Tracking BSP’s efforts of digitalizing the Philippine economy
Leveraging emerging and innovative technologies is driving the Philippines towards a more digitalized economy, beginning with the banking and financing sectors.
Everything comes easy with digital banking; financial services are made more accessible, convenient, and perhaps most importantly, financially inclusive. The country’s successful digitalization has brought many benefits and a sizeable impact in consumer’s lives.
So much that the Bangko Sentral ng Pilipinas (BSP) is pushing the banking sector to the forefront of digitalization, promoting banks and financial institutions as crucial enablers for digital transformation and financial inclusion.
“We want to make sure that this digitalization will result in better and more products that respond to the needs of clients, help them manage their finances, and enable them to seize economic opportunities,” Eli M. Remolona, Jr., BSP Governor said last year.
To better facilitate the digitalization of the banking system, the BSP introduced various initiatives on digital banking, such as open financing, a regulatory sandbox, and some measures on generative artificial intelligence (AI).
Open finance
(From left) Department of the Interior and Local Government Regional Director Leocadio T. Trovela, City of Mandaue Mayor Jonas C. Cortes, BSP Officer-in-Charge for Financial Inclusion and Consumer Empowerment Sub-Sector Atty. Charina B. De Vera-Yap, and market vendor Cristina Mosqueda at the Mandaue City Public Market — Photo from bsp.gov.ph
In a speech he made in March, Governor Remolona Jr. recently outlined the central bank’s strategy to digitalize the financial system, emphasizing four key initiatives. The first initiative, the Open Finance Framework, encourages established banks such as BPI, BDO, and Metrobank to participate in an open finance ecosystem, which will utilize application programming interfaces (APIs) to connect various financial services, ensuring that customer data is used with explicit permission, thereby respecting data ownership.
“We are advocating open finance, particularly in the area of financial health. Open finance facilitates consent-driven sharing of customer data among financial institutions and third-party providers. It also gives customers more access and more choices when it comes to financial services,” he said in a separate speech in June.
“We believe that open finance holds significant potential to extend the reach of financial inclusion. It will do by fostering innovations in financial services. At the center of open finance is the customer who must be served and protected at all times. This is why we, at the BSP, are implementing our financial consumer protection framework. This would ensure that the rights and needs of consumers always comes first and that their trust and confidence in the financial system is preserved.”
The second initiative focuses on digital banking, aiming to facilitate online deposit raising and loan issuance. While raising deposits online is relatively straightforward, the collection of loans presents challenges due to cultural preferences for personal interaction. Currently, the BSP has limited digital banking licenses to six but may consider expanding this to diversify business models and stimulate industry excitement.
Regulatory sandbox and digital payments
The BSP and the Department of Trade and Industry (DTI) formally sealed their partnership for the conduct of the country’s first Cashless Expo. BSP Deputy Governor Mamerto E. Tangonan (left) signed the Memorandum of Agreement on the Cashless Expo with DTI Assistant Secretary Mary Jean T. Pacheco (right) last October. The Cashless Expo was held from Nov. 17 to 19 at the World Trade Center in Pasay City. — Photo from bsp.gov.ph
The central bank governor also highlighted the BSP’s regulatory sandbox, a controlled environment where fintech innovations can be tested with regulatory oversight. This sandbox aims to minimize regulatory uncertainty, providing innovators with guidance on potential regulatory implications. The BSP supports these innovators by helping them understand the regulatory landscape they will face if their innovations succeed.
Finally, the BSP is actively promoting digital payment systems to serve the unbanked population. Initiatives like e-wallets and simplified deposit accounts aim to integrate more people into the formal financial system, providing access to credit, financial services, and investment opportunities.
The BSP addressed the integration of generative AI, such as ChatGPT, into the financial system. While he acknowledges AI’s potential, Governor Remolona stressed the importance of human oversight to prevent issues like hallucinations and herding. He emphasized that AI should be used responsibly to ensure accurate and useful outputs.
“If you have used ChatGPT, you know how irresistible it is. So, we do not even have to encourage it. You guys will do it without any encouragement, but of course, we have to think of guard rails for generative AI,” he said, speaking to financial executives.
“As you know, generative AI leads to what we call hallucinations; it imagines things that never happened. It leads to herding; it gives the same answer to different questions. So, we think that, for now, at least, when using generative AI, a human being should work with it and look at the answers before you decide. Apparently, it is not so hard to tell whether the answers are wrong.”
Governor Remolona also discussed Project Nexus, a collaborative effort by ASEAN central banks to enable fast and cost-effective cross-border retail payments. Expected to be operational by 2026, Project Nexus aims to facilitate remittances at low costs, enhancing financial connectivity across the region.
“Empowered by a shared vision of efficient and reliable cross-border payments, the collaboration between the BIS and ASEAN central banks has been rather effective, and I’d like this to continue. Central banks have always played a role in payments as a public good. With Nexus, this role will be extended to cross-border payments, maximizing the network effects. Thus, the Bangko Sentral ng Pilipinas (BSP) will continue to work with the Philippine payments industry, BIS and other interested countries towards its live implementation. We look forward to Nexus providing overseas Filipinos with a cheaper and faster means to send money to family back home, and facilitating the globalisation of Filipino small and medium scale enterprises,” Mr. Remolona said.
Through these initiatives, the BSP seeks to leverage technology to improve financial inclusion, ensure data privacy, foster innovation, and prepare for AI integration while maintaining regulatory oversight. The central bank’s comprehensive approach aims to create a more inclusive and efficient financial ecosystem, benefiting both consumers and financial institutions.
Prior to these initiatives, the BSP has developed innovations to promote a digital payment system that serves the unbanked, such as Paleng-QR PH Plus Program and Bills Pay PH.
Paleng-QR Ph Plus Program is a program that promotes the adoption of digital payments in public markets and other business establishments, particularly of small and medium enterprises.
Moreover, this program strives to facilitate smooth, convenient, and more accessible payment transactions between vendors and customers using digital devices. This initiative, which was done in partnership with the Department of the Interior and Local Government (DILG), aligns with its goal of promoting QR code technology, providing a secure and efficient way for payment transactions.
Bills Pay PH, meanwhile, is a payment system that allows their customers to pay their bills, giving users the option to pay their bills with or without an account of different payment service providers. Transactions can be made through QR code or non-QR code payment.
“We hope these will lead to people joining the formal financial system. They will have access to bank credit, other financial services, and eventually the whole financial ecosystem-access to investment instruments, access to the right kind of insurance, and so on,” Mr. Remolona said in a previous speech at the General Membership Meeting of the Financial Executives Institutes of the Philippines.
Digital literacy
Officials and staff from the BSP Visayas Regional Office replacing the public’s unfit banknotes from circulation by exchanging it with fresh bills or digital cash during the conduct of its Piso Caravan last year in SM Consolacion, Cebu and Robinsons Place, Tacloban City, Leyte — Photo from bsp.gov.ph
Committed to driving digital growth, BSP will continue its Digital Literacy program (DLP), which aims to promote financial education, increase adoption of financial services, and build more trust in the digital financial ecosystem. It further informs and educates consumers of digital banking and financing, protecting consumer welfare, and tips on avoiding frauds, scams, and minimizing risks.
BSP’s digital efforts is poised to shape the Philippines and its banking sector into a more digitalized economy. These initiatives are aligned with the central bank’s Digital Payments Transformation Roadmap, that aims to convert 50% of the country’s payment transactions to digital. This shows that the increasing demand and popularity of digital financial services and innovative solutions has created numerous market and economic opportunities that will continue to grow in the coming years.
“As the BSP continues to champion financial digitalization initiatives, everyone is called to join this journey of transformation. Let us work together in building an economy that is characterized by a robust, secure, and resilient digital financial infrastructure, with tech-savvy consumers and an innovation-embracing public sector,” BSP said in another statement.