The Philippine banking market, lagging in technology but replete with growth potential, especially in its underserved rural and small and medium enterprise (SME) segments, is a "very important Southeast Asian market" for digital business transformation, according to digital shift consulting firm Publicis Sapient.

Digital banking penetration in the country is just 22 percent in 2023 but it is expected to go up to 33 percent by 2028.

Publicis Sapient’s David Murphy, head of financial services, Europe, the Middle East and Africa (EMEA) and Asia Pacific (APAC), pointed this out in his recent press briefing at the Fairmont Hotel, Makati.

On the other hand, current or traditional banking penetration has already shot up from 29 percent in 2019 to 56 percent to date.

Still, a large portion of rural and SME segments are undeserved, he reiterated.

Digital channels account for just five percent to 15 percent of their revenue, well below the average of 25 percent for their peers in Asian emerging markets.

While the Philippines is among the fastest-growing economies in Southeast Asia, the wholesale and corporate focus of large traditional banks has left a vast potential of customer base underserved.

The problem is, Philippine banks are lagging in terms of technology. "They have under-invested in digitalization, spending less than 10 percent of their revenues in Information Technology (IT)," he explained in his presentation.

Their counterparts in APAC spend 15 percent of their revenues on IT, on the average.

Most local banks still use legacy technology and lack tools to digitalize.

This is bad news because legacy core banking and middleware technology have reached their limits, Murphy stressed.

Skilled engineers in legacy technology are becoming scarce because it is outdated and the technology itself is difficult to change, so their users will naturally lag behind in the competition – and eventually fall by the wayside.

Meanwhile, existing Philippine fintechs concentrate almost exclusively on payments, and infrastructure constraints limit their reach.

The result is a widening gap between the country’s enormous underbanked population and the expanding range of innovative financial technologies lying just beyond its borders.

The banking penetration rate remains among the lowest in the region, and traditional financial institutions focus heavily on commercial lending.

This leaves a rapidly growing, increasingly affluent, and digitally savvy population with little access to financial services that meet their needs.

The good news is, some fintechs and digital banks are growing dramatically, according to the Publicis Sapient executive.

Tencent-backed Maya digital bank hauled in one million customers and P10 billion deposits in just five months after its public launch.

GCash, which holds an e-money license, ventured into consumer lending, and distributing loans. Both from itself and from third parties.

GoTyme’s “phygital” model allows people to open a bank account via a kiosk in supermarkets within less than five minutes.

Filipino tech savvy consumers are now craving for superior experience, Murphy stressed.

A whopping 92 percent are willing to pay to be able to open accounts instantly via digital channels.

Filipinos will also easily switch to providers who offer better personalization.