Philippines-listed conglomerate JG Summit Holdings is confident about its application for the country’s digital banking licence, said a senior executive.
The Gokongwei family-led conglomerate seeks to secure one of the five digital banking licences that Bangko Sentral ng Pilipinas (BSP) plans to issue this year.
Once it obtains formal approval, JG Summit plans to roll out digital banking operations across the country over the next 6-12 months, said Jojo Malolos, chief executive of the group’s corporate venture capital arm, JD Digital Equity Ventures.
The conglomerate has formed a joint venture with Tyme, a Singapore-headquartered digital banking group that runs South African neobank TymeBank, to launch digital banking operations. Funding for the newly created entity will come from Robinsons Bank, a commercial bank controlled by JG Summit.
JG Summit had invested in a $110 million funding round for Tyme in February this year, along with private equity firm Apis Partners’s Growth Fund II and South African investment holdings company African Rainbow Capital (ARC).
TymeBank has nearly 3 million customers in South Africa. Through partnerships with supermarket chains Pick n Pay and Boxer, it has set up in-store kiosks so users can bank where they shop.
According to Malolos, the firm’s “hybrid model,” which integrates digital and physical elements to enable greater access to cash, was the most appealing to the Philippine conglomerate.
He explained that the model’s effectiveness was derived from its ability to address specific behaviours among the unbanked population, such as the reluctance to conduct banking transactions on the phone.
“In South Africa, some 90% of the population is banked already. But most of them are still not comfortable doing transactions on their phone… This was similar to Cambodia while I was at Wing Bank. Most of the unbanked still prefer to have someone else doing these transactions for them,” explained Malolos, who previously served as the CEO of Cambodia’s Wing Limited Specialised Bank from 2016 to 2019.
He added that a similar approach would be used in the Philippines by recruiting agents who will operate as “human ATMs” for the bank. These agents will be loaned a sum of money by Tyme and will use the cash to conduct simple tasks such as bill payments and mobile top-ups for members of their community.
With this approach, the firm aims to provide liquidity to the Filipino unbanked population that has little or no disposable cash to begin with. About 70% of the Southeast Asian country’s 72 million adults remain unbanked, according to BSP’s 2019 Financial Inclusion Survey published in 2020.
“What does it really mean to get the unbanked into mainstream financial services? It means that we need to get them to bring their cash out of their houses, either to use it for their own businesses or facilitate payments or transfer money to others to support and grow businesses,” said Malolos.
“However, a fundamental misconception of financial inclusion is that sometimes we assume that the unbanked have money. The reality is that some of them don’t.”
A similar model was executed to great success at Wing Bank, Malolos said, where it grew its agent base from 2,500 to over 6,000 in three years.
Neobanks in the Philippines
There are currently two publicly known digital banks in the Philippines.
The first is Overseas Filipino Bank (OFBank), a wholly-owned subsidiary of state-owned Land Bank of the Philippines (LANDBANK), which received a licence from the BSP in March this year. The other is Tonik, which received BSP’s digital bank licence in June 2021 after securing a rural banking licence in December 2019.
Last month, Tonik raised $17 million in pre-Series B funding led by Singapore venture capital firm iGlobe Partners. The round was joined by return backers Sequoia Capital India, Altara Ventures and Insignia Ventures, and new investors, including Citius, Baring Vostok Capital Partners, and undisclosed family offices in the Philippines.
According to an ABS-CBN report, the BSP has received four applications for the digital banking licence so far – two from new players and two from incumbent banks looking to convert their existing licences into a digital banking licence.
BSP first rolled out the digital banking licence category in December 2020. According to its guidelines, Philippine digital banks will be required to have a minimum capitalisation of 1 billion pesos ($20 million). They will not be allowed to set up physical branches and will need to run their head offices from the Philippines.
Citing BSP governor Benjamin Diokno, an ABS-CBN report said that traditional banks seeking to convert to digital banking licences would start operations as early as this year, while new players will begin operations by 2022.