A cashless society
The world is going digital. The Philippines should not only go with it, it should lead in it. As robotics and nationalism take over from low-cost manufacturing labor, there will be less and less advantage to shifting factories overseas. But there will be more and more demand for (comparatively) low-cost brains. The world is going to need people whose lifeblood is information technology or IT.
Filipinos can fit that bill—if they are educated into it. That’s a subject I’ll come to sometime, because as of now our educational system is far from capable of creating large numbers of IT-literate young people.
What I want to talk about today is the role of banking in this new IT world. My company, The Wallace Business Forum, recently held an online forum on the “Digital Transformation of Banking and Financial Services.”
What the speakers told us was impressive. Accelerated by COVID-19, Philippine banks have come a long way in their transformation into the digital world. We are rapidly becoming a cashless society. Eventually, bank notes will become obsolete, gazed at in wonder by our grandchildren in museums. Already, writing checks is disappearing. Maybe in the rural areas it will yet be some time before those crumpled P20 notes disappear, but it is coming.
Not long from now, a farmer’s wife will buy Milo for the kids and 3-in-1 for dad. The sari-sari store owner will take a photo of the wife on her cellphone and money will disappear from one phone into the other. Oh, maybe not tomorrow. But eventually, that is how it will be.
COVID-19 has, like in everything else, accelerated banks’ shift to digital. The difficulty of physically getting around has left little option.
During our forum, Ramon Jocson, COO of the Bank of the Philippine Islands, said that there are four “predicates” that are needed to build a trust-based digital system in the country.
One of the difficulties in going digital is authentication. It continues to be a challenge in the absence of a national ID. That, sadly, is yet a long way from happening. Had the private sector done it, as initially intended, we’d have that ID now.
Tied to that, and a necessary part of it, is mandatory registration of mobile numbers. The mobile phone now becomes the main instrument to access digital services, be it banking, e-commerce, or selected government services. Hackers stage their attacks through the use of non-traceable burner phones. There are several bills filed in Congress providing for the mandatory registration of prepaid SIM cards. These bills are pending with the committee on rules in the House of Representatives and the committee on public services in the Senate. The President should declare them priority legislation.
Once the BSP’s shift to digital currency is in full swing, customers won’t need cash in their wallet. They will just need their smartphone. With that smartphone they’ll be able to conduct all their banking transactions. Banks are gearing up for that.
Physical banks will not go away. The most effective banks will be those that can meld a declining physical need with a growing digital one—all determined by the customer’s need. Where the real risk lies is in security. There’ll be no vault for bank robbers to break into, as there’ll be no money to steal. It’s a dying profession. Evolving from it are hackers; cyber security is now where the real risk lies. Banks are aware of that in developing their systems. Installing hack-free features will be essential. They will need increasingly sophisticated systems as hackers become increasingly sophisticated in their skills.
The anti-cyber crime law needs to be amended, particularly the provisions on phishing, improper use of accounts to transfer stolen funds through the use of mule accounts, and account takeovers. The penalties have to be upgraded, similar to qualified theft which is non-bailable, and made tantamount to economic sabotage as it erodes public trust in the digital system. As it is, without a strengthened law, in rare instances where we are able to catch these criminals, they easily post bail of P20,000 and disappear. Adding to the difficulty of even catching the hackers is the fact that the PNP and NBI have undermanned and underfunded anti-cyber crime units. Their ability to investigate crimes is constrained by the lack of funding, training, and resources.
What came out clearly from this webinar is that it’s the customer who will be driving the shift of banks into the digital world. Before it was the shareholder who motivated bank executives in their thinking, now it’s the customer.
Welcome to a cashless society.
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