Fintechs could overtake Philippine banks in retail segment: Moody’s

Banks' slow development of digital financial services may just give fintechs an edge.

Conventional banks in the Philippines are at risk of getting surpassed by financial technology (fintech) companies in key retail segments amidst their slow progress in digitising their services and lack of accessibility, Moody’s Investors Service reported.

Social-distancing measures due to the pandemic are spurring the adoption of digital financial services. Despite this, banks have been notedly slow to develop new digital services, such as digital micro-loans and mobile wallets, to attract new customers from the unbanked population. 

"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 largely untapped market because about 70% of adults in the Philippines lack access to financial services," Moody’s analyst Joyce Ong said.

Instead, banks prefer to maintain the current business model that focuses mostly on the corporate segment and to some extent, the more affluent retail segment. 

A failure to respond quickly to the emergence of fintech companies will make it more difficult for Philippine banks to acquire new customers and create new revenue sources, especially from the large unbanked population, Ong warned. Already, it will be challenging for banks to win market share from fintech companies with established franchises.

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

Increasing access to financial services to the unbanked population will also widen banks' potential pool of customers, the rating agency added.

Photo courtesy of Alexes Gerard