How Philippines' cash management services transformed and thrived in the pandemic

Big businesses are pushing MSMEs to take up digital banking, says Carlo Nazareno, head of cash management at BDO.

With more than 99.5% of the total businesses in the Philippines being micro, small, and medium enterprises (MSMEs), and with digital infrastructure being vastly different between islands, cash management services (CMS) understandably remain quite rare amongst small businesses in the Philippines.

This spells trouble for a country whose financial regulator has set an ambitious target on banks to have 50% of their transactions on electronic mediums by 2023—even for the country’s biggest banks such as BDO Unibank, where many of their clients still prefer to pay and transact via physical means.

A significant number of small businesses that have access to CMS still have owners who prefer to go to bank branches as there remains some distrust for digital processes, according to Carlo Nazareno, senior vice president and head of cash management at BDO Unibank. Nazareno describes the CMS scene in the Philippines as “a good mix of electronic cash management services, in addition to physical.”

“In certain areas in the Philippines, where our country may not have very good technology infrastructure, physical branch presence still plays a major part,” Nazareno explained to Asian Banking & Finance in an exclusive interview.

In places where there are no physical branches, banks such as BDO have found a workaround by partnering with brick-and-mortar alternatives like pawn shops and money transfer bureaus.

But the COVID-19 pandemic has shaken up this ecosystem, driving more customers to take up digital banking channels. The trend includes BDO’s corporate clients, even those who were initially unwilling, or did not understand how, to use digital channels.

“A lot of customers who were previously very averse to using online and mobile banking, are now opening their doors to installing and using online banking [platforms], ,” says Nazareno.
BDO's head of cash management—who worked for 16 years in the United Kingdom in big international banks such as Citi, HSBC, J.P. Morgan, Bank of America Merrill-Lynch—has been tasked with enhancing BDO’s digital CMS platform. He observed how, during the pandemic, big businesses have been key to encouraging MSMEs to take up digital cash management and banking services.

According to Nazareno, his team saw how larger corporate clients would ask their supply chain partners to send orders and payments digitally online. This trend is making it easier for MSMEs to experience the benefits of digital cash management and banking services.

“Once our customers experience the ease with which electronic banking allows them to collect payments, and in turn pay their suppliers efficiently and minimise disruptions to their supply chains, they realise the benefits to their operations. Then they tend to use it more,” he added.

Asian Banking & Finance caught up with Nazareno to learn more about the cash management scene in the Philippines, learn more about BDO’s cash management services, the bank’s experience of servicing customers amidst the pandemic, and his goals for the bank.

Could you give us an overview of the cash management scene in the Philippines? Are there any notable trends you’ve observed?
The Philippines is composed of different islands, with a wide range of ways in which people either collect their money or make their payments. The scene is a good mix of electronic cash management services, in addition to physical bank and non-bank methods. In certain areas in the Philippines, where our technology infrastructure such as internet access or even mobile access is not well-developed, there is a real need for physical branch presence. We at BDO recognise this, so that even in areas where we may not have branches, we have a network of partners and affiliates such as pawn shops and money transfer bureaus that offer physical brick-and-mortar alternatives.

With COVID-19, it has become even more critical for our customers to be able to access and manage their cash and working capital efficiently to ensure that they have enough liquidity to continue to operate. With movement restricted by national and local quarantine restrictions, our customers have not been able to collect payments using their traditional methods. They have had to find alternatives. Our digital banking solutions have been widely adopted by businesses of all sizes, allowing them to continue to collect funds without having to send couriers around and handle cash. By collecting from customers and paying suppliers electronically, they are able to keep their cash flowing, and keep their balance sheets healthy without risking the health of their employees.

Could you give us an overview of BDO’s cash management services and products?
BDO offers a comprehensive cash management services product suite. It's a combination of what we call digital services and cash services. Digital services are all of our products that are electronic, which enables our clients to move money electronically, either through a mobile banking app or an online banking app, or through host-to-host connectivity. They are able to easily send money to other BDO customers or even to other banks. They are also able to receive payments electronically into their BDO account from anyone, anywhere in the world.

Our cash services side involves the physical management of cash, coin and checks, [where] we leverage our extensive branch network.

We also have a wide range of customers in terms of both consumer and institutional clients. Our suite of collection services is flexible, and we can collect physical cash from almost anywhere in the Philippines. Whether they would like to come into one of our 1,183 branches around the country, or would need us to collect on their behalf, we have solutions that can be deployed. For example, we can  collect large amounts of cash safely using our armoured car service, or reach the most remote areas of the country with our motorized collections. This makes use of motorcycles in locations where we may not have a branch presence.

We also leverage our partners. On the cash services side, we make use of the BDO One Network Bank. In other provinces we are also partnering with pawn shops to do the collections on our behalf.

We’ve also introduced a new department which focuses on information services. We know that in cash management, data and information is very important - not only for us but more importantly for our clients. The right information allows them to really understand who is paying them, and at the same time, give them insights into areas where they can be more efficient. For example, information services will help them identify where their money is, and help them forecast and manage their cash flow more effectively.

What are the biggest challenges that CMS encounters amongst Phillippine businesses and enterprises?
There are a few challenges for cash management in the Philippines. First and foremost, the lack of infrastructure. If you look at the non-metro areas in the provinces, they may not have the same amount of access to the internet or even mobile devices.

We want to align with the vision of Bangko Sentral ng Pilipinas (BSP) for electronic payments by 2023, [but] the lack of infrastructure definitely delays that transformation. So although the BSP has a very, very aggressive timeline for getting 70% of adults to have access to an account and then to move 50% of transactions to electronic [mediums], this is going to be very, very challenging if there is no proper infrastructure.

Second, I think the challenges also are related to how the government and how “banks and customers” operate. For example, if you look at the Bureau of Internal Revenue (BIR) and what its requirements are for corporate clients—where they still require physical official receipts, physical proofs of payment for the tax returns—there really isn't a program to help migrate these documents into electronic platforms. Until these are digitised, there will  remain a need for a physical processes.

Physical process are less efficient than electronic processes and they're costly. It also challenges our corporate clients on how to be more efficient and how to organise themselves. So although we may want people to move electronically, it has to be a complete end-to-end view from all of the different points in the payment cycle. It needs upgrading or changes for us to fully realize the benefits of digital payments.

Third, it's the culture. If you look at Filipinos and how they look at cash management outside of the metros, it's very traditional for them to want to go into a branch, have coffee with the branch manager, [and] develop personal working relationships with the branch staff. And that is very difficult to change.

So for example, when you look at what happened during the pandemic last year, when we and most other banks had to keep branches closed to stop the spread of the virus, bank customers may not have been ready to migrate automatically into electronic [platforms].

How is BDO working to overcome these challenges?
In terms of these, infrastructure will be difficult for us as a bank to change on our own. This is an industry-level problem that requires an industry-level solution, supported by government and policymakers.

On one hand, we continue to engage with our industry peers and the BSP to collaboratively find ways to address the issues.

I have participated in a few roundtables with the BSP, and roundtables with our corporate and institutional clients, with the clearing houses, and the banks, looking for ways to work together to help streamline this. There is already recognition that this is a problem, and there is clear willingness from across the industry to collaboratively work towards a solution.

As long as the dialogue is ongoing, there are clear milestones that the industry is working towards, and I think the Philippines can take that step forward in becoming more digital. But it will have to be a concerted effort amongst all of the players—the government, the central bank, the banks, the clearing houses, and the corporates—whilst working to make it easier for the entire industry.

This, however, is not going to happen overnight, so in the meantime, we continue to work closely with our customers to find ways to try to be more efficient, especially in provinces that may not have the right infrastructure. We continue to innovate and develop solutions that directly address individual customers’ needs.

In terms of culture, I think COVID-19 has played a major role in changing peoples' mindsets. Even clients that never had online bank accounts were suddenly open to the idea of it as a contingency process versus going to a branch.

Now, the question is: If things go back to normal, does cash management go back to being physical? We're hoping that the people who have seen the benefit of electronic [banking] will continue using electronic means because the benefits do outweigh the downsides. As a bank, we continue to invest heavily in making sure that our systems are secure against cyber threats. We have processes for fraud prevention. And we have the expertise and experience to build security into all our solutions so that people  can continue to trust the electronic channels and electronic means.

How did COVID-19 change the way Filipinos see CMS? What did BDO do to accommodate these changes in views and demand?
When COVID-19 happened, a lot of physical contact between people and the mobility within the country were frozen during the lockdown. And if you were doing business, you faced what was previously unheard of:  you couldn't even send goods out, couldn't talk to people physically, couldn't collect cash.

We as a bank always prioritise our customer needs, and more importantly, focus on how we can actually help them. So the first thing we did was make sure that we were accessible. And although there was limited mobility, we made sure that we had the people in major critical roles operating during the pandemic. We also had, in critical locations, branches in operation.

The next thing was to look at different scenarios of the lockdown – was it going to be extended, and on what terms. There was no question that we had to ensure our customers had access to electronic payments.

We considered our client base. We did have quite a number of customers who don't have online bank accounts, although they've been with us for a very long time. We said, okay, in order for them to continue to operate efficiently, it's important that we reach out and start having conversations about online banking, and more importantly, help them migrate. Because, again, some of these companies that we deal with are still run by the patriarchs or matriarchs, or the people who started the businesses who may be of a certain generation that are not really exposed to digital banking.

The third thing we did was make sure that our clients were aware of their options – that they knew about our solutions and services, so they could leverage our extensive customer base with whom they could easily transact. There was a lot of migration, where we helped our clients identify which of their own customers potentially had accounts with us. Our platforms allow our clients to easily move monies between BDO accounts – so they could easily collect from customers and pay suppliers who also have BDO accounts.

We worked with them very closely to migrate the paper payments and collections onto electronic platforms. We also made PesoNet and InstaPay readily available to allow them to make payments to their customers or their suppliers who did not have accounts with us. And we, of course, also aligned with the rest of the industry  to make interbank payments easily accessible.

So amidst the pandemic, we at BDO pulled together both internally and with our industry peers to educate clients, migrate them to electronic platforms and facilitate electronic transactions so that we could help keep cash flowing, their businesses moving, and the economy working.

Were there specific products or services that gained momentum or interest due to the pandemic? If not, did you observe trends related to CMS that emerged due to the recent pandemic?
The products and services specifically in the digital space, such as the auto credit facilities and auto debit facilities were of particular interest. Inter-BDO payments also increased significantly.  This actually came with cost benefits for our clients, which was a good unintended consequence. For example, the price of processing an over-the-counter check is higher than electronically debiting an account or paying electronically, especially within the bank. So there were a lot of cost savings as well that our clients observed and leveraged, which helps during a crisis.

For those that needed to make payments to non-BDO account holders, we saw a spike in PesoNet payments, as well as InstaPay payments.

Payroll is another major product that banks offer their corporate clients, and here we also saw an increase in the use of online banking. We've seen people migrate to paying their bills online either through our mobile app or through an online banking channel to reduce physical contact and writing of checks. Consequently, we saw quite a large decrease in the over-the-counter bills payment services.

Could you share with us your triumphs in the past year?
Our business with SMEs has been growing significantly. We recognise the importance of small and medium enterprises in driving the real economy, and we focused our efforts on banking SMEs. As of last year, we had onboarded over 26,000 SMEs. It was a record year for us in terms of new clients that we've onboarded.

What are your goals for the next few years?
There are three key goals that we want to achieve in the next few years: strengthening our digital solutions and channels is number one. The pandemic showed us that every bank needs to continue to develop innovative solutions and strengthen their digital offering. We will continue to invest in and upgrade our digital solutions. Together with our clients, we are co-creating solutions that will keep them agile and nimble, so that they can continue to do business even in the most unpredictable of scenarios.

More importantly, we are working on information. It's important for our clients to better manage their working capital. To effectively manage working capital, they need access to the right information at the right time, so that they can forecast accurately and make better decide what to do with their cash.

We, as a bank, are committed to strengthening our digital solutions and channels. This comes with a very big investment and a commitment from our senior executives, the management team and the board. We are focused on upgrading our cash management channels as well as our back office to make things a lot more streamlined.

We will continue to be customer-centric, and focused on how we can make the experience better for customers in the digital space. We are leveraging technology to make sure that the customer journey is very smooth and that our customers can access =the best services.

The second goal is to continue to innovate. For me, innovation equates to the innovation of the customer experience. That doesn't necessarily mean that we always build more IT. This will not only be on the technical side, but on the whole experience of doing business with us.

For example, we still have a fairly large customer base that goes to physical branches, and we want to improve that experience. In the past,  there were a lot of physical documents and filling out of forms in order to deposit or make a payment online. We want to find different options to make using our branches easier and a more enjoyable experience.

Number three, we want to make sure that everyone is aware that our products and services are accessible to everybody. Banking can sometimes come with a lot of jargon, and it can be appear to be complex. But it doesn’t have to be. Ultimately, what we do is that we help our clients manage their cash so that they can better manage their businesses. Whether you have a micro, small or medium enterprise – or if you are the corporate treasurer of a large, internationally-minded corporate, this objective doesn’t change. Cash flow is the lifeblood of any company of any size, and we at BDO have a range of services and solutions that will be suitable for your business.  We can deploy them in a way that is right for you. With the right technology, the right tools, the right information and the right banking partner, cash management can be made simple, accessible and effective.    

What is your outlook for cash management services in the Philippines?
I think there will be two main areas of focus: efficiency and information First, efficiency – the industry needs to make sure that tpayments are processed efficiently and instantly. Second is the importance of information and the ability to access and use information on my account in order to make better decisions and improve the way I process, manage and use my cash. Information is actually owned by the individual and not by the banks. So I, as an account holder, own my information. And in order for me to process and be more efficient, I need to have access to my information.

This access to information is the core premise of the concept of Open Banking, which is another initiative that the BSP is looking at. Open Banking is a principle that has already taken off and adopted by the West. It is based on the premise of information transparency – of sharing information with other industry players in a secure way, in order to facilitate product development.

It gives rise to the question, ‘How do we leverage information, not only to help our clients better manage their cash, but also help them strategically?’ Because operationally, yes, they need to know where the money is, they need to know that they need to pay these people. They need to know that they got paid by these people in order to manage the inventory, the accounts receivables, the accounts payables.

But cash management goes beyond that.  When we talk about strategic cash management, it allows you to look at how the entire supply chain affects the way a business operates. And then given certain circumstances like the COVID-19 scenario, how then they should adjust or approach situations like this. And that may also lead to strategic decisions that need to be made.

I think there are good visions out there. It's a matter of how we, as an industry, execute it. But to do this requires openness and collaboration among all the industry players. At BDO we are committed to working with our customers, the BSP and even our competitors so that we can keep finance flowing.

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