Benjamin E Diokno: Data-driven road to digital financial inclusion
Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central
bank of the Philippines), at the TransUnion and FinTech Alliance Webinar, 6 December 2021.
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Members of the Fintech Alliance of the Philippines headed by Chairman Lito Villanueva,
TransUnion Chief Revenue Officer Jay Tirona, fellow public servants, financial Inclusion partners,
and fintech innovators, good afternoon.
It is my pleasure to welcome participants to this webinar as we continue to discuss valuable
insights and best practices in financial inclusion.
The fintech industry is a pioneer in using data-driven strategies that give rise to innovations and
enhancements meaningful to the users of financial services - offering accessibility to financial
channels, creating user-friendly platforms, and providing reasonable costs, to diverse market
segments.
Financial regulators likewise utilize data in formulating supervisory and regulatory policies that
are responsive to the needs of financial consumers and address the evolving complexities of
financial products.
For the BSP in particular, the pandemic has strengthened our resolve to promote broad and
convenient access to welfare-enhancing financial services for all Filipinos. A lot of work still lies
ahead, but the momentum to achieve these goals is now stronger than ever. The BSP is ready
to carry the work forward through 2021 and beyond.
Financial inclusion is multidimensional, but at its most basic level, it starts with account
ownership. Transaction accounts like bank accounts and e-money wallets enable individuals and
households to save money; make day-to-day payment transactions; send or receive
remittances; and receive salary, benefits, or financial assistance from the government. In this
regard, the BSP with its Digital Payments Transformation Roadmap aims to onboard 70% of
Filipino adults to the formal financial system through a transaction account by 2023.
It is important to recognize however that rather than being an end in itself, financial inclusion is a
means to achieve broader aspirations. The regular and continuing use of an account in
particular, allows individuals and small businesses to build a rich digital footprint that can unlock
access to a wider range of welfare-enhancing financial services.
Today, digital technologies provide an opportunity to accelerate financial inclusion. It facilitates
efficiencies that make it possible for financial service providers to serve the unbanked and
underbanked.
Mobile phone and internet usage in the Philippines in fact show that there is significant
opportunity to expand the delivery of basic financial services through digital channels. This is
especially true considering that 7 in 10 unbanked adults have a mobile phone.
Looking at usage trends, 53% of adults use the internet and they use it extensively. On average,
people spend 11 hours per day on the internet with 4 hours spent on social media. However, only
9% use the internet for financial transactions.
In addition, 69% of adults have mobile phones. Three-fourths of these mobile phone owners own
a smartphone. However, only 12% use their phones for financial transactions.
While the trends show low adoption of digital finance, its potential can be realized by addressing
two key issues: digital literacy and connectivity. Promoting digital literacy increases awareness
and trust in online financial transactions. Internet connectivity is a necessity to access digital
products and services. If left unaddressed, literacy and connectivity challenges can lead to new
forms of exclusion and greater digital divide. Deliberate efforts to narrow the digital divide on the
other hand can increase the reach of financial service providers.
The Philippine Identification System (PhilSys) is a game changing reform for accelerated
financial inclusion and innovation. As a digital identity system, PhilSys can facilitate seamless
financial transactions, particularly account onboarding and user-permissioned data sharing. The
BSP is actively supporting PhilSys implementation not only in the production of the PhilID cards
but also in the development of high-impact PhilSys use cases in the government and financial
sector.
The Philippine Statistics Authority (PSA) has done commendable progress as lead implementing
agency with 44 million Filipinos completing the biometric and demographic registration, and 3.5
million PhilID cards delivered to date.
As we move towards the fourth industrial revolution, data has truly become the new oil and is
now the most valuable resource. However, like oil, raw data in and of itself has little value until it
is refined and used intentionally.
For the financial industry, data is critical because it helps ensure that products and services are
appropriately designed and responsive to the varied needs of individuals. To this end, the BSP
undertakes initiatives to increase the availability of consumer data.
One of which is the implementation of the Open Finance Framework. The framework adopts the
principles of consent-driven data portability, interoperability, and collaborative partnerships
among incumbent financial institutions and new third-party players. Through open finance,
financial institutions will be able to develop a better understanding of customers' needs and
expand market reach. The BSP is set to complete this year the establishment of the Open
Finance Oversight Committee, an industry-led self-governing body tasked to formalize
selfgovernance structure where industry standards and inter-participant business rules are housed.
Another initiative is the development of a centralized database that can be used for risk-based
lending to small and medium enterprise (SMEs). The BSP in partnership with the Japan
International Cooperation Agency - or JICA - is now building a credit risk database that
consolidates financial data from different banks to generate a robust credit scoring model
designed for SMEs. The scoring model is intended to enable lenders to accurately assess SME
borrowers without relying heavily on collateral.
To enrich the knowledge base of the BSP and the financial industry as a whole, the BSP collects
data through various surveys. A recent survey that BSP launched in collaboration with the Asian
Development Bank is the gender-focused demand-side survey of microenterprises and SMEs
(MSMEs). We expect the survey to provide us with a better understanding of MSME access to
finance and support evidence-based policymaking.
To appreciate the value of data for financial inclusion, we may look at alternative data for credit
scoring as a promising use case.
One challenge in securing credit is that forecasting creditworthiness traditionally involves
analysis of the historical credit exposure of a borrower. However, many Filipino adults and
MSMEs do not have or have very little credit history. The use of alternative data in credit scoring
is an innovation that addresses the challenge of predicting the creditworthiness of the so called
credit invisible.
Unlike traditional data which is composed of bank transactional data and credit bureau
information, alternative data come in many forms. This includes social media, mobile data,
utilities data, behavioral data, online transactions, geolocation data, and browser data, among
others.
With alternative data, a more complete picture of the client is painted thus allowing for more
individuals and businesses to be assessed.
To understand the extent of usage of alternative data in the Philippines, the BSP conducted a
rapid survey in September 2021.
Through the rapid survey, we were able to affirm that adopters of alternative credit scoring realize
tangible benefits. The number one benefit realized by adopters is improved customer profiling
followed by improved pricing of loan products and improved competitiveness in the marketplace.
The use of alternative data for credit scoring is just one example of how data can be used to
benefit consumers. Looking ahead, we must continue to take initiative in fostering an inclusive
digital financial ecosystem.
To build trust and awareness in digital finance, we need to support financial literacy programs for
individuals and MSMEs. It is therefore important to provide education that will generate familiarity
to the available services, minimize vulnerability to scams and usage errors, and ensure a
positive customer experience.
Lastly, we need to advocate for crucial legislation for internet connectivity, digital payments, and
consumer protection.
The digital divide, as observed in the lack of internet connection of those in the lower income
classes and those in the rural areas, bring to the fore the need to continue seeking ways to make
internet connection more accessible. In this regard, the BSP actively supported Executive Order
127 on "Expanding the Provision of Internet Services through Inclusive Access to Satellite
Services."
To promote the universal use of safe and efficient digital payments, the BSP is actively
supporting Senate Bill 1764 or the Use of Digital Payments Act. Through this act, government
entities are directed to use digital payments both in collections and disbursements, including
account-based distribution of government financial assistance or ayuda. It also supports
merchant acceptance of digital payments by directing local government units to adopt incentive
frameworks that encourage the use of digital payments.
Consumer protection is another area that needs to be prioritized as the unbanked are the most
vulnerable to the new threats that digitalization brings. The BSP actively supports the passage of
the Financial Consumer Protection Bill which aims to strengthen the rules and regulations
protecting financial consumers.
In closing, the shift to digital transactions due to the pandemic has presented us an opportunity to
extend the reach of financial products and services to the unbanked and underbanked. We must
therefore continue working together to take advantage of this opportunity. I am therefore very
much eager to see the innovations and collaboration that may emerge from the discussions
today. Thank you and good afternoon to everyone!​