Philippine Fintech Sector Booms as Traditional Banks Catch Up
The Philippine fintech sector is experiencing rapid growth, driven by traditional banks’ efforts to digitize their services and compete with innovative fintech firms.
Traditional Banks Go Digital
Major banks such as BPI have launched e-wallets, offering a range of financial services similar to those provided by digital-only players like GCash and Maya. UnionBank has also introduced fully digital financial services to underbanked consumers through its UnionDigital Bank proposition.
Intensifying Competition in Digital Financial Services
The competition in digital financial services is intensifying, with six new digital banks launching operations in the Philippines. However, none have yet achieved significant scale in lending. Fintech firms like GCash and Maya are expanding into lending, investment, insurance, and marketplace services, but their customer bases encompass only a small fraction of the market.
Challenges Ahead for Fintechs and Digital Banks
Experts say that fintechs and digital banks must address unique challenges, including:
- Transforming operations to sustain growth momentum
- Improving profitability
- Addressing limited information infrastructure
Government Support for Fintech Development
The Philippine government has introduced measures to support fintech development, such as:
- Relaxed onboarding requirements
- Agent-banking rules that enable digital service providers to maximize the impact of the country’s limited rural banking infrastructure
Opportunities for Foreign Firms
For foreign firms looking to enter the market, acquiring a small rural bank and repurposing it for digital banking could be an attractive option. Over 400 rural banks are eligible, many of which have already been acquired for less than $5 million.
Challenges Remain
However, limited information infrastructure remains a serious challenge. The country’s narrow coverage of a unique national ID complicates know-your-customer (KYC) compliance, and the nascent credit bureau database offers only a limited appraisal of prospective borrowers’ creditworthiness.
Experts Weigh In
- Guillaume de Gantès, Senior Partner at McKinsey’s Southeast Asia office: “The Philippine fintech sector presents highly attractive opportunities for expansion. However, the way foreign firms and existing Filipino conglomerates choose to enter the market will have a major impact on their growth and competitiveness.”
- Hernan Gerson, Associate Partner at McKinsey’s Manila office: “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.”
Despite these challenges, the opportunities presented by the vast greenfield market for digital finance in the Philippines far outweigh the risks. 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.