The Philippines’ fintech industry is blossoming on the back of surging funding activity, a conducive regulatory environment, and rapid adoption of digital financial services, a new report by the Boston Consulting Group (BCG) and Foxmont Capital Partners shows.

In 2021, fintech continued to take the lead in Filipino startup funding for the second consecutive year, making up 77% and 65.77% of deal value and volume, respectively, according to the Philippine Venture Capital Report 2022.

A total of US$680.1 million was raised, representing a 297% increase compared to 2020 at US$171.07 million. Funding was highly concentrated on a handful of late-stage deals, including Voyager Innovations’ US$167 million fundraising for its fintech arm PayMaya to expand into digital banking, and Mynt’s US$175 million round for its mobile wallet GCash.

2022 is already off to a strong start with funding activity in Q1 showing that the momentum is continuing this year. Reflective of the maturing of the sector, at least Series B rounds were announced in January and February: Tonik’s US$131 million, Philippine Digital Asset Exchange (PDAX)’s US$50 million, and PayMongo’s US$31 million rounds.

Tonik, a digital bank launched in Philippines in 2021, operates with its own license and provides consumer products ranging from deposits and payments, to debit cards and loans. The company said in December 2021 that it had secured over PHP 5 billion or around US$100 million in consumer deposits and more than 190,000 customers. Its holding company is Singapore-based Tonik Financial.

PDAX is an exchange that allows users to trade popular cryptocurrencies and digital assets including bitcoin and ether. Founded in 2018, the company claimed over 450,000 users in mid-2021, and is licensed and regulated by the Bangko Sentral ng Pilipinas (BSP).

PayMongo is a payment gateway that allows businesses to accept online payments from their customers online via credit card, e-wallets and over-the-counter. Its products include PayMongo API and e-commerce plugins. It says that its merchant base has grown from 3,000 in September 2020 to 9,000 in early 2022, while monthly transactions tripled from the start of 2021 to the end of the year.

Besides Tonik, PDAX and PayMongo, other rounds announced in 2022 include the US$11 million Series B closed by buy now, pay later (BNPL) provider BillEase, and the US$4.3 million seed round raised by Peddlr, a small point-of-sale (POS) mobile app.

Booming adoption of digital financial services

Rising fintech funding activity is coming on the back of rapid adoption of digital financial services amidst the COVID-19 pandemic.

In 2021, InstaPay transactions rose by 47% year-on-year (YoY) to 45 million, while transaction value went up by 64% to PHP 289 billion (US$5.6 billion), according to BSP data. Similarly, PESONet transactions saw a 26% YoY increase in volume to seven million and 37% YoY increase in value to PHP 502 billion (US$9.7 billion).

InstaPay and PESONet are the two major electronic funds transfer services for online bank-to-bank transfers in the Philippines, the former mainly focusing on low-value payment transactions, while the latter, on bulk and recurring transactions.

The BSP will be launching three new digital payment streams on these networks in H1 2022: Bills Payment, which will allow customers to pay their bills even if the transaction accounts of the customer and the biller are in different payment service providers, Request-to-Pay, which will let users manage recurring, non-urgent bills such as rents, loan amortizations and insurance premiums, and Direct Debit, which will allow for better management of recurring payments such as monthly rentals by simply authorizing the payees to pull funds from the account of the payers.

Bills Payments and Request-to-Pay will both run through InstaPay, while Direct Debit will run through PESONet.

Hopes for improved financial inclusion

In addition to digital payments, new signups for electronic accounts are also surging. In 2020, eight million accounts were created with mobile wallets such as GCash and PayMaya. By December 2021, GCash had over 51 million registered users, or approximately 70% of Filipino adult population, and recorded 23 million daily logins and 15 million daily transactions.

BSP governor Benjamin Diokno said in November 2021 that registered electronic money accounts reached 138.8 million in 2020, while the number of basic deposit accounts totaled 7 million in the first quarter of 2021. This implies a financial inclusion rate of 53%, nearing the target of 70% the central bank has set for 2023.

The BSP has been laying the foundation for fintech to thrive, issuing several new policies and amending laws to support innovation. In December 2020, it issued the Digital Banking Framework and consequently granted licenses to six entities.

In January 2021, the central bank issued new regulations for virtual asset service providers, expanding the activities subject to the licensing regime of the BSP from initially covering those involved in facilitating the exchange of fiat and digital assets, to the exchange between one or more forms of virtual assets, the transfer of virtual assets, as well as the safekeeping and administration of virtual assets or instruments enabling control over virtual assets.

This came on the back of rapid adoption of cryptocurrencies and digital assets. A 2021 survey conducted by Finder found that the Philippines had the world’s highest ownership rate of non-fungible tokens (NFTs) at 32%, surpassing the global average of 11.6%.

Now, the BSP appears to have set its sight on open banking, having released last year the Open Finance Framework to allow for consent-driven data sharing among institutions. A seven-person Open Finance Oversight Committee Transition Group (OFOC-TG) was formed earlier this year to act as the interim governing body to lead the establishment of the Philippines’ open finance ecosystem.