Between 2021 and 2023, the Philippines’ fintech sector grew by more than 38%, rising from 216 companies two years ago to 299 in August 2023, data from the Fintech Map Philippines 2023 shows.

The 2023 data, shared in this year’s edition of the Fintech Philippines Report, reveal that the fintech sector recorded considerable growth between January 2022 and mid-2023, rising at a faster pace than between 2020 and 2021 during which the number of fintech companies increased by a more moderate 10%.

These metrics are in stark contrast to trends observed in other more developed jurisdictions where the growth of the fintech sector have stalled over the past years, possibly revealing higher levels of competition, market maturation and industry consolidation after year of record-breaking growth.

In Hong Kong, the number of fintech companies rose by a mere 1.2% between 2022 and 2023, a far cry from the 39% annual growth rate recorded between 2014 and 2018. Similarly, in Switzerland, the development of the fintech sector started slowing down in 2018, increasing by only 7% and 6% in 2019 and 2020, respectively, compared with the 67% growth rate recorded between 2017 and 2018.

In the Philippines, fintech innovation has remained so far limited compared with neighboring markets including Indonesia and Singapore, focusing mainly on payment. This slower development has been attributed to a number of limitations and challenges, including infrastructure constraints and underinvestment by traditional banks.

But recent efforts by the government are expected to fuel the growth of the sector. Aiming to increase financial inclusion, the Philippine government has introduced a reform program aimed at boosting competition in the banking sector, fostering the growth of fintech solutions, and achieving the ambitious target of reaching a 70% banking penetration rate by 2030.

To attract foreign players, the government has relaxed restrictions on foreign ownership, national hiring quotas, and data localization requirements. The bank-licensing process has also been streamlined, allowing foreign firms to acquire small rural banks or establish wholly owned subsidiaries. And the introduction of digital banking licenses has lowered minimum capital requirements, enabling fully foreign entities to obtain banking licenses.

The central bank has also implemented a unified QR code payments infrastructure (QRPh) to reduce transaction costs and expand the reach of digital payment systems, and services like InstaPay and PesoNet are facilitating electronic bank transfers at scale.

At the same time, the Philippines presents tremendous opportunities for fintech growth, driven by favorable economic, demographic and technological trends. Gross domestic product (GDP) growth is expected to average 6-7% per year over the medium term, and per capita growth is projected to grow by about 55% within the next eight years, according to McKinsey.

The country has a large, tech-savvy population, with three-quarters having Internet access and nearly universal mobile penetration, and one of the fastest population growth rates worldwide. By 2030, the bankable population is projected to rise by 30%, rising from 65 million in 2022 to 85 million.

Fintech Philippines Map 2023: The startup landscape

As of August 2023, the Philippines’ fintech startup ecosystem was dominated by companies in the payment, remittance and e-wallet segments, which counted 107, 31 and 27 companies, respectively, the Fintech Philippines Report 2023 shows. Combined, these three verticals made up 58% of all Filipino fintech startups.

Lending and buy now, pay later (BNPL) were other prominent segments in the sector, representing a combined 24% of all fintech ventures with 69 companies. Other fintech verticals present in the Filipino fintech sector at the time include blockchain and cryptocurrency (5%), wealthtech (3%) and insurtech (3%).

The Fintech Philippines Report 2023, released in August 2023, examines the state of the fintech sector in the Philippines, exploring the changing regulatory landscape and highlighting the new initiatives spearheaded by policymakers and government agencies.

The report shares a number of regulatory developments to look forward to, including the rollout of new regulations covering cryptocurrencies, tokenized securities and other blockchain-enabled products, new taxation rules on crypto, as well as the recently issued guidelines covering the use of digital identification and verification as part of the customer onboarding process.

Filipino fintech startups secured a mere US$26 million in funding in the first nine months of 2023, a sum which represents just 2% of all fintech funding raised by startups located in ASEAN’s six biggest economies (ASEAN-6), a report by UOB, PwC Singapore and the Singapore Fintech Association shows. The amount puts the Philippines at the bottom of the list in fintech funding share and underscores the country’s relatively underdeveloped fintech market compared to its ASEAN peers.

Featured image credit: Edited from freepik