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Saturday, June 24, 2017 | MANILA, PHILIPPINES
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   banking report
Date posted: Tuesday, August 30, 2016 | Manila, Philippines

2nd Quarter Banking Report (2016)

Landbank takes loan program online



THERE was a time when we had to fill out forms in a branch, present IDs and spend valuable time waiting just so we can borrow money from a bank. But with the advent of FinTech, consumers from even remote areas across the country have the luxury of borrowing money with just a press of a mobile phone keypad or a swipe of its touchscreen.

Such is the value proposition of Landbank Mobile Loan Saver (LMLS), a program established in 2014 as a partnership between the state-owned Land Bank of the Philippines (Landbank) and FINTQnologies Corp. (FINTQ).

The LMLS offers the first paperless and fully-digital salary loan facility for government employees, and increasingly for those working in the private-sector.

At end-March, total loans processed and released under LMLS amounted to over P7.2 billion. This corresponds to 49,180 loan applications from individuals working across 1,019 government agencies.

Of the total amount released, P1.9 billion were processed in the first quarter alone, with the average loan per borrower at P147,000.

FROM 2 WEEKS TO 3 DAYS
“LMLS makes use of the short messaging service (SMS) facility for the employee-borrower’s’ loan application and for the subsequent bank approval notification,” said Randolph L. Montesa, head of Landbank’s Card & eBanking Group.

“Loan application is conveniently accomplished online, including the submission of electronic documents with electronic signature confirming the availment of the loan,” he said.

FINTQ provides the technology backbone for the loan availment system, which is Internet-based and uses mobile text-messaging. The company is a unit of Voyager Innovations, Inc., which in turn is a subsidiary of Smart Communications, Inc.

The system provides borrowers the fastest credit decision with the loan proceeds credited to their ATM (Automated Teller Machine) payroll accounts within three banking days.

“Before Landbank Mobile Loan Saver, the salary loan program of Landbank was done manually, so it takes about a week to two weeks before loan decision is made,” said Lito M. Villanueva, CEO of FINTQ. “And normally, it takes, again the usual process of you having to fill up a form, send the documents.”

PASS ON SAVINGS TO CLIENTS
For every loan approval, FINTQ is paid a service fee. Landbank in turn earns from loan interest, which, however, is smaller, resulting in a reduction in the cost of delivering the service. According to Mr. Villanueva, the effective interest rates was brought down to 10.5% from the typical 15%.

“It being fully electronic, the service is cost-effective, enabling Landbank to save on administrative cost, which the bank is then able to pass on to its clients in the form of reduced interest rate and service fee,” Mr. Montesa said.

According to Landbank, 100% of Landbank’s government salary loans are done through the LMLS program as of the first half of the year, with at least 1,650 participating government agencies.

Twenty-one percent of borrowers are from the third- to fifth-class municipalities, which indicates that Landbank is able to reach the grassroots through the LMLS. Forty-five percent of the total loans were made in the National Capital Region (NCR), 30% from Balance Luzon, 11% from the Visayas and 14% from Mindanao.

The rank and file are the biggest borrowers comprising 72%, followed by officers and elected government officials at 15% and 12%, respectively. Co-terminus or appointees account for 1% of program applicants.

Early this year, Landbank expanded the electronic salary loan facility not only to private-sector establishments, but also to farmers and fisherfolk, small and medium enterprises (SMEs), and overseas Filipinos.

UNRELIABLE TELECOM SERVICE
“With the expansion of the LMLS to include employees from the private sector, we expect that an average increase of 20% will be attained by end of this year,” said Landbank’s Mr. Montesa, adding that the program has yet to include teachers, military and police personnel.

“So just imagine if we are to include them, or cover them, the numbers would be exponential,” he added.

But as in all services that rely on telecommunications, growing the business would depend on signal strength, if not availability.

“The key challenge to growing the program is the sometimes unreliable telecommunications service in some remote locations in the country,” Mr. Montesa said.

Data from the analytics firm Ookla showed that the Philippines has one of the slowest Internet speeds in Asia, placing 21st out of 22 countries with a download speed of 3.64 Mbps (megabits per second), after Afghanistan’s 2.52 Mbps, and way below the cohort average of 23.3 Mbps.

Add to that, a bank’s internal information technology infrastructure may need upgrading, according to Voyager’s Mr. Villanueva.

While banks are willing to integrate FinTech in the traditional banking, he said, “The readiness of the... infrastructure within the bank is not that robust yet [as] the legacy infrastructure within the bank were designed not to have any... integration outside party.”

The Bangko Sentral ng Pilipinas (BSP) has since rolled out a National Retail Payments System, seeking to raise the share of electronic payments to 20% of total transactions by 2020 from just 1%. The project would involve promoting fund transfers and e-wallet disbursements as modes of settlement.

With this, Mr. Villanueva expects more banks, not to mention non-banks, to revisit their IT spending in order to hitch their wagons to the FinTech revolution: “FinTech will grow even more, as the banks or other financial institutions or even non-banks for that matter will embrace FinTech.”

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