Thriving. Evolving. Transformative.
One word is insufficient to summarise the state of the banking sector in the Philippines for 2024.
Lito Villanueva, executive vice president and chief innovation and inclusion officer of RCBC, has observed the remarkable progress of FinTech in the country in the past year, a period during which the industry not only thrived but also evolved and transformed, marking significant milestones in the Philippine banking industry.
As the FinTech Industry reaches targets and leverages technology to enhance customer service and optimise operations, it is better prepared for the challenges of 2025.
Exponential growth
Villanueva highlighted the remarkable growth of the Philippine banking industry in 2024, surpassing the target set by the National Economic Development Authority for the FinTech Alliance. He noted, "We were able to exceed the goal of having about 286 FinTech players by 2028, achieving this number in less than two years."
Thig growth aligns with broader efforts of the Bangko Sentral ng Pilipinas (BSP) which targeted two goals in the Digital Payments Transformation Roadmap: to convert at least 50% of legal financial transactions to digital and onboard at least 70% of other Filipinos in the formal financial system.
"The good news is that we achieved one of those two goals. We accomplished that, and we are now 52.8% of legal, financial transactions in the digital form, coming from 10% in 2017."
Despite achieving metrics, Villanueva admitted that onboarding more Filipinos in the formal financial system remains challenging.
"While the numbers would be staggering, we have this number of accounts created. The next question would be, what is your active user rate? How many Filipinos are using the app or digital payments? That is why you have to sustain the momentum. Acquisition or onboarding them is one thing. Usage or retaining them or making them use it on a sustainable basis is another," he said.
With the moratorium on digital bank licensing in the Philippines lifted, four additional digital banks are expected to enter the market soon, adding to the current six players.
"In terms of the regulatory framework, we have seen the sustained efforts of BSP in supporting more innovators and more players in the industry to thrive in that space," Villanueva said.
While growth has been exponential, cybersecurity remains a significant concern in the Philippine banking sector. In 2024, the government and other stakeholders developed the Anti-Financial Account Scamming Act, which aims "to further provide more teeth in curbing cybercriminals and bad actors leveraging on emerging technologies," Villanueva reported.
Highlighting the global appeal and impact of the Philippines’ FinTech innovations, Villanueva also excitedly shared that Her Majesty Queen Maxima of the Netherlands, also the United Nations Secretarial Special Advocate for Financial Health, recognised the Philippines model for scaling inclusive digital finance during the Singapore Fintech Festival.
"Her Majesty Queen Maxima gave so much recognition or credence to how the Philippines has evolved when it comes to making a dent in our shared objective of rallying everyone to address the pain points of the unbanked and underserved communities in the country," Villanueva said.
"These are some of the things we had seen in 2024, and more will be coming next year," he said.
Gen AI, as we see now, is just the tip of the iceberg. We haven't unlocked the vast potential of Gen AI.
"More" in 2025
For Villanueva, "more" means many things. Looking ahead, Gen AI's possibilities are leading the charge for what to look out for in the Philippine banking industry in 2025.
"Gen AI, as we see now, is just the tip of the iceberg. We haven't unlocked the vast potential of Gen AI. While we have seen practically all conferences this year on AI, we haven't scratched the surface. We are now seeing several players in the industry ready to deploy AI-capable, AI-enabled features for their solutions and platforms," the RCBC executive said.
Currently, Villanueva said that AI is widely used in fraud detection, fraud scoring, and digital lending. Aside from those, there are endless possibilities in tapping more of AI’s potential in optimising internal processes and enhancing workplace productivity.
Villanueva also anticipates the issuance of the Central Bank Digital Currency (CBDC) in the country in the next few years. BSP describes CBDC as "a form of digital money, denominated in the national unit of account, which is a direct liability of the central bank."
According to BSP, possible use cases of CBDC are as follows:
- To alleviate frictions in cross-border payments in support of the growth of PH's open digital economy;
- To enhance the efficiency of securities settlement systems to reinforce financial market development, promote investors' confidence in Philippine financial markets and sustain trust in the national payment system; and
- To strengthen liquidity management in the national payment system by providing a facility that enables immediate contingent support to participants needing intraday liquidity.
"They have done the testing already, and we'll be able to finally launch the pilot, which is the initial phase of the pilot. We'll have a phase 2 area the starting [2025]," Villanueva shared.
He is also hopeful for the rollout of BSP's open finance framework, which will use E-KYC, or Electronic Know Your Customer, "a digitised and paperless verification process of an individual's or organisation's identity."
"Hopefully, that will unlock and further provide customer satisfaction when onboarding as many Filipinos as possible," he said, saying the initiative can save costs and enhance efficiency.
"Why can't we just have a single EKYC registry where we could now tap into that? That now is the beauty of having open finance," Villanueva said.
New trends and best practices in banking
When asked whether a personalised banking experience is a realistic goal for banks, Villanueva believes, "Gone are the days when you took a shotgun approach, a one-size-fits-all mentality. It's more about future-proofing your business, and the speed by which these changes evolve has to be at the core of your planning."
Villanueva underlines the crucial role of technology in understanding and meeting customer needs. He emphasises that a manual and traditional approach is no longer sufficient in today's digital age. Only by leveraging Gen AI can banks achieve hyper-personalisation of services, a key factor in ensuring customer satisfaction and business success.
Similarly, he observed howtoday's banks embrace emerging technologies "to drive growth, spark innovation, and foster inclusion and to diversify further."
Banks have been using cloud computing and APIs to innovate, and they have already been in the discussion for the past decade.
Additionally, he predicts that "mobile wallets and agent banking would practically break barriers to reach the unbanked and underserved communities."
However, despite advancing emerging technologies, the RCBC executive shared that the sector is cautiously pushing for digital assets because bad actors leverage them for criminal acts.
The main pillar of digitalisation is education or awareness.
"The main pillar of digitalisation is education or awareness. We have to prioritise education and provide consumers with the impetus to protect themselves and how the community can use trust as the ultimate commodity we offer our customers across the board. I have an acronym for trust: technology that is responsive, universal, secure, and transparent," he shared.
Neutral Outlook
An Outlook Report of Fitch Ratings revealed that APAC banking systems are expected to have stable operating conditions in 2025.
"We expect positive growth and broadly stable employment to support profitability and asset quality, despite policy rates having largely peaked," the report noted.
Excluding the Deteriorating outlooks for China and Hong Kong, most banking systems in the region share a Neutral outlook. The report revealed an Improving Outlook for Vietnam and Sri Lanka.
Villanueva is generally hopeful for the 2025 banking sector in the Philippines despite admitting it will be a challenging year due to geopolitical shifts, several market uncertainties, cyber security and user retention.
With the endless AI-led possibilities and innovations and so many developments in the Philippine banking industry in the pipeline, Villanueva expects 2025 to be as exciting as the past year…if not more.
In his words: Thriving. Evolving. Transformative.
