Digital financial engagement is a strong and consistent driver of financial inclusion—but persistent barriers continue to keep many Filipinos outside the formal financial system, according to state-run policy think tank Philippine Institute for Development Studies (PIDS).

In a discussion paper titled “Digital Financial Platform Engagement and Financial Inclusion in the Philippines: Insights on AI Deployment and Policy Implications,” published on Wednesday, Feb. 18, PIDS said individuals who actively use digital financial platforms are significantly more likely to own and use formal financial accounts. Yet challenges such as lack of money, high perceived costs, documentation requirements, and low trust in financial institutions remain key constraints, particularly among low-income groups.

The paper, authored by Nikka C. Pesa, Mary Grace R. Agner, and Rutcher M. Lacaza, underscored that while artificial intelligence (AI) adoption in the country’s financial sector is still at a nascent stage and largely concentrated among large institutions, AI tools are increasingly embedded in digital platforms where consumers transact. These include applications for fraud detection, credit scoring, and customer service chatbots.

In contrast, smaller cooperatives and savings and loan associations continue to face structural and resource-related barriers that limit their ability to adopt advanced technologies.

PIDS said the convergence of demand- and supply-side evidence shows that digital financial engagement serves both as a driver and an indicator of financial inclusion. The integration of AI within these platforms, it added, has the potential to further enhance access, strengthen security, and improve the user experience.

The think tank stressed that by strengthening digital infrastructure, promoting financial and digital literacy, and ensuring responsible AI adoption, the Philippines can better position digital financial platforms as a catalyst for inclusive and sustainable economic growth.

PIDS further said unlocking the full potential of digital finance and AI will require stronger infrastructure, broader education efforts, and responsible industry practices.

To expand financial inclusion, PIDS urged the government to improve internet connectivity and electricity access, particularly in rural and geographically isolated areas. Reliable and secure digital infrastructure, it said, is essential for both consumer use of digital platforms and institutional AI deployment. Public-private partnerships (PPPs) can help accelerate these investments.

The think tank also flagged the country’s “invisible AI” gap. While many Filipinos already interact with AI-powered tools such as chatbots and credit scoring systems, awareness remains low.

PIDS called for stronger financial and AI literacy programs, especially for older persons and underserved communities, through collaboration among government, schools, and the private sector.

On the industry side, AI adoption remains uneven, PIDS said. Large banks and major e-wallet providers are more advanced, while smaller rural banks and cooperatives face resource and infrastructure constraints. Public concerns over data privacy, bias, and cybersecurity further slow adoption.

PIDS urged financial institutions to prioritize responsible AI deployment, including transparency in credit decisions, bias testing, clear customer communication, and human oversight.