Carlo B. Nazareno BDO SVP.jpg — **Carlo B. Nazareno - SVP and Head, Transaction Banking Group-Cash Management Services, BDO Unibank**

Innovation is vital for businesses to thrive. Whether the goal is operational efficiency gains, improving consumer access, or creating entirely new products and services, innovation and better businesses go hand in hand.

At BDO Unibank, innovation is driven by the Bank’s focus on customer needs, understanding available technology in developing solutions, while remaining cognizant of the local business landscape.

We believe that the future of financial services will see a coming together of technological efficiency and analytical capabilities with human insight, judgment, and relationships. Technology will work in tandem with, not replace, people, bringing the best of both to businesses and consumers.

The rapidly emerging network economy

Today, technology is the cornerstone of the rapidly emerging network economy. As of early this year, internet users in the Philippines grew by 13.4 per cent to 85.1 million. This equates to an additional 10 million plus users. The 6.6 per cent year-on-year growth of mobile cellular connections, to 168.3 million, is equally impressive.¹With the increased adoption of mobile phones in the Philippines, a corresponding uplift in digital payment acceptance using Mobile Wallets has been seen. Accepting digital payments reduces many businesses' security and operational concerns when customers pay with cash. With similar benefits to consumers, it is not surprising to see digital payments to merchants increase from a 13 per cent share of volume in 2018 to 24 per cent in 2020.²

Economic growth has resulted from technology growth in the Philippines. By 2025 the Philippine Internet Economy will be worth USD28 billion, up from USD7.5 billion in 2020.³

Cultural and technological barriers to adoption remain

Despite technology being embraced by many in the Philippines, there are still barriers to even more widespread access and adoption. Geographic challenges include digital logistics and delivery difficulties and a need for more stable, affordable, and speedy internet availability.

Despite the impressive growth rate of digital payments, the fact remains that the Philippine economy remains mainly cash-based, despite handling and safekeeping costs. Currently, only five per cent of Filipinos pay utility bills digitally through bank accounts or mobile money accounts, compared to 22 per cent in Indonesia and 80 per cent in Malaysia.⁴Even for online shopping, cash remains core, with 77 per cent of online purchases from sellers such as Lazada and Shopee settling with cash. ⁵

Cash dominance is one reason banks in the Philippines continue to invest in their branch and ATM network. As of the third quarter of 2019, there were over 12,500 bank branches and over 21,400 ATMs across the country, growing at 4.4 per cent and 1.6 per cent, respectively. ⁶

In addition, Filipino businesses still rely on long-term, trusted relationships and person-to-person engagement. In our world of financial services, Relationship Managers remain a critical sounding board and advisor to businesses on everything from managing financial processes to the latest cash management techniques.

Developing technology and people in parallel

The modern-day Relationship Manager brings to the table human-led service and support supplemented by the data insights, security and efficiency technology provides. Technology must therefore work alongside and facilitate human interaction.

This is why banks must continue to invest in branch networks and upskill their Relationship Managers. BDO Unibank, for example, has developed the only team of cash management and industry-specific Relationship Managers in the Philippines.

Our Relationship Managers work with our clients on their industry-specific current and long-term cash management issues and opportunities. From providing facilities for cover before revenue is received, to determining the best structure for payments and accounts, at BDO, we find ways for our clients to optimise their cash flow and working capital. Furthermore, BDO Unibank continues to operate and invest in a network of more than 1,600 branches – the largest in the Philippines. Meaning human help is never far away when needed.

Aligned with our co-development approach, in branches, the Bank connects the physical with the digital with online appointment booking, fully digital account opening, paperless in-branch cash and check transactions and cardless ATMs using biometric authentication. These blended digital, in-branch solutions supplement over-the-counter services offered by BDO's experienced tellers. Digital branch services are one example of the new era of blended financial financials services – physical services with digital overlays.

To ensure we continue to advance and provide our customers with the most secure and convenient services, we also invest in digital services that make it easy for businesses to receive customer payments and settle accounts with suppliers. These include Auto Debit Arrangements, which seamlessly debit one account and credit the receiving organisation's collection account. And our online business banking service provides easy and secure access to digital payments and account information through a range of devices.

An additional example is Virtual Accounts, which essentially provide separate ledger records or alias bank accounts, primarily used to categorise incoming cashflows and transactions. Virtual Accounts are accessible for corporations to manage and inexpensive to maintain and operate. They provide a unique identifier number, or Virtual Account number, for customers to use when making payments to a business. Virtual Accounts assist with liquidity management, reconciliation, and reporting as payments are sent to a single bank account. In addition, as there are fewer bank accounts to manage, security is enhanced, and fraud prevention is boosted. BDO Unibank Relationship Managers work with clients to understand their incoming flows, payment segregation needs, and reconciliation requirements, to develop an optimised Virtual Account solution for their business.

Managing the tempo of technology change

The fundamental issues hindering technology adoption will take time to address. It is also essential to ensure innovation improves the lives of people and communities and does not create new inequalities. Moreover, because technology creates a risk of leaving people behind and a digital divide, the pace of change and transformation to fully digital interactions for buying consumer goods, business-to-business transactions, and access to government services must happen concurrently with the continued provision of traditional cash and human-based financial services. Innovation, therefore, needs to be human-centric and considered, moving at a pace that balances embracing change while respecting today's preferences and technology limitations.

^[1]^{We are social and Meltwater, Digital 2023: The Philippines}
^[2]^{Bangko Sentral Ng Pilipinas, Status of Digital Payments in the Philippines, 2021 Edition}
^[3]^{DTI Philippines, e-Commerce Philippines 2022 Roadmap}
^[4]^{The World Bank, Philippines Digital Economy Report, 2020}
^[5]^{Bangko Sentral ng Pilipinas (BSP), Financial Inclusion Survey, 2021}
^[6]^{The World Bank, Philippines Digital Economy Report, 2020}

Carlo B. Nazareno, SVP, BDO Unibank

Managing the tempo of technology change