Keeping an eye on fintech
The fintech industry is still in the infancy stage here in the Philippines. However, it is an industry that we should closely monitor given its very attractive growth prospect and potential to disrupt traditional financial institutions. In fact, it would not be surprising if a fintech company would someday be worth as much as one of the top 10 banks in the country, which is already happening in other countries.
It is a widely known fact that the Philippines has a young and tech-savvy population. This should make it easier to convince Filipinos to adopt fintech.
The country is also underbanked. According to the Bangko Sentral ng Pilipinas (BSP) Financial Inclusion Survey, only 29 percent of all adults were banked as of 2019. This means 51.2 million Filipinos remain unbanked.
The high level of unbanked Filipinos is quite unfortunate as these people face challenges in receiving financial subsidies during difficult times. They also do not have access to cheaper credit and other financial products where they can invest when they start to earn more.
Nevertheless, the ability to grow the number of banked Filipinos should improve with fintech.
Almost all Filipinos own a phone. Also, on the average, three in five adults own a smartphone in urban areas while two in five adults own a smartphone in rural areas.
While opening a bank account can be challenging for many given the need to maintain a certain minimum deposit and to go to a physical branch to submit numerous documentary requirements, opening a mobile wallet is much easier. There is no need to go to a physical branch and to maintain a minimum deposit. Documentary requirements are also much less. Finally, cashing in and out are more convenient as many mobile wallets allow these transactions to be done through pawnshops and convenience stores, which are more accessible.
Recognizing the benefits of using fintech, the BSP is very supportive of the industry. In fact, the central bank plans to capitalize on fintech to achieve its 2023 goal of increasing the volume of digital retail payments to 50 percent and raising the financial inclusion rate to 70 percent.
Despite the attractive growth outlook of the fintech industry, it will take time for fintech companies here in the Philippines to reach critical mass and be profitable.
For example, in 2019, Mynt which owns GCash, and Voyager, which owns PayMaya, lost billions of pesos. Aside from the high cost of operations, these companies had to provide a lot of subsidies to encourage more Filipinos to use their platforms for financial transactions.
There is also currently no way to directly invest in fintech companies in the local stock market. Those who want to invest in fintech companies will have to go to other countries such as the United States, Hong Kong or China where the fintech industry is more advanced
The good news is the Covid-19 pandemic is benefiting fintech companies.
For example, because of the pandemic, more Filipinos are downloading and using mobile wallets. According to App Annie, a total of 10 million users downloaded GCash during the first nine months of the year. Other mobile wallets such as Paymaya and Paypal were also among the top downloaded apps.
More importantly, the number of Filipinos actively using their mobile wallets is growing rapidly. In fact, GCash said its transaction volume jumped 1,000 percent in August and that it was on track to hit P1 trillion worth of transactions this year.
And while there is currently no locally listed fintech company, the plan of the Philippine Stock Exchange (PSE) to relax its listing rules should pave the way for the eventual listing of these companies. The PSE is currently considering the possibility of allowing smaller companies that have strong revenue growth to list in the stock exchange even if they are still unprofitable. If this plan pushes through, some promising fintech companies will most likely tap the stock market to raise capital, giving Filipino investors an opportunity to take part in the attractive growth prospects of the fintech industry. INQ
