Industry Beacon: In focus - PH fintech industry

Summary

In this episode of Industry Beacon, Mikey Or speaks with Leto Villanueva, co-founder and chairman of the Fintech Alliance Philippines, and Executive Vice President at RCBC, about the transformative growth of the fintech industry in the Philippines. They discuss the remarkable rise of digital payments, the challenges of financial inclusion, and the role of digital banking and innovation in driving economic growth. They also delve into the progress of digital financial services, the competitive landscape with new players entering the market, and the ongoing need for greater digital infrastructure and financial education to further empower Filipinos across all walks of life.

Takeaways

• 😀 The Philippine fintech industry has seen a 38% growth in the number of fintech players over the past two years, surpassing the Philippine development plan's target.
• 😀 In 2017, only 1% of retail transactions in the Philippines were digital payments. By 2024, this figure has risen to 52.8%, showing substantial growth in digital payment adoption.
• 😀 The Bank of Central and Filipinas (BSP) aims to onboard 70% of Filipino adults into the formal financial system by 2024, with the current figure at 52.8%.
• 😀 The Philippine fintech landscape is becoming more competitive with 6 licensed digital banks, and 4 more set to join by 2025, bringing the total to 10.
• 😀 Despite being a leading player, GCash does not have a digital banking license but operates with different licenses such as EMI and lending licenses, partnering with banks for deposit-taking.
• 😀 The profitability of digital banks remains a challenge globally, with less than 1% of them being profitable, requiring a balance between growth, profitability, and financial sustainability.
• 😀 Digital financial inclusion is still a work in progress, with a major challenge being the limited access to loans from banks due to the lack of credit history for many Filipinos.
• 😀 The National ID system has been a key enabler of financial inclusion, providing all Filipinos, including those in remote areas, with access to basic financial services.
• 😀 The digitalization of the remittance sector can significantly reduce transaction costs, with reductions of up to 30-40%, benefiting migrant workers and their families.
• 😀 Connectivity and infrastructure remain a challenge, but initiatives like the 'Connectad Pino' bill are pushing for improvements in digital infrastructure, particularly in remote areas of the country.
• 😀 Digital salary disbursements are on the rise, particularly among large enterprises, and are expected to become the norm in the future, with a push for more small businesses to adopt this method.
• 😀 The Philippine fintech industry has the potential to grow further, with the goal of having more unicorns, and achieving sustained digital adoption across the country.

Q & A

What has been the growth in the number of fintech players in the Philippines in the past two years?

The number of fintech players in the Philippines has grown by 38% over the past two years, surpassing the target set by the Philippine Development Plan.

How has digital payments in the Philippines evolved from 2017 to 2024?

In 2017, digital payments accounted for just 1% of transactions, but by 2024, this figure had increased to 52.8%, thanks to efforts by the Bank of Central and Filipinas and collaboration within the fintech industry.

What are the two main goals of the Bank of Central and Filipinas' Digital Payments Transformation Roadmap?

The two main goals are to shift at least 50% of retail financial transactions to digital platforms and to onboard at least 70% of Filipino adults into the formal financial system.

What challenge still remains despite the success in digital payments in the Philippines?

While the target for digital payments has been met, the challenge remains in onboarding 70% of Filipino adults into the formal financial system, with the current achievement at 52.8%.

How many digital banking licenses are currently in the Philippines, and how will this change by 2025?

There are currently six digital banking licenses in the Philippines, and this number is set to increase to 10 by 2025 with the addition of four new players.

How does GCash operate without a digital banking license?

GCash operates with an EMI license and a lending license, allowing them to offer services like their wallet (GXI) and lending arm (Fuse). They also partner with banks for deposit-taking services.

What is the current state of profitability for digital banks globally, and how does this relate to the Philippine fintech sector?

Globally, less than 1% of digital banks are profitable. This remains a challenge for the Philippine fintech sector as it strives to balance growth, profitability, and financial sustainability.

What challenges are faced in promoting digital lending in the Philippines?

A major challenge is the low credit footprint among Filipinos, which makes it difficult for many to access formal loans. This has led to a reliance on informal lenders or loan sharks, especially for new-to-credit individuals.

How has the Philippine National ID system contributed to financial inclusion?

The Philippine National ID system (PhilID) has become a key enabler for financial inclusion, providing a basic identification for people who previously lacked formal IDs, allowing them to access financial services, open accounts, and create credit footprints.

How has the digitalization of remittances benefited OFWs and the Philippine economy?

Digitalization has helped reduce the cost of remittances by 30-40%, making it more affordable for OFWs to send money back home. It also ensures greater security, transparency, and efficiency in the process.