Imagine having an AI-powered fridge that can predict what ingredients you need for the day, make purchases online automatically, while helping you take a microloan at the same time. This can be the future—where banking not only occurs in ATMs or branches, but also in every part of your life.

Digitalisation in banking can extend banking services to everyone, everywhere. This can benefit rural communities greatly, since they are traditionally excluded from accessing banking services like getting a loan.

Dr. David R. Hardoon, Chief Data and AI Officer at the Union Bank of the Philippines (UnionBank), shares how digitalisation can promote financial resilience and improve the lives of rural communities in the Philippines.

Ensuring financial resilience amongst rural communities

In the Philippines, many communities struggle to access banking services. 47 per cent of Filipinos still lack a bank account in 2021, reported Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines. This includes many farmers and those working in the informal sector, like handicraft vendors.

A reason is that some rural residents do not have the documents needed to open a bank account, like identification or income statement. Without a bank account, it is harder for them to receive or transfer money.

But giving rural farmers a bank account does not solve all problems, says Hardoon. It might seem like financial inclusion, but they still cannot access services like getting a loan if they lack the necessary documents.

Banks need to go beyond financial inclusion, Hardoon emphasises. This means promoting financial resilience—giving rural communities continuous opportunities to improve their finances.

AI helps excluded communities access banking services

Banks can use AI to help citizens achieve financial resilience. UnionBank’s MSME Business Loan project aims to extend credit access to the bank’s clients—including rural communities—through the enhanced, alternative AI-powered credit scoring and risk models.

The UnionBank Business Loan is offered in SeekCap, an online lending marketplace managed by the bank’s fintech arm UBX.

Many rural residents struggle to get a loan to start a business or go to college as they need credit scores. Farmers or vendors mainly use cash instead of credit cards, Hardoon explains. As it is harder for banks to assess their credit worthiness, they might not be eligible for a loan.

The AI-powered credit scoring and risk models evaluate credit scores based on alternative data such as macro and socio-economic data, geographical attributes like points of interests and land elevation, and internet footprint.

With the help of data analytics and machine learning, the model can generate data-driven recommendations on whether to grant the loan in just a few seconds. This makes it faster and more flexible for rural residents to get loans.

Connecting rural banks using blockchain

Blockchain technology in banking can “rapidly connect institutions that were previously not connected,” says Hardoon. Blockchain allows transactions to occur immediately without going through a third party.

53 per cent of Filipinos in 2020 live in rural areas, reported the World Bank. But rural banks are disconnected from major banks and each other because they do not have the tools to provide electronic banking services. This makes it hard for rural residents to receive or transfer funds quickly.

Bank connectivity is also important for overseas workers to easily transfer money to families in rural villages. In the Philippines, overseas remittances make up 10 per cent of the GDP, shared UnionBank.

UnionBank’s Project i2i uses blockchain solutions that remove manual processes in transferring money, making it faster.

Additionally, as blockchain technologies are not centrally controlled, it is hard for cyberattackers to access the data through a single entry point. Banks can also verify and process transactions in real time, as others cannot make changes to transactions made via blockchain. Since transactions in blockchain are very secure, they can occur even outside of the bank’s business hours.

The hyperpersonalisation of banking

UnionBank is also using digitalisation to make banking engage more closely with the citizens’ lifestyles. They launched The ARK, a fully digital branch in the Philippines, which uses technology to align banking services to the individual’s needs.

Virtual reality headsets allow customers to check out the car or house that they are applying to get a loan for. This can help them make better and more informed decisions. “It’s almost like a gamification of banking,” says Hardoon.

Meanwhile, a virtual teller machine provides virtual customer service, cash deposits, and withdrawals. This makes it more convenient for customers who are rushing to work or do other activities.

The whole narrative of banking doesn’t need to be just in terms of finances, but a lifestyle, Hardoon highlights. People don’t just open their wallets and say, “I’m missing a credit card,” he explains. Instead, they are motivated by certain lifestyles and needs. They might be taking a loan to buy a house or to attend college, for example.

To better address their needs, banks need to be hyperpersonalised, Hardoon says. It’s not just about showing customers the wonderful range of loans, but why they are relevant to them by meeting some of their needs, he adds.

The future of AI and digital banking

What excites Hardoon the most about AI is how widespread it has become. “There is AI, but no one realises it,” he notes. From getting our food delivered to using a carsharing app, AI is everywhere in our lives. But we never notice it.

When people in the streets access financial services, they don’t know that the system is using AI, says Hardoon. They only focus on the benefits AI offers: an easy and convenient way to assess banking services.

For instance, the AI-powered credit scoring and risk models enable a same-day approval process as long as banks have the required details. “It’s the practicality—in fact, the simplicity—that I find very exciting,” shares Hardoon.

When it comes to unlocking the potential of AI, it’s just a matter of doing it. “Ai is an investment that pays for itself,” Hardoon says. AI is a learning process—and it’s a process that will only get better, he adds.

Financial inclusion is one of the key elements of reducing poverty, as outlined in the Global Goals set by the United Nations. With the help of AI and blockchain, banks can help more rural residents access financial services and build a better life for themselves.

Dr. David R. Hardoon, Chief Data and AI Officer at the Union Bank of the Philippines will be speaking at ATxSG, happening at The Ritz Carlton, Millenia Singapore and the Singapore EXPO from 31 May – 3 June.