CANTILAN, Surigao del Sur - As digitization creeps into many sectors across the globe, a rural bank in the Philippines located in the southern island of Mindanao has jumped on the bandwagon by moving its core operations to cloud technology.
Cantilan Bank, headquartered in the mainly agricultural and fishing town of Cantilan in Surigao del Sur Province, became the first bank in the country to fully migrate to the cloud platform beginning in January this year.
"The only way for us to really survive is for us to take on the most modern technologies in the market right now," said the bank's president, Charles Hotchkiss. The bank's total resources as of December 2018 amount to 2.4 billion pesos (more than $46 million).
"With us being on the cloud, it would be easy for us to integrate with other financial technology providers," he said in a recent interview.
Cantilan Bank's journey to digitization began in 2016 when Hotchkiss' niece, Tanya Hotchkiss, who serves as the bank's executive vice president, pitched the cloud-banking concept to the Asian Development Bank.
"It really started when there was a push from the regulator (the central bank of the Philippines) to make sure that rural banks will survive and cohere into something that's more competitive against the bigger banks. So, we knew that for the sustainability and continued competitiveness of Cantilan Bank, we needed digital transformation," Tanya said in a separate interview.
Since it was aligned with the ADB's efforts to boost financial inclusion in the region, her proposal merited the approval of a $150,000 technical assistance grant which was immediately implemented beginning in the middle of 2017.
"In the Philippines, only three out of 10 people have a bank account. And of the number of people that are unbanked, 41 percent are residing in Mindanao. That's actually unfortunate because financial services have a means of empowering people economically," said Lisette Cipriano, a senior digital technology specialist of the ADB.
But, amid this gap in financial inclusion, the country's profile in terms of smartphone adoption, internet access and penetration into social media platforms indicates that "the Philippines is ripe for digitization," she said.
Taking advantage, therefore, of the digital technology's potential reach, particularly to the unbanked or underbanked sector, Cipriano said it is only wise to apply it to the financial services industry.
"If the financial services industry is able to have this reach, and able to provide the financial products and services that people need, then it allows people to begin their journey for economic empowerment," she said.
Tapping the cloud-based banking technology software of Europe-based firm Oradian, Cantilan Bank, which has 45 offices spread across 12 provinces and about 116,000 clients, has since enjoyed operational efficiency, which, so far, is the major benefit on the business side.
Key officers of the bank said generating reports is faster and more up to date, allowing them to promptly make decisions, such as on the bank's liquidity, loan issues, and product development, among others. Operational risks are either mitigated or lessened, they said.
Doing away with the bank's physical data center also addressed the risks posed by the area's natural geohazards and even the recurring power fluctuations.
Loan officers of the bank have started carrying only their software-equipped tablets when visiting borrowers for payment collection, where they immediately update loan records on the site.
"It's OK, because I can see my payables," bank borrower Tomasita Bendoy, 50, said of the technology that was demonstrated to her recently by her account handler. Bendoy has taken out loans from the bank 16 times already to keep her store alive.
Concerning how the bank's customers stand to benefit from the digital shift, Tanya said those who are more sophisticated in their needs will probably gravitate toward transactions that can be performed online.
She and others interviewed, however, admit that this will entail a rigorous education campaign since many of its customers are over 50 and mostly still use keypad phones.
"One of our missions is to really support financial inclusion. We are in the frontier areas, so we need to find a way for us to become more competitive by using certain types of technologies to increase effective financial access in areas that are unbanked or underserved," Tanya said.
Now that its core banking solutions are in the cloud and can be integrated with other systems, the bank can add different types of products that would not have been possible in the past, such as an app, she added.
Addressing the cybersecurity aspect, Tanya said the bank intends to devote more resources for cybersafety as the fear of breaches or leakages is "always there."
Nigel Phair, an ADB consultant on cybersecurity, said that "you can actually put greater security controls around data that's stored in a cloud environment, and deliver on that as a service, as opposed to having it stored in the office."
He underscored the role of the central bank, as the country's banking industry regulator, in boosting a "higher level of assurance that funds will always be there and customer data will always be secure."
"Banking survives on trust and safety with its customers, with its regulators, with the government...The (central bank) needs to ensure that regulations enable cloud-based technology in the banking sector," he said.
Tanya said that if the bank does not jump aboard the cloud now, "it will be too late for us, let's say, two, three years down the road, when the Philippine market would be ready to use their phones for 100 percent of their banking."
As the project is now undergoing monitoring and evaluation, Karen Lane, principal communications specialist of the ADB, said she hopes other banks will follow suit in the country, "and maybe outside the Philippines as well."