What Lies Ahead for Fintech in the Philippines in 2023?by Fintech News Philippines February 21, 2023
Despite a contraction in startup funding, 2022 was a fruitful year for the Philippines’ fintech industry, which saw the government and regulators continue to support the sector through conducive initiatives, growing demand for digital financial services, and an overall maturing of the industry.
Filipino fintech companies raised about US$344 million in funding in 2022, making up 8% of total fintech funding in ASEAN that year, according to the Fintech in ASEAN 2022 report by UOB, PwC Singapore and the Singapore Fintech Association.
The sum makes the country the third biggest recipient of fintech funding across the region and is a testament of investors’ confidence in the growth prospect of fintech in the market.
Booming fintech adoption on the back of financial inclusion initiatives
Growth in the fintech sector is set to carry on in the years to come as the government pushes for faster adoption of digital financial products through initiatives like the digitalisation of key government agencies including the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC), the establishment of a national action plan for cross-border paperless trade and the development of a digital financial marketplace.
The government has set out the target of converting at least half of all retail transactions volume into digital form and onboard 70% of Filipino adults to the formal financial system by next year.
Given the large population of underbanked in the Philippines, alternative payment services enabled through mobile wallets aims to move the dial closer to achieving this target.
By 2025, mobile wallet penetration promises to rise by at least 41%, while unique users of digital wallets in the country are expected to be in the 65 to 76 million range, against 25-27 million in 2020.
One of the local e-wallets GCash claims to have onboarded 71 million users at the end of last year which makes up approximately 80 percent of the country’s adult population.
Additionally, Filipinos are also finding their foothold in the financial system through the use of digital lending apps which had risen significantly in 2022.
Some estimates suggest that as high as 80% of the Filipino adult population have availed of microloans offered by lending apps, which have become quite popular due to easy accessibility and minimal requirements needed.
Digital banks shake up the industry
The Philippines’ central bank, the Bangko Sentral ng Pilipinas (BSP), awarded six digital banking licenses in 2021, allowing these new entities to provide virtual banking services with hopes for improved financial inclusion and increased usage of digital transactions.
The six digital bank licensees are Tonik, Maya Bank, UnionDigital Bank, GoTyme Bank, Overseas Filipino Bank which is LANDBANK’s digital bank arm, and UNO Digital Bank.
These digital banks are all operational now and add to an increasingly crowded digital finance ecosystem that has seen, over the past years, the entry of foreign super-apps and tech giants like Grab and GoJek.
The volume and value of electronic payments and financial services processed through digital banks amounted to PHP 8.45 billion with 1.4 million transactions in the first half of 2022.
These developments have installed a sense of urgency in banks to accelerate their innovation pace as 60% of Filipinos are willing to shift to banking players that are more digital, according to an IDC report commissioned by banking software provider Backbase.
Rising crypto usage
According to data from the BSP, the volume of transactions in the Philippines involving virtual assets grew by a staggering 362% year-on-year (YoY) to nearly 20 million in June 2021. These transactions were worth PHP 105.93 billion (US$1.9 billion) in June 2021, up 71% over the same period.
Licensed crypto payment gateway TripleA estimates that close to 15 million Filipinos, which is about 13% of the total population, own cryptocurrencies as of January 2023.
Currently, there are 20 Virtual Asset Service Providers (VASPs) that are licensed by the central bank in the Philippines.
Amid booming cryptocurrency usage and trading activity, the Philippines’ Securities and Exchange Commission (SEC) said earlier this month that it was developing a legal and regulatory framework to address issues surrounding cryptocurrencies.
SEC chairman Emilio Aquino said the aim is for these rules to govern crypto, blockchain technology, as well as the issuance and regulation of digital asset exchanges.
To help it draft the rules, the SEC has partnered with the state-run University of the Philippines Law Center (UPLC), a tie-up which will involve the “conduct of joint research projects, capacity building and policy analysis, and resource and information sharing concerning [financial technology],” the regulator said.