Fintech Frenzy: Traditional Banks Scramble to Keep Pace as Competition Heats Up
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In a rapidly evolving landscape, traditional banks in the Philippines are scrambling to stay ahead of the curve as fintech firms continue to disrupt the financial sector.
The Latest Developments
- BPI’s launch of Vybe e-wallet on its mobile app offers services similar to GCash and Maya, marking a significant effort by incumbent financial institutions to compete with fintech service providers in their native market segments.
- UnionBank has started offering fully digital financial services to underbanked consumers through its UnionDigital Bank proposition.
The Competition Intensifies
While competition in digital financial services is intensifying, dominant players have yet to emerge outside of the mobile payments subsector. Six digital banks have recently launched operations in the Philippines, but none are currently lending at scale.
- Fintech firms like GCash and Maya are expanding into new areas such as lending, investment, insurance, and marketplace services.
- Despite having a combined customer base that accounts for over half of the Philippine population, they are only capturing a small fraction of the market.
The Challenges Ahead
To reach their potential, fintechs and digital banks must address unique challenges such as transforming operations and improving profitability to sustain growth momentum.
International Players Eye Philippine Market
The fintech landscape offers considerable scope for unilateral expansion by existing banks that are willing to move beyond their existing customer base, embrace new service models, and invest in innovation. The underserved rural sector is well-suited to digital-first or hybrid offerings.
- Universal banking licenses and dedicated digital licenses are available for foreign firms and Filipino conglomerates looking to enter the market.
- Acquiring a small rural bank and repurposing it for digital banking may be a simpler and more cost-effective approach.
Challenges Abound
Despite the opportunities presented by the vast greenfield market for digital finance in the Philippines, limited information infrastructure remains a serious challenge. The narrow coverage of a unique national ID complicates know-your-customer (KYC) compliance, while the underdevelopment of traditional financial systems presents additional obstacles.
- Navigating the rapidly shifting landscape of digital finance in the Philippines requires understanding the sector’s structural limitations, evolving regulatory context, relationship to the national economy, and position within the global fintech ecosystem.
- An experienced partner with a deep understanding of the local context can enable new entrants to outmaneuver foreign and domestic competitors and position themselves for decades of growth in a dynamic emerging economy.
Expert Insights
In an exclusive interview, Guillaume de Gantès, senior partner at McKinsey’s Southeast Asia office, notes that “the opportunities presented by the vast greenfield market for digital finance in the Philippines far outweigh the risks. However, a keen awareness of the challenges facing fintech service providers will offer a critical advantage.”
Hernan Gerson, associate partner at McKinsey’s Manila office, adds that “navigating the rapidly shifting landscape of digital finance in the Philippines requires understanding the sector’s structural limitations, evolving regulatory context, relationship to the national economy, and position within the global fintech ecosystem.”