The Philippines is nearing a transformative moment with the increasing application and adoption of financial technology—or fintech.
A number of factors are driving this state of play. Disruptive technologies continue to emerge at a breakneck pace around the world and can easily be replicated on our shores.
A global paradigm shift from competition to collaboration between banks and fintech firms is paving the way for even more exponential growth in investment and innovation.
Here at home, robust mobile and internet penetration, rising incomes, and changing consumption patterns are making the domestic ecosystem a more fertile one for fintech solutions to take root.
While all of these overarching trends make the Philippines an exciting market for fintech, I think a few key fundamentals in our country’s context truly make the moment ripe.
For months, the Milken Institute has been reaching out to stakeholders to understand the Philippine fintech landscape, and preliminary findings can be found here: https://www.milkeninstitute.org/publications/view/961 —I discuss them in brief below.
First, the pressing need of the unbanked and underbanked presents enormous upsides.
For more than three quarters of the Filipino population, access to finance remains a challenge. The concept of finance is often miscast as an instrument that can only help the rich get richer (e.g. investing in bonds or the stock market).
In reality, the potential of finance is so vast that expanding financial inclusion is a key component of any developing country’s growth strategy.
Finance can help low-income households save for emergencies and pay for schooling and healthcare in a way that doesn’t break backs. It can facilitate credit to finance projects, help small businesses grow, and ensure that crop failures or personal accidents do not set households back in their fight against poverty.
But only 23 percent of Filipinos have access to formal financial products, according to survey data from the Bangko Sentral ng Pilipinas (BSP).
Fintech holds the promise of delivering these products to millions of unbanked and underbanked Filipino households—opening doors, creating opportunity, and weaving safety nets.
Second, our economy runs on cash and checks. These paper-based payment methods are far more expensive than digital payments. They also lend themselves to theft and corruption. Unfortunately, in the Philippines, the vast majority of personal and business payments are paper-based—around 99 percent of personal payments were transacted in cash, according to a 2015 baseline study. And checks account for all but a very small percentage of business payments.
There is a strong link between digital payments and financial access. Digital payments lower costs because there is no need to manage stacks of cash or to employ people to count, guard, and store it. Lower costs for banks and other financial services providers mean lower fees and entry costs for consumers. Digital products, therefore, can scale more quickly and reach more people—anyone with a smartphone, in fact.
In the Philippines, where mobile penetration is above two-thirds of the population—that is pretty much everyone.
Third, the BSP has been a proactive and forward-looking regulator, having laid important groundwork to make the digital switch easier and faster. These efforts include the National Retail Payments System, PesoNet, InstaPay, and a number of new regulations aimed at jump-starting the transformation the country’s needs. With these frameworks in place, the private sector is better set to innovate and expand digital financial offerings.
This brings me to my final point. Our fintech sector is expanding—and it’s receiving more capital from investors. In 2018, around P5 billion was invested in the Philippine fintech sector.
More investors are taking notice. The sheer size of the market and the number of mobile and internet-savvy consumers make the country particularly ripe for fintech growth. Over the last several years, led in part by the telcos, the Philippine fintech sector has diversified to include a large range of companies creating fintech solutions for payments, consumer lending, SME and agriculture financing, remittances, and insurance.
China’s “TechFin” giants (technology companies that have moved into financial services) have also moved into the Philippines with Ant Financial’s major investment in Globe and Tencent’s massive infusion of capital into PDLT’s Voyager Innovations.
Our small domestic startups are also starting to take off, with the likes of Acudeen, Ayannah, Coins.ph, First Circle, and many, many others delivering innovative financial products and services for a rapidly growing user base. Among the banks, UnionBank has committed to becoming the most tech-savvy bank in the country and is constantly rolling out new digital products.
With so many exciting firms working to make digital financial services available to millions of Filipinos, we are on track for a breakthrough moment. The need is there. The right policies are falling into place. And Filipinos, I think, are ready for the benefits of having savings, credit, and insurance products as close as the touch screens on their phones. The digital transformation we’ve been promised—along with the vaunted development gains that come with it—looks like it is arriving on our shores at last.
Developing economies are constantly on the lookout for leapfrogging opportunities like this one. How do we make the most out of this rare moment? To address this question, we should embark on a great, new public-private partnership project: a collaborative conversation among government, fintech firms, traditional financial institutions, and civil society on advancing fintech in the Philippines.
The Milken Institute, in partnership with the Asian Development Bank, the Bangko Sentral ng Pilipinas, and UnionBank of the Philippines, is gathering fintech sector stakeholders at the Manila FinTech Roundtable* on March 5, 2019, at the ADB Headquarters—with the aim of facilitating this conversation on a collaborative path forward.
*In loving memory of BSP Gov. Nestor Espenilla, whose leadership on financial inclusion and proactive regulatory stance has advanced fintech in the Philippines by leaps and bounds.