Filipinos who actively use digital financial platforms are significantly more likely to own bank accounts and conduct formal financial transactions, with the state-run policy think tank saying stronger digital engagement is a key driver of financial inclusion in the country even as barriers such as lack of funds, high costs, and weak trust persist.

In a policy note published last Monday, April 27, the Philippine Institute for Development Studies (PIDS) said a one-unit increase in the Digital Financial Engagement Index was associated with a 78.5-percentage-point (ppt) rise in formal account ownership, a 59.3-ppt increase in mobile money use, and a 157-ppt increase in online financial transactions.

The report, titled “Advancing Financial Inclusion in the Philippines through Digital Platforms and AI Deployment,” was authored by Nikka C. Pesa, Mary Grace R. Agner, and Rutcher M. Lacaza.

PIDS said digital financial engagement also increased the likelihood of formal saving and borrowing, while reducing trust-related barriers by 29.4 ppts, helping build confidence in formal financial systems.

Despite progress, financial exclusion remains a challenge.

The report noted that 56 percent of Filipino adults owned formal financial accounts as of 2021, while digital payments reached 57.4 percent—surpassing the government’s 50-percent target. However, a high unbanked population of 51.4 percent remains.

Among the most commonly cited barriers to financial inclusion were lack of money, cited by 76 percent of respondents, followed by high costs at 55 percent, distance to financial institutions at 40 percent, documentation issues at 39 percent, and low trust at 20 percent. Another 34 percent said a family member already had an account, indicating household-level financial decision-making.

The report said digital financial engagement strongly predicts financial inclusion and that individuals who actively use digital financial platforms are significantly more likely to own and use formal accounts.

The PIDS note also found that artificial intelligence (AI) adoption in the Philippine financial sector remains uneven.

Large universal and commercial banks (UK/Bs) have increasingly deployed AI for customer engagement, fraud detection, anti-money laundering, and credit risk management, leveraging stronger technological infrastructure and financial capacity.

“The most common AI application is pattern and anomaly detection, primarily used in fraud prevention and anti-money laundering systems,” the report said.

However, smaller institutions such as rural banks, cooperatives, and savings and loan associations remain in the early stages of digital transformation.

PIDS said these institutions—particularly those outside Metro Manila—face multiple barriers, including poor internet connectivity, limited technical expertise, insufficient awareness of AI applications, capital constraints, cybersecurity risks, and regulatory compliance burdens.

During the Covid-19 pandemic, phishing scams in the Philippines surged by 200 percent, making it the top cybercrime in the country and heightening caution toward digital and AI technologies, particularly among smaller financial service providers with limited cybersecurity infrastructure.

The report also highlighted a human capacity gap.

Only two percent of Filipinos were able to correctly answer all basic financial literacy questions based on the Bangko Sentral ng Pilipinas’ (BSP) 2021 Financial Inclusion Survey, while older adults, low-income households, and rural residents remain at risk of being left behind by AI-driven financial services.

“Without targeted financial and AI literacy programs, the benefits of AI-driven financial services will remain concentrated among digitally literate, urban, and higher-income groups, potentially widening existing inequalities,” the report warned.

To address these gaps, PIDS urged the government to improve internet connectivity and electricity access in rural and geographically isolated areas through public-private partnerships (PPPs), strengthen cybersecurity frameworks, and develop AI education roadmaps.

The think tank also recommended integrating AI-related questions into national financial inclusion surveys, aligning financial inclusion efforts with the National AI Strategy Roadmap 2.0, and easing regulatory burdens on smaller cooperatives and savings associations while maintaining safeguards.

For the private sector, PIDS urged stronger data privacy and cybersecurity protocols, transparent AI decision-making processes, regular bias assessments in algorithm-based credit scoring, and wider digital financial services for underserved populations.