The battle for fintech space

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BENEL D. LAGUA

The Philippines has one of the youngest populations worldwide with a median age of 24 according to the Philippine Statistics Authority; a sweet spot for the country’s economic fortunes. It is also an indication that the country is an attractive market for the introduction of digital banking products.

With a population base of 103 million, the Philippines has recorded an internet penetration rate of 55.5 percent and a 66.5 percent Facebook penetration rate based on internetworldstats.com data. It also has an amazing 117 percent penetration rate in terms of mobile subscriptions. Despite this, only 2% of retail transactions are done through digital payments and 98% of small financial transactions are in cash. Because of this potential, the Bangko Sentral ng Pilipinas wants to increase the share of digital payments to 20 percent of total transactions by 2020. The BSP is leading the implementation of the National Retail Payments System (NRPS) to shift more transactions to online processes in a cash-heavy economy.

Central bank Governor Nestor Espenilla was tagged by The Asset magazine as “the disruptor” for his vision of deploying technology to shake up the status quo and break down silos in the payments arena. His main weapon moving forward is the NRPS, which is intended to allow full interdependability of finance service providers. He says the central bank’s goal is to create open ecosystems that will enable people and digital financial products to connect to everyone in the system. He is looking at a clearing and settlement system that will allow the movement of financial values electronically from bank account to bank account and from digital wallets to another, and he aims to keep this clearing system safe by maintaining its integrity.

For this reason, we will expect a major battle for space in the fintech ecosystem. Fintech News Singapore, in an article, counted 60 players in the Philippines’ fintech start-up scene. The sector is populated by mobile payments and outlets (41 percent), alternative finance (29 percent), remittance/blockchain (12 percent), comparison (8 percent), credit rating and analytics (5 percent) and payroll (5 percent). Solutions that provide fast and convenient funding, lending as well as payment solutions that do not require a particular sophistication for the consumers are those that are considered promising in the Philippine arena.


Clearly, the BSP is keen on this digital revolution as it is now closely monitoring platforms that operate in areas like cryptocurrencies, peer-to-peer lending and crowdfunding. It has issued general guidelines governing digital currency exchanges. At the same time it has been careful in not intervening too much, waiting for the right time to take action on a number of fintech innovations.

There are a lot of challenges moving forward. The greatest is what we all know: Poor digital infrastructure. No less than Alibaba’s Jack Ma said that Philippine internet speeds are “no good”. Banks, meanwhile, have cited strict regulations on KYC or know your customer as a major obstacle in their desire to leapfrog to the digital space. Infrastructure constraints are not just in the digital space but in the physical world as e-commerce transactions that will require abilities to deliver in the logistical space are lacking. Hence, the government’s “Build Build Build” program is most welcome. Finally, there’s the issue of enhancing consumer confidence and trust in the financial system.

The battle for fintech space will occur under this milieu and we hope the challenges will be hurdled through a delicate combination of cooperation and competition. This battle must be waged fiercely but fairly because it is competition that will ensure that only the best type of service survives. This battle is good news in an economy where we still have a large segment of the population underbanked or even unbanked. Financial inclusion activists are hoping that the fintech revolution will serve as the last mile that will allow service delivery to those who need it the most. As I have always observed, financial access innovations must consider availability, affordability and acceptabilility for it to make real progress.

(Benel D. Lagua is executive vice-president at the Development Bank of the Philippines. He is an active Finex member and a long time advocate of risk-based lending for SMEs. The views expressed herein are his own and does not necessarily reflect the opinion of his office as well as Finex.)

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