"There is a need to democratize financial services in this country given that only 5% of the population have credit cards, leaving almost everybody to carry cash all the time to pay for something. Now that more people are using data on their smartphones, the time is ripe to enable digital payments using the smartphone and let this go mainstream."
– Ernest Cu, President and Chief Executive Officer, Globe Telecom
Despite ongoing, unpredictable headwinds as the US/China trade war escalates, the ASEAN economy remains in good health. A projected economic growth rate of 5% for 2019 places it well on the way to becoming the fourth largest economy in the world by 2050, overtaking both the EU and Japan along the way.
The region’s technology push is a key part of this success, with its internet economy alone expected to hit $200 billion by 2025, and a fledgling fintech industry that in 2016, acquired more than $300 million in funding. Why fledgling? Because of the more than 600 million inhabitants in ASEAN, over 70% remain unbanked. That’s a big problem.
Though you might not think it, cash is expensive. It requires transporting, careful management, secure storage, and automatic teller machines (ATMs) that must be diligently programmed and regularly maintained. Cash is restrictive, too, making it harder for the unbanked to develop equity and advance their financial position using credit models, for example. Multiply this across an entire region and growth will inevitably take a hit, because you’re only as strong as your weakest link.
THE CRIPPLING COST OF CASH
The Philippines’ reluctance to move away from cash is also costing its citizens big. In 2017, a report from the Philippines’ central bank, Bangko Sentral ng Pilipinas (BSP), found that, alarmingly, 77% of the adult population (approximately 53 million people) remains unbanked. Of these, 60% say they don’t have enough money to meet the minimum balance requirements of traditional bank accounts – a problem that could be conquered by fintech solutions already emerging across the country’s growing smartphone and internet adoption.
Globe Telecom has been quick to spot the opportunity. “Our mission is to provide financial services in a non-traditional manner that will benefit the majority of our population who are unbanked,” says Ernest Cu, Globe President and Chief Executive Officer. “Only a very select group of Filipinos have access to financial services so we want to provide that access to them.”
That help can’t come soon enough. The Philippines’ reluctance to move away from cash is also costing its citizens big, in fees. Last year, the United Nations’ International Fund for Agricultural Development (IFAD) found that in 2016, 200 million migrant workers from low and middle-income countries had sent home $445 billion to relatives. Of that global remittance, the World Bank estimates $33 billion was lost in fees. In 2017, IFAD calculated that those global remittances had risen to $466 billion in 2017. So had the fees. This vital money doesn’t only support families. As a single, vast sum, it contributes hugely to the country’s economy.
BSP wants 20 percent of all transactions in the Philippines to be electronic by 2020 Filipino workers both in the country and abroad must incur these charges, and often also suffer slow transfer times and even fraud. Of the top three countries receiving remittances in 2017, India ranks first ($69 billion), China second ($64 billion) … and the Philippines third, with $33 billion. Unsurprisingly then, as part of its national strategy for financial inclusion, BSP wants 20% of all transactions in the country to be electronic by 2020. In 2015, those electronic transactions totaled just one percent. There’s a lot of work to do.
A customer in Manila using GCash for payment
DIGITAL TOOLS FOR A SECURE FUTURE
Fintech can help solve many if not all of these woes. In June, a new solution was launched to help, among other pain points, the global remittance issue. A partnership between AlipayHK and GCash, a Philippine micropayment service that transforms the mobile phone into a virtual wallet, now allows for fast, secure, convenient, transparent and low-cost money transfer directly between individuals in Hong Kong and the Philippines.
In just a few taps of the Alipay app, money can be transferred in seconds, at any time, to a GCash user. No visiting a physical booth. No queuing in line for hours. No filling out lengthy forms. No excessive fees. Additionally, GCash allows for transfers in from MoneyGram and Western Union, as well the free transfer of funds to 30+ banks care of collaboration with InstaPay. GCash is being operated by Mynt, a joint venture of Globe Telecom, Ant Financial, and Ayala Corp.
Filipinos are also being encouraged to advance their financial position using credit. “Imagine a farmer who’s limited by his capital for seed and fertilizer to one crop a year,” says Cu. “With a little loan, he can grow his business to three crops. He can increase that loan regularly as his credit score goes up, and soon he can buy another farm.”
Empowering a population in this way can help support better living standards, unearth new opportunities and ... inspire entrepreneurial thinking.
The newly launched “GCredit” and “GScore” of Fuse, another company under Mynt – are the country’s first trust score and QR credit. When GCash customers reach a certain responsible usage and thus achieve a certain GScore, they unlock the GCredit option, allowing them to QR pay for larger items, pay bills, and even perhaps fund small projects, or even start a small business. Hoping that users will learn quickly and see the benefits, Mynt, with partner Atram Fund, has also enabled an affordable investment marketplace called Invest Money in the GCash app for approved users.
Importantly, such innovation gives a first real taste of managing money with powerful and effective digital tools. Empowering a population in this way can help support better living standards, unearth new opportunities and even perhaps inspire entrepreneurial thinking that develops even better digital platforms. “Going digital is one of the best chances the Filipino has to improve their life,” says Cu. “The connectivity and the computing power we have today will enable things to happen for them.”
FINANCIAL INCLUSION FOR ALL
Opening the door to financial services to the unbanked translates to a 10 percent increase in income for the population earning less than $2 a day Consider this: a 2017 study from the Asian Development Bank found that opening the door to financial services to the unbanked has the potential to increase the GDP of the Philippines by as much as 3%. For the population earning less than $2 a day, it translates to a 10% increase in income. And with it, new opportunities.
Consider this, too: globally, almost three billion globally people are considered unbanked or under banked. Cash isn’t just a problem locally or regionally. It’s planet-wide. ASEAN is already developing the digital tools to free itself from these shackles.
There is a path forward to financial inclusion for all, and with it, a chance to use that to support families, local communities, countries, the region and, ultimately, the prosperity of the entire world.
This report was prepared and provided to ITV-Asia by GCash, an internationally acclaimed micropayment service that transforms the mobile phone into a virtual wallet for secure, fast, and convenient money transfer. For more information, visit: www.GCash.com.