Fintech companies, which are playing an increasingly important role in the Philippines’ financial services landscape, are to complement the products and services offered by banks, opening up growth areas to lenders to expand market reach.

At the BankTech Asia Manila event last year, bankers were unanimous to say that banks and fintech companies had everything to gain by collaborating with one another.

“Things have changed around us,” Malik Khan Kotadia, the former senior vice president of Global Banking Group, now a fintech mentor and author, told the audience during a presentation. “Banking environment has been changing too. We see banks moving, but moving slow.”

“With the growth in mobile penetration, fintech becomes an enablers for [the banks] to help them expand and attract other markets, tapping into other segments that banks would otherwise have difficulty [going after].”

In particular, fintech companies have the potential to help banks tap into the growing smartphone penetration and mobile Internet penetration rates.

According to studies conducted by the global public-private organization Better Than Cash Alliance, Filipinos make about 2.5 billion payment transactions per month worth US$74 billion. Only 1% of these consist of electronic payments, and the rest 99% are paid either in cash or checks.

Lito M. Villanueva, the managing director and CEO of FINTQ, the fintech unit of the Philippines’ leading telecommunications provider (PLDT) and Voyager Innovations, said:

“It is about enabling partners to promote cost and service efficiencies, engaging regulators on emerging digital landscape and empowering consumers via frictionless experience leveraging on the ubiquity of mobile.”

According to Villanueva, smartphones will start driving bank growth as it becomes the primary banking channel in the years to come.

Government support

Bangko Sentral ng Pilipinas (BSP), the Philippines’ central bank, has encouraged the development of new financial products, in particular those that leverage digital platforms and mobile technology to serve the financially excluded and unbanked.

Earlier this year, the central issued new fintech rules targeting companies engaged in remittance services, e-money, digital currency, and other fintech businesses. The new regulations aim at providing greater clarity to new entrants and promote fintech growth.

Central bank governor Nestor A. Espenilla, Jr. said the authority welcomed financial innovation, noting that it was important for the banking and financial sector to keep pace with emerging fintech.

“New sophisticated players such as financial technology solution providers have entered the market. This is a good thing as these bring about a notable and gradual unbundling of the traditional value chain in the Philippines and intimately links banks closer to customers,” Espenilla said.

The central bank is looking to update rules on corporate governance and risk management to allow fintech players to offer their services in the Philippines. Furthermore, the authority is said to be currently drafting enhanced rules on information technology to tighten rules and guard against cyber threats.

Fintech adoption grows

A growing number of Filipinos are using mobile banking technologies to transact with their banks. According to Eugene Acevedo, the senior executive vice president of UnionBank of the Philippines, customers now “spend hours researching on bank products on the Internet before actually visiting the bank to execute the deal.”

According to data from BSP, as of December 2016, there were a total of 28,392 branches of financial institutions in the country, but 25% of clients are actually using digital channels to interact with financial institutions. And the numbers are growing.

For UnionBank, the digitalization of the banking and financial sector is unavoidable. The bank has embarked into a massive digitalization plan as it aims to transform its operations into digital technology, put up a digital bank and engage fintech companies in catering the local market, UnionBank president and CEO Edwin Bautista told the Manila Times.

UnionBank is allocating PHP 3 billion (US$58 million) for its digital transformation. Last year, the bank signed a partnership with online lending marketplace Lendr to boost its retail loans portfolio.

Lendr, a platform owned and operated by FINTQ, is also partnered with Camalig Bank, the Equicom Group’s Algo Leasing & Finance, the Development Bank of the Philippines, EastWest Bank, the Philippine Bank of Communications, Philippine Veterans Bank, Cebuana Lhuillier Bank, Insular Bank, Philippine Business Bank, Card Bank Inc., Card SME Bank Inc., and Rizal Bank Inc., among many others.

Across its online lending platforms, which include Lendr, Mobile Loan Saver (with Landbank), and Pera Agad (with Cash Credit), FINTQ has logged over 135,000 loan applications worth a total of PHP 21 billion (US$408 million) since its launch in 2015.

Other fintech services of FINTQ include platforms in the areas of digital insurance, digital micro-investments, digital banking security, and alternative credit scoring facility for the unbanked segment.

Upcoming: BankTech Conference in Manila

The BankTech Asia Manila event is coming back this year on September 19 and 20. The 2017 conference and exhibition event will address the trends, issues and opportunities that are unique to Philippines in the space of banking technology and fintech.

“The banking sector in Philippines, much like its ASEAN counterparts are not blind to the disruption. Our observation in BankTech Asia Manila 2016 shows that several major banks in Philippines have already embarked on their own fintech initiatives. Which is why we feel it is important to bring BankTech Asia back to Manila as a platform for bankers to discuss and navigate their innovation strategies by learning from local and regional players. We look forward to continue this conversation this September and in the years to come”

said Vincent Fong, General Manager, Knowledge Group, organisers of BankTech Asia.

Featured image: Metro Manila, the Philippines, via Unsplash