We wrote towards the end of last year that Chinese consumer loan apps were flocking to Indonesia.

In July, Indonesia’s financial services regulator OJK did its second round of crackdown on unlicensed players. It worked with Google (which owns Play Store), Ministry of Information and Communications and the Police to shut down the unregistered players.

By then, only 60+ companies had the registration number for regulatory sandbox. What happens to the other about 200 companies which did not have any registration with the government?

Well, many fled, a few of them shut down, and a few others … moved to the Philippines.

In fact, some of the Chinese players with registration number also started expanding to the Philippines.

Some of the names famous to Indonesian borrowers, such as Pinjam Yuk and Dana Rupiah, owned by Chinese companies Zhenrongbao and Weshare respectively, have set up operations in Manila. Makati and Taguig cities are the places they usually place their offices.  

Office buildings in Taguig City, Philippines

Big guys in town

Big players from China are not missing the fintech opportunity in the Philippines either.

Tencent Holdings has recently set foot in Philippines through the funding of Voyager Innovations, a fintech company by telecom firm PLDT. Along with KKR, Tencent is putting in a total of US$175 million for a minority stake in Voyager. This transaction “marks the largest investment to date in a Philippine technology company,” said PLDT.

PLDT was the pre IPO investor of Rocket Internet, putting 333 million in 2014 ahead of the latter’s floating in Frankfurt. Earlier this year, PLDT did a partial disposal.

Just last year, the Alibaba affiliated Ant Financial Services Group joined forces with Ayaka Corporation to invest in Globe Telecom-backed Mynt, a rival of Voyager.

Not only that, True Money, owned by Thailand’s Ascend Money and partially invested by Ant Financial as well, is also aggressively developing its business in the Philippines.

Armed with Chinese money and technology, war between the big fintech players is definitely brewing in the Philippines.

Why Philippines?

In many ways, Filipinos love to consume as much as, if not more than, their Indonesian counterparts. However, the credit infrastructure is also underdeveloped.

According to World Bank Data, only 32% of Philippines’ population has a financial institute account as of 2017, majority is still unbanked. The lack of access to basic financial services creates a problem for Filipinos to take loans from the bank. Many of them turn to informal methods such as borrowing from family and friends when they require financial assistance.

There is also an established network of Indians offering what is called 5-6 scheme of lending, something current President Rodrigo Duterte has vowed a few times to end.


Lenders in India

Theoretically, what the traditional financial services can’t provide, is something fintech can close up, to bring financial access to the unbanked population.

However, online/mobile lending players needs bank accounts (or wallets/payment systems) to disburse and collect money. So realistically, unbanked people will not have access to credit services – maybe the fast advancing wallets can close the gap, sooner or later.  

Philippines rank 12th globally for number of internet users according to the latest report by Internet World Stats, with 67 million out of 104 million Filipinos being social media savvy. With that, the ground has already been set for mobile-based fintech to grow in Philippines.

Low bank penetration and high internet penetration, it is not difficult for investors to see the similarity between Indonesia and Philippines – opportunity.

Don’t forget remittance

In addition, there are more than 10 million Filipinos working overseas, this translates to high remittance sent back home on a regular basis. In a report released by Bangko Sentral ng Pilipinas (the country’s Central Bank, obviously), cash remittances sent home by overseas Filipino workers rose 5.3% to a total of US$31.1 billion in 2017.

Fintech can provide convenient financial services for Filipinos to send remittance home anytime, anywhere. In fact, many companies have been trying to tackle this market – William Li, the founder of Akulaku, one of the leading fintech companies in Indonesia, started off doing remittance for Oversea Filipino Workers in Hong Kong.

Although there is great potential for fintech industry, fintech companies localise their business strategies to suit Philippines’ “tingi-tingi” culture. Due to limited financial ability, Filipinos prefer to purchase their goods frequently in sachet quantities, even if that meant more long term spending.  Providing microloans to unbanked Filipinos increases their spending capacity, allowing them to afford better standard of living.

Sari-sari, convenient store in the Philippines

With more accessible financial services available for Filipinos, it won’t be long before fintech becomes part of their daily lives.

And we shall not be surprised if even more Chinese lenders extend or move their camp from Jakarta to Manila.

They are at least already familiar with the traffic.

Traffic in Manila, Philippines

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].