Companies, industries, and institutions in the Philippines are actively investing to digitally transform IT systems and infrastructure to modernize business practices and serve the needs of an increasingly interconnected and tech-savvy population. In urban areas such as Manila and through institutions such as the Bangko Sentral ng Pilipinas (BSP, or Philippine Central Bank) and the Philippines’ Securities and Exchange Commission (SEC), the banking industry has been receptive to and proactive in its use of new technologies to meet the changing needs of its clientele and make a difference in the lives of customers throughsmarter banking.
But for rural banks—a key Philippines banking segment—a lack of resources and inclusion with larger banking institutions have made it nearly impossible to thrive or even survive. The challenges rural banks face leaves a large majority of rural-based Filipinoswith little or no banking access to conduct transactions, which include receipt of the remittance paymentsthat account for up to 10 percent of the Philippines’ GDP.
UnionBank is a pioneer in its use of blockchain technology and,along with the BSP, it looks to use emerging technology to drive future banking practices and inclusivity in the Philippines.
“We saw the context of the rural bank platform as a compelling use case for blockchain technology,” says Ramon Vicente V. de Vera, head of the FinTech Business Group at UnionBank. “There are about 500 rural banks in the Philippines with a total of 2,600 branches, and they’re not connected to each other or a banking payment system. Given their size and resources, they’re often considered second or third tier and are excluded financially. We felt the social impact we could have by building a blockchain platform to connect rural banks to each other and to individuals would be profound for the Filipino population and banking industry.”
UnionBank turned to ConsenSys, an AWS Partner Network (APN) Advanced Technology Partner, to build a blockchain solution that offers rural banks a new way of doing business to drive growth, sustainability, and increase banking access for its citizens.
ConsenSys’s mission is to make blockchain technology accessible to companies and individuals around the globe and drive social change and inclusion using Ethereum, an open-source blockchain-based protocol.
“We engaged with UnionBank for many months to identify potential solutions to the financial inclusivity pain points they sought to address using blockchain technology,” says Aiai Garcia, solutions leadfor Asia and the Pacific at ConsenSys. “Through our blockchain expertise, consulting services, and the use of Kaleido, ConsenSys’s new all-in-one blockchain platform running on AWS, we want to help UnionBank bring the unbanked to the global marketplace and bring rural banks and their clients more financial services options.”
In January 2018, a team of UnionBank and ConsenSys employees flew to the municipality of Cantilan, in the province of Surigao del Sur in the Philippines. There they got a first-hand look at the challenges faced by a rural bank seeking to serve a population in which up to 70 million individuals who have no bank accounts or easy access to banking.
“The Cantilan bank experience was eye-opening for both of our teams,” says de Vera. “The Cantilan bank quickly came on board as one of five initial rural bank participants in a pilot to test the use of a remittances platform built using Kaleido on AWS.” ConsenSys and UnionBank kicked off the aptly-named Project i2i to drive institution-to-institution, individual-to-individual, and island-to-island financial connectivity and domestic remittances, Project i2i introduces a domestic remittance network using tokens on a private blockchain platform.
Until today, rural banks have shouldered the burden of manually processing tasks for domestic remittances and BSP compliance. Rural banks must perform the same compliance tasks as commercial banks, even with fewer personnel and information-gathering resources. According to the BSP, about 80 percent of all rural bankshave little or no integrated computerized systems for their core banking processes, while some have no systems at all. Project i2i’s blockchain-based processes will free up rural bank employees to serve more customers, rather thanhaving to process back-office transactions and administrative tasks.
“We are leveraging blockchain to create this decentralized, cost-efficient, and near real-time network allowing for the execution of domestic payments that don’t rely on existing infrastructure and intermediaries,” says de Vera. “This will improve our clients’ experience and boost our local economy because they can now use trusted community banks to execute remittances faster and cheaper, instead of using pawn shops and other non-banks and paying unnecessary fees. And as an example, we can now move from more than 20 steps to execute a domestic remittance to than fiveor less.
“This result supports UnionBank’s goal of helping the rural institutions drive operational efficiencies and save costs in accepting and processing domestic remittances, with UnionBank initially facilitating the final settlement of remittances. As part of the project launch, ConsenSys and UnionBank began training rural banks on the technology and then onboarding participating banks for its pilot. The pilot launched with five rural bank participants in early June 2018.
“We are planning to onboard many more rural banks throughout the end of the year and ultimately see this project as a stepping stone for the introduction ofmore sophisticated financial services across the Philippines in the future,” says de Vera.
Kaleido’s all-in-one blockchain platform helps accelerate and simplify the use of blockchain technology for security-conscious companies. Instead of spending millions of dollars building a blockchain solution from scratch, UnionBank used Kaleido to address the challenges of building a multi-organization blockchain network and quickly moved from concept to execution.
De Vera says the UnionBank team is just beginning to understand how to leverage blockchain technology and the cloud to better serve customers and support a mission of financial inclusion. “I believe we’re going to see a complete paradigm shift in the way institutions such as ours function day-to-day using technologies such as blockchain to drive efficiencies and inclusivity,” says de Vera.
In addition to better connecting rural banks, de Vera says Project i2i has the potential to help the financial industry in the Philippines address the following use cases:
- Crypto-currency exchange/trading venue;
- Domestic remittances for rural banks;
- Foreign remittances and cross-border payments;
- Token launches;
- Inter-bank payments and settlement, and
- Know your customer (KYC) processes.
For rural banks, participation in Project i2i provides many benefits, including:
- Back office accounting simplification, which is a critical factor to encourage the growth of rural bank operations (and, consequently, financial inclusion);
- Improved customer service, without disrupting the high-touch relationship maintained with the clients;
- Cost reductions;
- Cost avoidances;
- Regulatory transparency and credibility;
- Responsible and compliant corporate governance;
- Easy operability with limited integration, even in low-tech settings;
- Lower transaction times, and
- Reconciliation reduction.
“We feel that using Kaleido on AWS will allow for so much possibility and interconnectivity for rural banks and the Philippines banking industry,” says de Vera. “If we enable the rural banks, who are the first mile for banking in rural areas, then we can supportcustomers and drive new opportunities for growth across the industry. That’s very exciting.”
Watch this video about the Project i2i blockchain venture between UnionBank, Kaleido, and ConsenSys, and how it's making an impact by bringing financial inclusion to the millions that are unbanked in the Philippines.