The fintech landscape in the Philippines is experiencing rapid growth, with digital payments soaring and over 300 companies innovating across verticals, according to the Philippines Fintech Report 2024.
Produced by Fintech News Philippines in partnership with Fintech Alliance PH and sponsored by Alibaba Cloud and Zoloz, the report paints a picture of a thriving fintech sector, underscored by robust government support, increasing digital adoption and a strong commitment to financial inclusion.
The report provides a comprehensive overview of the Philippine fintech ecosystem, highlighting the significant developments and innovations from the past year and the key trends shaping 2024.
Philippines exceeds digital payment target
The Philippines has exceeded its 2023 target of converting 50% of the total volume of retail payments to digital form. By the end of last year, digital payment transactions accounted for 52.8% of total monthly retail payments in the country, up from 42.1% in 2022.
The data, highlighted in the Bangko Sentral ng Pilipinas (BSP)’s 2023 Report on E-payments Measurements, show that digital payments are advancing at a faster pace than expected.
The target is part of the Philippines’ Digital Payments Transformation Roadmap 2020-2023, a strategic initiative by the BSP aimed at reducing the reliance on cash, promoting digital payments and fostering financial inclusion in the Philippines.
The roadmap seeks to establish a robust digital finance infrastructure, and introduce regulatory reforms to foster digital payment innovation, with the goal of expanding the financially included to 70% of Filipino adults by 2024, among other goals.
While more recent data is yet to be released, the BSP’s 2021 financial inclusion survey reveals significant progress in accessibility. In 2021, 56% of adults in the country had a bank account, a remarkable rise from 23% in 2017 and 17% in 2015.
Digital banking advances but profitability remains a challenge
Since the launch of the first digital bank in the Philippines back in 2021, only two of the six licensed players have reached profitability, suggesting intense competition and high operational costs.
The BSP expects losses to persist in the medium term as the nascent industry seeks the right business models, diversifies its offerings and optimize operations. It estimated that it takes around five to seven years for a digital bank becomes profitable.
Digital banks are a new category of banks in the Philippines, with licenses only being granted by the BSP since 2020. So far, six entities have received a digital banking license: GoTyme Bank, Maya Bank, Overseas Filipino Bank, Tonik Digital Bank, UnionDigital Bank and UNOBank. These players have collectively generated around 8.7 million deposit accounts, which represent around 7% of the total of the Philippine banks, according to BSP director Melchor Plabasan.
To boost the sector’s performance and its contribution to digital transformation and financial inclusion goals, the BSP is planning to resume accepting applications for the digital banking license. Up to four new digital banking slots will be up for grabs next year, with the application window starting on January 1, 2025, effectively ending a three-year moratorium.
Philippines Fintech Report 2024 highlights dominance from the payments sector
In 2024, payments continued to lead the Philippine fintech sector, accounting for 35.4% of all fintech companies in the country with 116 ventures, according to the Philippines Fintech Map 2024.
The vertical is followed by lending (22.2% and 73 companies), remittances (9.1% and 35 companies) and e-wallets (7.1% and 29 companies).
The payments sector is not only the most crowded fintech vertical but also the most developed, featuring some of the country’s biggest and most successful fintech companies, including GCash, a mobile payments service owned by Globe Fintech Innovations and the first fintech unicorn in the country, as well as Maya, GCash’s biggest competitor and a venture developing itself as a financial super app with a digital banking license.
Fintech is also the most dynamic investment segment in the Philippines. Data from the Philippine Venture Capital Report 2024 reveal that the sector was the favored investment target in 2023, accounting for 23% of all VC rounds with 22 VC deals.
Digital ID project progresses
The Philippines is also advancing its digital infrastructure with the launch of the Digital National ID in June. The new service aims to improve service delivery, promote inclusion and support the broader digital transformation and the country’s economy and society.
As of July 2024, more than 88 million Filipinos had registered with the Philippine Identification System (PhilSys) for a national ID, with a total of 52 million PhilID physical cards issued.
The Digital National ID is the digital version of the PhilID card that can be used on mobile devices. It contains the owner’s national ID card number, digital ID number and basic demographic information, such as the front-facing photograph, full name, date of birth, present address, gender, blood type, marital status, and a unique QR code.
Two authentication platforms, National ID eVerify and National ID Check, were also launched. National ID eVerify provides users with a suite of verification tools, including facial recognition and real-time data verification, to swiftly confirm personal details. National ID Check, meanwhile, enables institutions to validate personal information through QR scanning, targeting organizations with limited technological resources.
The Digital National ID supports the government’s strategies outlined in the Philippine Development Plan 2023-2028, a strategic framework designed to guide the country’s development over six years, with the ultimate goal of achieving inclusive growth, reducing poverty, and improving the quality of life for all Filipinos.
Central bank digital currency efforts advance
The Philippines is also progressing in its efforts to implement a central bank digital currency (CBDC). Project Agila is part of the BSP’s broader efforts to understand and leverage digital currencies within the financial system.
BSP Deputy Governor Mamerto E. Tangonan said that the proof-of-concept phase for Project Agila is expected to conclude by the end of this year. He indicated that the wholesale CBDC could be launched in the earlier part of BSP Governor Eli M. Remolona Jr.’s six-year term, which runs from 2023 until 2029.
The BSP has identified several potential use cases for the CBDC, such as liquidity management, which allows transactions between banks even on weekends and holidays. Another potential use case is security settlement, which could become “almost instantaneous” with CBDCs, potentially stimulating capital markets.
Cross-border payments have also been identified as a use case, with Project mBridge, a multi-CBDC platform by the Bank for International Settlements (BIS), being a potential collaboration for the Philippines.
Phase one of Project Agila was completed in 2023, selecting HyperLedger Fabric’s distributed ledger technology (DLT) for BSP’s sandbox experiments. BSP Director Atty. Bridget Rose M. Mesina-Romero noted that two test runs of sandbox experiments are currently underway.
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Featured image credit: edited from freepik
