The world has developed and advanced – the ways of the past do not necessarily apply to the present anymore. Resources now are not limited to the natural resources since over time, people have discovered, created, and innovated new materials to be utilized by mankind. One of the undeniable, fundamental resources of the present is technology.
Technology, in a layman’s perspective, denotes machines, gadgets, automated products, etc. To be technical, technology is the “application of scientific knowledge to the practical aims of human life or as it is sometimes phrased, to the change and manipulation of the human environment”. Cambridge Dictionary defines technology as “(the study and knowledge of) the practical, especially industrial, use of scientific discoveries.”
Among the known products of technology are computers, laptops, and mobile phones. With these technologies, digitization and digitalization became inevitable. “Digitization is the process of changing from analog to digital form, also known as digital enablement. Said another way, digitization takes an analog process and changes it to a digital form without any different-in-kind changes to the process itself”. On the other hand, digitalization is “the use of digital technologies to change a business model and provide new revenue and value-producing opportunities”. To visualize, digitization is the scanning of a document and storing of the same scanned copy in a computer. Learning through online learning platforms and courses instead of actual face-to-face classes is an example of digitalization.
In this digital age, a lot of transactions and processes are made online. Text, audio, and video messages are easily exchanged. Photos are not anymore printed from film; they are now posted in social media. Since information are easily available and accessible, businesses utilize data and technology to create more efficient business models that would produce greater profits and lesser costs. One of these innovations is finance technology (“Fintech”).
The CFA Institute refers to financial technology as the technological innovation in the design and delivery of financial services and products. In a Forbes Advisor article, financial technology is used as a catch-all term for technology used to augment, streamline, digitize or disrupt traditional financial services. In essence, it is the use of technology such as software and applications to enhance financial transactions not only for businesses but also for consumers.
Fintech is not technically new in a sense that it has been present since the 1950s in the form credit cards and in the 1960s, automated teller machines (“ATMs”). Although it is not necessarily novel, it is certainly emerging and is becoming more accessible to the general public. In the present times, it has advanced even more especially when the need arose during the pandemic when movement was limited; businesses had to find ways to make their products and services available online so as not to impede their profits. Current Fintech are in the forms of mobile banking, mobile payments, peer-to-peer lending, cryptocurrency, etc.
The Philippines ranked 53rd out of 83 countries in the year 2021 in the Global Fintech Index Ecosystem Rankings of Countries in which countries are ranked according to the strength of their Fintech startup ecosystem. In the country’s setting, Fintech startups include GCash, PDAX, Maya. As more and more individuals avail of these innovations – going cashless, preferring paying bills online than over the counter – businesses are encouraged to incorporate these improvements in their business models or systems. Restaurants and stores now accept payment through cards, Gcash, and the like. In online services that require delivery, payment is not anymore limited to ‘cash on delivery’. The country’s independent monetary authority, Bangko Sentral ng Pilipinas (“BSP”), acknowledges the inevitable growth of digital payments. As early as 2015, it launched the National Retail Payment System Framework, which created PESONet and Instapay.
With these advancements, it is natural for one to ask, “is there security in using these services? Are businesses and consumers protected?” Although there is a dearth of Philippine law that specifically addresses the regulatory compliance by the Fintech industry, the Department of Finance tasked the Securities and Exchange Commission (“SEC”) and the Bureau of Internal Revenue (“BIR”) with monitoring and ensuring that Fintech companies are regulated and taxed accordingly. In 2021, the SEC launched the PhiliFintech Innovation Office (“PIO”) which focuses on the regulation of the use of Fintech in the Philippines. The PIO facilitates the processing of the registration of new Fintech companies in the country or of existing companies that have been operating or are introducing new fintech products.
BSP controls the growth of Fintech by crafting cybersecurity policies mandating banks and other financial institutions under its supervision to adopt better measures on technology risk management systems. It also set Anti-Money Laundering regulations to ensure that Fintech companies follow the best practices in preventing illegal activities. Fintech companies are thus not exempt from meeting Know-Your-Customer (“KYC”) requirements as part of their compliance process.
It is clear that there is no stopping the Philippine Fintech industry from moving forward. At present, an interplay of laws and regulations from different bodies and authorities is needed to determine compliance and violations by companies in the industry. Since the growth of Fintech is imminent, existing laws may not be sufficient to address issues targeted and specific to this technology. Improved legislation on this matter will be advantageous not just for the companies and investors, but more so the consumers. If the Philippine Fintech legal landscape is left as is, the country might not be able to keep up with the pace in which this industry is going. If so, instead of having a technology that is beneficial to the public, it could be a tool to commit thievery and other illegal acts.
This article is for informational and educational purposes only. It is not offered and does not constitute legal advice or legal opinion.
Christine L. Paulma is an Associate of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW), Davao Branch.
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