No turning back for digital banking in Philippines

With well over a million users, China’s leading mobile-payments system, Alipay, posted $17.3 trillion in payment volume in China alone and $91.2 billion from abroad. Alipay generated $8.049 billion primarily from merchant-acceptance fees during its fiscal year ending June 2020.

Because of this, Ant Group, Alipay’s parent company, is eyeing to raise some $34.5 billion from an initial public offering (IPO) when its shares start trading in the Hong Kong and Shanghai bourses, the former set for Nov. 5, and the latter within the next few weeks.

It is expected to be the largest IPO to date, with shares priced at about $10.30, and is poised to beat Saudi Aramco’s record fund raising last year of $29.4 billion. Saudi Aramco, Saudi Arabia’s government-owned oil company, leads the world’s companies in terms of profitability.

Ant’s profit-taking may pale in comparison to the world’s best, but the China-based company is respected as a financial technology (fintech) behemoth in the world, and leads in innovative ideas on making itself relevant to its billions of customers.

Competitive and volatile landscape

Alipay, without doubt, will leave plenty of dust for other similar fintechs to eat if it manages to successfully sweep its way across the globe, just as it had done in China where its now billionaire-founder Jack Ma first started the company in 2004.

While the world’s digital wallet service landscape continues to be extremely competitive and volatile, Alipay’s expansion has been less than phenomenal as it clawed its way to almost any kind of financial transaction that normally would have required a user digging into a physical wallet for bills and coins.

On the Alipay platform, a user can pay even buy wealth management and insurance that many competing services outside China are still not poised to handle. Alipay users have even ditched their credit and debit cards, and rarely use an automated teller machine to take out cash.

How successful Ant Group will be in the next few years as it challenges established global banking and financial services will depend on how protectionist policies by governments will shape up. Ant’s attempted acquisition of MoneyGram in the US had recently been blocked, and its operations in India banned.

Nonetheless, Ant has displayed an agility that has companies in many countries scrambling to forge ties with it. Money raised in its forthcoming IPO will be crucial in expanding its global reach through partnerships to establish a multinational financial services ecosystem while developing new services.

Pandemic-assisted growth spurt

In the Philippines, Ant has a 45 percent stake in Globe Telecom’s payments subsidiary Mynt, the operator of mobile wallet GCash. To support interoperability of the two payment systems, blockchain is being utilized to support seamless money transfers between Hong Kong and our country.

It is, perhaps, this partnership with Ant that had emboldened Globe president and CEO Ernest Cu to look at Globe Fintech Innovations, Inc.’s Mynt as becoming a billion-dollar company by 2021, as reported in an interview last year.

The pandemic, it seems, has also helped make this happen. This year, GCash expects its transaction values to reach P1 trillion as more people have been prodded to use its mobile wallet to transfer money. Certainly, the partnership with the Department of Social Welfare and Development’s Pantawid sa Pamilyang Pilipino program has helped bring mobile banking to two million of the country’s poorest.

Tipping point

While fund transfers are one of the most popular uses of digital financial transactions for Filipinos, they could become the much-hoped for tipping point to move the country’s population to full e-banking, especially as fintech service providers bring in more investments.

Another entry point would be supporting the e-commerce infrastructure. PayMaya, for example, is putting in up to P60 million in cashless payment technologies for unique merchants and partner establishments that have been forced to shift to online selling when the pandemic-induced quarantines were called.

As one of Mynt’s biggest competitors, PayMaya is powered by PLDT’s digital innovations arm, Voyager Innovations Inc. Last year, the company was able to raise $215 million from the entry of foreign investors, namely KKR, Tencent Holdings Inc., and International Finance Corp.

GCash is also putting in new investments, which should provide the all-important pivot for Filipinos to adopt more uses of digital wallets when settling financial transactions.

Trekking the path

For now, the Philippines still lags behind in using their phones for paying purchases, even if more than 50 million Filipinos are already using the internet to shop online. Many still prefer to pay deliveries in cash, especially when dealing with unfamiliar merchants.

This limited view of how digital wallets may be used is understandable since the country continues to heavily rely on its remittances from overseas Filipinos to fuel economic growth, rather than from productivity generated by micro, small and medium-sized businesses.

However, fintech service providers like GCash, PayMaya, GrabPay, and even 7-Eleven CLIQQ Rewards are optimistic that the country is surely trekking the path to digital payment inclusion, with more Filipinos becoming emboldened to use QR codes and smartphones to make purchases.

When that happens, there is no turning back.

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