Today we are shifting our focus to financial inclusion in the Philippines. Today’s interview features Bloom Solutions out of Makati City, Philippines. Bloom Solutions has extensive knowledge of the country’s remittance landscape and the barriers to providing financial access to its unbanked communities. Their interview paints a clear picture of the struggle that Filipinos go through every day to send and receive money and the solution they are putting in place to alleviate the problems for both remittance centers and their clients. Enjoy!
Tell us about your organization? What project are you working on?
Bloom Solutions is a financial technology company. Our first product is a remittance platform that uses Bitcoin, among other forms of money, as a means of value transfer. Our partners, typically remittance companies abroad, are able to send remittances instantly via API calls.
Our second project, which uses Stellar, is called BloomNet. BloomNet is in its pilot phase. The intention is to create a domestic settlement network for remittance centers, which is the primary method Filipinos remit their money. Roughly 3 out of 5 Filipinos do not have bank accounts, allowing these remittance centers to find a good niche in the remittance space.
What markets/customers are you currently serving?
We intend to connect the different remittance centers with a settlement network to give the unbanked Filipinos a better way to send and receive their money.
What problem are you solving for these customers? Why is it important?
Today, remittance companies are isolated from one another. There are peering arrangements between some of these companies, but they are ad-hoc and different for every arrangement. These peering arrangements are cumbersome to implement and sustain. Moreso, it’s inconvenient for the sender and recipient. If you want to send money to a relative in the province, you will likely have to coordinate to find a branch close enough to both of you.
On the other hand, members of BloomNet would be able to deposit money and get an equal amount of Bloom tokens in return. These tokens are used to send and receive remittances in the network. These tokens are used like digital money within the network. When a member sends a remittance, they have to spend tokens to do so; when a member receives a remittance, they get paid in tokens.
BloomNet helps alleviate the problems for two kinds of customers: (1) the remittance center companies and (2) their clients.
Remittance Center Companies:
- Leverage the network effect. Through joining the network, companies effectively expand their reach, giving more reasons for senders to use them.
- Simpler integration. With BloomNet, they would simply integrate with one API instead of dozens of APIs.
- Instant settlement at the token level. Currently, for every peering arrangement, settlement is done at the end of a period (like a month), and the reports of one company often differ from the other. With BloomNet and the Stellar blockchain, the tokens passed around mean instant settlement at the token level.
- Single settlement of Philippine Pesos and PHP tokens. If a company sends more remittances than they receive, they will end up exchanging Pesos for PHP tokens. If a company receives more than they send, they will end up exchanging PHP tokens for Pesos.
Senders and Recipients:
- Convenience. Recipients do not need to look for the branch under the same company that the sender used. This can mean avoiding hours of travel.
What is the biggest barrier to providing financial access to these communities?
The Philippines is famous for its 7,107 islands. This works against any endeavor that requires physical distribution. It is not uncommon to have to travel a couple of hours by boat and land just to claim a remittance.
Cash, being a physical object, falls under this constraint. A remittance of PHP 500 typically costs PHP 30. It’s understandable, too: these remittance companies need to have stores all over the country, agents to keep them open and count money, and a delivery network to deliver physical cash.
What efforts are being put in place by Government and others in your region to drive Financial Inclusion? Are there regulations, targets, initiatives specifically geared towards Financial Inclusion?
Fortunately, the Bangko Sentral ng Pilipinas (or “BSP” – Philippines’ Central Bank) frequently reports on this. The latest one can be found here. There are many initiatives, from increasing the reach of the financial institutions to financial education.
Anything you find particularly exciting?
As it is closely aligned with our work, we keep an eye on developments around the National Retail Payments System (NRPS). NRPS is a set of guidelines set forth by the BSP for the industry to implement. These guidelines envision electronic payments of bills through financial institutions to companies and relevant governmental institutions (like our tax authority).
Relative to other countries, the BSP seems to be doing well. They have initiatives and report on their progress. It also seems that they understand that adding more regulation will make things more expensive for the companies that provide services to the underserved.
In your opinion, what are the key variables that need to be put in place to solve Financial Inclusion in your regions?
The key variable is our ability to get past geographic limitations. With 119% SIM card and 40% smartphone penetration, the road has been paved for digitization of money. We no longer need to convince others to buy mobile phones – we just need to make these services available on their phones.
What does financial inclusion mean to you? Why is it essential to the next financial infrastructure?
Financial inclusion means giving people the chance to access financial services. It’s essential because it gives people more options, and typically allows them to save more time and money. By making it cheap or almost free for the underserved, everyone will benefit. With cheap and efficient payments, operational costs for companies and the government will go down as well.
How will digital innovation expand access to underserved communities? How are you using new technologies to achieve this?
Though BloomNet does not aim to interact directly with the underserved, it will fill gaps needed for digital money.
What we need to do is to continuously close gaps. Between filled needs is a gap of opportunities. If we attempt to close all gaps at once, then even the largest of companies would stretch its resources too thin. Adding remittance centers is a relatively small gap that has immediate benefits.
What challenges (technical, regulatory, acceptance/adoption etc) will need to be solved in order to provide access to the digital economy for these communities?
While the Philippines claims to have invented e-money, adoption has been disappointing. It’s important to know why rates of adoption are low and learn from them. Here are some reasons:
- Cumbersome registration. For people to even use e-money on their phones, they have to register. Registering means visiting a mobile center, filling up forms, submitting documents, and spending roughly half a day in total. It doesn’t matter if you only intend to put 200 Pesos (about $4 USD today) – you had to fill up the forms.
- Few stores accept it.
- Not interoperable. You cannot send e-money from one mobile carrier to another
It seems that e-money should behave more like cash. It is ludicrous to expect people, especially if they are from the countryside, to go to some office at the center of town and register themselves before they are allowed to receive paper bills. Why do we expect mobile money to be much different?
What role should regulatory bodies play (if any) in bringing new digital technologies (i.e. blockchain etc) into mainstream financial services?
I would like to see the regulatory bodies place even a lighter hand on regulation, especially for personal consumption. I do not expect them to innovate, but if they want to include more people in the financial space, they ought to understand that every burden placed on the financial institutions, justified or not, means fewer people included in the financial system.
If blockchain will do to the financial system what the internet did to media and commerce, who do you see as the emerging key players in this future digital economy? How should existing players – banks, microfinance institutions etc. – position themselves to take advantage of the new digital economy?
Blockchain technology grants many efficiencies due to its transparent and programmable qualities. Every efficiency lowers the cost of operation on both the regulatory and commercial aspects.
Incumbents move slowly and are less likely to adopt new technology. They are also likely to give away business as the margins become too small for their operations.
I think banks will still play a major role – but perhaps less so in personal banking, and more in corporate and investment banking.
Functions like lending, remittances, and bills payments will become scattered across smaller players that do each of these things well. Just think of Amazon, which dominated online book retailing before Barnes & Noble could react.
If the incumbents want to increase their chances of staying alive in these markets, the biggest chance I see they have is to lower costs by adopting these technologies before the new Amazons hit the ground running. This is certainly easier said than done because it’s partly a cultural shift. In this scenario, I would take the advice of Clayton Christensen and create spin-off organizations that play in this new space.
There is little debate about the future of blockchain tech: it is the direction we’re going. If it is given enough room for innovation, it will be used by companies to get the rest of the 2.5 billion people on board the financial system we take for granted.