Tuesday, September 24, 2024
Riding Into the Digital Age (Speech by MMB Romeo Bernardo at the Induction Ceremony and General Membership Meeting of the Bankers Institute of the Philippines (BAIPHIL))
20 September 2024.
Introduction
(To mention other
MBM present); BAIPHIL President, Inigo “Nitoy” Regalado; immediate past
president, Ms. Racquel Mañago; (to mention other distinguished guests);
esteemed board members and officers of BAIPHIL; fellow BSPers; colleagues;
ladies; and gentlemen, good afternoon.
It is a great
pleasure to be here with you today and carry on the tradition of inducting the
newly elected board members and officers of BAIPHIL. Let me extend my heartfelt
congratulations to immediate past President Raquel Mañago and team for a highly
successful year. I would also like to
offer my congratulations to President Nitoy Regalado and the newly elected
board members and officers of BAIPHIL. I
am confident that under President Nitoy’s leadership, BAIPHIL will continue its
excellent work and make even greater strides.
Digitalization and
Motorcycle Riding
As most of you
know, I have been appointed as a member of the Monetary Board only for over a
year now. During this time, I have been fascinated
by the rapid pace of change in both the banking industry and the regulatory
landscape. Transformations largely driven by digitalization, especially in the
payments system, the focus of my remarks this afternoon.
Digitalization, in
many ways, reminds me of motorcycle riding. I am part of a motorcycle
enthusiasts group, “The Hombres”, which has been written up by fellow rider,
Randy David in his column.
Like motorcycle
riding, digitalization starts with a clear destination in mind. The key questions remain : Where do we
want to go? How do we get there?
I recall that at
the height of our adventures, “The Hombres” would go around Luzon on weekends. We
rode through the Halsema Road in Benguet, completed the Mindoro loop, and even
embarked on an inter-island tour to Visayas and Mindanao via roro[1],[2].
Both the thrill of reaching our
destination and the challenges and fun involved in the journey fueled our
passion.
In much the same
way, digitalization is a journey. Our ultimate destination is to establish
a digital financial ecosystem that ensures secure, convenient, and affordable
services accessible to every Filipino. This
aspiration is reflected in the 2020-2023 Digital Payments Transformation
Roadmap.
Pit stop/Fuel Stop
The Roadmap laid
out two ambitious goals. First, to
strengthen customer preference for digital payments. Second, to foster more innovative and
responsive digital financial services.
I can only imagine the dedication behind
these efforts, particularly in achieving the first goal. The BSP aimed to increase
the share of digital retail transactions to 50 percent (50%) of the total
retail transactions and ensure that 70 percent of (70%) of Filipino adults have
transaction accounts.
Based on recent data, the share of
digital payment transactions grew from 42.1 percent in 2022 to 52.8 percent in
2023. Meanwhile, account ownership continued
its upward growth trajectory from 56% in 2021. We believe that we have attained
the 70% target at the end of 2023 .
But, the question remains, have we
reached our destination? Almost, but not quite.
There is still work to be done to fully achieve the second strategic goal. This
goal envisions a future wherein digital financial services are not only innovative
but also responsive. This
future is characterized by consumer data driving the development of tailored financial
products, a Philsys enabled KYC on-boarding process, and availability of next
generation payment system.
Since 2020, the industry has continued to
evolve. New opportunities have emerged, technology has advanced, and consumer
preferences have changed.
As cliché as it sounds, every journey,
including motorcycle rides, reaches a “point of no return”. These are moments when the only option is to
move forward. I believe that we are at such a crucial point in our
digitalization journey. Now is the time to rethink our strategies and take
a bold leap into the future.
For this afternoon, instead of assessing
where we stand with respect to the second strategic goal, I invite you to focus
on a vision inspired by the concept “Finternet.” This idea was
introduced in a working paper[3] by
Mr. Agustin Carstens, General Manager of the Bank for International Settlements
and Nandan Nilekani, co-founder and non-executive Chairman of the board of
Infosys.
In the said working paper, the authors described
a future where multiple financial ecosystems interconnect seamlessly like
the internet.
In the “Finternet” future, individuals
and businesses would be able to transfer any financial asset they wish, in any
amount, at any time, using any device, to anyone else, anywhere in the world.
Financial transactions would be cheap, secure, and near-instantaneous –
available to all.
The vision is ambitious,
but fully aligns with our goals of building a safe, secure, borderless, and inclusive
digital financial ecosystem.
Preparing for the Ride
(Safe and Secure, Borderless, and Inclusive Digital Financial Ecosystem)
ATTGATT (Safe and Secure digital
ecosystem)
To achieve our goal, we must prepare for the journey ahead.
As motorcycle riders say, ATGATT – “All
the Gears All the Time”. A commitment of
riders to always wear protective gear all the time, whether the trip is long or
short. In the same way, we must protect the digital financial ecosystem to ensure
that financial transactions are secured. This is how we earn the trust of the
public in using digital channels.
The BSP has laid down the foundation by issuing
standards on the use of technology. The regulatory
framework outlines risk management expectations while fostering innovation and
allowing new technologies to thrive. Recently,
we launched the 2024-2029 Financial Services Cyber Resilience Plan
(FSCRP). This plan builds on strong
partnerships of the BSP with other government agencies, financial sector
supervisors, and the industry to further strengthen our defenses against cyber
threats.
Our ATGATT in the digital space involves
four key elements outlined in FSCRP: (1) Establishing defined and coordinated
incident response protocols, (2) Fostering active information sharing and
collaboration, (3) Cultivating a strong cybersecurity culture and awareness,
and (4) Implementing holistic cybersecurity best practices and standards. These efforts are grounded in effective
information sharing among stakeholders for a more impactful cyber response. The
passage of the Anti-Financial Account Scamming Act (AFASA) complements all our
initiatives as it further strengthens our defenses against cyber criminals.
Meanwhile, the BSP adopted state of the
art tools to enhance our risk surveillance.
Many of you are now familiar with PRIME -- Prudential Reporting
Innovation and Monitoring Engine, which is an API based submission platform and
ASTERiSC – Advanced Suptech Engine for Risk Based Compliance, which enables
near-real time monitoring of cyber threats to banks. Soon, we will launch BLAST – Blockchain Analysis
Tool, to enhance monitoring of AML risk in the VASP industry.
These
surveillance tools have enabled us to respond swiftly to cybersecurity threats
or disruptions in the banking system.
This was demonstrated once again in the Crowdstrike-related outage in July,
where, in a short period of time, the BSP identified the impact of the Blue
Screen of Death incident on supervised financial institutions. This informed the supervision and
communication strategies employed by the BSP.
Plan our Route
(Borderless)
Just as a motorcycle rider prepares for a
long-distance journey by planning routes that transcend local boundaries, our
vision for a borderless digital financial system seeks to extend beyond the
confines of our domestic banking system. The aim is to foster interoperability,
not just within our national borders but across them, enhancing the financial
connectivity for Filipinos globally. This would provide our compatriots
overseas with the same ease and security in financial transactions they would
enjoy at home, but with reduced costs.
The BSP has adopted a two-pronged
approach in pursuing this. First, through
bilateral engagements, we are in advanced discussions with Bank Negara Malaysia
to link InstaPay with Malaysia’s fast payment system, DuitNow.
Second,
we are working to establish payment linkages with multiple countries
through a multilateral approach. The BSP
is part of Project Nexus, an initiative led by the Bank for International
Settlements Innovation Hub. This project
aims to connect domestic payment systems of India, Malaysia, the Philippines,
Singapore, and Thailand for real-world applications. We are now in Phase 4 of this project,
transitioning from proof of concept to the live implementation of the
multilateral connectivity of instant payments of five countries. Overseas Filipinos
stand to benefit significantly from the successful execution of Nexus.
Just as challenging routes and
destinations excite motorcycle riders, we share the same enthusiasm when we talk
about new technologies like central bank digital currencies (CBDC) and
artificial intelligence.
Many of you may be familiar with
Project Agila, a CBDC initiative on wholesale or large-value payments. The pilot project is currently underway,
testing the programmability and security of the platform. The project aims to raise
awareness within the BSP and participating domestic financial institutions[4],
fostering a common understanding of the use of CBDC. We are targeting to
publish a report detailing our findings and assessment of the project by the
end of the year.
Similarly, the potential of AI has sparked
our imagination in countless ways. The applications of AI in banking have streamlined
the KYC process and enhanced fraud detection in transactions. AI also facilitated
the use of alternative data for credit scoring, which could unlock financing for
MSMEs.
The BSP is exploring various
applications of AI. In supervision, we
are working on a tool called IDEA or Intelligent Detection of Atypicality
(IDeA) which uses machine learning algorithms to identify unusual data patterns
in prudential reports[5].
The BSP Hackathon also generated AI solutions for supervision largely in the
form of chatbots with information on issued regulations. Meanwhile, we have completed a thematic
review on the use of AI in the banking industry to determine the level of its
uptake and learn about its various uses.
While AI adoption is still in its early
stages, the BSP is committed to collaborating with the industry to develop an appropriate
regulatory framework for this technology.
A framework that fosters innovation while keeping risks manageable.
The Hombres - Inclusive Digital Financial Ecosystem
As time goes on, motorcycle riding becomes
even more meaningful when longtime friends and family members join the ride.
The Hombres has evolved from a group of friends who shares a passion for motorcycles
into a close-knit family bound by shared values and interests. Our group has
expanded to include younger generations and we’ve broadened our activities to
involve our families, creating a deeper sense of community.
This mirrors how we envision our
digitalization efforts to evolve. We need to bring everyone onboard the
financial system. Digitalization provides
the tools to make this possible. But, we must make this affordable. Innovations
like open finance and use of alternative data can help financial institutions
tailor products for Filipinos from all walks of life. These efforts should be
complemented by reasonable pricing of financial products. Ultimately, building an inclusive digital
financial ecosystem will open opportunities for both the public and financial
institutions.
It is also crucial to intensify efforts
to educate the public about cyber threats and the steps they can take to
protect themselves. The successful implementation of the Financial Consumer
Protection Act is essential in empowering consumers and keeping them informed
as we build an inclusive digital financial ecosystem.
Navigating, Keeping Your Balance, Countersteering
Just as riders must account for road
conditions, the weather, and their companions, we must navigate domestic and
international challenges to achieve a “Finternet” future.
On the road, unexpected obstacles may
force riders to seek alternative routes, adjust their speed, keep their
balance, and in the case of a spill, dust themselves off with as much dignity
and stay the course. One of the skills
one needs to learn in riding is how to countersteer—a technique where the rider
briefly turns the handlebars in the opposite direction to maintain control
while navigating curves at high speed. In our digitalization journey,
countersteering represents challenging the status quo and embracing innovative
approaches.
I call on the new board members and
officers of BAIPHIL to adopt countersteering strategies in preparing banking
professionals for the “Finternet” future. Allow me to share some
countersteering measures that BAIPHIL could explore:
First, collaborate with counterpart
training institutes in other jurisdictions to benchmark practices and institutionalize
information exchange on priority areas and emerging areas of interest.
Second, design a structured curriculum
that progressively sharpens the competencies of banking professionals to meet the
competencies necessary in the digital age.
This curriculum should be based on a thorough understanding of their
training needs.
Third, institutionalize the use of
research to establish the industry’s position on key issues and trends.
Fourth, harness advancements in technology. BAIPHIL
should explore offering e-learning modules, utilize Artificial Intelligence as
a resource for banking professionals, and explore additional cutting-edge tools
to remain at the forefront of learning.
Finally, BAIPHIL should help promote a
culture of customer-centricity by looking at the impact of digitalization and
the banks’ actions more holistically on the consumer experience.
Closing
As we chart our course, let us embrace
the spirit of collaboration that defines the most successful journeys, whether
on the road or in the digital realm. Together, let's continue to pave the way
for a safe, secure, and inclusive digital financial ecosystem—one
where financial services empower Filipinos everywhere.
Muli, maraming
salamat at mabuhay po tayong lahat!
[1] Go, Marianne V. (2023): The Tale of the Hombres, The Philippine
Star, 18 August 2023.
[2] The MBM may use other destinations.
[3] Carsten, A and N. Nelekani (2024): “Finternet: the financial system
for the future”, BIS working papers, no. 1178.
[4] Banks: BDO, Chinabank, Landbank, RCBC, and Unionbank; EMI: Maya
[5] Atypicality is detected based on univariate time series forecasting,
use of other accounts as predictors, and peer-based predictions using
common-size values.
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