Sustaining the Philippines’ fintech revolution

January 17, 2023 | 12:00

2022 was undoubtedly another banner year for the Philippine fintech industry. Led by progressive and committed regulators and organizations, the growing sector responded to a growing demand for digital financial services through a range of new products and partnerships for their banking, credit and other financial needs.

As we welcome the new year, it is necessary to reflect on existing barriers to fintech and understand how to respond to ensure that growth continues upwards.

Geographical imbalance

Latest data from the Philippine Central Bank revealed that there are 488 cities and municipalities in the country that remain unbanked as of June 2022. Many residents in rural areas are also cut off from full financial services (52 percent of the total population), according to World Bank data . This illustrates both a powerful challenge and potential for the further development of fintech.

Another side is the imbalance in financial inclusion among certain categories of citizens. FIS found, for example, that 73 per cent of farmers, 48 ​​per cent of private households and 45 per cent of self-employed people still do not have any financial accounts. In terms of age, 65 percent of Filipinos aged 30 to 39 have accounts, while in the 15-19 age group, only 27 percent can claim that. When you remember that the average age of a Filipino is 24 and that young people are still the main driver of financial digitization into their lives, the relevance of the issue increases significantly.

Income difference

The low level of material well-being of many Filipinos can also be considered one of the main manifestations of crowd imbalance. According to official data, poverty among the population reached 18.1 percent in 2021 (about 20 million Filipinos) compared to 16.7 percent in 2018. The subsistence incidence, defined as the proportion of Filipinos whose income is not enough to meet even just the basic food needs, increased to 5.9 per cent from 5.2 per cent in the same period. Significantly, 49 percent of Filipino families feel poor and 29 percent feel borderline poor, according to a Q3 2022 SWS survey.

Such a situation, together with increasing inflation, does not contribute to stabilizing and continuous growth in household expenditure and consumption expenditure. Food is still the main purpose of this expenditure. All these factors seriously hinder the development and penetration of fintech technologies.

Therefore, overcoming these trio of imbalances lies in accelerating the following:

Growth in internet penetration and mobile communications (as the main channel for internet) and their quality. We observe that the current situation with mobile internet in the country, based on the total of various factors, is calculated at 65.9 points out of 100 (2021), which gives a great potential for development. Leading the ranking is Australia with 92.5 points. As for the internet in general, on the one hand there is rapid progress in penetration (+2.8 percent of users in 2021-2022); on the other hand, around 36 million adults are still offline.

Growth of financial competence. The 2021 Financial Inclusion Survey revealed that only 2 percent of Filipinos were able to correctly answer all six basic financial literacy questions (on inflation, investment risk, interest rates, etc.). 69 percent of adults answered at least half of six questions about financial literacy correctly, while 61 percent only answered up to three. A Finder study said the same thing: The Philippines’ economic literacy, estimated at 25 percent, leaves room for improvement compared to its neighbors. Mastering the skills of competent use of a variety of financial instruments will inevitably increase the demand for fintech services. Current government initiatives led by progressive and supportive regulators continue to be of significant help.

Growth in the level of well-being of the population, especially in rural areas, through notable initiatives such as ongoing social welfare programs (including those developed for special auditory groups). This large, multifaceted task is certainly not solved in a day, but is very correlated to promote full-fledged fintech inclusion in the country. Further penetration of the fintech segment indirectly contributes to this process by promoting the production of practical, affordable and understandable financial solutions such as savings accounts, credit options and other investment vehicles. Notable fintech players are leading the charge on this front with their hyperlocal approaches, getting very creative to reach the underserved with their solutions and building loyalty in the process. We especially expect this trend to continue in the coming years.

Considering the above, a truly digital Philippines is only a matter of time. The growing interest of the Philippines in using advanced financial products, combined with efforts by the government and stakeholders, provides assurance that the country’s fintech revolution will remain sustained.

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Farit Shakirov is the country manager of the consumer finance company Digido.