How Digital Banking is Transforming Small Businesses in the Philippines

In an interaction with Lito Villanueva, Chief Innovations & Inclusion Officer and EVP, RCBC discussed the strategies needed to establish trust in digital banking among small enterprises. He emphasized the role of emerging technologies like AI, machine learning, and quantum computing in enhancing security and the importance of industry-wide collaboration for promoting awareness about cybersecurity. He also discussed the measures being taken by digital banks to decrease onboarding and meet regulatory requirements, enhance business integration, improve rural connectivity, and make payments easier to support small businesses.

What strategies have to be implemented to build trust and ensure small businesses feel confident using the digital banking services?

Banks or other financial institutions must be dedicated and strategic in adopting emerging technologies such as AI or Gen AI and machine learning. For some advanced economies, banks are now getting into quantum computing as well to help scale their security systems. These technologies enable banks, FinTechs, and other players in the industry to detect and block threats before they reach and affect the target users. Cybersecurity is a two-way street. We train our employees to increase their threat awareness, equip them with knowledge on preventive measures to neutralize malicious players, and empower them to teach colleagues and consumers. Our initiatives don't stop at internal training—our focus lies in educating our customers too, engaging them across multiple platforms.

One of our industry-wide initiatives led by FinTech Alliance PH in partnership with regulators, law enforcement agencies, national government, local government units, the media, and even civil society is coming up with the hashtag “wag magpaloko maging scam alerto,” which means “don't be fooled, be aware of scams”. This has been an industry-wide and nationwide campaign across all players in the industry and all stakeholders able to further promote that awareness amongst the consumers, amongst Filipinos. The banks, FinTech, and other financial institutions are not alone in this fight against crime, cyber threats, and cybercriminals. It’s about promoting cyber hygiene and cyber resilience among stakeholders and consumers.

What steps have to be taken to simplify the onboarding process while ensuring full regulatory allowance?

The secret to the fast growth of our digital solution is RCBC ATM Go and our relationship with entrepreneurs, even those in remote areas. We call those entrepreneurs, businesses, small businesses, or micro businesses that are located in geographically isolated and disadvantaged areas. Banks have simplified onboarding processes globally through digital and to be connected to our digital solutions. One requires the usual onboarding process or EKYC process of having a valid ID, a smartphone, and a set of other requirements and the use of reliable and accessible internet for data.

But what sets us apart is our human approach to digital and we call these innovations with empathy, being able to understand the persona of our consumers, how we engage them and how can we able to be part of their everyday lives. These emphases are rooted in how we design all our products to make sure that we provide impact in their lives as part of our positive outcomes from all of these initiatives.

How are digital banks enhancing their platforms to offer seamless integration with business management tools used by small businesses in the Philippines?

The Philippines is one of the countries in the world with the most number of laws and regulations that would further promote SMEs or MSMEs. In the Philippines, 99.6% of our businesses in the country would be MSMEs. Hence, we have to give importance and relevance to this particular sector by providing them with ready access or seamless access to credit.

Two years ago, RCBC Boz rolled out, which is a digital solution that helps SME businesses track and organize their transactions. Through this facility, we provide capabilities on e-invoicing, expense tracking, and payroll management that make those tools relevant and make their businesses more seamless and convenient. These businesses can also monitor their savings, financial records, transactions, and business performance in real-time. We made sure that all digital banking initiatives would be versatile and flexible. We have this preference to make use of these facilities, such as our mobile point of sale, equipment, or units to support ATM transactions and solutions.

The RCBC-ATM GO is run by SMEs around the country, with this facility, we're the only bank that has the most extensive bridge nationwide, covering 100% of provinces, 100% of cities, and about 94% of municipalities. With around 8,000 terminals deployed nationwide, with close to 5,000 MSMEs supporting us as agents within this network. This provides us with an impetus to help the government provide an additional facility for the disbursements of national social amelioration grants or conditional cash transfers and this would practically have to simplify also further the onboarding of all of these small businesses to be able to make use of these solutions to further grow their businesses.

What innovative solutions are digital banks using to improve connectivity and service accessibility in remote areas of the Philippines?

To address poor rural internet and expand access to digital banking in remote areas of the Philippines, banks are into these digital transformation initiatives and adopting innovative technological and community-based solutions. One key approach is the development of lightweight mobile apps that require minimal data. Additionally, banks that are into digitalization are partnering with local agents or mom-and-pop stores to serve as physical banking touchpoints, enabling cash-in and cash-out services and account support.

RCBC ATMGo is the Philippines' first digital or the physical digital blended banking experience. It's also the first last-mile community-based and bank-agnostic ATM banking network that supports all prepaid debit and credit card issued in the Philippines. By next month, we will also be supporting all cards issued in other parts of the world.

The mobile point-of-sale equipment or the mobile banking units are connected to our high-speed mobile internet. About 10% of our agent partners have used Elon Musk's satellite internet service called Starlink. The Philippines is an archipelago with thousands of islands, we have island communities that would have no data signal. But with the use of Starlink, they're able to make use of these facilities and provide banking transactions. All of this facility or RCPC ATM is your regular ATM unit that provides all the services that are found in a typical ATM.

What steps are digital banks in the Philippines taking to help small businesses integrate seamless payment systems into their operations?

The industry has been united to fulfill its overall mandate to scale inclusive digital finance in the Philippines. In partnership with regulators, national government, and both houses of Congress, the Bangko Sentral ng Pilipinas (BSP) came up with its digital payments transformation roadmap that called for twin goals. 

One is having to convert at least 50% of retail financial transactions to digital and having to onboard at least 70% of other Filipinos to the formal financial system or having to allow them to create transactional accounts by the end of last year. Of the two set objectives, one has been attained successfully—digitizing over 50% of retail financial transactions. Up to December last year, it was reported that the proportion of digital transactions in the payment stream had hit around 52.8%. The second objective is still a work in progress. This is an indication of the sector's dedication to meeting this mandate. The shift goes beyond person-to-person (P2P) transactions to encompass person-to-merchant (P2M) transactions, showing strong adoption by merchants too.

The Philippines is becoming an important digital hub in the Asia-Pacific, with consistent growth in its fintech sector. A key driver for this growth is the delisting of the country from the Financial Action Task Force (FATF) gray list. This milestone, a product of an exhaustive national effort spanning almost four years, has resulted in reduced limitations on cross-border transactions. The national government has actively engaged the FinTech Alliance PH, which is an integral component of the Philippine Development Plan 2023-2028. Under the plan, the Securities and Exchange Commission (SEC), via the FinTech Alliance PH, expects over 285 fintech companies to be operating in the country by 2028.

The Philippines has solid economic fundamentals and a cooperative relationship with stakeholders, including regulators. Regulators have been aggressive in putting in place an enabling regulatory framework that promotes innovation and creativity in the fintech space. This will ultimately contribute to deepening financial inclusion by widening access to banking and digital payments for the unbanked and underserved.