Republic of the Philippines

Region IV-A CALABARZON

Mabini College of Batangas, Inc.
Bachelor of Science in Business Administration
J. Panopio St., Poblacion, Mabini, Batangas

Final Requirement
in
Global Finance and Electronic Banking

Caibigan, Vincent Paul C.

June 2023
Electronic Banking

According to the website Britannica, electronic banking is the “use of

computers and telecommunications” that enables people to perform “banking
transactions to be done by telephones or computer” without any means of human or
personal interactions. For the Bangko Sentral ng Pilipinas (BSP), electronic banking
is a financial system that allows bank clients to access bank’s products and services
via the Internet or a telephone. Features of electronic banking includes Automated
Teller Machines (ATMs), electronic fund transfers through retail purchases, and
automatic payroll deposits and bill payments. Also known as e-banking or online
banking, electronic banking refers to the utilization of electronic technologies and
systems available to the public for exercising and conducting various electronic and
online banking and financial transactions over the Internet and other electronic
networks. It authorizes customers to access and manage bank accounts, financial
transactions, and banking services through digital channels such as computers,
smartphones, tablets, and other Internet-based devices.

Electronic Banking in the Philippines

Given the above definition of electronic banking, the Philippines slowly

adopted the use of electronic systems in banking and finance. In the modern
Philippine society, Filipinos—who have the access to digital bank accounts—
embraced and reaped the potentials and—presumably little—benefits of electronic
banking. To broaden the background information on electronic banking, it is critical to
recognize its history and how it began, its roles in modern society, and common
banking activities that are prevalent in today's financial transactions.

a. History

Electronic banking became popular in the Philippines in the late 1990s and
early 2000s. During this period, Philippine banks began to embrace digital
technology and introduce electronic banking services in offering customers with
efficient and convenient ways in managing their finances. Carlo Gatuslao, Assistant
Vice President for Electronic Channels Group at Bank of the Philippines Islands
(BPI), stated that the first experiments with internet banking occurred in the late
1980s. Internet banking was also not widely used in the Philippines. Some

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international banks successfully implemented transactional internet banking in the
mid-1990s.

In January to September 2004, IT World Canada reported that there had been
an increase of 66% in terms of total value of customer transactions through
electronic banking facilities in the country, amounting from 3.19 billion pesos in 2003
to 5.32 billion pesos. According to United Coconut Planters Bank (UCPB) Vice
President Margarita Lopez, the steady growth in transactions reflects bank
customers' growing reception of a secure, reliable, and convenient electronic
banking.

Development Alternatives Incorporated (DAI) stated that at least 80% of

Filipino households own more than one mobile phone which may have the potential
to evolve as a “cash-lite” society by extending access to financial services through
the utilization of smartphones and allowing those people without any bank accounts
to accumulate assets, resist financial shocks, and actively participate in this
conventional economy. In April 2012 with the implementation by the DAI in
collaboration with the Philippine government, the United States Agency for
International Development (USAID) introduced the Scaling Innovations in Mobile
Money (SIMM) Project, a two-year project which employs a market-development-
based strategy in order to boost electronic payment adoption in precedence to
government payments and payroll and connect Filipinos to different private and
government financial institutions through their mobile phones. USAID Deputy
Mission Director Reed Aeschliman said that the SIMM Project will encourage people
in the government for greater efficiency, transparency, and accountability and
improve public services to local citizens, to which Department of Budget and
Management Undersecretary Richard Moya agreed upon.

In 8 November 2017, the Bangko Sentral ng Pilipinas (BSP) launched

Philippine EFT System and Operations Network (PESONet) System, a first and
batch electronic fund transfer (EFT) credit payment alternative scheme for facilitating
clearing and settlement rules of transfer funds from one account (payer) to one or
several accounts (payee/s) maintained by supervised financial institutions
administered by the Bangko Sentral ng Pilipinas. PESONet systems has the capacity
to be a viable substitute to paper-based cheque system and may be used to facilitate

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salary and benefits payment, government disbursements and collections, bills
payments, suppliers’ payments, and other financial transactions. It played a critical
role in facilitating electronic transactions and paved the way for further advances in
electronic banking services in the country.

In 23 April 2018, the BSP launched the second EFT service called InstaPay
under National Retail Payment System (along with PESONet) that enables instant
fund transfer from a BSP-recognized bank and non-bank digital money issuer to
different account in the Philippines. Through InstaPay, Filipinos can secure a safe
and affordable electronic payment transactions in real-time and be able to receive
funds or make payments of at least ₱50,000.00 per transaction without any
limitations.

Capistrano (2021) stated that in August 2020, the Bangko Sentral ng Pilipinas
reported a total PESONet transactions amounted to ₱252.9 billion which represented
a 120% volume and 70% value increase resulted from bulk and recurring
transactions; On the other hand, a total InstaPay transactions amounted to ₱141.2
billion which represented a 312.2% volume and 206% value increase resulted solely
from low-payment transactions. Both EFT service systems followed a March 2020
reference line. As of 19 May 2023, Ta-asan (2023) reported that PESONet and
InstaPay transactions had continued to increase year-to-year with a strong growth of
₱2.36 trillion and ₱1.45 trillion—a 25.5% and 39.4% growth increase than 2022—
respectively. Data reports from Capistrano and Ta-asan signifies that electronic
banking service system has become a critical financial component in the Philippine
financial system, mainly due to its widespread use of online channels in online
payments and transactions caused by the coronavirus pandemic.

During the country's pandemic surge from 2020 to the present, electronic
banking in the Philippines continued to evolve and expand. Mobile banking
applications, such as GCash by Globe Fintech Innovations, Inc. and Maya (formerly
PayMaya) by Maya Company, began to flourish and gain popularity, allowing
customers to access banking services via smartphones and tablets. The addition of
new banking features such as bill payments, fund transfers, and mobile wallet
integration has improved the country's electronic banking experience. In addition, as
a response to the growth of financial and banking transactions and the rise of

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financial technology in one of Asia's many emerging industries, the BSP launched
digital banks in 2020 as a new fundamental tool and formal bank category in the
Philippines. With the issuance of Circular Order No. 1105 titled "The Guidelines on
the Establishment of Digital Banks," the need to digitalize bank transactions allows
digital banks to apply for formal licenses with the goal of targeting 50% of digital
transactions and encouraging at least 70% of Filipinos to open their own digital
account by 2023.

b. Roles of Electronic Banking in Philippine Society

The sudden rise of digital banks during the verge of the pandemic years can
be a significant key player in the delivery of financial products and services that
traditional banks cannot provide. This type of behavior encourages the Philippine
government to prioritize electronic banking and payment methods in order to
increase digital and financial inclusion efforts across the country. Thus, electronic
banking is important in Philippine society, providing numerous benefits and
influencing various aspects of people's financial lives.
Electronic banking has aided in the expansion of financial inclusion in the
Philippines with limited physical access to bank branches in accessing banking
services and financial transactions (Hani, 2021). This is especially beneficial for
people who live in remote areas or have physical limitations because domestic
payment services like GCash and Maya are already operating and competing for
financial payment-based niche under the country’s evolving and promising standard
of digital financial services (De Gantès et. al., 2023).
Customers benefit from the convenience and efficiency of electronic banking.
They can access their accounts, conduct transactions, and obtain banking services
at any time and from any location by using online platforms or mobile applications.
When compared to traditional methods, such as visiting a bank branch or writing
checks, this saves time and effort. It is primarily one of the reasons why the Bangko
Sentral ng Pilipinas created and launched electronic fund transfer systems (EFTs)
for easy, alternative, and accessible digital transactions, allowing customers to
authenticate themselves in purchasing products and services with QR and near field
communications (NFC)-enabled payments, giving them full control in all transactions
without the need for PIN-based security (Hani, 2021).

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 Electronic banking encourages the use of digital payment methods and aids in
the development of a cashless economy. Customers can use online banking to make
electronic transfers, pay bills, shop online, and use digital or electronic wallets. This
reduces reliance on physical cash, improves transaction efficiency, and supports the
government's digital transformation efforts. Meanwhile, the increased demand for
innovative digital and financial services has resulted in the rapid expansion of digital
payment platforms ranging from electronic wallets to digital banking apps. As a result
of this increment demand, the country's annual banking revenue increased by 9-10
percent and is expected to triple by 2030 (De Gantès et.al., 2023).
Overall, electronic banking has changed the way Filipinos manage their
money. It has made financial services more accessible, efficient, and secure, giving
people more control over their money and contributing to the Philippine economy's
growth.
c. Common Mobile Banking Activities
Mobile banking in the Philippines provides a wide range of activities and
services that enable customers to manage their finances. The Consumers and
Mobile Financial Services survey reported by The Federal Reserve provides an in-
depth look of the most common banking activities and how [credit union] members
viewed mobile banking as a banking strategy. Through mobile banking, customers
and bank account owners can check their bank account balances and view bank
transaction history; allows to make fund transfers between their own accounts or to
other accounts within the same bank or different banks; pay utility and credit card
bills directly through mobile banking applications; provide features to locate nearby
Automated Teller Machines (ATMs); receive notifications and alerts about recent
transactions from the preferred financial institutions; download mobile banking
applications to manage personal information, beneficiaries, recurring payments, and
customize account preferences; and offer the feature to deposit checks electronically
through taking photos (Packer, 2014).
It is significant to mention that the accessibility of these specific mobile
banking features varies on the bank dependently and mobile banking application
used provided by the preferred financial bank by customers. However, many
financial banks in the Philippines offer the aforementioned activities through their
mobile banking platforms.

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Advantages and Disadvantages of Internet Banking

As a result of its widespread use, Kvartalnyi (2022) provides some positive

benefits as well as unrecognized shortcomings of electronic banking.

The advantages of electronic banking are: (1) Improves customer service

experience by being available 24 hours a day, allowing greater flexibility in managing
finances and performing financial transactions beyond normal banking hours; (2)
Time efficiency in the transaction process, which saves time and eliminates the need
for personal bank visits in all transactions; (3) Reduces workload capacity by
eliminating the human factor during work operations, requiring bank employees,
officers, and bank representatives to increase productivity and quality, and devoting
more time to resolving personal client concerns; (4) Monitoring bank transactions
and managing bank accounts and balances via mobile banking tools and features;
(5) Added services as provided by banks and other financial institutions where
customers can control funds remotely, deposit checks, activate debit or credit cards,
and block and send funds; (6) Enhanced security which require multi-factor
authentication (phone number, mail, ID, fingerprint/face scanning) as a measure for
maximum security against hazard and intended harm, and; (7) Catching fraudulent
behavior in personal banking accounts through regular checking of account
activities.

Despite the benefits of electronic banking, it does have some drawbacks. One
factor was its security, even though banks are struggling and failing to acquire the
best, safest, and more secured bank system mainly due to insufficient code
protection from mobile banking applications, reported information leakages and
mindless Application Programming Interface (API) data storage, and inefficient
encryption methods at the surge of the COVID-19 pandemic that enable hackers to
perform illegal activities. The second factor was technical issues with banking
applications caused by bugs that occurred during the development process and, in
some cases, after the application launch, resulting in glitches and unfavorable
application issues. Third factor was the addition of charges to bank services such as
extra service fees and insurances. But Publico (2023) listed among his
disadvantages of electronic banking were: the lack of Internet access to some rural
provinces in the Philippines and the country’s poor signal connection; the limited

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availability of electronic banking to some business establishments as 44% of
Filipinos are still unbanked; and security threats involving social engineering where
users are tricked to share personal details to hackers and have the possibility to be
shared through phishing, fake emails and websites, and scams even when protected
by SSL or Secure Sockets Layer, a standard technology in securing sensitive user
data.

Internet banking provides numerous benefits in terms of convenience,

accessibility, and efficiency. Customers, on the other hand, should be aware of the
potential security risks and follow best practices to protect their information and
accounts.

Risks in Electronic Banking

Given the current state of affairs in the Philippines, where the cost of basic
necessities is rising and unresolved, the possibility of digital risk in electronic banking
is increasing and unavoidable, and attackers may target random bank accounts
either with prior notice or in stealth efforts to steal data and bank funds from bank
customers. According to then-BSP Governor now Secretary of Finance Benjamin
Diokno himself, “data privacy concerns, money laundering, and electronic frauds” are
the key issues concerning the confidence of operation for digital banks and
electronic banking in the country, saying financial institution stakeholders must adopt
an adequate preventive measures and controls to avoid suck risks. Therefore, the
role of the BSP was to secure the finance environment with the establishment of
regulatory policies that enable innovations while ensuring the protection of its
stakeholders (Noble, 2021).

Increased digitalization raises operational risks for banks via technology,

exposing the weight of the bank's issues to the public, which can potentially become
a financial risk, affecting the bank's satisfactory ratings if incidences of technological
failures and bank vulnerabilities persist, and showing weakness in lender’s part of
risk management. According to Tamma Febrian, Fitch Asia-Pacific Financial
Institutions Director, hacking incidents, phishing scams, and ransomware are the
external issues that banks face in online banking, while the history of bank failure
system has been the cause of risk experience due to outdated and unscalable
technological system in its internal management (Ta-asan, 2022).

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 To summarize, the main risk of electronic banking in the Philippines was
cybersecurity threats, which made bank customers and the general public who had
access to their digital banking accounts vulnerable and an ideal target for security
hackers to confiscate and steal bank and confidential information. Along with the risk
comes the level of trust in these banks to accept full responsibility for financial losses
incurred during online transactions between accounts.

Digitalization in Banking and its Contribution to Sustainable Financial Climate

in the Philippines

Despite the promising facade of online banking in society, it is clear that

electronic banking has its own unique ways of contributing to the Philippine
economy. As the demand for cashless payments and transactions grows and
intensifies, it is natural to adapt an efficient, alternative, and simple method of
managing and controlling funds. Although a large portion (44%, unbanked) of the
Philippine population still don’t have the access from decent connectivity and reach
by the influence of electronic banking amid the demand for financial services, the
country’s banking revenue has its growth to nine to ten percent.

In the mention of financial services, established banks also slowly adapted the
revolutionize facets of digital finance for a healthy competition between dominating
financial service providers. To name, the Bank of the Philippine Islands (BPI)
launched Vybe, an electronic wallet with the same financial services as GCash and
Maya, and can become a key player in its prospective market segments (De Gantès
et. al., 2023). Regardless, digital financial services performed well in their
perspective field as customers have slowly turning to embrace digital banking in
recent years.

Although risks are within every corner of daily online banking activity, the
adoption of electronic banking made a significant alteration in people’s mind in
response to their banking. Certain large business during the pandemic embraced the
application of digital financial transactions in cash payments and transfers. Electronic
banking as a means of preparation for a cashless economy is an advancement for a
sound and healthy financial transaction.

Moreover, the presented opportunities and advantages for electronic banking

in the Philippines have far overshadow the risks. A vigilant observer about the

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present issues facing by financial service providers, especially banks and other
financial institutions, can have the firsthand advantage. To understand how digital
finance works, either through banking or financial transactions, basic financial
education in methods, limitations, context, relationship, and position on the national
economy is required. In this regard, the desire to assist and influence the unbanked
in the future will have a significant impact on the financial system's growth and, as a
result, contribute to the country's economic growth.

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AffordableCebu. History of Internet Banking in the Philippines.

https://www.affordablecebu.com/load/banking/history_of_internet_banking_in_the_ph
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NextPay Editorial Team. 3 September 2021. The Evolution of Digital Banking in the
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the-philippines

Patricio, Melissa V. 25 November 2004. E-banking Popularity Rising in the Philippines. IT

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DAI. Facilitating e-Banking in the Philippines. DAI Global Developments. https://dai-global-

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Villanueva, Joann. 24 January 2022. PH digital transactions to grow despite challenges:

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Hani, Aineena. 06 October 2021. Digital Banks to Bring Significant Impact on the Philippine
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