This is a presentation of the Sector Study of Financial Technology focusing on Digital Payments by Alexis Dogwe, Camille Eusebio, Maurice Gonzales, Leslee May Tandoc and Al Marie Tating as part of the requirements in the subject: Marketing and Commercialization of High Technology Products. University of the Philippines, Technology Management Center

1. FINTECH:
Digital Payments
DOGWE | EUSEBIO | GONZALES | TANDOC | TATING
TM 206 SECTOR STUDY
03 MAY 2016

2. OVERVIEW
1. Industry Structure
2. Macro Environmental Trends
3. Task Environment
4. Market Segments
5. Recommendations

3. Industry Structure1

4. FinTech
FinTech
B2B
B2C
P2P

5. 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 driven
o Value-added service is
already included with
higher rates of return

6. Sudden Growth
o2008 – emerged because of the
global financial crisis
oRisk management centric
oRise of the Millenials

7. Rapid Growth
Source: Accenture, April 2016
◇Attributable growth:
Asia: 2,500 startups
EU: 4,000 startups

8. Source: Business Insider, April 2016

9. Notable Fintech
STARTUPS in PH

10. Source: World Bank, Global
Findex 2014, Published 2015

11. Macro-Environmental
Trends2

12. Social, Cultural,
Demographic Forces

13. Social, Cultural,
Demographic Forces

14. 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

15. 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”

16. 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

17. Technological
Forces
NFC
OPEN API
BIG DATA ANALYTICS

18. Economic Forces
Financial
Inclusion
Access
Welfare
Usage
Quality

19. Economic Forces

20. Task Environment3

21. Task Environment
◇ Value Chain
Traditional Value Transfer
Decentralised Payment Schemes
Non-traditional Payment Schemes
◇ Porter’s Five Forces
◇ Key Innovations
Characteristics of Successful Payments Innovations
◇ Key Characteristics of Future Value Transfer

22. Traditional Value Transfer
Key Characteristics
◇Processing of transfers is handled by correspondent financial
institutions
◇Relies on a central clearing body

23. Traditional Value
Transfer
Advantages
◇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

24. 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

25. Decentralised
Payment Schemes
Advantages
◇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)

26. 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

27. Non-traditional
Payment Schemes
Advantages
◇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

28. Porter’s Five Forces
Bargaining 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

29. Porter’s Five Forces
Threat 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)

30. Key Innovations

31. Characteristics of
Successful Payments
Innovations

32. Key Characteristics of Future
Value Transfer

33. Market Segments4

34. 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

35. According to Usage: Online B2C Commerce
USD 4.87 billion forecasted transaction value for 2016
19.9% annual growth
USD 10.08 billion forecasted transaction value for 2020
USD 153.70 average transaction value per user
49.2 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

36. Payment Options for the Consumers:
Payment Gateways for Checkouts
According to Usage: Online B2C Commerce

37. According to Usage: Mobile Wallet
POS Payments
USD 4.7 million forecasted transaction value for 2016
113.04% annual growth
USD 97.3 million forecasted transaction value for 2020
USD 5.06 average transaction value per user
3.3 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

38. Keyplayers:
According to Usage: Mobile Wallet
POS Payments

39. 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%

40. Keyplayers:
According to Usage: P2P Money
Transfers

41. Based on End Users: Consumers
A. 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

42. 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

43. Based on End Users: Consumers
Omni-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
Commerce
Mobile Wallet
P2P Transfer
Online B2C
Commerce
Mobile Wallet
P2P Transfer
Online B2C
Commerce
Mobile Wallet
P2P Transfer
P2P Transfer

44. Based on End Users:
Merchants/Enterprises
A. ONLINE MERCHANTS
FINANCIAL TECHNOLOGY USED

45. B. BRICK & MORTAR MERCHANTS
FINANCIAL TECHNOLOGY USED
Based on End Users:
Merchants/Enterprises

46. Recommendations5

47. Recommendations
Incentivise
The government should
devise programs and set
incentive schemes to
welcome Fintech startups
to consider the country as
their playground.
Regulatory Environment
Regulations need to be
relaxed to allow ease of
entry of these foreign
Fintech firms into the
country.
Education is key
The educational system of
the country needs to be
revamped to highlight the
importance and the impact
of digitization and
globalization.
FinTech – not a threat
The Fintech sector should
be viewed not as a threat,
but instead as an
opportunity for growth for
the Banking industry.
Cross the Chasm
Identify weak points and
work quickly to address
them especially that the
“cash is king” mindset is
still very much prevalent in
developing countries.
Millenials
The Fintech sector should
capitalize on the millenials
as their target market since
they are the digital natives.

48. Thanks!
Any questions?