a pivotal role in enhancing financial inclusion in the country.
Their innovative solutions and products have the potential to reach the unbanked and underbanked population, and their digital platforms can make financial services more accessible and affordable.
There is a growing ecosystem of fintech startups and investors in the Philippines, which is helping to drive innovation and growth in the industry. Many of these startups are focused on digital payments, lending, and remittances, all areas of high demand in the country.
In 2022, the lending sector had the highest share among fintech companies, comprising 27 percent of the total number. Digital lending apps, such as Cashalo, Easycash PH, and Home Credit Philippines, proved vital to Filipinos who sought urgent financial assistance but could not meet bank loan requirements.
The government of the Philippines has been actively promoting the development of the fintech industry in the country. The Philippine Central Bank, Bangko Sentral ng Pilipinas (BSP), aims to achieve 70 percent financial inclusion and 50 percent digital retail transaction volume by 2023. Meanwhile, the Philippine fintech market is expected to grow from US$11 billion to US$44 billion by 2024.
Challenges facing fintech firms in the rural areas
While the fintech industry in the Philippines is growing rapidly, there are still significant challenges when providing financial and banking services in rural areas.
One major challenge is the lack of infrastructure, particularly internet connectivity. Many rural areas in the Philippines still need reliable internet access, which makes it difficult for fintech companies to provide digital financial services to these areas.
Fintech companies also face the challenge of building trust and adoption among potential customers in rural areas due to the lack of financial literacy and awareness.
There may also be cultural barriers to adoption, as some rural communities may prefer traditional banking and financial services.
On the other hand, traditional rural banks have a significant presence in these areas and have built trust and relationships with their customers over the years.
These banks also have a deep understanding of the local economy and can offer personalized services that fintech firms may be unable to match.
Rural banks serving the underbanked
In the Philippines, rural banks have been set up to address the financial requirements of the unbanked populace and are strategically located in remote and rural areas. These financial establishments have a wealth of experience providing services to marginalized sectors such as small businesses, farming, fishing, and isolated communities.
The successful integration of fintech and rural banking can significantly benefit the unbanked and underbanked population. By developing and implementing fintech solutions in close collaboration with these communities, adoption rates can be increased.
The end-users will have a sense of ownership and empowerment since they have participated in developing these solutions, thereby addressing challenges in building trust and gaining buy-in on tech products/services.
Moreover, with greater participation from end-users in developing solutions, rural banks can build a foundational understanding of what their clients want and need from their financial services.
This will drive the digitalization of rural banks, making their services more accessible and user-friendly. Collaborating with fintech firms and initiatives can provide rural banks with the necessary resources and expertise to bring about this digital transformation. Ultimately, this will enable these banks to serve marginalized sectors’ financial needs effectively.
Collaborations between banks and fintechs serving the underbanked population
Several partnerships between banks and fintech companies in the Philippines aim to provide financial services to the underbanked population in rural areas.
UnionBank of the Philippines has partnered with several fintech companies, including Fexco and FinScore, to provide digital financial services to rural communities. Meanwhile, Rizal Commercial Banking Corporation (RCBC) partnered with eCurrency, to provide digital banking services to underserved communities.
The bank has also launched an initiative called “DiskarTech,” a mobile app that provides financial services such as money transfers, bills payment, and savings to Filipinos without bank accounts.
CIMB Bank has partnered with the financial technology firm, Dragonpay, to provide cashless payment options for customers in rural areas. The bank has also launched a mobile app called “CIMB Bank PH,” which includes access to essential banking services, such as account opening, balance inquiry, and fund transfers.
