Open finance: Bridging gap between haves and have-nots

She started as a traditional banker for over 22 years holding senior executive positions in National Australia Bank and Philippine National Bank before joining OPAL Portfolio Investments Inc., in charge of distressed assets and turning around businesses where she developed skills in Fintech, digital transformation, artificial intelligence, and Web3.0.

Meet Ida Tiongson, the chairperson of the Board of insurance company Pru Life, chairperson of the Risk Committee at Xurpas Inc., chairperson and Risk Audit at SeedIn Technologies Inc., independent director at Alipay Ph, and a Bangko Sentral ng Pilipinas’ Technical Working Group member on the Open Finance Oversight Committee.

“According to statistics, the main problems of micro, small and medium enterprises are the lack of financing and working capital. So how can this open finance help? The positivity in having the open finance for businesses is they would be able to access financial windows,” Tiongson said during the Daily Tribune’s digital show Straight Talk.

“And you know, who actually funds these MSMEs through the open finance? It’s people like you, and it’s called crowdfunding. And that can fund MSME and help them survive,” she added.

Creating financial footprint

The most critical contribution of open finance in the evolving digital economy is it empowers “every Juan” financial freedom by giving them better control over their personal and financial data, catalyzing the development of products and services that are responsive to their needs, Tiongson explained.

She went on to say that open finance allows the unbanked and unserved sector to have their financial footprint digitally, thus providing them access to financial services.

“The open finance framework espouses consent -driven data portability, interoperability and collaborative partnerships among financial institutions, leveraging on permissioned access customer information,” she said.

A live use case of the benefits of open finance is Tiongson’s two househelps.

Househelp received her salary in cash, and instead of saving money, she bought mobile phones and spent her earnings on material things.

The second househelp opened an e-wallet account and, within six months, applied for a credit card that was approved. In less than a couple of years, she was able to borrow P400,000 from the bank, purchase land for her family, and is now engaged in small scale farming.

“Sixty-five percent of Filipinos have no bank accounts, which presents a problem when scaling up your business. How can you borrow when you don’t have a credit score or financial footprint? The banks and all the lenders will be looking for your credit score.

“I’m advising absolutely everyone, whether it’s a digital bank, or a digital wallet, Gcash, Paymaya, open an account and do your transactions there to build your transaction records. If you continuously use your e-wallet, even if you have a low balance, you can get a small loan,” she explained.

The ordinary “Juan” could also benefit immensely from open finance while impacting his daily life.

According to her, since most Filipinos use e-wallets, particularly the more popular brands, like GCash, PayMaya, or UnionBank, this allows the users to build their digital financial footprint and improve their “credit score” every time they use the e-wallet.

“Juan can allow banks and other financial institutions his financial information or his usage history of the e-wallet and be able to have a good credit score that would qualify financial access,” Tiongson said. “In short, another institution can use records from one institution to complete his credit score and determine his financial capability. And that is a world-changing face of the future of finances where we’re going into.”

In traditional finance, an unbanked person is considered outside the financial system and will have difficulty accessing financial services.

But open finance eliminates this issue, Tiongson said.

Today, a person with no active bank accounts would be considered outside the financial system and, therefore, would struggle to access these options.

The open finance system enables users to trust third-party APIs (application programming interface) to use their financial data, such as mortgages, savings, pensions, insurance, and consumer credit, as their economic footprint.

More importantly, open finance would open up a range of financial services to consumers and give them greater insights into their financial health. Users of e-wallets, even without an active bank account, could build their credit score by drawing on data from their financial accounts and not just the data held by the bank.

“Even without having a bank account or zero records, whether insurance or bank, you would now be able to advise that institution that, ‘you know, this is my data, will you provide your products or services to me?’ And they will assess that,” Tiongson explained.

Bridging the haves and the have-nots

Tiongson understands it is impossible to narrow the growing gap between the haves and have-nots without a unified collaboration to improve the financial access for the unbanked and the most vulnerable sector.

The deviation between those who do not benefit from the financial system and those who do are profound.

There is a stark inequality between the loser and winners of digitization, and if left undressed could become more pronounced over time.

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