Why are most Filipinos unbanked?

Only about a third of adult Filipinos own a bank account.

To best understand why this is so, and why there is a need to create a unique solution to address it, we need to first discuss the different factors that contribute to the problem.

According to the latest financial inclusion research conducted by the Bangko Sentral ng Pilipinas (BSP), the vast majority of Filipino adults — 52.8 million— do not own a bank account because:

• 60% couldn’t afford to maintain one
• 21% don’t see the need for it
• 18% lack the necessary documentary requirements
• 10% say it costs too much

Bank fees and minimum balance requirements

It is understood that, in the Philippines, banks ask you to maintain a certain amount of money in their system (and will charge fees if you don’t) in exchange for the perks of being part of their network. Once you have an account with a bank, you can move your money from one place to another without having to be physically present in the destination where you plan to send the money to. You also get to earn a small interest if you keep your money with them for some time, from 0.1% to 1% for Savings Accounts.

But despite the perks of being banked, the majority still feel that the cost of locking out their money and paying for fees outweighs the benefits.

Why is this so?

To better understand why, let’s take a look at typical fees and maintaining balance requirements that top banks in the country charge and see why most Filipinos try to avoid them:

1. Required Initial Deposit

As the name suggests, there is a minimum amount of cash that needs to be deposited in order to open an account. The amount varies depending on the type of account to be opened. Per bank, there are about 6 to 8 types to choose from.

A regular savings account that comes with an ATM debit card would require an initial deposit that ranges between PHP 500 to PHP 2,000. There are specialized or customized savings accounts that require zero initial deposit, but would either cater to a specific profile of customer (like overseas contract workers who send foreign currency remittances to their families) or to those who don’t mind paying PHP 5 fee for every withdrawal.

Note: most savings accounts do not charge a withdrawal fee.

2. Required Minimum Average Daily Balance (MADB)

This is the lowest average daily balance that you need to keep untouched in your account to avoid incurring maintenance or service fees. Again, this amount varies per type of savings account being opened. It may start at zero (for specialized accounts) and may be as high as PHP 100,000 (for higher interest-yielding accounts), but the required MADB of most regular savings accounts range between PHP 2,000 to PHP 5,000.

Note that this doesn’t necessarily mean you’ll get charged immediately once you fall below this amount. The bank determines your daily average first by getting the total amount of your daily balances and dividing it by the number of days in that particular month. If the resulting figure is below the set MADB, then that’s the only time you will get charged a fee that ranges between PHP 250 to PHP 500.

3. Required Daily Balance to Earn Interest

This isn’t actually a fee, but if you’re hoping to grow your money from annual interest, this is the minimum daily balance you need to maintain for your money to earn 0.25% per year (whatever that amount is, minus 20% withholding tax). This amount would range from PHP 1,000 to PHP 100,000.

The Average Filipino Household Income

Now let’s step out from the bank fees for a while and put things in perspective by reviewing the average income and spending per Filipino household.

According to the 2015 Family Income and Expenditure Survey, an average Filipino household earns around PHP 22,000 (roughly USD 415) per month and spends around PHP 18,000 (about USD 340) monthly for basic necessities like food and utility bills.

That leaves the family with a savings capacity of PHP 4,000 (roughly USD 75) per month, that could either be used for non-basic expenditure, for leisure activities, for emergency funds or for savings.

This brings us to the most important question: why do 60% of Filipino adults think they can’t afford to maintain a bank account?

Well, if my family of 5 generated a total of PHP 4,000 extra per month as a group, that wouldn’t leave us much room for unanticipated expenses — like medicine if one of us falls ill, or if a child has an upcoming school activity that requires him to contribute an amount. Many even believe that they don’t actually need a bank account since they can just stash the cash at home for easy access (which is what 68% of adults who save do, according to the BSP).

Now imagine…what if your family’s PHP 4,000 was locked in a bank and then one of you suddenly needed it for an emergency? Or maybe you just all decided to see the latest movie in the mall this weekend to unwind? Well, you’d have to travel to the bank or to an ATM machine to withdraw money. The worse part is, you’d also have to contend with the service fees that will be charged later on for falling below your MADB…because the next PHP 4,000 extra money your family will be getting is still 30 days away!

Opening and maintaining a bank account does have a financial impact on the average Filipino family, and it’s not easy to convince them otherwise unless the PHP 4,000 extra money gets any higher.

This is why it is important that institutions, not just banks, create financially inclusive products and services that understand the situation of the Filipino family.

It’s actually great that there has been an increase in the number of digital financial solutions launched in markets like the Philippines recently. These are mostly available virtually (no need to travel out to a physical location to avail their services), and promise lower transaction fees and faster processing time that most traditional banks can’t replicate.

Blockchain as a solution for emerging markets

The emergence of blockchain technology and its practical application in the realm of finance can only make fees lower (in fact, closer to zero) and processing time run at lightning speed. It also helps that all transactions in the blockchain are trustless and immutable, because if your PHP 4,000 all of a sudden vanishes into thin air due to fraud or theft, that would definitely hurt the whole family.

This is the reason why we’ve created XONIO. Our blockchain-based platform allows users to convert any amount of prepaid airtime credits into our native currency called XON, which is stable and pegged to the fiat value of prepaid airtime. There is no required deposit amount to open an account, no minimum daily balance necessary. XON can be used to buy anything in our store or pay for financially inclusive products like utility bills, microinsurance or microlending amortizations.

For more info, visit www.xon.io. Join the community on Telegram.