Based on the latest report from Research and Markets, the world’s largest market research store, the alternative lending market in the Philippines has been growing by 45.4% on an annual basis and the total amount of loans made may be expected to reach US$488.8 million by the end of 2023.
The alternative lending market in the country is also predicted to increase from US$336.0 million in 2022 to US$1,680.4 million by 2027.
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According to the “Philippines Alternative Lending Market Report,” which helps in navigating the nuanced relationships between payment instruments and lending models, the medium- to long-term growth story of alternative lending in the Philippines remains strong.
The report, which offers a breakdown of transaction dynamics to help uncover the multifaceted nature of loans — from personalized B2C offerings, such as payroll advances, to strategic B2B solutions like lines of credit — also stated that alternative lending adoption is expected to grow steadily in the forecast period, recording a CAGR of 36.2% during 2023-2027.
Meanwhile, the adoption of digital lending applications has been on a rampant surge in the Philippines in 2022.
To complement these insights, the study also delved into consumer attitudes and behaviors, decoding the impact of age, income, and gender on financial choices.
A high percentage of the unbanked population, coupled with the growing demand for credit amid the current macroeconomic environment, has resulted in more and more consumers turning to alternative lending providers in 2023. This trend is projected to further continue in 2024, as inflation continues to impact the disposable income of many across the Southeast Asian market.
A very competitive alternative lending industry in PH
The Philippines’ alternative lending industry is one of the most competitive markets worldwide. The ecosystem is projected to become even more competitive in 2023, as foreign players eye expansion into Southeast Asia.
The presence of global and domestic players will, therefore, also drive growing innovation in the sector. Overall, the digital banking revolution in the Philippines is expected to keep supporting the growth of the alternative lending industry over the next five years.
Fintech firms and neo-banks are now launching innovative lending products to serve the unbanked and underbanked in the Philippines. With Filipino consumers spending an increasing amount of time on digital lending applications to fund their daily lives and purchases, new fintech players are entering the market with innovative lending products.
In January 2023, Salmon, the fintech startup in the Philippines, announced that the firm is going live with its first lending product that caters to the credit demand among unbanked and underbanked customers. The firm has also partnered with 30 merchants for the launch of its point-of-sale lending service.
The lending product is specifically targeted towards millennials and Gen Z consumers, who do not have the time and patience to go through the complicated processes of conventional institutions.
Alongside new players, neo-banks are also launching lending products to further drive financial inclusion and serve the underbanked and unbanked section of the society in the Philippines market.
Tonik, for instance, announced the launch of two new lending products, Flex Loan and Big Loan, in November 2022. While Flex Loan provides consumers with the ability to purchase anything they like and is available without any collateral, Big Loan is a home equity type of loan wherein the property is pledged as collateral.
The launch of these solutions comes on the back of its Quick Loan product. From the short- to medium-term perspective, the publisher expects more such new products to be launched in the Philippines market as the demand for credit continues to grow among consumers.
Digital lenders forging strategic alliances with AI-powered fintech firms
To provide credit and lending services to unbanked Filipinos and enable accurate credit risk profile assessment, including for the unbanked section of the community, digital lenders are now also forging strategic alliances with AI-powered fintech firms in the Philippines.
Case in point: In December 2022, UNO Digital Bank announced that the firm had entered into a strategic collaboration with AI-fintech firm Trusting Social. The partnership aims to offer credit and lending services to unbanked Filipinos.
As part of the agreement, UNO Digital Bank will leverage the expertise of Trusting Social and its AI-powered customer onboarding solution to be able to offer a one-stop financial solution for all Filipinos.
The accurate credit risk profile assessment will also enable UNO Digital Bank to reduce delinquencies, thereby aiding more sustainable growth for the firm in the long-term perspective.
From the short- to medium-term perspective, the publisher expects more such strategic collaborations in the alternative lending sector in the Philippines.
Alternative lending providers expanding service, entering into strategic collaborations
Amid the growing competition in the Filipino alternative lending segment, firms are entering into strategic collaborations to diversify their service offerings and add another revenue stream to their core operations.
In April last year, Tala, one of the leading alternative lending providers, announced that the firm had partnered with Union Digital, a digital bank in the Philippines.
The collaboration will see the two firms launch a digital wallet for consumers to send and receive money. The e-wallet solution will enable the firms to reach underserved sectors including MSMEs and Filipinos overseas.
In the beta phase, the digital wallet has garnered increasing traction among Filipinos. As of April 2023, the firm had disbursed nearly PHP 2 million worth of credit to the e-wallet. Currently, Tala has more than two million customers in the Philippines. The addition of a digital wallet is expected to further add to its user base from the short- to medium-term perspective.
Going forward, the publisher of the report also stated that it expects more lending providers to expand their service offerings to drive accelerated growth.