Fintech firms to capture unbanked retail population ahead of incumbent banks —Moody’s

Financial technology companies in the Philippines are seen to overtake incumbent banks in capturing the unbanked retail population in the country, Moody’s Investor Service said Thursday.

In a report, Moody’s said the Philippines “has a large untapped market that fintech companies can capitalize on given conventional banks' slow progress in offering digital services.”

The debt watcher said the social-distancing measures due to the COVID-19 pandemic will spur the adoption of digital financial services.

With this, fintech companies in the country are poised to grow rapidly, while conventional banks remain slow in developing digital services.

It said that fintech companies can capture the unbanked retail population ahead of incumbent banks with more competitive digital products.

"Fintech companies and a new breed of digital-only banks threaten to surpass conventional banks in key retail banking areas, such as credit cards and remittances, with products that are more accessible and easier to use. The country has a large untapped market because about 70% of adults in the Philippines lack access to financial services," said Joyce Ong, a Moody's analyst.

While Philippine banks are corporate focused, Moody’s said their competitiveness in the retail segment is critical given its huge growth potential.

At the same time, retail deposits make up a significant part of banks' funding, and fees from services such as remittances account for a substantial share of their non-interest income, the debt watcher added.

Moody’s noted that while increasing access to financial services to the unbanked population will widen the potential pool of customers, it will be challenging for banks to win market share from fintech companies with established franchises.

Banks could fall behind if they fail to proactively respond to the fintech threat, it said.

“Philippine banks have been slow to develop new digital services, such as digital micro loans and mobile wallets, to attract new customers from the unbanked population,” the debt watcher said.

“Instead, they prefer to maintain the current business model that focuses mostly on the corporate segment and to some extent, the more affluent retail segment,” it added.

Moody’s said that a failure to respond quickly to the emergence of fintech companies will make it more difficult for Philippines banks to acquire new customers and create new revenue sources, especially from the large unbanked population.—AOL, GMA News