PHL regulation seen favorable for digital payments growth
THE regulatory environment in the Philippines will help accelerate the entry of more digital banks and payments companies, helping the country rise from low penetration rates in a region where the potential market is projected at $1.5 trillion, JP Morgan said.
In a report, the bank said regulatory frameworks for digital banking and payments are particularly advanced in the Philippines and Singapore, raising concerns for traditional banks.
"These are likely to drive the accelerated entry of digital banks, which could lead to concerns around market share for incumbents," the report said.
"In this regard, large banks which are able to move faster in building digital offerings will gain a lasting edge," it added.
JP Morgan's $1.5 trillion regional market estimate covers the so-called ASEAN 6, six of the 10-member bloc's largest economies — the Philippines, Indonesia, Thailand, Singapore, Malaysia, and Vietnam.
The Bangko Sentral ng Pilipinas (BSP) issued its digital banking framework in November, recognizing a category distinct from traditional, branch-heavy lenders such as commercial, thrift, rural and Islamic banks.
BSP Deputy Governor Chuchi G. Fonacier said the central bank has received the first formal application for a digital bank license, which she partially identified as a partnership between domestic and foreign companies.
Currently, ING Bank-NV Manila and CIMB Bank Philippines are offering no-branch banking services centered on apps, offering high deposit rates as a main draw.
Only 29% of Filipino adults have accounts with formal financial institutions, which would translate to an unbanked adult population of about 51.2 million. The main obstacles to opening accounts are lack of funds and stringent Know-Your-Customer requirements in place at banks, pointing to gaps in basic documentation such as identity cards.
By 2023, the central bank has set a target of 70% of the adult population in possession of bank accounts.
Apart from online banks, the payments industry can also tap the growing market, JP Morgan said.
"All the companies compete for scale and… payments have the highest usage frequency in online financial services. This is key to enhancing user stickiness and developing cross-selling opportunities," JP Morgan said.
Online payments accounted for 10% of the total volume of transactions in 2018, improving from 1% in 2013, according to estimates by the Better than Cash Alliance. By value, online transactions accounted for 20% of the total in 2018 from 8% in 2013.
The BSP has set a target of 50% of payments by volume and value to be made digitally by 2023, and is banking on the pandemic to be a catalyst for achieving this. — Luz Wendy T. Noble