5 Key Highlights from the Philippines Fintech Report 2024

The fintech industry in the Philippines is rapidly growing, with a surge in digital payments and more than 300 companies driving innovation in various sectors, as stated in the Philippines Fintech Report 2024.

Collaboratively developed by Fintech News Philippines, Fintech Alliance PH, and supported by Alibaba Cloud and Zoloz, the report depicts a flourishing fintech landscape, backed by strong government backing, increasing digital adoption, and a dedicated focus on financial inclusion.

The report offers a detailed overview of the fintech ecosystem in the Philippines, showcasing notable advancements and breakthroughs from the previous year, along with the key trends that will shape 2024.

The Philippines has surpassed its goal for digital payments

The Philippines has surpassed its target set for 2023 to convert 50% of retail payments into digital transactions. By the conclusion of the previous year, digital payments made up 52.8% of the total monthly retail payments, an increase from 42.1% in 2022.

Data from the Bangko Sentral ng Pilipinas (BSP)’s 2023 Report on E-payments Measurements indicates that digital payments are progressing at a rate faster than anticipated.

The objective is outlined in the Digital Payments Transformation Roadmap 2020-2023 of the Philippines, a strategic initiative by the BSP designed to lessen dependence on cash, encourage digital payments, and enhance financial inclusion in the country.

The roadmap aims to establish a strong digital financial infrastructure, implement regulatory changes to stimulate digital payment innovation, and increase the percentage of financially included Filipino adults to 70% by 2024, among other targets.

Although the most recent data is pending release, the BSP’s 2021 financial inclusion survey indicates notable advancements in accessibility. In 2021, 56% of adults in the country possessed a bank account, a significant increase from 23% in 2017 and 17% in 2015.

Digital banking advances but profitability remains a challenge

With the debut of the first digital bank in the Philippines in 2021, only two out of the six licensed entities have succeeded in attaining profitability, signaling intense competition and substantial operational costs.

The BSP anticipates ongoing losses in the near future as the nascent sector fine-tunes its business strategies, broadens its offerings, and streamlines its operations. It is projected that digital banks typically require five to seven years to reach profitability.

Digital banking is a recent development in the Philippine banking industry, with licenses being issued by the BSP since 2020. Currently, six institutions hold digital banking licenses: GoTyme Bank, Maya Bank, Overseas Filipino Bank, Tonik Digital Bank, UnionDigital Bank, and UNOBank. Collectively, these entities have garnered around 8.7 million deposit accounts, constituting approximately 7% of the total accounts held by Philippine banks, according to BSP director Melchor Plabasan.

To enhance the sector's performance and its contribution to digital transformation and financial inclusion goals, the BSP plans to accept applications for new digital banking licenses. Starting on January 1, 2025, the application period for up to four new digital banking licenses will commence, marking the end of a three-year hiatus.

Digital ID project progresses

The Philippines has made strides in enhancing its digital infrastructure by introducing the Digital National ID in June. This new initiative is aimed at enhancing service delivery, fostering inclusivity, and facilitating the broader digital transformation of the country's economy and society.

By July 2024, over 88 million Filipinos had enrolled in the Philippine Identification System (PhilSys) to obtain a national ID, with 52 million PhilID physical cards already issued.

The Digital National ID serves as a digital counterpart to the PhilID card, accessible on mobile devices. It includes the individual's national ID card number, digital ID number, as well as essential demographic details like their photo, full name, date of birth, address, gender, blood type, marital status, and a unique QR code.

Additionally, two authentication platforms, National ID eVerify and National ID Check, were introduced. National ID eVerify equips users with verification tools such as facial recognition and real-time data validation to promptly confirm personal information. On the other hand, National ID Check allows institutions to authenticate personal data through QR scanning, catering to organizations with limited technological capabilities.

The implementation of the Digital National ID aligns with the government's objectives outlined in the Philippine Development Plan 2023-2028, a strategic roadmap aimed at steering the country's progress over six years, with a core focus on achieving inclusive growth, poverty reduction, and enhancing the overall 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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