THE RISE in online transactions has opened opportunities for digital banking as many Filipinos remain unbanked or underbanked, Fitch Solutions Country Risk & Industry Research said, although the country’s underdeveloped digital infrastructure may limit the sector’s growth.
“The Philippines’ large unbanked population, one of the highest in South East Asia, creates a sizeable market on which to leverage fintech services which we believe will offer investors positive returns,” Fitch Solutions said in a note on Thursday.
“Regulatory backing and the country’s demographic environment have created a supportive environment for the uptake of mobile banking services, giving a positive outlook for investors,” it said.
Only 29% of adult Filipinos had accounts with financial institutions as of 2019, leaving some 51.2 million unbanked, based on data from the central bank’s Financial Inclusion Survey that year.
The Bangko Sentral ng Pilipinas (BSP) hopes to bring 70% of adult Filipinos into the banked population by 2023. In that same year, it also wants 50% of transactions, both in terms of volume and value, to be done digitally. The central bank said Filipinos are becoming more comfortable with cashless payments due to the coronavirus pandemic.
Aside from the BSP’s financial inclusion initiatives, Fitch Solutions noted the new framework called CHIP (Connect, Harness, Innovate, and Protect) adopted by the Department of Information and Communications Technology will also be instrumental in the country’s digital transformation. The framework looks to expand the uptake of digital services in mobile payments, telemedicine, and e-commerce.
“Initiatives like CHIP that aim to digitize government services and create a conducive environment for the development of fintech products are vital for their uptake and realizing returns,” Fitch Solutions said.
It noted that government subsidies to about 6 million Filipinos as well as the relatively high mobile penetration rate of 58% in the country will also help boost digital transactions and open up opportunities for fintech players.
On the other hand, Fitch Solutions said interest in the sector could be dampened by “poor” digital infrastructure in the country, which it noted as a laggard in the region. It said this has restrained the potential of e-commerce in the Philippines.
“Fixed broadband is extremely limited across the archipelago and users often experience noticeable latency. Drivers of digital payments uptake like e-commerce use is restricted and often a frustrating experience,” it said.
Because of this, players that are part of telco conglomerates have the competitive advantage, Fitch Solutions said. It noted that Globe Telecom, Inc.’s mobile wallet GCash already has 31 million users, with transactions already surpassing the P1-trillion mark. Meanwhile, PayMaya Philippines, which is owned by PLDT, Inc., had 28 million users and saw the value of transactions coursed through the platform surge by 3.5 times at end-2020 from the prior year.
“Gaining competitive edge in the market will be challenging but Voyager has recently moved into adjacent verticals such as providing business loans and health insurance to augment its offering,” Fitch Solutions said.
Voyager Innovations, where PLDT is the main shareholder, last month raised $167 million for the expansion of PayMaya, including the establishment of a digital bank.
The BSP has granted digital banking licenses to the Overseas Filipino Bank, Tonik Digital Bank, Inc. (Philippines), and UNOBANK. The Monetary Board initially set a cap of five licenses following the establishment of its digital banking framework, but the central bank has said it is open to granting more, depending on demand.
Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a majority stake in BusinessWorld through the Philippine Star Group, which it controls. — L.W.T. Noble