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Most thrift, rural, cooperative banks not ready for digital transformation

Majority of financial institutions in the Philippines have “minimal” capacity for digital transformation (DX), a survey by FINTQnologies Corp. released on Thursday showed.

Eighty percent of financial institutions in the country are either “pack followers” or “laggards” when it comes to digital transformation, FINTQ, the financial technology arm of Voyager Innovations Inc., said.

The survey polled 76 chief executives of member financial institutions of the Chamber of Thrift Banks (CTB), the Rural Bankers Association of the Philippines (RBAP), and the Microfinance Council of the Philippines (MCPI).

The results were merged with the “Inclusive Digital Finance 2018” Report officially launched at the Bangko Sentral ng Pilipinas (BSP) headquarters in Manila City on Thursday.

FINTQ examined the readiness of financial institutions to undertake digital transformation using the Commitment, Awareness, Readiness, and Adaptability (CARA) framework.

Each financial institution was scored from 0 to 100. They were then grouped into three archetypes: path breakers (score 61 and above), pack followers (between 41 and 60), and digital laggards (below 41).

“The average financial institution at this point shows minimal capacity for digital transformation. About 80 percent of the respondents score 61 and below out of the perfect 100 score,” the study showed.

FINTQ managing director Lito Villanueva said most financial institutions need to invest in upgrading their current systems to ensure that they are prepared for DX.

“A one-six-fits-all approach is never going to work. We know that digital laggards require the most foundational technologies before undergoing full DX. This means many of them need to upgrade their connectivity, modernize their legacy systems, hire digital-savvy talents, and adopt an agile approach in executing their plans,” he said.

“Pack followers need to exploit big data to arrive at informed decisions while at the same time, adjusting their policies and improving customer experience. With the right support, path breakers could delve into the core functions of DX such as omnichannel delivery or open banking,” he added.

Only 14 of the respondents were found to be “highly ready” for digital transformation. Four—two thrift banks, one cooperative, and one rural bank—were found to have “extensive readiness” in going digital with scores of 81 and above. The four were not identified.

Among the issues bugging digital transformation is the lag in effectivity of central bank regulations that are not immediately available to be implemented.

“The findings indicate that the whole industry experiences the usual policy lag where the effects of regulations are felt in succeeding years, as financial institutions take time to reconfigure their business and operations with the current regulatory requirements,” the report noted.

“However, given the BSP’s goal of increasing the share of electronic payments to 20 percent by 2020, the policies require a more active push on the ground where key stakeholders such as the government and development partners would need to ‘shepherd’ financial institutions in taking on their transformation journey,” it added.

FINTQ and other financial institutions launched the Road to 20 by 2020 campaign which seeks to prepare the industry for digital disruption.

“The biggest barrier to their adoption is their willingness to invest in digital technologies. This has profound consequences because, as our report shows, the ‘readiness quotient’ heavily influences the bank’s level of ‘commitment quotient’ to bring its business towards a digital economy,” Villanueva said.

The BSP has started to modernize banking transactions in the country, in line with its target to digitize 20 percent of all transactions by 2020.

“The Bangko Sentral ng Pilipinas champions the cause of financial inclusion and the use of digital technology through the creation of an enabling environment and a vibrant digital financial ecosystem,” Deputy Governor Maria Almasara Cyd Tuaño-Amador said during the Digital Transformation Accelerator Program on Thursday.

“Other initiatives of the BSP include the modernization of the country’s payments streams through the National Retail Payments System (NRPS),” she said.

Through NRPS, the BSP launched InstaPay and electronic fund transfer (EFT) payment system—enabling individuals to wire funds across banks in real-time.

It also launched PESONet, which enables the government, private businesses, and individuals to initiate recurring payments from accounts maintained in BSP supervised financial institutions (BSFIs) to corresponding accounts in other BSFIs.

“We now have two multilateral automated clearing houses that enable Filipinos to enjoy safe, affordable, and user-friendly retail payments systems,” Amador said.

She noted that the BSP has also created a digitalization steering committee to “guide and coordinate” efforts to shift to electronic platforms.

“This will enable us to reap the cost savings and efficiencies of digitalization, and to march in lock-step with the fast-changing environment as well as put in place pro-active principles of surveillance and supervision,” she said.

The challenge for us is to come up with policies, instruments, and programs to bring fintech innovations into the hands of more people so that they are empowered,” Amado said. —VDS, GMA News