With innovations such as digital and mobile banking, e-payment systems, blockchain ledgers and cryptocurrency, financial technology (fintech) is set to expand rapidly in the coming years, bolstered by a supportive regulatory environment, low levels of financial inclusion and rapid adoption of digital technology.
Regulation
In 2017 the country’s central bank, Bangko Sentral ng Pilipinas (BSP), stated it supports responsible fintech innovation, as it holds the potential to promote financial inclusion and operational efficiency. The bank has structured its fintech regulatory framework around three core principles: risk-based and proportional regulation, active multi-stakeholder collaboration and consumer protection.
As in many markets, fintech has taken off in the Philippines in recent years: as of June 2017 there were 25 banks in the country offering mobile banking services, 18 offering telephone banking, 42 with internet banking services, 28 acting as electronic money issuers and 15 offering mobile financial services via dedicated apps, according to the BSP. A broad and complex range of fintech products are also under development, focused mainly on payments and funds transfers. Financial inclusion metrics suggest there is plenty of room for expansion. According to a 2018 report published by Mesonfintech, the financial technology arm of major Chinese conglomerate Freeman Financial Holdings, 70% of Filipinos do not have debt, and only 10% of the population has a credit card. Credit card receivables amounted to P239bn ($4.7bn), or 2.8% of the sector’s total loan portfolio as of end-2017, according to the BSP.
Conglomerates are moving to boost fintech investment. The LT Group-owned Philippine National Bank, for example, recently partnered with Voyager Innovations, a digital innovation arm of telecoms operators PLDT and Smart, to launch mobile salary and loan services. The new company, FINTEQ, disbursed more than P12bn ($237.1m) in new loans through its digital platform Lendr in 2017, up nearly one-third on the previous year.
Crypto-Assets
Both the Securities and Exchange Commission (SEC) and BSP are working to draft regulations for the emerging cryptocurrencies segment. According to Emilio Aquino, commissioner of the SEC, the Philiappines is ranked third globally in Bitcoin usage, with Fintech Singapore reporting that the local monthly virtual currency trading volume stood at $6m as of February 2018, up from an average of $2m in 2016, supported by remittances from overseas workers.
However, this new industry does present potential dangers. “Consumers are oblivious to cyber threats and the government has difficulty raising its preparedness for breaches of security for important data,” Simoun Ung, president and CEO of OmniPay, told OBG. In June 2016 the BSP announced plans to tighten cryptocurrency regulations after launching a new cybersecurity surveillance division, and in early 2017 the bank issued guidelines for virtual currency exchanges to regulate their use for the delivery of financial services, with the aim of preventing money laundering and terrorism financing, and ensuring consumer protection and financial stability. After meeting with Singapore’s central bank, the BSP issued two licences to cryptocurrency exchanges in late 2017, reporting that 12 applications for Bitcoin exchange registrations were under review.
ICO
In January 2018 the SEC released an initial coin offering (ICO) advisory, emphasising that if an ICO involves the sale of a company’s securities, the securities on offer must be registered with the commission. Days later it halted a planned ICO by four companies operating under Calata Corporation. Nonetheless, a number of companies have since moved forward with ICOs, including Salarium, a local payroll and attendance software firm that raised $13.5m selling its SALP ay token; and LoyalCoin, a blockchain customer loyalty service, which offered its LYL token ICO. With a more accommodating regulatory environment than China – which has banned ICOs – the Philippines should remain at the forefront of the regional fintech industry.
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