In a country where almost 70% of its adult population is unbanked, fintech in the Philippines has a fertile ground to grow and offer innovative financial solutions. The country’s high mobile penetration, its youth’s increasing access to the Internet and the growing demand for online services all make it an attractive market for financial technology.

The Philippine fintech scene promises inclusion for its socio-economically diverse population by providing emerging online payment services and facilitating other transactions. As 2021 advances, new agreements and partnerships are evolving to forge the country’s economic progress and digitalisation, while digital banks seek the opportunity to attract fresh users and investors.

Here are 5 fintech startups in The Philippines to watch out for

The birth of fintech in the Philippines

The first virtual bank commenced business in 2017 through the Union Bank of the Philippines, but the country still ranked the lowest among the ASEAN countries in fintech inclusion, according to the 2017 Global Findex Survey. Back then, only 34% of Filipinos had access to traditional financial institutions, compared to 85% in Malaysia and 82% in Thailand.

That shift was enough to encourage CIMB Bank Bhd and ING Bank NV—two foreign banks operating in the Philippines—to offer digital products in the subsequent years.

When COVID-19 struck in 2020, it increased families’ concerns about safety and forced people and traditional businesses to slow down. However, it brought a massive opportunity for the fintech industry worldwide. In the Philippines, digital financial services increased exponentially as Filipinos opened more than four million digital accounts between March and April 2020, according to Benjamin Diokno, Governor of Bangko Sentral NG Pilipinas (BSP).

“The BSP sees digital banks as future partners (with traditional banking) in advancing financial inclusion in the country by leveraging on digital technology…,” assures BSP’s Deputy Governor Chuchi Fonacier.

Emerging digital banks

Gov. Diokno also announced that India-backed Tonik Digital Bank and Singapore-based UNObank had secured Digital Banking Licenses to operate in the Philippines, as had the state-backed Overseas Filipino Bank (OFBank).

OFBank, a subsidiary of LandBank of the Philippines, was officially launched in 2018 as a thrift bank and went virtual in June last year. It became the first certified branchless, digital-only bank in the country, along with Tonik Bank, after obtaining its license last March and expects to start operating by the second half of this year.

Tonik has recently raised $17 million USD in a pre-Series B round, increasing its capital funding to $44 million USD. It secured around $20 million USD in retail deposits in less than a month when it launched to the public in March 2020. Meanwhile, UNObank, a subsidiary of Singapore’s DigibankAsia, has partnered with Amazon Web Services, banking software firm Backbase and cloud banking platform Mambu, and plans to launch its digital banking service next year according to Fonacier.

Faceless and branchless, these fintech services still need to follow the digital banking framework to gain the trust of the government and users. The BSP’s guidelines, issued in December 2020, state that digital banks must have a minimum capitalisation of 1 billion Pesos—almost $21 million USD. They will not be allowed to have physical branches but must keep their head office in the Philippines.

Another fintech company eying up a digital bank license is South African digital lender TymeBank, which has raised $110 million USD in a Series B funding round and partnered with Philippine Corporation JG Summit Holdings. It hopes to begin operating next year.

The impact of fintech inclusion

Fintech is shifting the financial institutes’ focus from gold bars and physical branches to a better and more customised digital service through mobile phones. This move to a more customer-centric business model increases financial inclusion and boosts bank accessibility.

Since the pandemic started, the BSP reported a significant decrease in ATM transaction volume. Undoubtedly, ePayment services are becoming the new norm among young Filipinos who want to speed up their daily tasks online. For instance, InstaPay, launched by the BSP in 2018, raised its share of digital transactions to 20% in 2020, with users able to transfer almost $1,000 USD per day through this system.

By offering innovative products and services, the fintech industry can meet consumer needs, and Governor Diokno hopes that 70% of Filipino adults will have a digital account by 2023.

Fintech in the Philippines has a promising future. It is likely to flourish with the help of the BSP’s Digital Banking Guidelines and its partnership with RegTech for Regulators Accelerator (R2A) to manage the licensing process and increase its supervision capabilities over national financial institutions. They are gaining the trust of more digital banks seeking entry to the Philippine fintech scene and are providing the people with various digital products and services. By updating their banking methods to more digitised ones, Filipinos can keep pace with the new tech generation and perform online transactions more efficiently.