Risks abound Philippines’ fintech sector but profit churn awaits investors

MANILA, Philippines — A unit of Fitch Group is bullish on the Philippines’ fintech sector, especially on the prospects of raking in profits, but remained wary of the risks. 

In an emailed commentary on Friday, BMI enumerated the risks on the local fintech scene, ranging from inflation costs, a weak regulatory system, and low living standards. 

BMI rated the Philippines to trail behind Malaysia and Indonesia in terms of banking industry risks.

“…The Philippines' domestic volatility ensures its score is kept low, a situation that is compounded by its weak regulatory system, a history of government support/intervention and low living standards,” the commentary read.

That said, the local fintech sector rose to greater prominence during the pandemic in 2020. The sector’s ascent was fueled by the growth of cashless payments across the Philippine economy since many consumers were unable to go outdoors due to mobility restrictions. 

The fintech scene’s brightest stars, GCash and Maya, are owned by the Philippines’ two telco bigwigs. The latter transformed itself into a digital bank once it secured the requisite license from the Bangko Sentral ng Pilipinas.

That said, the chance of raking in profits outweighed these risks.

“Conversely, risks are higher in Indonesia and the Philippines, but the prospects for growth and return on investment are much greater,” the commentary read. 

BMI said that the fintech sector’s allure lay in its appeal to small businesses that found difficulties scoring funding from traditional sources. Medium, small, and micro enterprises fuel growth across the Philippine economy, comprising more than 90% of businesses.

Spotlighting the sector’s top players, BMI noted that these risks roiled PLDT’s Maya. The digital banking unit shouldered inflation-related costs across its diverse portfolio of operations that the Fitch Group unit said reducing those “would be welcomed.” 

Rising inflation burdened businesses and firms as well. Consumer price growth, fueled by supply chain bottlenecks and a weak peso, compelled these to pass on costs to consumers. 

Maya is looking to raise $100-150 million for financing partly by infusing capital internally from its various investors, BMI noted. 

Despite those risks, the Fitch Group unit said that PLDT should hold off on additional fund-raising efforts for Maya. BMI indicated that listing plans stood on the horizon, ensuring that PLDT “does not become too deeply enmeshed in domestic banking regulations.”

“...PLDT is perhaps wise to rein-in its ambitions for additional fund-raising for Maya, while reforms are still being phased in and the banking regulatory system is made more robust,” BMI added. — Ramon Royandoyan