Bangko Sentral ng Pilipinas, the Philippines' central bank, said that the total remittances of overseas Filipino workers last year was PHP1.51 trillion, or US$28.06 billion. Photo: iStock
The Philippines ranks among the lowest in Southeast Asia in nearly all financial inclusion indicators. Photo: iStock

The Philippines is home to a socio-economically diverse population of more than 100 million spanning more than 7,000 islands. Yet geographic and institutional barriers to accessing financial services mean that more than 70% of Filipinos remain unbanked. This is changing, with some significant new developments. 

The recent launch of the country’s first digital-only bank, Tonik, promises to advance digital payment services in the Philippines. These provide greater financial inclusion to the unbanked and underbanked and younger people such as millennials and Generation Z. 

Tonik operates on the basis of its own bank license, issued by Bangko Sentral ng Pilipinas (BSP). Spearheaded by a team of retail finance veterans who have experience building and scaling retail banks and fintechs across the global emerging markets, Tonik will provide access to deposit, payment, and card products on a highly secure digital banking platform. 

During the Covid-19 pandemic, a major concern for consumers has been the safety of their families and communities. In the Philippines, a community saving model known as the paluwagan is a shared pot that can be accessed by family members or friends when required. Tonik is offering a similar experience in the digital realm through the “group stash” feature. 

Key aspects of the digital bank are these groups, as well as solo, stashes. Group stashes allow several people to place money in a shared pot and see as much as 4.5% interest per annum. Solo stashes mean that consumers can put their money into savings goals and earn as much as 4% interest each year.

These offerings are key because traditional banks in the Philippines tend to offer savings rates of less than 1%. Usually there are additional service fees attached to bank transfers and even to dormant accounts. This is why up until now, Filipinos have often seen their money shrink with banks instead of growing. Tonik claims it hopes to help consumers get smarter with their money, without any hidden fees.

Higher interest rates and better value can be offered to customers by digital banks if they are launched using a light operating model. No branches, a network of distribution partners and technology partners such as Mastercard, Amazon Web services, Radar Payments and Finastra make it possible to launch a bank in the cloud, faster and more efficiently.

The neo-banks aim to shift away from gold bars, formal communications, and physical branches. Instead, they want to open new ways of keeping in touch with their customers: offering most services in the palm of a hand, through mobile phones.

This makes the entire banking process more streamlined and efficient and boosts financial inclusion, making banking accessible to those who were previously located too geographically far away from a physical branch. 

The 2017 Global Findex Survey ranked the Philippines among the lowest in Southeast Asia for nearly all financial inclusion indicators. While 49% of adults in Indonesia have an account at a formal financial institution, only 34% of Filipino adults can say the same (compared with 82% in Thailand and 85% in Malaysia). 

As a result, advancing financial inclusion through the digital ecosystem route has been a critical national goal in the Philippines.

The Digital Payments Transformation Roadmap, released last October, prioritized digitization as a route to financial inclusion and creating an economy that relies less on cash. It included the goal of converting at least half of all retail transactions into digital form, as well as including 70% of Filipino adults in the formal financial system by 2023.

During the Covid-19 pandemic, digital wallets and cashless transactions have become more vital than ever, because of the closure of physical branches and the ongoing need to transfer money and  purchase essential items in a streamlined way. This has accelerated the rise of digital payments and the need for digital-first banking experiences. 

Tonik’s features include being able to bring on a new user in less than five minutes. Customers can log on to their account using only their fingerprint and register and receive virtual cards online without needing a physical one. Person-to-person transfers can be done with only a tap, and at any time of the day, a banking agent will be available via chat for customer support. 

This leads to a new way of thinking about financial products and processes, which by default will become quicker, easier, and more secure for the customer. Financial literacy becomes more achievable because using a bank becomes more accessible, especially for those who have never been banked before. 

As long as customers know how to use a mobile phone, they will be able to access their money with levels of knowledge and security that they might not have experienced before. This leads to fairer services for individuals as well as their families and communities. 

Jay Kie Tan

Jay Kie Tan is director of business development for Asia-Pacific for BPC Banking Technology.