by Bhea Baarde, Correspondent
Globally, the financial technology or fintech industry is one of the few industries that has thrived in the midst of the economic crisis brought upon by the COVID-19 pandemic. Health protocols such as community lockdowns and social distancing have created immense demands for the digitalization of services and goods, which has since paved the way for fintech firms to prosper.
In this article, we take a look at the state of the finance technology (fintech) industry in the Philippines, including key challenges faced and the prospects for growth in the coming years.
State of FinTech Industry in the Philippines
The Philippine fintech industry has grown significantly in recent years and is expected to get even bigger.
According to data compiled by the United Overseas Bank (UOB), the local fintech industry received a total of US$342 million in funding in the first half of 2021 alone. This is almost double the overall funding of US$137 million recorded in 2020. The figure also surpassed a previous all-time high of US$248 million funding achieved in 2018.
Digital payment was already present in the Philippines even before the pandemic started, but it boomed during the pandemic due to its ability to offer faster and safer financial transactions than the traditional, face-to-face, and over-the counter methods.
In 2020, the Bangko Sentral ng Pilipinas (BSP) reported that it has already achieved its digital payment volume targets in the country. The BSP recorded 20.1%, which is equivalent to PhP 910 million in digital payments.
Mobile wallet was also well-embraced by Filipinos. According to the Philippine Institute of Development Studies (PIDS), GCash, the leading e-wallet in the country, reported a 700% yearly increase in transaction volume in June 2020 alone. Its registered users also doubled in the first half of the year.
This year, GCash has recorded 60 million registered users on its platform, which covers about 83% of the country’s total adult population. The company also surpassed its P500-million target in gross transaction value, thus solidifying GCash’s position as the leading fintech company in the country today.
Key Challenges Faced
According to the 2021 Fintech Analysis of PIDS, the main threat to the growing fintech industry in the Philippines is the limited support available for the industry’s start-ups. This includes the lack of competent digital and technological talents, which could greatly affect the momentum that the fintech industry in the country has already established.
The lack of a detailed and more systematic source of information about the Philippine fintech industry is also seen as a threat. Fintech firms have to be consistently monitored in order for the government to better understand their performance. From there, a roadmap on how to progress further can be made. Finally, our tightening competition with other ASEAN countries that position themselves as being at the forefront of the fintech revolution in the region can also compromise the country’s fintech industry. Studies show that the Philippine fintech industry will continue to grow. However, the Philippines is still lagging behind when compared to its neighboring countries like Singapore, which can already be considered a fintech powerhouse, as well as fast-developing countries like Indonesia and Vietnam.
Prospects for Growth
As we move towards the digitalization of payment and remittances, finance industry players have also started to recognize the potential of cryptocurrencies.
According to the Philippines Fintech Report 2022, cryptocurrencies are now going mainstream in the country. Between 2019 and 2020, the transaction value of cryptocurrencies has jumped significantly to 410%, which is equivalent to $1.5 billion. Crypto startup firms also recorded strong customer growth and large rounds of funding.
The country’s central bank has also launched Philippine Digital Asset Exchange (PDAX), the country’s home-grown and BSP regulated cryptocurrency exchange platform. PDAX has also recorded a surge in customers from 20,000 in 2019 to 500,000 this year. PDAX also bagged US$12.5 million worth of funding in 2021.
Experts also see digital banks continuing to expand.
In line with the BSP’s financial inclusion and payment digitalization program in the country, the first virtual only bank was also launched in 2020 through the Overseas Filipino Bank (OFBank) owned by the Landbank of the Philippines. It was shortly followed by Tonik’s digital banking offering, which was able to pull in more than PHP 1 billion (US$20 million) in retail deposits. The company now has a total of over PHP 4.4 billion (US$87 million) deposits in just after a month since the launch.
UNObank, which is operated by Singapore-based DigibankASIA, announced that it is set to launch its own digibank this year. This is closely followed by GoTyme, a business venture formed between Filipino conglomerate Gokongwei Group and Tyme, a Singapore-based digital banking group. Other digibanks that are expected to follow suit include Union Digital Bank, a subsidiary of UnionBank, and Maya Bank, the digital bank of Voyager Innovation.
While working on goals to promote financial inclusion and digitalization in the country through fintech, key government institutions should also be a step ahead of the trend. They also have to make sure that the industry would be able secure growth not only on a national scale but also in the international and global arena.