What would banking be like in 2025? The topic was discussed in the recently concluded Seamless Philippines, which gathered leaders in different sectors such as banking, payments, e-commerce, and blockchain industries for a 2-day virtual event from Sept. 2 to Oct. 1, 2020.
Atty. Rafael Padilla, Co-founder of BlockDevs Asia, Domingo Jan P. Dayro, Jr, VP II & Head, Cash Management Services Division of Chinabank, and Hari Krishna, Former General Manager at K.B.Z. Bank discussed in the panel “Digital Banking 2025: What’s Next?” the future of banking and how it would be relatively different or similar to today.
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The consensus is that by 2025, banking will be done, primarily through mobile phones. Atty. Padilla said the convergence of technologies that are already being used today, such as artificial intelligence, machine learning, digital identity and blockchain, are now enabling banks to engage in “first principles design thinking” in redesigning how financial services should be offered moving forward.
To which Mr. Dayro agreed. There would be more digital transactions by 2025. However, he thinks branches will still play a vital role in personal banking. Banks, he said, will adopt a “click and mortar strategy” to provide customer engagements on the ground.
Part of what makes the Philippines one of the best adopters of new technology is because of regulations, said Mr. Dayro. The government, he remarked, has provided the policies and laws to allow digital banking to proper. There are initiatives, for example, to standardized electronic receipts. Atty. Padilla agreed. “Whatever we imagine to be the landscape by 2025, regulation will be a key factor in the realization of that vision.” He also cited some of BSP’s fintech initiatives for the past ten years such as the e-money issuer (EMI) framework in 2009 and now the proposed digital banking license.
On the subject of proposed special banking license category for digital banking, Atty. Padilla said he’s unsure whether it could be a shortsighted approach, especially considering that the future of banking will be digital. Thus it could be possible that universal, commercial and other banks could be ostracized by the new digital banking regime, even though they play on the same field.
If banking will be mostly digital by 2025, does it follow that more people will be able to access banking by then? Clearly, in any topic about the future of banking, one cannot escape the topic of financial inclusion. While financial inclusion initiatives have been there for more than a decade, the pandemic provided a reason to expedite that matter, said Mr. Dayro. “Initiatives with a time frame of 5 years are being forced to be implemented within 6 to 12 months,” he added.
This is in light of the recent funding from the Asian Development Bank (ADB) to accelerate financial inclusion, as mentioned by Mr. Krishna, the moderator of the panel. Mr. Dayro said the ADB funding was a very good initiative to increase awareness in the grassroots level. He noted how some people are reluctant to open bank accounts because they thought they do not fit the requirements, for example. Mr. Dayro continued that this will go back to the government policies and laws surrounding banking. For example, account opening or on-boarding could be simplified.
Atty. Padilla agreed. He said that considering the current mobile penetration in the Philippines, one can expect that even in rural areas, people have smartphones. This would provide access to banking even if it is impractical for banks to set up branches in those areas. “I don’t think it’s still controversial that the digitalization of financial services will accelerate access to such services.”
Bank Branches by 2025
Mr. Dayro said that branches would still play a vital role by then. The key thing that banks will do, he said, is “selective deployment of branches.” He also said the insides of the bank will be different — an “apple store-like” experience — as if the customer is not in a bank but somewhere else.
Other key predictions of what banking will look like in 2025 are as follows:
- The largest financial institution would not be the ones that are large today like JP Morgan. Rather a fintech player such as Ant Financial.
- These firms have the money, the data, and the people to compete with the largest banks. The only way to compete with them could be best summed up with the statement: Go Digital or Go Home.
- By 2025, more people will have their bank accounts opened through their mobile phones, rather than through branches. 2.5 billion customers (both newly banked and traditional customers) will not visit branches annually.
- Banking as a Service (BaaS)
- An end-to-end process where third parties like Fintech firms can access and execute financial service capabilities without having to develop them organically. The trend is that banks themselves will soon offer this, if they are not yet offering it right.
- Innovations in payments and clearing
- Brett King predicted that by 2025, blockchain and distributed ledgers will be the framework for payment networks.
- Regardless of what bank customer you are, your account can be credited in real-time or in batch intervals.
- In the Philippines, InstaPay does this in real-time while PESONet facilitates transactions in batch intervals.
- Read More: What is InstaPay and PESONet
- Blockchain used for identity verification
- Whenever one applies for a new bank account, the new bank would ask you to fill up their sign-up form, which the person actually already shared with their previous bank.
- The current traditional framework for KYC that we have, that relies on documents, will be positively disrupted
- “In relation to blockchain technology, we can imagine that banks might take advantage of a KYC utility where there can be a network of financial institutions that latches on or utilizes a shared database or network where they can access those identities for purposes of granting bank accounts or for purposes of granting financial services to those individuals,” Atty. Padilla said.
- The way personal information is shared depends on how much the customer is willing to share.
- “Smart” banking
- By 2025, KYC might be obsolete in favor of Identity Verification (IDV)
- In fact, we are using IDV now, banks will be verifying identities using various technologies
- “Talk to your mobile app”
- By 2025, KYC might be obsolete in favor of Identity Verification (IDV)
This article is first published on BitPinas: Seamless PH 2020 Recap – Digital Banking 2025: What’s Next?
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