The COVID-19 outbreak has spurred more users in Southeast Asia to turn to digital transactions but the top e-wallets in the Philippines may see their cash burn continue unabated as the virus crisis pushes profitability out further.
“We expect the cash burn to continue this year, especially given the COVID-19 situation. Monetization has been delayed, as it is obviously not a good time to start charging for fintech services,” said Globe Telecom president, CEO and executive director Ernest Cu in an email interview.
Globe Telecom owns a 45 per stake in Mynt, the operator of the country’s top e-wallet GCash. Its other shareholders are Ant Financial and Ayala Corporation.
Mynt claims to have 20 million users and more than 63,000 merchant partners in the country. It incurred 5.6 billion Philippine pesos ($110 million) in losses in 2019, up from 2.6 billion pesos ($51.35 million) in 2018, according to Globe Telecom financials. Mynt also made a capital call of about $70 million last year on its parent company.
And that was before the COVID-19 pandemic shocked global markets. Mynt had its sights on becoming a unicorn — the Philippines so far has reportedly had only one in Revolution Precrafted — but those ambitions, as of profitability, have been dashed for now.
“We had a projection of about three years for Mynt to break even in terms of EBITDA, pre-COVID, but we will have to revisit our numbers, the conditions, and see how consumer habits have changed now. It may even accelerate given the rapid adoption of digital payment services by the market,” said Cu.
Mynt’s rival and the country’s second-leading e-wallet operator is Voyager Innovations, which is partly owned by Globe Telecom’s rival PLDT Inc. Voyager, which is also backed by Tencent, KKR and IFC, offers mobile money and payments under the PayMaya brand, besides mobile-based remittances, and solutions for businesses to receive online and card payments anytime, anywhere. It claims to have 40,000 merchant partners across the country.
E-wallets in the Philippines: App rankings (finance category) as of May 6
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Source: App Annie
PLDT recorded a loss of 1.8 billion pesos ($35.5 million) in 2019 on account of its 48 per cent stake in Voyager, implying an overall loss for the latter of 3.75 billion ($74 million) pesos, the telecom company disclosed during its Q4 2019 earnings call in March.
PLDT expects “a few more years of cash burn” as Voyager ramps up its expansion and is hopeful of the business becoming EBITDA-positive by around 2023, the telco’s senior vice president, chief financial officer and chief risk management officer Anabelle L. Chua said during the earnings call.
Voyager’s cash troubles came to the fore recently as it secured a much-needed lifeline to extend its runway beyond June this year. In April, it bagged up to $120 million in investment commitments from PLDT, private equity firm KKR, China’s Tencent Holdings, International Finance Corp (IFC), and the IFC Emerging Asia Fund. The latest commitment followed a $215-million investment made by the five investors in Voyager in 2018.
In March, billionaire Manuel V. Pangilinan, who chairs Voyager’s parent company PLDT Inc, told local reporters that the firm was set to run out of cash by the middle of the year. He did not state how much cash Voyager needed for the year but said its current investors should be ready to provide “whatever they need.”
“So we’ve decided, before they run out of cash which is probably by the middle of the year, by June, before they hit the wall, we will provide the interim financing among ourselves,” Pangilinan had then said.
PLDT and Voyager did not respond to DealStreetAsia’s request for comment for this story.
Growing e-wallet pie
The digital payments industry in Southeast Asia is expected to exceed $1 trillion in gross transaction value (GTV) by 2025, according to the e-Conomy SEA 2019 report by Google, Temasek and Bain. Within this pie, e-wallets are expected to increase their GTV fivefold from $22 billion in 2019 to $114 billion by 2025.
The Philippines was an early-mover in the region in digital payments, launching mobile money back in 2001 but has floundered since. According to The State of Digital Payments in the Philippines, a report by the UN-based Better than Cash Alliance, the share of digital payments in the country increased to 10 per cent by volume and 20 per cent by total transaction value in 2018.
Bangko Sentral ng Pilipinas (BSP), the country’s central bank, expects digital payments to account for at least 20 per cent of total transaction volume this year and reach 50 per cent by the end of 2023. To this end, the central bank has launched several initiatives, including EGov Pay to allow more government agencies to accept electronic payments from the public and the National QR Code Standard to pave the way for more extensive use of QR codes as payments.
According to BSP estimates, the Philippines saw 470-490 million digital payment transactions every month in 2018. However, two out of three Filipinos still do not own a digital wallet or account and remain financially excluded. The fintech market, therefore, remains largely untapped.
The COVID-19 pandemic could be a game-changer as consumers are likely to maintain an aversion to visiting banks and ATMs in the near future, says Lito Villanueva, chairman of Fintech Alliance Philippines. “More consumers turning to digital payments is a good problem to have. Many firms have been hard at work to invite more clients and accommodate their needs.”
The real challenge, Villanueva said, will be how fintech startups adapt to the new market realities as no one had prepared for a pandemic or a near shutdown of the economy.
“What we have now is a put-up-or-shut-up scenario. Consumers are more demanding because a lot is at stake. Every transaction can be a matter of literal survival. There is little room for mistakes before clients turn to the next available option. And there are a number of options out there right now. We can expect to see the cream rising to the top before this is all over,” he added.
Those other options include Gojek-backed Coins.ph and GrabPay, Grab’s e-wallet, but they trail the telco-backed leaders by some distance.
Globe Telecom, too, sees the virus crisis as an opportunity, especially to raise capital from new investors.
“We are … exploring opening Mynt up to other investors. There has been quite a lot of interest in fintech, and given this lockdown situation, digital financial services have become more relevant than ever,” said Cu.