send money to philippines

Philippine Virtual Banks Ride towards Digital Payments

Virtual banks of the Philippines are capitalising on the growing demand for cross-border digital remittances and a large unbanked population. An analyst reported that the nation’s licensed new digital banks are ready to grasp a collop of the $35 billion remittance market from brick-and-mortar lenders and non-bank platforms. Bridging the gaps with identification technology and flexible operations enables virtual banks to operate swiftly like instant money transfers and other financial products. Unfortunately, around 70% of the population are without a bank account.

“What may be a huge opportunity for the Philippines’ virtual banks is the large overseas Filipino workforce across ASEAN, Hong Kong and the Middle East.”

New Opportunities for the Philippines

According to the World Bank, the Philippines’ remittance market is the fourth largest globally, after India, China, and Mexico. Simultaneously,

Filipinos receive personal remittances from overseas, which turns out to be a vital source of foreign exchange to the Philippine economy, which is equivalent to 9.2% of its GDP in 2020.

“Certainly, digital banking will create new opportunities for the Philippines’ banking sector and make it more competitive internationally, which of course could include new avenues to expand into regional markets.”

Therefore, the underserved segment generates a unique opportunity for online banks to expand their customer base and earn revenue more quickly than the neighbouring markets. Virtual banks like Overseas Filipino Bank Inc. and Tonik Digital Bank Inc. agreed with the above notion that remittance is one of the primary business lines.

The Bangko Sentral ng Pilipinas( BSP) has granted licenses to six virtual banks in late September. On Aug 31, the central bank closed the window for accepting digital bank applications for three years to permit the companies to carve out their businesses.

“We wanted to assess the impact of these digital banks in terms of promoting efficiency in the financial sector, as well as achieving our goals to promote inclusive growth,” Lyn Javier, the BSP’s managing director for policy and specialised supervision.

Chronic Challenges

Like many other developing nations, the Philippines hope virtual banks will ease their unbanked population under the formal banking system. In November 2020, the Central Bank’s Digital Banking Framework released that operators need to offer financial services processed through a digital platform or electronic channels and eliminate physical branches. Many economists stated that deploying innovation and technology will lead digital banks to overcome obstacles that have deterred people from having even a basic bank account.

“Digital banking has the potential to bring millions of unbanked and underbanked people into the financial system.”

Analysts said that many Filipinos remain unbanked due to a lack of supporting documents to open a bank account. Many reasons are either elderly, unemployed or working in the informal sector. History says that It was always challenging for banks to establish physical branches in the archipelago of nearly 7,000 islands. Unsurprisingly, the Philippines lags penetration of digital banking in most of its Southeast Asian neighbours. According to a VMWare study in July, 76% of respondents embraced contactless payment, compared with the region’s average of 85%.

Growing Demand

On a positive note, local digital payments are surging in the Philippines, forming a fertile ground for virtual banks to grow at par with cross-border remittance. A “Better Than Cash Alliance” report in partnership with BSP (Billing and Settlement Plan) says the volume of payments digitally rose to an estimate of 17% of all payments in the first half of 2020, from 10% in 2018. The growth was due to payments made to first merchants and followed by person-to-person during the Covid 19.

Internet connectivity is an added leverage that can move the needle for the central bank’s goal of shifting total retail payment transactions to digital and bringing 70% of Filipinos into the financial system. A digital bank that can build its loan at a faster pace. Simultaneously it will alleviate the risk of practicing a purely digital platform to achieve profit.

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