The State of Digital Banking and Digital Security in PH

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TO boost financial inclusion of the unbanked/underbanked population, the Bangko Sentral ng Pilipinas (BSP) has mandated a digital transformation roadmap to increase the penetration of digital payments and loans. At the same time, cryptocurrency is growing in popularity in the Philippines, with crypto transaction volume increasing by 362% in the first half of 2021 alone. In this new landscape, consumer protection and security are of paramount importance, particularly in the area of ​​payments, banking and financial institutions (FIs).

Michael Calma, the new Philippines Country Manager at Advance.AI, spoke to the Manila Times focusing on financial services institutions in payments and remittances as well as lending, traditional and digital banks , and fintech, especially cryptography, payments and remittances, and lending.

The Manila Times (TMT): What are the recent developments in these three major sectors that are driving business in the country?

Michael Calma (MCa): Crypto is growing in popularity in the Philippines, with the Philippines having the third highest rate of cryptocurrency usage out of 74 countries. This is not surprising, given the low requirements on capital/bank accounts and the promise of quick wins. Crypto also provides access to financial services to the 48% of the unbanked/underbanked adult population and enables them to hold a stake in the ecosystem.

Globally, there were $14 billion worth of crypto scams in 2021 alone, with the size of crypto exchange hacks increasing with rising crypto prices, showing that bad actors are targeting this industry and succeed. In this new landscape, consumer protection and security are of crucial importance, especially in the areas of payments, banking and financial institutions.

TMT: How can digital AI help minimize risk and maximize opportunity in these areas? What is your recommendation in terms of expanding financial inclusion, especially in the Philippines?

MCA: To accelerate financial inclusion, digital transformation must be stimulated across all financial services institutions (FSIs). In other words, accelerating their digital capabilities to enable remote customer onboarding. Additionally, banks need to go beyond traditional methods of assessing the credit profiles of Filipino consumers. This is currently the reason why so many people are still unbanked/underbanked.

Thanks to AI, customers can now open a bank/crypto trading account via smartphone in minutes, anytime, anywhere. This could be done with the liveness detection function, verifying the identity of the person by detecting facial movements and allowing people to log into a device by identifying and authenticating their biometric data. It facilitates access to financial services that may not have been available before.

Banks could also determine credit scoring beyond traditional data by tapping into alternative data pools such as a customer’s smartphone type, data package, and e-commerce transactions. This allows more customers to access loans and other financial services.

TMT: We foresee the expansion of innovative banks into the digital services/fintech space. How would you expect traditional banks to react?

MCa: Digital banks and fintechs are disrupting and innovating much faster than traditional banks, providing customers with smarter, faster and more transparent services, and meeting the needs of changing consumer habits caused by Covid-19, with 56 % of Filipino consumers who prefer to use digital banking services.

Thus, it is clear that traditional banks must embrace digital banking capabilities or be left behind. The Filipino consumer of the future will never again walk into a bank or want to wait in line. With the paradigm shift of Covid-19, digitization is no longer a good thing, but a necessity.

Technology and AI capabilities could be applied across the entire value chain of key processes, from loan and insurance underwriting to marketing, sales and distribution.

But beyond technology, it requires deep organizational change and a shift in thinking, as well as talent and data management. This needs to come from senior management, who need to drive a business transformation roadmap and strategy.

TMT: What are Advance.AI’s capabilities in the Philippines?

MCa: Our artificial intelligence and machine learning algorithm is trained to authenticate customer identities with over 99% accuracy, recognizing Philippine ID cards such as UMID, SSS, TIN and Philippine Passport. We leverage partnerships with CIBI, for example, to identify pain points and co-innovate the digital integration, risk and credit underwriting capabilities of the Philippine fintech and financial services industry, both for consumers and businesses.

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