Fintech Companies Poised to Overtake Banks in Capturing Unbanked Filipinos

Philippines remains one of the largest markets for fintech companies, as approximately 70% of its adult population lacks access to banking and financial services. Fintech firms such as Globe Telecom Inc.'s GCash and PLDT Inc.'s PayMaya have been rapidly expanding their services, while conventional banks struggle to digitize their operations. This has led Moody's Investors Service to comment that it is now challenging for banks to win market share in the retail segment over fintech companies.

Key Takeaways:

• Approximately 70% of adults in the Philippines lack access to banking and financial services, creating a vast opportunity for fintech companies to tap into this market.
• Fintech companies such as GCash and PayMaya are rapidly expanding their services, including mobile wallets, remittances, and unsecured lending, giving them a significant edge over banks in key areas of their retail business.
• Moody's believes that banks face "abundant room" for growth in the Philippine financial system, particularly in the retail segment, which has huge growth potential.
• According to the World Bank, the Philippines is the fourth-largest recipient of inbound remittances in the world, accounting for 8.3% of gross domestic product in 2020.
• The central bank data showed a 61% year-on-year increase in active electronic money wallets in the first nine months of 2020, while GCash transactions grew by 254% annually to $20 billion last year.
• GCash targets a gross transaction value of P2 trillion for this year, driven by the heightened need for cashless solutions.
• Banks have been slow to invest in digitization, largely limited to upgrading internet banking platforms to serve existing corporate clients, due to concerns over retail loan defaults.
• Moody's believes that banks are missing an opportunity with retail loans, which are now more profitable than corporate loans, especially as credit demand from companies remains weak.

Statistics:

• Approximately 70% of adults in the Philippines lack access to banking and financial services.
• The Philippines is the fourth-largest recipient of inbound remittances in the world, accounting for 8.3% of gross domestic product in 2020.
• The central bank data showed a 61% year-on-year increase in active electronic money wallets in the first nine months of 2020.
• GCash transactions grew by 254% annually to $20 billion last year.
• GCash targets a gross transaction value of P2 trillion for this year.

Sources:

• Moody's Investors Service, dated Thursday (no exact date mentioned)
• World Bank
• Globe Telecom Inc.
• PLDT Inc.