Philippine banks are struggling to keep up with the fast-paced digital finance revolution, as traditional banking practices and underinvestment in digital offerings are causing them to miss out on vast untapped customer bases.
A recent report by McKinsey & Co. (a global management consulting firm), highlights that Philippine banks are devoting less than 10 percent of their revenues to information technology, compared to an average of 15 percent in the Asia Pacific region.
Similarly, the digital channels of Philippine banks account for just 5 to 15 percent of their revenues, well below the 25 percent average for their peers in emerging Asian markets.
McKinsey’s Report Emphasizes the Digital Importance to Philippine Banks
McKinsey’s report emphasizes the need for incumbent banks to adapt to the changing landscape quickly or risk losing their market share to digital financial service providers. While the competition in digital financial services is intensifying, McKinsey also noted that dominant players have yet to emerge outside the mobile payments subsector.
However, McKinsey also points out that fintech firms in the Philippines performed especially well during the COVID-19 pandemic, creating more shareholder value than the entire banking sector. As McKinsey’s report suggests, the Philippines presents highly attractive opportunities for expansion in the fintech sector. However, the way foreign firms and existing Filipino conglomerates choose to enter the market will have a significant impact on their growth and competitiveness.
Amid mounting demand for financial services, the banking revenue is expected to triple by 2030, and the country’s banking penetration rate is just 56 percent, significantly lower than emerging markets standards.