Banking in the Philippines is a fragmented institution where the primary banks with the best commercial and financial services are concentrated in the capital city of Metro Manila.  The Philippine archipelago that is comprised of over seven thousand islands present a challenge to local banks in terms of consistently maintaining their quality of service across their branches.

Over the years, the Philippines’ central bank, the Bangko Sentral ng Pilipinas (BSP) has worked with the nation’s largest and leading banks to deliver banking services to the provinces across the archipelago. Despite the efforts and expansion of the leading banks, an immense number of Filipinos are still unbanked.

According to the study presented by Traxion, over 80 percent of Filipino families remain unbanked. In a growing population comprised of 100 million, it is a huge population of individuals or families that has yet to avail of banking services. Looking at the bigger picture, Traxion also stated in the report that in Southeast Asia, over 490 million remain unbanked.

In the Philippines, the following factors are providing a natural blockade for banks to service families that are dispersed in remote communities, distant regions and the indigenous population.

Infrastructure Support – To deliver efficient and modern banking to clients, infrastructure is the core component to support banking operations. The more distant the region is, the difficulty to allocate and extend resources to put up banking infrastructure increases. Include factors such as logistics, network capability and skilled personnel required to support the infrastructure, banks are facing a shortage of resources while being over-extended.

Facing these conditions, banks often abandon expansion to provincial cities, unless the local economy and tech capability increases within a considerable amount of years.

Decentralization – As the major banks are fairly located in Metro Manila, their decentralization is effectively located within the confines of the capital city. While banks have made considerable expansion in the major provincial cities of Cebu, Bacolod, Cagayan De Oro, Davao, Leyte and Subic, these cities are considerably small compared to the outlying areas of their respective provinces.

Decentralization of the major banks in the Philippines have yet to achieve a maturity level where it can effectively reach farther than the main provincial cities.

Rural Banks – Unlike the most successful banks that are found in Metro Manila, rural banks are considerably under-equipped in terms of infrastructure, IT capabilities and process management to deliver modern banking services. There is a considerable gap between the quality of services delivered by major banks compared to their rural counterparts.

Usually, rural banks rely on manual and dated practices to serve the rural community. Within such constraints,  their budget and their capacity to service the demands of the communities are also effectively limiting their growth potential in terms of branch expansion.

Blockchain to Aid Banking for the Unbanked

Last year, UnionBank unveiled its pioneering plan to implement a Blockchain enabled banking system to improve their deliver rate when it comes to banking and finance services. Starting with a partnership with VISA, UnionBank announced a new payment system for customers and businesses. Known as B2B connect, the Blockchain powered payment platform enables faster remittances of payments in record time while augmenting the bank’s costs to process by as much as 50 percent.

To support the rapid mobilization of its Blockchain banking, UnionBank has also announced its certification program for its IT professionals and developers where full-training will be provided to get them certified with Blockchain enabled skills.

Meanwhile, TraXion, a solutions provider for financial organizations, has unveiled a Blockchain ecosystem to power its financial products with the aim to provide “fair and easy access” to financial services based on the grey market known as the unbanked. With six core services for utilization: low-cost remittances, savings accounts, cashless payments, peer-to-peer lending and insurance. TraXion is enabling real use case scenarios of Blockchain via distributed applications.

The roadmap for Blockchain enabled banking enables the following use cases:

• Real Time – Through decentralized applications running on Blockchain, real time payment is achieved as seamless remittances are flowing without intermediary verification checkpoints.

• Mass Distribution – Mobile phones have changed commerce and communications. With the mobilization of Blockchain enabled applications that are engineered based on distributed applications, real-time payment apps can reach a grassroots level of consumers where the traditional structure of banks could not in the past. With the increasing affordability of mobile phones, consumers are increasingly becoming dependent on mobile applications to facilitate business, transactions, communications and recreation, mobile applications are delivering financial services within the reach of communities. In this decade, the major Philippine banks all have rolled out their respective mobile applications to deliver banking services to their clients.

• Banking Services Delivered over Virtual Infrastructure – Blockchain ecosystems is based on virtual infrastructure that are quickly replicated over the cloud network and are distributed via the availability of mobile applications. When compared to the resources needed to mobilize traditional banking services, virtual infrastructure presents a cost-efficient deliver method of mobilizing banking services to a target region.

• Banking Services Delivered on Automated Processing – Blockchain automates banking processes from payments to reconciliation. Blockchain enables banking services to be initiated by the client and be self-executing; therefore stopping the process reliance over process actors such as tellers, communicators and back office verifiers. Through Blockchain, automated processes allows faster, more seamless and real time processing of banking transactions. This allows banks to exponentially increase their service capabilities over a growing population.

Blockchain is transforming banking and finance through its innovating process of automating the service delivery. The organizations that are investing on Blockchain today, become the leaders of tomorrow in terms of capturing the lucrative markets of the unbanked. DynaQuest is a Specialized Blockchain BPO solutions company that is working with banks, financial organizations and insurers to enable Blockchain within their operation. To explore the possibilities of Blockchain to your organization, contact DynaQuest today.