sector study of financial technology in the philippines
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FINTECH: Digital Payments
DOGWE | EUSEBIO | GONZALES | TANDOC | TATINGTM 206 SECTOR STUDY
03 MAY 2016
OVERVIEW1. Industry Structure2. Macro Environmental Trends3. Task Environment4. Market Segments5. Recommendations
Industry Structure1
FinTechFinTech
B2B
B2C
P2P
Differentiation◇ Banks
○ Traditional○ Funding comes from depositors○ Earns through loans & mortgages○ Adapts to Technology○ Provides value-added service○ Higher interest rates for short-term loans
◇ FinTech
o Innovative solutions for finance
o Funding comes from investors
o Earns through profit-sharing
o Technology driveno Value-added service is
already included with higher rates of return
Sudden Growth
o 2008 – emerged because of the global financial crisis
o Risk management centrico Rise of the Millenials
Rapid Growth
Source: Accenture, April 2016
◇ Attributable growth:Asia: 2,500 startupsEU: 4,000 startups
Source: Business Insider, April 2016
Notable Fintech STARTUPS in PH
Source: World Bank, Global Findex 2014, Published 2015
Macro-Environmental Trends2
Social, Cultural, Demographic Forces
Social, Cultural, Demographic Forces
Social, Cultural, Demographic Forces
◇ 10M Overseas Filipino Workers send remittances regularly
◇ 610 out of 1635 municipalities do not have banks
◇ 26% of Filipinos have access to formal financial channels
◇ Large % of unbanked has a mobile phone, of which 60% keep some form of savings, 13% borrow from informal providers
Political, Governmental and Legal Forces◇ Philippine Development Plan (2011-2016)
◇ USAID-funded: E-Peso Project◇ BSP Circular 649: Guidelines on issuance of e-
money and the operations of e-money issuers in the Philippines
“A regionally responsive, development, oriented and inclusive financial system which provides for the evolving needs of its diverse public” and supports inclusive growth”
Political, Governmental and Legal Forces
◇ BSP: National Strategy for Financial Inclusion
policy and regulation which also encompass products and services
as well as financial infrastructure
financial education and consumer protection advocacy programs data and measurement
Technological Forces
NFC
OPEN API
BIG DATA ANALYTICS
Economic Forces
Financial Inclusion
Access
Welfare
Usage
Quality
Economic Forces
Task Environment3
Task Environment◇ Value Chain
Traditional Value TransferDecentralised Payment SchemesNon-traditional Payment Schemes
◇ Porter’s Five Forces◇ Key Innovations
Characteristics of Successful Payments Innovations◇ Key Characteristics of Future Value Transfer
Traditional Value Transfer
Key Characteristics◇ Processing of transfers is handled by correspondent financial
institutions ◇ Relies on a central clearing body
Traditional Value TransferAdvantages◇ Has established wide
network including most existing financial institutions
◇ Ability to manage large capital flows on a global scale
◇ Large retail and institutional customer base who are familiar with the model
Limitations/Disadvantages◇ Limited visibility into
value flow for both senders and recipients
◇ Prone to fraud when the sender’s credentials are exposed
◇ Transfer inefficiencies vary by countries /institutions
◇ High costs/number of intermediaries
Decentralised Payment Schemes
Key Characteristics◇ Value transfer is recorded in a distributed ledger ◇ Transactions are managed by a distributed
network of processors ◇ Sender initiates the transfer
Decentralised Payment SchemesAdvantages◇ Transfer history is
transparent, traceable and unalterable
◇ Lower costs of transaction
◇ Lower exposure to conventional fraud
◇ Settlement is near real-time; no counterparty risk
Limitations/Disadvantages◇ High volatility in the value
of the native “currency” ◇ Regulatory scrutiny
creates challenges to connecting with fiat currency ecosystems
◇ Accounts are anonymous / transfers are irreversible
◇ Higher exposure to unconventional fraud (large-scale hacking)
Non-traditional Payment Schemes
Key Characteristics◇ Value transfer is facilitated by a single
trusted non-financial third party
◇ Relies on the intermediary to keep records and settle the transfer
◇ Sender initiates the transfer
Non-traditional Payment SchemesAdvantages
◇ Simpler and cheaper transfers
◇ Improved user transparency
◇ Enables real-time settlement
◇ Intermediaries has greater reach than financial institutions
Limitations/Disadvantages
◇ Scalability is dependent on the availability/adoption of the intermediary platform
◇ Cross border flows of funds can create regulatory challenges
Porter’s Five ForcesBargaining Power of Customers/Suppliers (High)◇ Low switching costs◇ Vast number of competitors◇ Access to substitute products and services
Barriers to entry (Low, therefore threat is High)◇ Digital business changes the rules◇ Current value transfer is inefficient and expensive – a
lot of new entrants see this as an opportunity
Porter’s Five ForcesThreat of substitute products and services (High)◇ P2P Payments – PayPal, Coins.ph◇ Mobile Wallets – MTN Mobile Money, Gcash, Smart
Money◇ Mobile Check Deposits◇ Pre-loaded Cards◇ Digital Currencies – Bitcoin
Intensity of Competition (High)
Key Innovations
Characteristics of Successful Payments Innovations
Key Characteristics of Future Value Transfer
Market Segments4
Market Segments◇ According to Usage■ Online B2C Commerce■ Mobile Wallet POS Payments■ P2P Money Transfers◇ Based on End Users (Consumers)■ Multi-channel users■ Debt averse groups■ Digital natives■ Underbanked◇ Based on End Users
(Merchants/Enterprises)■ Online Merchants■ Offline Merchants
According to Usage: Online B2C CommerceUSD 4.87 billion forecasted transaction value for 201619.9% annual growthUSD 10.08 billion forecasted transaction value for 2020USD 153.70 average transaction value per user49.2 million users by 2020
20%50%
50%80%
Demographics:● 40% from the 25 to 34
age bracket● Female: majority of
users are from the 16 to 34 age group
● Male: majority of users are from the 25 to 44 age group
Payment Options for the Consumers:
Payment Gateways for Checkouts
According to Usage: Online B2C Commerce
According to Usage: Mobile Wallet POS Payments
USD 4.7 million forecasted transaction value for 2016113.04% annual growthUSD 97.3 million forecasted transaction value for 2020USD 5.06 average transaction value per user3.3 million users by 2020
20%50%
50%80%
Demographics:● 35% from the 25 to 34
age bracket● Female: majority of users
are from the 16 to 34 age group
● Male: majority of users are from the 25 to 44 age group
300,000
3.3 m
Keyplayers:
According to Usage: Mobile Wallet POS Payments
According to Usage: P2P Money Transfers
8.8 million active subscribers (2012)188 million P2P transactions (2012)PHP 308 billion P2P inflow (2012)PHP 305 billion P2P outflow (2012)
Dominating Players are Telco Subsidiaries
20%
50%
50%80%
Keyplayers:
According to Usage: P2P Money Transfers
Based on End Users: ConsumersA.OMNI CHANNEL USER- Strongly embraces online
and offline- Has high purchase capacity- Median age is 33- Shared market of
traditional banks and fintech
B. DEBT AVERSE USER- Has financial access but
hesitant on using credit cards
- Has high purchase capacity
- Median age is 33- Shared market of
traditional banks and fintech
C. DIGITAL NATIVE- Millennials- Highest ownership of mobile
device/ digital savvy- Banks don’t like them and
they don’t like the banks- “Viral” base
D. UNBANKED- Huge chunk of PH population- 8 out of every 10 Filipino
household is unbanked- With mobile phones- 60% of them have other form
of savings and 13% borrow from informal providers
Based on End Users: Consumers
Based on End Users: ConsumersOmni-Channel User Debt Averse Digital Native Unbanked
With Credit Card YES NO NO NO
With Bank Account
YES YES ? NO
Purchasing Power HIGH HIGH LOW LOW
Population 2 million 2-3 million 24 million 60 - 70 million
Age Group 28 to 44 28 to 44 16 - 29 N/A
Digital Payments Used
Online B2C CommerceMobile WalletP2P Transfer
Online B2C CommerceMobile WalletP2P Transfer
Online B2C CommerceMobile WalletP2P Transfer
P2P Transfer
Based on End Users: Merchants/Enterprises
A.ONLINE MERCHANTS
FINANCIAL TECHNOLOGY USED
B. BRICK & MORTAR MERCHANTS
FINANCIAL TECHNOLOGY USED
Based on End Users: Merchants/Enterprises
Recommendations5
RecommendationsIncentiviseThe government should devise programs and set incentive schemes to welcome Fintech startups to consider the country as their playground.
Regulatory EnvironmentRegulations need to be relaxed to allow ease of entry of these foreign Fintech firms into the country.
Education is keyThe educational system of the country needs to be revamped to highlight the importance and the impact of digitization and globalization.
FinTech – not a threatThe Fintech sector should be viewed not as a threat, but instead as an opportunity for growth for the Banking industry.
Cross the ChasmIdentify weak points and work quickly to address them especially that the “cash is king” mindset is still very much prevalent in developing countries.
MillenialsThe Fintech sector should capitalize on the millenials as their target market since they are the digital natives.
Thanks!Any questions?
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