THE CONTINUED GROWTH of financial technology (fintech) firms in the Philippines could threaten traditional banks’ dominance, especially in retail services like remittances and lending, Moody’s Investors Service said.

“Fintech companies and a new breed of digital-only banks threaten to gain on conventional banks in key areas of their retail business, such as depository services, credit cards, remittances and unsecured lending, with products that are more accessible and easier to use,” Moody’s said in a note on Thursday.

The debt watcher noted how mobile wallets have already beaten bank accounts in terms of penetration, which shows these fintech firms’ drive to capture unbanked and underserved Filipinos.

Fintech firms also benefited from the rise of digital payments due to social distancing measures imposed amid the coronavirus pandemic, it added.

“Although fintech products will expand the pool of customers in the financial system by attracting the unbanked population, it will be challenging for banks to win market share from fintech companies with established franchises because most of them (banks) have been slow in digitalization,” it said. These fintech firms include the operators of mobile wallets GCash and PayMaya, it noted.

GCash is the mobile wallet arm of Globe Telecom, Inc. and is operated by Globe Fintech Innovations, Inc. or Mynt, while PayMaya Philippines is a subsidiary of Voyager Innovations, Inc., the digital arm of PLDT, Inc.

Moody’s said mobile wallets offer better functions and features that have allowed them to gain stronger customer loyalty and higher retention rates than banks.

The debt watcher said the “lucrative” remittance market presents opportunities for fintech players, citing World Bank data showing that the Philippines is the fourth-largest remittance market globally.

Fintech firms are also moving into the consumer lending space, it added, noting how PayMaya and GCash have partnered with other institutions to offer loans directly through their platforms.

While consumer credit made up just 11% of banks’ gross loans as of April, these retail loans are more profitable compared with corporate borrowings, Moody’s said.

“Banks could lose share in a fast-growing segment if borrowing through mobile wallets becomes popular among consumers,” the debt watcher added.

The fee income of banks could also decrease amid the population’s growing adoption of fintech products, especially once consumers ditch bank-issued credit cards and remittance services in favor of these. Moody’s noted that fee income from remittances is significant for Philippine banks and made up 18% of their non-interest income at end-2020.

Moody’s said traditional banks should likewise develop their own digital retail offerings in order to keep in step with fintech players’ aggressive expansion.

“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,” it said.

Central bank data showed only 29% of adult Filipinos had accounts in formal financial institutions as of 2019, leaving 51.2 million unbanked.

By 2023, the central bank hopes to bring 70% of Filipino adults into the financial system and have 50% of the volume and value of transactions done digitally. — L.W.T. Noble