With six digital banks now in the country, the dream of financial inclusivity for Filipinos has come nearer. Those born into the information age and others who were forced to be tech-savvy by the pandemic became the beneficiaries of the new breakthrough in banking.

The overwhelming acceptance of the new financial conduit offers a lot of opportunities to grow as the characteristic of the market is essentially 70 million or more adult Filipinos and 84 million Internet users, according to the Philippine Statistics Authority, providing an almost inexhaustible source of business.

In its goal to become the country's top digital bank, UnionDigital Bank, a subsidiary of Union Bank of the Philippines and Aboitiz Group, is maximizing its cutting-edge resources under the leadership of its president and CEO Henry Aguda.

"My aspiration now is to provide banking to every Filipino out there. It's not just to overseas Filipino workers and others with moderate income, but also those without a source of income," he told the Daily Tribune on its show Gising Na!

"Out of around 400 digital banks in the world, only 20 percent of them earn profits within two years and a half on the average. However, an Indonesian bank was able to achieve that within a year and a half. We plan to surpass that record," Aguda added.

UnionDigital aims to tap P10.5-million clients of Union Bank and millions of other Filipinos by leveling up its use of artificial intelligence, or AI, and partnerships with the government and other businesses.

"Offering loans to those without income is weird, but we're finding a solution with the help of the government. Our mandate is to also go into areas that are unconventional, such as cryptocurrency, metaverse and artificial intelligence or AI," Aguda said.

AI records and organizes data gathered from online activities, such as in e-commerce, social media, Google surfing, and mobile apps.

"We have an AI technology that tells us a customer segment is risky even before we lend money to that segment and without relying heavily on credit history from other banks," Aguda explained.

Financial technology group Fintech Alliance of the Philippines in its partial 2023 report says e-payments is the service being offered by most or 37 percent of 285 digital-focused financial firms in the country. Lending comes second, with 20 percent of the total firms offering this service.

Aguda, however, said accessing loans is life-changing as clients can obtain bigger loan amounts in the future to own a home or business for passive income and employment opportunities for others.

Banks offer broader service

"E-wallets are not enough to fulfill other important needs in life. We should grow our money for other expenses. When you start from the base and start building your credit record, you can upgrade from a sari-sari store to motorcycle or taxi service," Aguda, as guest at the Daily Tribune's Asian Innovation Forum last 29 August, said.

Digital banks promote financial inclusivity by addressing many of the barriers and challenges faced by underserved populations.

It offers accessibility to financial services to individuals who are unbanked or underbanked, especially in remote areas or regions with limited physical banking infrastructure.

Anyone with a smartphone or Internet access can open an account and access banking services, eliminating the need for physical branches.

Moreover, lower operating costs compared to traditional brick-and-mortar banks allow virtual banks to pass on savings to customers, offering lower fees, reduced minimum balance requirements, and more affordable banking products and services.

Banking has become more accessible to individuals with limited financial resources.

Digital banks often provide a wide range of financial services beyond basic banking, such as online payments, money transfers, savings accounts, investment options and budgeting tools.

By offering these services through user-friendly digital platforms, they empower individuals to manage their finances effectively and access a broader range of financial tools.

Digital banks prioritize the security of customer data and transactions. They employ advanced encryption techniques, two-factor authentication, and other security measures to protect user information. This can enhance trust and confidence in banking services, particularly among populations that may have concerns about the security of digital transactions.

While digital banks can help drive financial inclusivity, it is crucial to address other underlying issues such as digital literacy, Internet access, and financial regulations to ensure that its benefits are accessible to all.

Collaboration with industry leaders

To reach more borrowers, Aguda said UnionDigital partnered with other lenders and businesses in various industries like motorcycle ride-sharing firm Angkas.

Moving forward, Aguda said the digital bank will launch its small business loans in October to cater to micro, small, and medium enterprises or MSMEs.

"Angkas already have histories of their driver-partners income levels. These drivers can be involved in business as MSME owners who are just starting and don't have annual financial statements which traditional banks require," he said.

UnionDigital aims to provide business owners with financing to ensure they scale up their operations to satisfy more customers. "With instant cash, you won't miss a business opportunity. Our dream is that you move up," Aguda said.

In the bank's horizon are tie-ups with digitally-focused firms in the services sector.

"We can integrate our services in another online platform like a medical app and display a button there of UnionDigital Bank. Then, borrowers can simply click that button to avail of our services," Aguda said.

Policies through the Bangko Sentral ng Pilipinas are also crucial to ensuring Filipinos easily obtain financial services.

It has, for instance, a three-year project called Open Finance Framework, which was launched in 2021. The framework requires traditional and digital banks and e-money issuers to submit financial data and undergo tests for building a banking system where lenders can interoperate easily and provide affordable products and services.

UnionBank also opened its Innovation Campus on a one-hectare property in San Pedro, Laguna to develop digital products and services in partnership with the Asian Institute of Digital Transformation and Global Learning Solutions Singapore.