On Sunday, March 4, in Tokyo, Union Bank chairman Justo Ortiz delivered the opening remarks at a two-day seminar on cryptocurrencies and blockchain attended by seven senior journalists from Manila.
Wikipedia defines a cryptocurrency as “a digital asset designed to work as a medium of exchange that uses cryptography to secure its transactions, to control the creation of additional units, and to verify the transfer of assets. Cryptocurrencies are a type of digital currencies, alternative currencies and virtual currencies. Cryptocurrencies use decentralized control as opposed to centralized electronic money and central banking systems. The decentralized control of each cryptocurrency works through a blockchain, which is a public transaction database, functioning as a distributed ledger.”
Ortiz began by saying that Union Bank’s mission is to fulfill dreams by enabling communities.
About 70 percent of Filipinos are unbanked, that is, they have no bank accounts and are not serviced by banks. A third of 1,500 towns in the Philippines have no bank branches. Globally, about two billion people are unbanked. Banks like Union Bank think the solution lies in so-called blockchain.
One problem why billions have no bank accounts is regulation. The central bank and banks do not trust the ordinary Juan who in all probability has money or savings or a remittance. Because these people are not trusted, they must validate themselves as worthy human beings before they are serviced by banks. That is why the central bank has invented what is called KYC—know your client—a system of interviewing prospective bank deposits or borrowers to determine their background, their network, their reliability. If you have been subjected to a KYC, sometimes, it is more tedious and invasive than being interviewed for a visa application.
But did you know the biggest source of bank frauds are insiders? That is, bankers, the owners of banks, fool their own banks. That is why bankers can be hazardous people. Central banks have a phrase for the risk bankers do to their banks—moral hazard which is the attitude a banker displays when he feels like he wants to run the bank the way he wants to, because he owns the bank and can always help himself with the money.
But I digress. Union Bank wants to help people with no bank accounts but want to avail themselves of the services of a bank—that is, park their deposits, receive and send remittances on their behalf at minimal cost, and lend them money.
To do that, Ortiz said: “we embrace emerging technologies like blockchain, like AI, (and) robotics that could be our path towards achieving our purpose at a cost-effective way.”
The blockchain process or algorithm is transparent, immutable and thus produces accountability. The steps in blockchain are seen and clear to everyone and are immutable, meaning you cannot change it because to do so, it’s like having to alter each document of which everybody has a copy.
Union Bank has raised five-fold the minimum amount a depositor must keep in his account as a deposit before he is penalized. For depositors who don’t want to keep a single centavo of minimum balance, they must engage a digital bank of Union Bank, called EON.
With EON, Union Bank claims to be the first digital bank in the Philippines.
One advantage of being digital with banking is that you eliminate human contact, the need to call or visit your bank to execute a transaction, like making a deposit or withdrawal, making a payment, or inquiring your bank balance, or making purchases. You can do that by yourself, with your computer or with your cellphone in a place with wifi access.
With Union Bank’s digital banking, the steps needed to make a check deposit, wait for it to clear and for you to use the cash, have been reduced, from 26, to just four. This means check clearing can take as short as ten minutes and you can get the cash right away. In other banks, you may have to wait three days before you see the color of your money. That is one benefit of block chain.
Ortiz thinks going digital through the so-called blockchain will help achieve financial inclusion and thus help society, the majority of Filipinos. “We feel that inclusive prosperity is an important goal that we need to actively involve ourselves in because financial transactions under like all commerce. If there’s more commerce done if there’s more prosperity by more people, then clearly we would benefit from it,” he said.
“When we look at blockchain, the first two things that we think about in the boardroom is decentralization and middlemen.”
He said: “We know that a lot of transactions from end to end, from producer to consumer, from service provider to service user including for banks, from savers to borrowers—if there are—many of these transactions have middlemen and the more middlemen they have, the more there’s opacity, there’s arbitrage, there’s cost, cost that are not really contributory to the whole value proposition.”
“Clearly the elimination of middlemen adds a lot of value to either the producer on the part of one side and to the consumer on the other side.”
By the way, Union Bank now claims 90 percent of bank transactions are now digital, a reversal from 10 percent, just five years ago.
More about blockchain and cryptocurrencies later.
