Luzviminda Elacion visited a local branch of a Philippine bank in Macau four times a month to send a weekly stipend to her children in Nueva Ecija, a province north of Manila. A domestic helper for over two decades, Elacion knows the ropes. “I realized it’s better to send money on a weekly basis,” she said. “When I send it once a month, chances are that it gets depleted fast.”
But sending remittances that frequently can be costly. For the amount she transfers to her family, the bank charges at least MOP 30 (USD 4). That’s a minimum of USD 16 per month just for remittance fees—it still doesn’t include what she and her children spend on transport to get to the bank. “For a single mom like me, that’s money I could have saved,” she said.
For decades, expensive remittance fees have plagued millions of Philippine workers abroad. It prompted the government under President Rodrigo Duterte in September 2017 to fulfill one of its campaign promises and issue Executive Order No. 44, establishing the Overseas Filipino Bank, or OFBank.
A new bank
“There is a need for a policy bank dedicated to providing financial products and services tailored to the requirements of overseas Filipinos, focused on delivering quality and efficient foreign remittance services,” Duterte said at the time. To meet this objective, the state-owned Land Bank of the Philippines acquired the Philippine Postal Savings Bank and turned it into OFBank.
The new institute started by setting up physical branches in different parts of the country, but soon found that going fully digital would be more cost-efficient and allow it to better serve its target customers. “The government wanted to find and address the banking requirements of overseas workers, and a traditional brick-and-mortar bank can’t touch base with Filipinos abroad,” OFBank president Leila Martin said. “So in June 2020, we launched as a digital-only bank.”
That was even before the central bank released official guidelines for online banks in December. Unsurprisingly, by the end of the first quarter of this year, OFBank obtained the country’s first digital banking license.
As simple as possible
Any Philippine national anywhere in the world can open an account by downloading the mobile app, filling out the KYC forms, and submitting a photo of their passport via the app. It’s a process that takes around ten minutes, according to Martin.
After being verified, the user is able to deposit money through a network of partner banks and remittance service providers. In Macau, Elacion uses a Philippine bank that has a branch in the city. Martin explains that depositing money through a partner still comes with a money transfer fee that can be as high as USD 30, depending on where the sender is based. According to World Bank data, the average transaction cost of sending remittances to the Philippines is 4% of the amount sent.
Once the money is in the bank, it can be easily transferred to any other Philippine institute for a fee of PHP 25 (USD 0.50) or free of charge to any Land Bank or OFBank client. Elacion, a wise mom, asked her children to open accounts with OFBank to reduce costs as much as possible. “This way, they also don’t have to go to the remittance center to check if they can pick up the money I sent,” she said. “There are times when the system is offline, and they would wait an entire day in the center.”
Buy our bonds
While most Philippine banks have specific savings accounts for overseas workers, they all have varying requirements ranging from official work documents to minimum deposit requirements of as much as USD 100. “What I really like about OFBank is they don’t require an initial deposit to open an account,” said Senyo Lenos, an engineer based in Thailand.
OFBank’s affiliation with the government also provides easy access to another form of savings products that have so far been out of reach for most Philippine citizens. In September, it became the first app to offer retail treasury bonds for a minimum investment amount of PHP 5,000 (USD 104). So far, it has processed PHP 48.7 million (USD 1 million) worth of bond purchases through this channel. Previously, buyers had to visit their bank branches and sign relevant documents.
If successful, OFBank can become a viable player in the fourth largest remittance market in the world. In 2020, despite the repatriation of more than 400,000 overseas workers, remittances from Filipinos abroad reached USD 33.2 billion, only a minimal drop from the USD 33.44 billion recorded in 2019—the highest amount ever.
The sky’s the limit
Martin, who didn’t disclose OFBank’s number of account holders, said that since its launch, the bank has processed PHP 500 million (USD 10 million) worth of transactions, just a small fraction of the large pie. Martin gives some credit to the existing infrastructure. “It’s not like OFBank had to set up a new structure or new technologies,” she said. “It’s the remittance service of Land Bank, which has been in business for quite a while, that we’re piggybacking on.”
Martin believes the bank has huge potential to disrupt the market but likely needs some additional capital. “The government has been very emphatic that it wants OFBank to be the bank that can advance the financial capacity of overseas Filipino workers, and the bank that will provide them with the lowest remittance cost,” she said. “We are hopeful that we will make it happen.”
But to succeed, it will need a change of long-established practices within the overseas community that has traditionally relied on physical transactions for their remittances. Jeremaiah Opiniano from the Institute for Migration and Development Issues said that Filipinos abroad traditionally use money transfer operators (MTOs), international firms such as MoneyGram, or local services like Cebuana Lhuillier.
While a digital service promises convenience, it may also create obstacles. Fern, a domestic worker in Brunei, said she needs to have a consistent and fast internet connection to make transactions through the app.
“OFBank has to prove its worth,” Opiniano said, adding that MTOs are a tough contender to beat. “Commercial banks have had a foothold in the market for over a decade. The way OFBank markets itself and how it rolls out its services will determine how far it can go.”