Sustaining the Philippines’ fintech revolution

2022, arguably, was another banner year for the Philippine fintech industry. Led by progressive and engaged regulators and organizations, the maturing sector responded to a growing demand for digital financial services through a variety 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 for fintech and understand how to respond to ensure its growth continues upward.

Geographical imbalance

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

Another side is the imbalance of financial inclusion among certain categories of citizens. The FIS, for instance, found that 73 percent of farmers, 48 percent of private households and 45 percent of self-employed individuals still have no financial accounts. Age-wise, 65 percent of Filipinos aged 30 to 39 have accounts, while in the 15-19 age group, only 27 percent can claim that. Remembering that the average age of a Filipino is 24 years and that young people remain the main conductor of financial digitalization into life, the relevance of the issue increases significantly.

Income inequality

The low level of material well-being of many Filipinos can also be considered one of the most important manifestations of audience imbalance. According to official data, poverty among the population reached 18.1 percent in 2021 (about 20 million Filipinos) in comparison with 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 percent from 5.2 percent at the same period. It is significant that 49 percent of Filipino families feel Poor and 29 percent feel Borderline Poor, according to a SWS survey in Q3 2022.

Such a situation, accompanied with growing inflation, does not help in stabilizing and continuous growth of household expenditures and consumer spending. Food remains the main purpose of these spendings. 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 of internet) and their quality. We observe that the current situation with mobile internet in the country, based on the totality of various factors, is estimated at 65.9 points out of 100 (2021), leaving great potential for development. The leader of the rating is Australia with 92.5 points. As for the internet in general, on the one hand, there is a rapid progress in its penetration (+2.8 percent of users in 2021-2022); on the other hand, about 36 million adults are still offline.

Growth of financial literacy. The 2021 Financial Inclusion Survey revealed that only 2 percent of Filipinos were able to give correct answers to all the six basic financial literacy questions (about inflation, investment risk, interest, etc.). 69 percent of adults correctly answered at least half of six financial literacy questions, whilst 61 percent answered up to three only. A Finder study said the same: Filipinos’ financial literacy rate, estimated at 25 percent, leaves room for improvement compared to their neighbors. Mastering the skills of competent use of numerous financial instruments will inevitably increase the level of demand for fintech services. Current government initiatives led by progressive and supportive regulators remain of considerable 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 ones designed for special auditory groups). This large, multifaceted task is certainly not solved in a day, but is very correlated in fostering full-fledged fintech inclusion in the country. Further penetration of the fintech segment indirectly contributes to this process by furthering the production of convenient, 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 in reaching the underserved with its solutions and building loyalty in the process. We expect this trend in particular to continue in the coming years.

Considering the above, a truly digital Philippines is just a matter of time. Filipinos’ growing interest in using advanced financial products, coupled with efforts of authorities and stakeholders, offers assurance that the country’s fintech revolution remains sustained.

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Farit Shakirov is country manager of consumer finance company Digido.