Financial technology is transforming the way individuals and businesses access and manage their finances across the globe, says DAVID BRADY. 

In the Philippines, a country known for its tech-savvy population and incredibly high internet and mobile phone penetration, fintech is making significant inroads in driving financial inclusion, resulting in the provision of more affordable and accessible financial services to individuals and businesses that have been traditionally excluded from the formal financial services sector.

While a significant proportion of the Filipino population remains unbanked, considerable progress has been made in improving financial inclusion in the last few years. 

According to the World Bank’s Global Findex Database, in 2017, 34 per cent of adults in the Philippines had a bank account, up from 31 per cent in 2014. While more recent statistics are not available from the World Bank, Bangko Sentral ng Pilipinas (BSP)’s latest Financial Inclusion Survey shows a dramatic increase in the percentage of the population holding a formal bank account, up to 56 per cent in 2021.

However, despite this boost in the “banked” population, there is still a gap between urban and rural areas, with rural areas lagging in access to financial services. Fintech is playing a critical role in bridging this gap by providing innovative solutions to help reach underserved populations, including mobile banking and payment apps and other digital channels offering financial services, leveraging the Philippines’ high mobile phone penetration rate.

The rise of BNPL & Embedded Finance

One of the most significant trends in fintech is the rise of Buy Now Pay Later (BNPL) services, a type of credit that allows customers to split the cost of purchase into smaller installments. In the Philippines, BNPL is becoming increasingly popular among young people and those with limited access to credit, and we are seeing an increasing number of fintech partnering with retailers to offer BNPL services at the point of sale. These services are helping to increase financial inclusion by providing access to credit to those who would otherwise be unable to obtain it.

Another way fintech is enhancing financial inclusion in the Philippines is through embedded finance services. Embedded finance refers to the integration of financial services into non-financial products and services. For example, a ride-sharing app may offer a loan to a driver to purchase a vehicle, or a supermarket might offer insurance to customers at checkout. Embedded finance services are helping to increase financial inclusion by making it simpler and more convenient for consumers to access the financial services that they want and need.

Cash no longer king as the digital economy booms

As the digital economy booms, cashless transactions are becoming increasingly popular in the Philippines, with the adoption of digital wallets and mobile payments growing rapidly. A 2022 research study from Visa identified that 92 per cent of Filipinos had used cashless methods to shop and pay, and only slightly more than half (53%) identified cash as their preferred method of payment. This is an enormous shift from just a few years ago — in 2015 just 1 per cent of all retail payments were made electronically. Driven initially by the pandemic, the conversion from cash to online or mobile payments has been swift in the country, with the Filipino government also providing encouragement for consumers to embrace digital payment options with the National Retail Payment System and the Philippine QR Code Standard.

According to a report by Google, Temasek, and Bain & Company, the Philippines’ digital economy is expected to reach US$28 billion by 2025, up from US$5 billion in 2018, driven by the rapid adoption of e-commerce, ride-hailing, and digital banking services.

This rapid growth of the digital economy in the Philippines is creating a swathe of new opportunities for fintech to launch innovative new products that can enhance financial inclusion and offer new ways to access financial services that bypass traditional methods like credit cards, and we expect to continue seeing improvements in the country’s financial inclusion rates in the months and years to come.

Mambu is a software that provides infrastructure for banks and financial service providers according to the software-as-a-service model. 

• Brady is Sales Director ASEAN at Mambu.