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Traditional Banks Join Fintech Fray as Competition Heats Up
The Philippine fintech sector has been abuzz with activity recently, as traditional banks scramble to stay ahead of the curve in a rapidly evolving market.
Traditional Banks Enter the Fintech Space
In a bid to compete with fintech startups, Bank of the Philippine Islands (BPI) has launched Vybe, an e-wallet service that offers many of the same features as popular fintech apps GCash and Maya. Meanwhile, UnionBank has introduced its digital banking proposition, UnionDigital Bank, which targets underbanked consumers.
The Rise of Fintech
The move by traditional banks to digitize their services is a response to growing pressure from fintech firms, which have disrupted the financial services landscape with innovative offerings and mobile-first approaches.
Current State of the Market
Despite this competition, no dominant players have yet emerged outside of the mobile payments subsector. Six digital banks have launched operations in the Philippines, but none are currently lending at scale.
- GCash and Maya, two of the most dynamic fintech firms, have expanded into lending, investment, insurance, and marketplace services.
- However, their customer bases still represent only a small fraction of the market for digital financial services.
Opportunities for International Players
As the fintech sector continues to evolve, experts say that international players with market-tested products could take a strong position in high-value segments. New entrants can establish a consumer base quickly by partnering with local players or leveraging their own knowledge of the market.
Encouraging Fintech Growth
The Philippine government has taken steps to encourage fintech growth, including:
- Relaxing onboarding requirements
- Agent-banking rules
- Limited rural banking infrastructure presents opportunities for digital-first or hybrid offerings
Regulatory Landscape
However, foreign firms and existing conglomerates must navigate a complex regulatory landscape to enter the market. Universal banking licenses are available to fully foreign-owned banks that meet certain criteria, while dedicated digital licenses offer more flexible requirements.
Alternative Approach: Acquiring Rural Banks
One approach to accessing the Philippine market is to acquire a small rural bank and repurpose it for digital banking. Over 400 rural banks are eligible for acquisition, with many already having been sold for less than $5 million.
Expert Insights
Despite the challenges, experts say that the opportunities presented by the vast greenfield market in the Philippines far outweigh the risks. A keen awareness of the sector’s structural limitations, evolving regulatory context, and relationship to the national economy will be critical for success.
About the Authors
Guillaume de Gantès is a senior partner in McKinsey’s Southeast Asia office. Hernan Gerson is an associate partner in the same office. Kristine Romano is a partner in McKinsey’s Manila office. The authors wish to thank Aaron Ong for his contributions to this article.
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