Fintech in the Philippines: An overview.

In recent years, the Philippines has emerged as a vibrant hub for financial technology (fintech), driven by a young and tech-savvy population, government initiatives, and the pressing need for greater financial inclusion. This thriving fintech ecosystem has transformed how Filipinos access financial services and encouraged innovation and economic growth. With the widespread adoption of mobile phones and the internet, fintech services have become an integral part of people’s daily lives.

This overview delves into the diverse landscape of fintech in the Philippines, exploring key sectors, regulatory developments, and notable players in this ever-evolving ecosystem.

The Philippine fintech regulatory environment

The Philippines central bank, Bangko Sentral ng Pilipinas (BSP), is the main body regulating and supervising financial institutions, including those considered fintech. It introduced the 2020 Digital Banking framework and the 2020-2023 Digital Payments Transformation Roadmap to establish regulatory frameworks for fintech companies. The BSP’s goals for the roadmap were stated officially as twofold: “securing the digitalization of payments, and increasing the number of Filipinos with access to financial services”, reinforcing the principle of financial inclusion for more levels of Philippine society.

The BSP also introduced the Regulatory Sandbox Framework, which institutionalised the “test-and-learn” strategy, aiming for a more data-driven, outcome-oriented development of new and emerging financial solutions. The sandbox offers a secure environment for fintech firms to experiment with new products and services without the usual regulatory or licensing requirements. This allows participants to explore emerging technologies while minimising any risks to the public.

Philippine fintech sector funding

According to UOB, 2022 fintech funding in the Philippines reached USD 337.4 million, accounting for 8% of total fintech funding among ASEAN countries. This funding was distributed across various subsectors, with payments receiving a substantial USD 241 million, cryptocurrencies attracting USD 80 million, alternative lending receiving USD 11 million, and finance and accounting technology securing over USD 5 million.

Leading Philippine fintech subsectors

The leading fintech subsectors in the Philippines are digital banking, digital payments and mobile wallets, alternative lending, blockchain and cryptocurrency, electronic remittances, insurtech, regtech and suptech.

Digital banking

The digital banking sector in the Philippines is steadily growing and significant changes have become increasingly obvious. The government has been actively promoting the digital banking revolution. Digital banking aims to promote financial inclusion, especially in the population who are unbanked or underbanked. Over 40% of adults in the Philippines still do not have access to banking services due to insufficient financial infrastructure in rural areas and, according to the BSP, there are more people who have mobile phones than bank accounts. Therefore, digital banking is an opportunity for these individuals to access financial services.

The BSP has issued Certificates of Authority (COA) to six digital banks: Maya Bank, Tonik Digital Bank, Overseas Filipino Bank, UNObank, UnionDigital Bank, and GoTyme Bank.

Maya Bank aims to broaden its user base and encourage a more diverse audience to use its digital banking services. They have been proactively introducing new features, including savings, business deposits, personal goals, and personal loans. By 2022, Maya Bank reached 1.5 million customers with deposits totalling PHP 5 billion.

Digital payments and mobile wallets

Between 2013 and 2020, there was a significant surge in the adoption of digital payments in the Philippines, with the rate increasing from 1% to over 20% of transactions. This remarkable growth was primarily because of the COVID-19 pandemic and strict lockdown regulations, and people needing to carry out transactions from their homes. There are currently over 58 million active mobile wallet users, rising to a predicted 81 million by 2025.

According to the BSP, the total volume of digital payments has seen significant growth, rising to 42.1%, with an increase of USD 611.7 million in retail payment transactions compared to the previous year. The value of digital payments accounts for 40.1%, amounting to USD 78 billion.

The BSP has implemented several initiatives to promote the adoption of digital payment systems, including setting up a clearing house for digital transactions and the development of a national QR code standard. These measures are essential for creating an ideal environment for the country’s digital payment growth. The most popular digital payment method in the Philippines is the digital wallet, and the leading platforms are G-Cash and PayMay. The platforms allow consumers to make online purchases, money transfers, bill payments, and payments at physical retail stores.

Another emerging digital payment method is Buy Now Pay Later (BNPL). This is driven by the significant population of Filipinos who do not have credit cards or the required documents to apply for one. As a result, they are not able to access traditional instalment payment plans offered by banks. BNPL allows users to make purchases and split the payment into instalment plans, often interest-free.

Blockchain and cryptocurrency

The blockchain and cryptocurrency sector is positioned to continuously grow in the Philippines as more fintech companies offer services related to digital assets. Blockchain in particular has significantly impacted the country’s banking sector.

UnionBank has developed a decentralised payment platform connecting rural and national commercial banks, powered by Enterprise Ethereum and running on Kaleido. This system enables secure, instantaneous, and cost-efficient domestic remittances. As a result, rural banks can effortlessly send and receive money across any bank account in the Philippines. The platform, called Project i2i, was introduced in April 2019 featuring 35 rural bank partners spanning 150 branches. Project i2i received approval and support from the BSP to function as the Philippines’ first blockchain-powered payment network.

The Cagayan Economic Zone Authority (CEZA) has partnered with Northern Star Gaming & Resorts Inc. to create a cryptocurrency and fintech hub called the Crypto Valley of Asia (CVA). CVA aims to create a favourable environment for the development and growth of domestic and international fintech and blockchain-related businesses by providing infrastructure and regulatory support. This project is a significant step in the government’s strategy to foster a thriving fintech ecosystem, attracting international blockchain and cryptocurrency companies to establish a presence in the country.

Alternative lending

Alternative lending companies are using innovative technologies to offer accessible and streamlined credit options to individuals and small businesses who have been underserved by traditional banks. They use advanced credit scoring algorithms, which consider factors like mobile phone usage and online behaviour, to evaluate the credit reliability of borrowers. With user-friendly interfaces, adaptable repayment choices, and a dedication to enhancing financial inclusivity, the alternative lending sector is pivotal to promoting economic growth and expanding financial accessibility throughout the country.

Two notable alternative lending platforms in the Philippines are Acudeen and First Circle. Acudeen developed an online platform allowing banks and other investors to purchase SME accounts receivable at discounted rates, alleviating cash flow challenges for small businesses. First Circle offers invoice financing through an online platform and extends purchase order financing to support SMEs in securing capital.

Electronic remittances

According to the World Bank, the Philippines is among the leading recipients of remittances, with an inflow of USD 38 billion. A recent report by Visa titled Money Travels: 2023 Digital Remittances Adoption, revealed that residents in the Philippines received remittances from other countries (70%) rather than sending (17%). This trend is influenced by the estimated 1.83 million Overseas Filipino Workers (OFWs) employed outside the country.

An example of a digital remittance platform that changed how people send and receive money is WorldRemit. This platform allows users to transfer money overseas through their mobile application and website. WorldRemit built a network of regional partners in the Philippines, including banks and e-wallet operators, to ensure quick and hassle-free fund transactions.

Insurance technology (insurtech)

Insurtech companies are emerging to address the pain points in the Philippine insurance industry, from simplifying the complex application process to providing more accessible and affordable insurance products. Through mobile applications and online platforms, Filipinos are able to purchase insurance policies, submit claims, and access insurance-related services conveniently. The use of data analytics and AI is also enhancing underwriting processes and risk assessment, leading to more personalised insurance solutions.

In 2020, the Philippines’ Insurance Commission (IC) under the Department of Finance introduced a regulatory sandbox for insurtech firms. The sandbox applies to insurance companies, pre-need companies, reinsurance brokers, mutual benefit associations, health maintenance organisations (HMOs), and other companies regulated by the IC to safely test insurtech solutions. Non-regulated companies, such as startups and financial service providers, must comply with the IC’s regulations before applying.

Igloo is a full-stack insurtech firm that collaborates with insurance companies to digitalise insurance products and distribute them online. Igloo distributes insurtech solutions through partners such as GCash, Foodpanda, and Shopee. For example, Igloo’s insurance will cover anything purchased on Shopee. When customers are requested to pay at the checkout page, a pop-up will appear asking if they would like to add insurance.

Regulatory technology (regtech) and supervisory technology (suptech)

The regtech and suptech landscape in the Philippines is still in its early stages, but there is growing interest in the use of technology to improve regulatory compliance procedures and boost the efficiency of financial institutions. The BSP proactively promotes the adoption of regtech and suptech within the financial sector. These initiatives serve as methods for financial institutions under the BSP’s supervision to streamline compliance and manage IT-related risks. Additionally, the BSP is committed to strengthening its capabilities to regulate and supervise financial institutions by implementing suptech tools.

The BSP has introduced the Advanced Suptech Engine for Risk-Based Compliance (ASTERisC*), a cloud-based regtech and suptech solution designed to facilitate the BSP’s cybersecurity supervision and oversight processes. These include cyber-profiling, cyber incident reporting, and cybersecurity control self-assessments. Supervised financial institutions can access and transfer real-time cybersecurity-related reports and data. ASTERisC* helps the BSP make risk-based and proactive supervisory decisions, as well as determine the direction of cybersecurity policy. The BSP received the Cyber Resilience Initiative Award for ASTERisC* in the 2023 Fintech & Regtech Global Awards.

Challenges and opportunities of the fintech industry in the Philippines

Despite strong growth and positive indicators, fintech in the Philippines faces challenges. One of the primary issues is the complex regulatory landscape, which requires fintech companies to navigate multiple government agencies and regulations, often resulting in lengthy approval processes and compliance burdens. Cybersecurity is also a significant challenge, as there is an increasing number of cyberattack threats and data breaches demanding robust security measures.

However, there are just as many if not more opportunities in the fintech landscape in the Philippines, like using digital solutions to provide access to financial services to those who are underbanked or unbanked, fostering economic growth and stability. Additionally, the youthful and tech-savvy demographic in the Philippines offers a vast market for innovative fintech products and services, from digital banking and wallets to lending platforms.

Conclusion

Even though the fintech sector in the Philippines is still in its early stages, it has seen steady growth due to several factors, including government initiatives and financial inclusion. Fintech solutions have shaped the way people are using financial services, leading to a more convenient and accessible banking experience for individuals and businesses.

How Acclime can help

Acclime provides guidance to fintech companies looking to establish a foothold in the Philippines. As the Philippines fintech sector continues to grow, Acclime serves as a trusted partner in overcoming regulatory hurdles and unlocking the immense opportunities this dynamic market offers. Contact the Acclime team in the Philippines for further assistance and information on the country’s fintech landscape.