THE CENTRAL BANK’S move to allow new nonbank players to enter the electronic money issuer (EMI) sector could benefit Philippine telecommunications firms, Fitch Solutions’ unit BMI said, but tight competition in the financial technology (fintech) space could limit growth opportunities.
“The ending of the electronic money issuers moratorium in the Philippines will have a positive effect on telco revenue diversification strategies,” BMI said in a report.
“However, the benefits may be diminished by the entry of more players into the already competitive Philippine fintech (financial technology) market. This will likely necessitate lower transaction fees and the provision of more sophisticated financial services to enable telcos to differentiate themselves from specialized competitors.”
The Bangko Sentral ng Pilipinas (BSP) lifted a three-year moratorium on the grant of new EMI licenses to nonbank financial institutions (NBFI) effective Dec. 16 “to promote digital payments, enhance financial inclusion, and foster innovation that could serve a wider segment of the market,” it said.
The central bank in November 2021 imposed an initial two-year moratorium on the entry of new EMI-NBFIs under its regular license application window. This was extended by another year in December 2023.
However, exceptions were provided to nonbank EMI applicants with proposals involving new business models, unserved or targeted niches, and/or new technologies. Qualified firms were allowed to operate under the BSP’s “test and learn” or regulatory sandbox framework.
BMI said traditional Philippine telcos are seeing fluctuating top-lines due to increased competition and tariff reductions.
“To counteract this, operators are focusing on providing advanced services, such as AI and Internet of Things infrastructure to diversify their revenue streams.”
This would require more capital investment due to the need for costly infrastructure compared to mobile financial services, BMI said.
“The popularity of their existing mobile money services means they will see the ending of the moratorium as a means of stabilizing revenues to some extent,” it added. “The moratorium’s end should provide the telcos with the rationale to expand their offerings and innovate to appeal to a wider addressable market.”
The BSP said firms seeking new EMI-NBFI licenses should only submit applications that went through “thorough market research and data-driven analysis process, particularly focused on the specific market they intend to serve.”
“The application must present insights on the planned business model and target market, through evidence-based market study to increase its value proposition in the industry,” it said, adding that proposals must involve new business models, unserved markets or targeted niches, and new technologies.
Firms must also meet the licensing criteria for EMI-NBFIs, including those on capital adequacy, risk management systems, and qualifications of their senior management and shareholders, among others.
“As long-established companies and with a robust track record in offering basic mobile money services, we believe the Philippines’ incumbent telcos will be able to respond faster to the licensing system’s due diligence requirements than new entrants or banks with only rudimentary digital financial service businesses,” BMI said.
“The entry of new innovative players is expected to heighten price competition and push players to offer more advanced services offsetting transaction fees that are likely to come under threat,” it added.
The BSP classifies e-money issuers under three categories: EMI-Bank for banks with EMI licenses, EMI-NBFI for BSP-supervised nonbank financial firms, and EMI-Others for nonbanks registered with the regulator as monetary transfer agents.
As of September 2024, 27 banks have EMI-Bank licenses, while 42 nonbank financial institutions held EMI-NBFI licenses, according to BSP data. — Luisa Maria Jacinta C. Jocson
