Financial wellness and money management apps could be the antidote to the Philippines’ crippling consumer debt

New data, published this week in a Backbase commissioned study conducted by Forrester Consulting reveals a new direction taken by the Filipino retail banking sector could help consumers manage their crippling debt.

Digital financial wellness and money management tools, developed by banks as part of an accelerated transition to digital banking, will provide consumers with a range of new tools including spending analysis, scheduling of bill payments, automatic debt repayments, budgeting and more, delivered directly into their pocket via a smartphone app.

Talking about the main challenges Filipinos face when it comes to their finances, Regional Vice President for the Asia Pacific at Backbase, Iman Ghodosi, said:

“Our research showed that managing debt was the main concern of Filipinos; more so than the rest of APAC.”

“67% of banking customers in the Philippines said they feel overwhelmed by debt, 60% said debt negatively impacts their abilities to pay bills – this leads to more debt – and 63% said debt makes building savings difficult. Household debt in the Philippines is at a near-record of over two trillion pesos.”

“Through advancements in digital technology, banks can now offer digital services to assist in managing debt correctly.”

Digital banking has recently exploded in the Philippines, to the point that no more digital banking licenses are being issued for the next three years. Both digital banks and traditional banks are now racing to be the best when it comes to their digital offerings.

Unfortunately, according to the report, trust in digital banks is low with only 18% of respondents saying they trust a digital bank, compared to 60% for a traditional bank.

“Lower trust in new ways of doing this is to be expected. However, we have seen around the world that the more information and control we can put into the hands of customers to make their own informed financial choices, the more they will trust the organizations providing them with this opportunity.”

“Technology now enables us to do this. We see from our research that in the Philippines 68% of people use their smartphone to bank with, so by building out that interface and offering more tools, digital banks can address the trust issues, and traditional banks can compete in digital,” Mr. Ghodosi added.

“Now more than ever, it is important to own the relationship with your customer. We’ve entered the Engagement Banking Era, an evolution that stresses a one unified platform approach for banking. The number one priority in this new era is to completely re-architect the bank around the customer, moving away from siloed technology investments.”

The research shows the retail banking sector knows this and is pressing forward with app financial wellness and money management app development. Of the Filipino retail banking business decision-makers interviewed, 80% said their company is ‘planning to’ or ‘actively expanding’ its financial wellness initiatives, and 48% said it was of ‘critical priority.’ When asked about spending on digital financial wellness tools, 52% said their company plans to spend more over the next 12 months.

However, the race is not without its hurdles. When asked what the key challenges are facing their company in developing these solutions for customers, 78% of Filipino retail banking business decision-makers said ‘organizational silos’, 70% said ‘outdated technology’, 72% said ‘lack of understanding of customer needs and outcomes’ and 72% said ‘unsure of how to work with/partner with fintech’.

“This is fairly normal at this stage of technological adoption to have some challenges, but they need to be addressed,” according to Regional Sales Director for ASEAN and South Asia at Backbase, Riddhi Dutta.

“We have seen many banks around the world face similar challenges at some point in their journey. Change is not easy. However, for those institutions who want to take the lead, the slowness of some players is definitely an opportunity for others,” Mr. Dutta added.

Ultimately the winners in all of this will be the banking customers. New apps will increase levels of financial literacy, encourage customers to build better financial habits, help prevent vulnerable customers from making bad financial decisions, help manage debt, and identify risks of vulnerability and financial difficulty far earlier.

“Financial lives will be improved,” Mr. Dutta continued. “We see a future not far from now when financial wellness and money management apps will be the primary interface between financial intuitions and their customers and managing debt will be far easier. Technology now allows banks to better meet the needs of their customers, and the future for everyone looks very bright.”