Please enable JS and disable any ad blocker Bank accounts are blocked for Radio Maria in Nicaragua. The radio station has announced that it can no longer access its savings at the Banco de la Producción stated that the block was "without justification." Later it was announced that the decision was due to a lack of up-to-date documentation Radio Maria said it was "confident that it could continue its work of evangelisation." Thank you for reading our article. You can keep up-to-date by subscribing to our daily newsletter. Just click here Mirabaud is aiming to strengthen its foothold in the Latin American wealth management market and double its assets in the region by 2030 The Swiss private bank currently oversees $4bn in assets across its offices in Uruguay and Brazil and has been growing its presence across the region Mirabaud has used its Uruguayan office to expand its business in the Southern Cone under the leadership of Fabio Kreplak to serve a growing international client base, the group said in a press release existing Philippine fintechs concentrate almost exclusively on payments and infrastructure constraints limit their reach The result is a widening gap between the country’s enormous underbanked population and the expanding range of innovative financial technologies lying just beyond its borders The banking penetration rate remains among the lowest in the region and traditional financial institutions focus heavily on commercial lending and digitally savvy population with little access to financial services that meet their needs new entrants that move swiftly and offer products tailored to the needs of underbanked businesses and consumers will be able to establish strong market positions while latecomers will struggle to stand out in an increasingly crowded field regulators are laying the necessary groundwork for digital financial services and digital-first business models other technology-driven financial subsectors have only begun to emerge Traditional banks remain focused on wholesale banking and have been slow to reach new customers outside their existing client base Rural areas are home to nearly half the population yet rural households are especially underserved and many have little or no access to brick-and-mortar banking infrastructure Corporations receive 76 percent of all loans,8These figures are based on the most recent financial statements of the top ten universal banks in the Philippines, which together account for about 76 percent of the banking system’s total loan portfolio. one of the largest shares worldwide (Exhibit 3) while small and medium-size enterprises (SMEs) continue to face binding credit constraints The Philippines has an estimated 15 million informal entrepreneurs and self-employed workers—a massive pool of would-be borrowers with little access to traditional finance retail lending is heavily concentrated in a narrow band of wealthy households This unbalanced distribution of existing loans—combined with a rapidly growing adult population continuous broad-based gains in household income ongoing regulatory efforts to promote financial inclusion and the introduction of new digital technologies—makes retail lending especially prone to disruption and accelerated growth and the onboarding procedures of traditional banks are often needlessly cumbersome the country’s nascent mobile-banking subsector already offers basic accounts that can be opened with nothing more than an ID card and a selfie as well as restricted accounts that require only a phone number the government recently launched the SIM Registration Act (SRA) linking cellular SIM cards with verified users The remaining 15 percent of unbanked Filipinos point to a lack of trust in financial institutions as their chief reason for not opening an account This attitude may prove to be the most enduring challenge to the expansion of retail banking especially among SMEs and lower-income households fintech firms and nonbank financial service providers have stepped into the gap offering innovative solutions designed to meet the needs of small-scale borrowers with limited financial documentation and low levels of trust in the banking system a combination of weak information infrastructure and limited risk appetite has discouraged existing banks from courting new market segments especially thin-file customers with small ticket sizes given the perceived high risk and low profitability of the segment the existing fintech sector has grown almost exclusively on payments and currently commands a negligible share of the lending market with all the associated transaction records and fees yet traditional banks have not systematically incorporated remittance income into their lending decisions Remittances play an especially vital economic role in rural areas where households are least likely to have access to bank accounts Domestic payment services such as GCash and Maya are explicitly targeting remittance transactions disrupting the established model of brick-and-mortar service providers about $30.5 billion in remittances flows into the Philippines Recognizing the untapped potential of digital financial services the government recently launched a reform program designed to increase competition in traditional banking while facilitating the growth of fintech alternatives The centerpiece of this effort is the central bank’s aggressive target of 70 percent banking penetration by 2030 the authorities have relaxed limits on foreign ownership The bank-licensing process has been streamlined Foreign firms (with a minority local partner) can acquire small rural banks and foreign banks can establish wholly owned subsidiaries The alignment of Philippine regulations with International Financial Reporting Standards (IFRS) has sharply lowered compliance costs for established international financial firms The introduction of digital banking licenses has further reduced the country’s already-low minimum capital requirements and allowed fully foreign entities to obtain a banking license opening the simplest accounts now requires only a phone number or an ID card The central bank’s unified QR code payments infrastructure (QRPh) has cut person-to-merchant (P2M) transaction costs while further expanding the reach of digital payments systems and the introduction of InstaPay and PesoNet is enabling at-scale transactions via electronic bank transfers incumbent banks will need to adapt quickly or risk a permanent loss of market share The traditional banking sector has already proven vulnerable to digital innovation digital financial service providers performed especially well during the COVID-19 pandemic creating more shareholder value than the entire banking sector (Exhibit 4) the market value of the country’s traditional banks increased by $2.2 billion while the total market value of the top three fintech firms rose by $3.0 billion Established banks have been slow to embrace the more transformative aspects of digital finance their efforts have largely focused on creating mobile apps for existing customers and digitizing legacy processes mounting pressure from fintech firms is spurring innovation in the traditional banking sector recently launched the Vybe e-wallet on its mobile app Vybe offers many of the same services as GCash and Maya and its uptake by a traditional bank illustrates the efforts of incumbent financial institutions to compete with fintech service providers in their native market segments UnionBank has begun offering fully digital financial services to underbanked consumers via its UnionDigital Bank proposition While competition in digital financial services is clearly intensifying dominant players have yet to emerge outside the mobile-payments subsector Six digital banks have recently launched operations in the Philippines are payments providers that have recently expanded into lending Maya has obtained a dedicated digital banking license while GCash distributes consumer-finance loans both from itself and from third parties Though their customer bases together encompass more than half the Philippine population these digital pure plays are capturing only a small fraction of the market for digital financial services fintechs and digital banks must address their own unique challenges including transforming operations and improving profitability to sustain growth momentum an experienced international firm with market-tested products could take a strong position in high-value segments while facing far less resistance from entrenched competitors than it would in a more mature environment New entrants equipped with an understanding of the local economic and regulatory context can swiftly establish a consumer base and begin building brand recognition while firms that lack on-the-ground knowledge may encounter unexpected technical and administrative obstacles despite the improving business climate Partnering with an established domestic player can provide vital information on local market conditions and such partnerships can offer incumbents a chance to expand their offerings rapidly while leveraging the experience of an international counterpart The fintech landscape also offers considerable scope for unilateral expansion by existing banks that are willing to move beyond their existing customer base and invest in their capacity for innovation The underserved rural sector is well suited to digital-first or hybrid offerings and recent changes to onboarding requirements and agent-banking rules are designed to enable digital service providers to maximize the impact of the country’s limited rural banking infrastructure While the Philippines presents highly attractive opportunities for expansion the way foreign firms and existing Filipino conglomerates choose to enter the fintech sector will have a major impact on their growth and competitiveness Universal banking licenses are available to fully foreign-owned banks that are established Domestic and foreign banks no longer require separate licenses and are subject to the same minimum capital requirement of $55 million to obtain a universal banking license the government approved the creation of a digital banking license that allows for full foreign ownership and entails a capital requirement of just $19 million provided that the bank maintains a principal or headquarters in the Philippines Six digital banks are licensed under this dedicated regime but no new applications will be accepted until 2024 Expert advice from a partner with detailed knowledge of the application process will be a critical asset for any firm that wishes to obtain a license when the process reopens Universal banking licenses and dedicated digital licenses each confer specific advantages but the simplest way for a foreign player to access the Philippine market may be to acquire a small rural bank and repurpose it for digital banking Many have already been acquired for less than $5 million—a fraction of the cost in comparable markets—and their minimum paid-up capital ranges from $1 million to $3.6 million depending on the number of branches This approach will be especially attractive in the near term given the relatively long wait time for a universal banking license and the suspended application process for digital licenses Seabank Philippines offers a prime example of this strategy in action Seabank acquired a majority stake in Banco Laguna Inc it obtained an Electronic Products and Financial Services (EPFS) Type A License which enabled it to launch its digital-first proposition nationwide Limited information infrastructure remains a serious challenge The narrow coverage of a unique national ID complicates know-your-customer (KYC) compliance and the nascent credit bureau database offers only a limited appraisal of prospective borrowers’ creditworthiness The underdevelopment of traditional financial systems presents additional obstacles with low rates of point-of-sale penetration (0.1 percent) and credit card uptake (9 percent) QR-based P2M and e-wallets appear to be leapfrogging credit card networks Internet penetration is relatively high at 73 percent The opportunities presented by the vast greenfield market for digital finance in the Philippines far outweigh the risks but a keen awareness of the challenges facing fintech service providers will offer a critical advantage Navigating the rapidly shifting landscape of digital finance in the Philippines requires understanding the sector’s structural limitations and position within the global fintech ecosystem An experienced partner with a deep understanding of the local context can enable new entrants to outmaneuver foreign and domestic competitors and position themselves to enjoy decades of growth in a dynamic emerging economy Guillaume de Gantès is a senior partner in McKinsey’s Southeast Asia office, where Hernan Gerson is an associate partner, and Kristine Romano is a partner in the Manila office The authors wish to thank Aaron Ong for his contributions to this article Connecting decision makers to a dynamic network of information Bloomberg quickly and accurately delivers business and financial information 2024 at 6:30 AM ESTBookmarkSaveLock This article is for subscribers only.For years Mexico was an afterthought among investment bankers a perennial underperformer overshadowed by Brazil Suddenly there’s growing conviction on Wall Street that the country is on the cusp of a breakout if it can avoid 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