Why UNOBank champions embedded finance for growth in the Philippines

The unified banking interface is both a growth strategy and a financial inclusion effort for UnoBank. 

UNOBank is championing the wider adoption of what it calls a unified banking interface– or an embedded finance ecosystem– not just as its strategy to grow its digital bank in the Philippines, but to improve financial inclusion across the country.

The unified banking interface refers to creating an embedded finance ecosystem where banking and financial services are embedded across various customer journeys– such as retail purchases both online and offline, healthcare, and even mobility and transportation.

“This helps us to get ourselves embedded in our customers’ life, and helps them to improve their living and lifestyle; which in turn, we believe will attract more customers to our platform and lead to financial inclusion and ultimately to economic growth,” Kalidas Ghose, co-founder of UNOAsia and chairman of UNO Digital Bank, told Asian Banking & Finance in a video interview. 

But creating such an ecosystem would require a lot of effort, cooperation, and cost– not just from UNOBank, but also from the government and all financial players in the Philippines.

One issue is that the laws that secure finance do not extend to digital players– including vendors and financial institutions. 

In the Philippines, there are laws around physical instruments being given as a repayment for credit contracts which can attract legal punishment in case they're not honored. However, these do not extend to electronic instructions yet, Ghose said.

“But electronic instructions are the way to go in the world now, and therefore we need to make sure that we extend the lender protection laws for physical instruments to electronic instructions as well. That would probably be the first step,” Ghose said.

“We need to make sure that the vendors and the financial institutions who are participating are adequately protected from willful delinquencies, from willful default; and therefore laws which protect the institutions,” he added.

 Asian Banking & Finance spoke with Ghose to learn more about what needs to be done in order to adopt the unified banking interface.

How can the Philippines adopt the universal banking interface?
Ghose: There are many ways that the Philippines can facilitate the growth of the unified banking interface, starting with the unique National ID, a biometric ID that the Philippine Government has already started implementing. They have issued a significant number of IDs to the Filipinos, and are in the process of distributing them so that the individuals can use them for applying to banks which we are waiting for. 

We are also looking at implementing a credit bureau mechanism that goes beyond what it is now, which is fairly fragmented and mandates every financial institution to not only contribute, but contribute in a way that the information can be used by the creditor to answer the queries about the [credit health] of our customers. 

And also, we believe that as the national ID comes into being, linking it to the telephone numbers in the local market would help us prevent fraud, identify customers better, and give them better access to credit in the future. 

One of the factors you’re advocating for to improve credit inclusion is for more public-private partnerships. Could you elaborate more on this?
I guess there are two aspects to this. One, of course, is to make sure that all the data is available in the market .

What improves the customer's credit standing, or creates or helps us assess his credit worthiness? By partnering amongst all the players, both private as well as public, it will definitely help. 

For example, the income tax department, the pension contribution, the contribution towards social insurance and similar other private records, for example, travel records. Of course, financial institutions have banking records. 

If the information network is unified and if there is a regulatory framework, as well as an infrastructure created for exchanging and accessing this information for the purpose of assessing customers in order to extend credit to them, it will be a great help, and it will definitely accelerate access to formal credit, bring the cost of credit down, and in turn, help in to grow by improving both both production and consumption.

What other ways can the country improve its credit inclusion?
One of the significant other ways that the authorities can help is the promotion of open finance. That requires technology to be developed appropriately so that trust and security is ensured. 
The regulatory framework has to be changed in order to facilitate the exchange of information about not only financial institutions, but several departments of the government and even private players. 

Access to these information that the customers are creating as part of their daily life will help us assess them better, customize our products– not just credit products, but also other banking products— and help us offer these products in a seamless manner to them, embedded in their daily life. 

And of course, the other area where the government can help us is by implementing legal protection laws. For example, extending the breach of repayment obligations from physical instruments to online digital instruments as well, like electronic debits and several other ways in which lenders can be protected so that they can foster a healthy credit extension environment. 

What are the obstacles involved in open finance initiatives?
I guess the key key obstacles in the Philippines are very similar to other markets. 
So there is obviously a trust issue. There is, at this point of time, a regulatory framework or a compliance issue, because we [still] need to develop the framework for exchanging this information.

We need to have specialized organizations which are taking custody of the information, as well as ensuring their smooth exchange-- in a secure, safe, confidential and also in a compliant manner. 

There is also a cost of accessing this information that needs to be determined. Obviously,  it ultimately is owned by the customer, and it's in the benefit of the customer. So the commercial model has to develop keeping that in mind. 

But nonetheless, it's got to be ironed over time, the technology which is required for handling such large volumes of data in a safe and secure way; and ensure their exchange amongst institutions in a manner that helps assessing customers and then extending facilities, but also personalizing financial products. I think personalizing financial products is necessary foropen finance to develop.

In your view, what other improvements should be adopted by the financial system or financial regulations in the Philippines in order to improve access to credit?
Implementation is first. The Philippine government has taken steps towards this, and there is obviously a strong will of the government to implement. We have to see it reach its goal in terms of reaching out to every Filipino, so that we are able to identify them. 

The second part of this, as we mentioned, is around linkage of telephone numbers or SIM cards to their national ID; and also creating a credit bureau, where all financial institutions are mandated to contribute their data towards a credit bureau. This is also a credit bureau capable of providing responses to queries made about those customers from other institutions. So Universal Credit Bureau as opposed to a bit fragmented one that is in the Philippines. 

We do believe that open finance will help us access data beyond credit that the customer is saving, and help us assess them better.