5 Ways Digital Finance in the Philippines is Flourishing Despite Hurdles

The digital finance sector in the Philippines is currently experiencing a significant transformation, presenting numerous opportunities for advancement and innovation. The Bangko Sentral ng Pilipinas (BSP) is leading this change by adopting international central banking standards and transitioning towards a digital financial ecosystem. This evolution aims not only to improve transaction efficiency but also to promote financial inclusion nationwide, especially in remote regions.

In addition to these government initiatives, a study conducted by Google, Kantar, and Sixth Factor sheds light on the evolving financial consumer behavior in the Philippines. The study highlights a rising interest in saving and investing, concerns regarding the safety of digital finance, and a reliance on online searches for financial information and services.

While there is a strong desire to utilize digital financial services, a segment of the population remains cautious, primarily due to safety apprehensions. However, these concerns are gradually being addressed through user-friendly platform designs and educational programs in the Philippines, bolstering overall trust in digital finance.

Moreover, the transition to digital finance in the Philippines is impacting different banking segments in distinct ways. The unbanked population, a significant portion of adults, is increasingly embracing digital financial services, often through mobile devices. The underbanked group, typically less affluent and less digitally proficient, seeks guidance and education to confidently adopt new financial products. On the other hand, the fully banked segment is actively exploring avenues to enhance wealth through more intricate, riskier investments, demonstrating a high level of engagement with digital finance.

Despite challenging macroeconomic conditions, digital finance in the Philippines is expanding through various mechanisms.

High adoption of digital banking and fintech apps

According to a recent survey by Capstone-Intel, a significant majority of Filipinos are increasingly embracing digital finance as a convenient option in the financial landscape of the Philippines.

The survey findings indicate that 90% of respondents have observed a trend towards using digital banking and fintech apps. Among the users, GCash emerged as the most favored choice with 94% of the participants. Following closely were PayMaya (39%), ShopeePay (26%), various bank applications (18%), GrabPay (8%), and other fintech apps (5%).

In contrast, 2% of the survey participants mentioned that they do not utilize any banking or fintech apps.

Ella Kristina Domingo-Coronel, the Research and Publications Director at Capstone-Intel, shared her insights on the survey's implications:

In examining the significance of these discoveries, the findings underscore the necessity of enhancing the financial technology infrastructure even further. Given the growing prevalence of digital financial services in the Philippines, it is essential for the government to intensify efforts to guarantee regulated security. Ella also emphasized,

Startups fueling long-term remittances growth

In 2021, according to the Philippine Statistics Authority, the Philippines stands out as a significant contributor to the global remittance sector with close to 2 million Filipinos residing overseas. The country ranks high among the leading nations in terms of receiving remittances. Despite a challenging global financial environment, new players in the market are securing funds to address this growing demand.

According to a recent report by ResearchAndMarkets.com, the international inbound remittance market in the Philippines grew by 2% in 2022, reaching US$38.04 billion in 2023. Similarly, the international outbound remittance market in the Philippines experienced a 14.8% increase in 2022, totaling US$188.5 million in 2023.

However, a slowdown in the growth of remittance inflows is predicted for 2023 due to economic deceleration in several key source countries. The World Bank attributes this decline to reduced migration and a global economic slowdown, estimating that total remittances will increase by approximately 2.5% to reach US$39 billion in 2023.

Despite this near-term outlook, the long-term outlook remains positive with emerging collaborations in the Philippine market, where strategic partnerships are becoming more common. In October 2023, US-based fintech firm Circle announced a partnership with Philippine company Coins.ph to streamline remittances using USDC, offering low transaction costs and simplified processes.

Netbank, a banking-as-a-service platform, has also established strategic alliances with international remittance companies to introduce a new service for remittances into the Philippines, including a partnership with UK-based TransferGo.

TANGGapp, which stands for Tap and Go Global App, recently secured US$2.5 million in seed funding from various investors. The app facilitates low-value money transfers from the US to the Philippines and enables users to link local bank accounts and digital wallets. Over the past two years, TANGGapp has seen a 25-fold growth, with a repeat usage rate of 48%.

As the global remittance market is projected to grow significantly in the coming years, Philippine-based startups are seeking international expansion opportunities. BayaniPay, a fintech and remittance startup, aims to establish a presence in Canada after a successful seed funding round of US$2.1 million, bringing its total funding to US$6.6 million. The company, currently serving areas in the USA, has witnessed substantial growth in transaction values and user base in 2023.

With over a million Filipinos residing in Canada, the expansion of BayaniPay is anticipated to boost its transaction volumes, contributing to the overall growth of the remittance market in the Philippines.

Transactions going cross-border, in real-time

For banks in the Philippines, the transition to real-time cross-border payments is a crucial advancement as mandated by the central bank BSP through its Digital Payments Transformation Roadmap. The roadmap set a target that by the previous year, 50% of all retail payments in the country would have shifted to electronic channels.

The proactive BSP has established cross-border payment agreements with other countries to facilitate cross-border trade, investment, and tourism for businesses in the Philippines, as well as to enhance remittance flows for the millions of Filipinos working abroad.

The central bank has entered into two agreements with the Monetary Authority of Singapore (MAS) to merge the Philippines’ InstaPay and Singapore’s PayNow real-time payment networks in 2021. This initiative utilizes the QR standards of both countries to expedite payment connectivity between them.

Subsequently, the central banks of the Philippines, Malaysia, and Thailand explored cross-border payment agreements to connect their QR and real-time payment systems. They later signed a pact with neighboring countries Singapore, Indonesia, Malaysia, and Thailand to enhance connectivity and streamline payment flows within the five ASEAN nations.

BSP governor Felipe M. Medalla is confident that payment connectivity among the five largest economies in ASEAN could be established within the next two to three years. This endeavor aims to deepen financial integration and simplify inter-regional trade by enabling quicker, more cost-effective, and transparent cross-border transactions.

‘Cashless’ payments maturing

The digital finance landscape in the Philippines has been significantly transformed by the increased adoption of digital payments in recent years. According to the 2022 Status of Digital Payments BSP Report, there has been a notable surge in digital payment usage, with 42.1% of total retail payments by volume now being conducted digitally, a substantial rise from the previous year.

To further drive this digitalization trend, the BSP has initiated various programs, such as the polymerization of Banknotes and the Paleng-QR Ph Plus Programme, designed to promote digital payments across different sectors like local markets and public transportation. Many public services in the Philippines are now required to accept digital payments, with entities like the Philippines Securities and Exchange Commission exclusively processing digital transactions since 2023.

Furthermore, the Philippine government's efforts to encourage a 'cashless society' have been instrumental in fostering this transition. By promoting digital transactions, the government aims to boost financial inclusivity and streamline economic activities.

The introduction of the PESONet and InstaPay automated clearing houses has revolutionized fund transfers between financial institutions, offering real-time, cost-effective, and efficient services. These platforms have experienced a surge in usage, with millions of transactions being processed daily. Last year alone, transactions through PESONet and InstaPay totaled over PHP5 trillion.

Fastest-growing ASEAN economy prioritises financial inclusion

The Global Economic Prospects report by the World Bank, published in January 2024, projects a 5.8% growth in the Philippines' gross domestic product (GDP) for the current year, a slight increase from the estimated 5.6% in 2023.

If the World Bank's prediction for the Philippines comes true, the country would be the fastest-growing economy in Southeast Asia this year, on par with Cambodia, which is also anticipated to achieve a 5.8% growth.

The Bangko Sentral ng Pilipinas (BSP) acknowledges that digital finance initiatives are playing a significant role in the Philippines surpassing expectations and making progress towards its financial inclusion objectives and development strategies.

In 2023, BSP Governor Eli M. Remolona, Jr mentioned that...

Financial inclusion has significantly improved in the Philippines in recent years, in line with its economic growth. According to BSP data, the number of Filipino adults holding a financial account more than doubled from 20.9 million to 42.9 million between 2019 and 2021. Consequently, the proportion of banked adults in the country reached around 56% by 2021, a substantial rise from the 29% reported in 2019. Despite this progress, 34.3 million adults in the Philippines still did not have bank accounts.

As outlined in the BSP’s Digital Payment Transformation Roadmap 2020-2023, the central bank set a target to integrate 70% of adult Filipinos into the financial system and digitize 50% of all retail payments by the end of 2023.

Former BSP Governor Felipe Medalla reported that the country was on course to meet these goals earlier in 2023. He emphasized the role of e-wallets and recent initiatives in bringing many Filipinos into the formal banking system, promoting the use of digital financial services, and shifting towards digital payments.

This ongoing digital financial transformation throughout the Philippines represents a new era of financial opportunities and inclusivity, signaling a significant move from traditional banking practices to a more accessible, efficient, and inclusive digital finance system in the country.

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