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Digital payments to plug inclusion gap

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By Melissa Luz T. Lopez
Senior Reporter

SHIFTING TO digital payments will plug the gap in financial inclusion, as going online would eliminate issues on distance and would provide a substantial push for two-thirds of the population to get their own formal accounts, the World Bank said.

More Filipinos owned bank accounts as of 2017 but spelled a “modest” progress. According to results of the 2017 Global Findex report, 34.5% of Filipino adults held bank accounts, higher than the 31.3% captured during the 2014 survey but remained the minority.

Around 41% of adults cited distance to financial institutions as the main barrier to owning formal accounts. The hope lies in knowing that 71% own mobile phones.

“Many unbanked adults receiving government payments in cash — whether government transfers or public sector wages or pensions — have the basic technology needed to receive these payments in digital form,” the report said, as commissioned by the Bill & Melinda Gates Foundation.

“In the Philippines, digitizing government payments could reduce the share of unbanked adults by up to 16% and the share of unbanked women by up to 20%.”

The same route may be taken by private firms in disbursing workers’ salaries towards boosting account ownership, with the World Bank saying that digitizing wage payments could raise the banked segment by “almost a third.”

The focus also needs to shift towards prodding residents to use their bank accounts for more ways other than storing funds. The global lender said that accounts may be tapped more than as the means to receive salaries. Rather, these can also be used to settle utility bills, domestic remittances, savings, and retail transactions.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said prospects are “bright” for wider use of electronic payments given a government-wide push towards digitization.

The BSP targets to lift the share of digital payments to 20% of total transactions by 2020 from a measly 1% recorded in 2013 through its National Retail Payment System project. Two clearing houses have been set up to accept digital fund transfers across banks and electronic wallets, which they expect to help broaden access to financial services and spur increased economic activity.

“The government is also setting the foundation of a digital ecosystem through legislative measures such as the biometric national ID bill and Payment Systems Act,” the central bank said, noting that these reforms are expected to boost the on-boarding of Filipinos who lack the paperwork required for account opening.

The BSP also said they are looking to boost lending to farmers and small-scale firms through value chains, moving away from imposing credit quotas on banks just to force them to extend financing lines to these so-called risky segments.

Studies showed that gross domestic product could increase by more than 14% if the financial inclusion gap was closed in the Philippines.