The Philippines ranks second on our fintech attractiveness index given the country's blend of poor financial inclusion and superior access to technology. The country has seen record-breaking fintech funding in the last year alone – funding in the first half of 2021 of US$342mn was more than double the previous year (US$137mn). According to our proprietary survey, Philippines fintechs also project a faster route to profitability than EM peers.
In this report, we take a detailed look at the factors driving the success of Philippines fintechs, their plans and targeted innovations, growth constraints and the regulatory hurdles they face.
Key fintech success factors
The top four factors Philippines fintechs credit for their success to date are fast transaction speed, strong management, access to funding, and competitive product pricing. In contrast to fintechs in other emerging markets, Philippines firms give less credit to innovative service offerings or having a user-friendly platform.
1. Fast transaction speed
This is the success factor most cited by Philippines fintechs. They are leveraging open banking APIs to access fast and secure gateways for processing transactions. Blockchain technology is also increasingly being employed. Firms that cite fast transaction speed as a success factor include First Circle (Lending), and Starpay (Payments).
2. Strong management
This factor is important for specific fintech spheres such as blockchain (due to challenges of implementation), investech (where developing the products to match clients’ and regulators’ needs can benefit from extensive industry experience), and lending (implementing complex technologies for credit risk automation). Fintechs citing strong management as a key success factor include Akulaku (Lending) and SAVii (Lending)
3. Access to funding
To effectively compete with big industry players and achieve scale, start-ups need significant funding for marketing, infrastructure and network-building. Funding has played a key role in the success to date of firms like Cashalo (Lending), and Cloudstaff (Fintech software solutions).
4. Competitive product pricing
This reflects customers’ price-sensitive mindset; our consumer survey indicates that pricing is an important factor in the purchase decision for 48% of Filipinos. Fintechs can offer low prices given their greater automation and focus, use of outsourcing, and innovative distribution solutions. Companies citing competitive prices as a key success factor include MyTrade (Investech) and BeepToPay (Payments).
Fintechs' plans
According to our survey, the top-most priorities of Philippines fintechs are investing in technology and raising funds for growth. Other areas of focus include expansion into new markets, increasing use-cases for existing products and boosting management expertise. In contrast to other emerging markets, firms in the Philippines are less inclined towards introducing new products and services.
Technology investment
Investment in technology is the top strategic priority for Philippines fintechs. Continuous investment in technology ensures that consumers get the best available features most securely and conveniently. Some fintechs planning to invest in technology include Coinage (Blockchain) and Saphron (Insurtech).
Raising funds for growth
As highlighted previously, traditional incumbents are the main competitors of Philippines fintechs. To compete effectively, these fintechs must raise funds to build scale, brand equity, and distribution capacity. Firms that plan to raise funds for growth include First Circle (Lending) and Cashalo (Lending).
Targeted fintech innovations
Philippines fintechs are planning to innovate in big data analytics and risk management, cryptocurrency functionality, and using technology to reduce fraud and defaults. In comparison with other emerging markets, fintechs in the Philippines are more focused on big data analytics and risk management, and place less emphasis on chatbots/virtual assistants and augmented reality.
Big data analytics and risk management
Fintechs are using big data analytics to generate value from collected data. Meaningful insights can help to improve products and services, uncover new opportunities, boost operational efficiency, and effectively manage risk. Firms that plan to innovate in this area include MoneySmart (Comparison platform) and TrueMoney (Payments).
Cryptocurrency functionality
Fintechs recognise the growing adoption of cryptocurrency by their customers. According to our survey, almost 64% of the Philippines fintechs already accept cryptocurrency while 21% are planning to do so in the future. Fintechs targeting cryptocurrency functionality innovations include PayMaya (Payments) and SAVii (Lending).
Using technology to reduce fraud and defaults
Covid-19 has accelerated digital adoption but has also opened up opportunities for cybercrime. Fintechs are investing to counter this threat. In addition, better scoring to avoid credit defaults or to reduce adverse risk selection is important for fintechs in areas such as lending and insurance. Some firms planning to innovate in this area include Starpay (Payments), and Saphron (Insurtech).
Key constraints to fintechs’ growth
The overall size of the market, regulations, and competition are the key growth constraints faced by Philippines fintechs. This is broadly in line with what fintechs in other emerging markets are saying.
Size of the market
It can be difficult for industry leaders to outgrow the overall market, particularly as the number of competing fintechs rises. We think market size is impacted by customer awareness; for example, insurance is a less-penetrated product in low-income countries and blockchain is still an area where corporates and individuals have limited understanding. Coins (Blockchain) and Akulaku (Lending) are among the fintechs that cite market dynamics as a concern.
Regulations
Fintech operations differ considerably from those of incumbents and rulebooks are being continuously updated as regulators catch up with the pace of innovation in the industry. Regulatory oversight also tends to rise as fintech firms grow larger. As a result, fintechs are often subject to considerable regulatory uncertainty, which can act as a barrier to investment and growth. Philippines fintechs that think regulations are a constraint to their growth include MyTrade (Investech) and First Circle (Lending).
Competition from fintechs, traditional financial institutions and the informal sector
Fintech start-ups face many challenges. Incumbents are actively developing digital products, while fintechs themselves are ratcheting up the competition. Informal enterprises can benefit from lower operating and regulatory costs, giving them a pricing advantage. Philippines fintechs highlighting this growth constraint include Saphron (Insurtech) and BeepToPay (Payments).
Fintech regulatory hurdles
Philippines fintechs consider cryptocurrency, data protection and consumer protection requirements as their biggest regulatory hurdles. The importance of data and consumer protection issues is broadly in line with other emerging market fintechs. But Philippines fintechs are less concerned about capital requirements and KYC/AML regulations compared with elsewhere.
Cryptocurrency regulations
The Philippines is one of the top countries for cryptocurrency adoption, according to Chainalysis (they rank it 15th). The central bank has been increasing regulatory oversight over the virtual asset providers; the Bangko Sentral ng Pilipinas (BSP) has expanded its scope to include conversion of fiat into digital currency and the exchange, transfer and safekeeping of such assets. In addition, The Economist Intelligence Unit (EIU) is expecting crypto curbs in the Philippines over the next five years due to the increasing awareness of its risks. Fintechs considering cryptocurrency regulations as a hurdle include Coins (Blockchain) and TrueMoney (Payments).
Data protection regulations
One way fintechs can generate competitive advantage is through the collection and utilisation of customer data. Data protection regulations play a key role in determining the extent to which these companies can obtain and use such information, and the processes they must follow to protect it. Fintechs citing data protection regulations as a hurdle to their growth include MoneySmart (Comparison platform) and Coinage (Blockchain).
Consumer protection regulations
Fintechs have access to consumers' funds and their personal details. Regulators are heavily focused on protecting consumers in both these areas, which can limit fintechs’ scope. Fintechs citing consumer protection regulations as a hurdle to their growth include PayMaya (Payments) and Cloudstaff (Fintech software solutions).
