After queuing up for nearly an hour at a local remittance centre along the national road in Consolacion town, Cebu, to claim the money sent by her husband working in Saudi Arabia, Rogina Ponferrada, 42, took a deep breath while looking at the receipt she was holding.
“This will be the last remittance from my husband. We still don’t know when he will send money again,” Ponferrada told DealStreetAsia, adding that her husband was among the hundreds of Filipino workers retrenched by their employers in the Middle East kingdom due to the global COVID-19 pandemic.
Ponferrada’s husband is one of the more than 8.73 million Filipinos working overseas, legally or otherwise, who have been sending money back to their families in the Philippines, creating a massive remittance market.
The Philippines is the world’s fourth-biggest remittance destination in the world, receiving $30 billion last year from those working overseas, making it a fierce battleground for local and foreign startups wanting a bigger slice of the market.
But that was before the coronavirus pandemic prompted widespread global shutdowns in late March and April, triggering retrenchment among the country’s large expatriate workforce. The Department of Labor expects 700,000 of these workers to lose their jobs by the end of the year.
According to the latest data released by the Bangko Sentral ng Pilipinas (BSP), the country’s central bank, remittances from overseas Filipino workers, commonly called OFWs, dropped 19.2 per cent in May to $2.1 billion from $2.9 billion in the same period last year.
This brought the total remittances for the first five months of 2020 to $12.835 billion, representing a decrease of 6.4 per cent from the $13.707 billion recorded in the comparable period in 2019.
The Manila-based Asian Development Bank (ADB) projected a 20.2 per cent fall in remittances in 2020 under a worst-case scenario of the pandemic raging on for one year.
Despite the continued decline of the remittance figure, the country’s central bank governor, Benjamin Diokno, in a televised interview expressed optimism that overseas Filipino workers will continue to send money to their families back home.
“Of course this crisis is like no other crisis in the past, but if you go by our experience, crisis or no crisis, overseas Filipino remittances have been steady,” Diokno said.
With the continuing decline and the projected double-digit fall this year, is the country’s remittance market still attractive for digital startups and fintech players?
“While there is a projected shrink in the remittance market, we do believe that in the long run there is an opportunity when it comes to accelerating the shift to digital payments,” said Kelvin Lee, Managing Director of Southeast Asia at digital payment startup Ripple.
If there is one bright side to this pandemic, Lee says it is digital payments that are expected to increase by 15 per cent this year as recipient-households adapt to digital and online money transfer services.
Financial technology players are looking for ways to find a crack in the dominance of traditional money transfer operators and banks. And the COVID-19 restrictions, which result in long queues and increased risk in contracting the virus, could be the way in.
In April, when the Philippine government announced a total lockdown due to the rising COVID-19 cases, technology firm Voyager Innovations announced raising $120 million from its existing backers PLDT, private equity firm KKR, China’s Tencent, International Finance Corp (IFC), and the IFC Emerging Asia Fund. Voyager operates PayMaya, one of the country’s leading payments and remittance platform.
Mynt, PayMaya’s rival, is backed by major conglomerates Globe Corporation and Ayala Corp and Alibaba’s Ant Financial. Mynt operates payments and remittance platform GCash.
Last year, Gojek, Indonesia’s ride-hailing unicorn, manifested its interest in the local remittance and payments market when it acquired local fintech firm Coins.ph for a reported $72 million. Coins.ph claims to have over 5 million customers on its network and process over 6 million transactions per month. Its services include remittances, mobile air-time, bill payments, and online shopping with over 100,000 merchants.
According to the ADB, international remittances to the Philippines are transferred predominantly, or about 72 per cent, through money transfer operators, mostly pawnshops. The rest of the 26.4 per cent is done through banks.
“It is crucial to look at ways to make remittance services more accessible, lowering costs to ensure that people get the most out of their money,” Lee said.
And that probably was what Western Union had in mind when it decided to team up with financial services provider TrueMoney and microfinance service provider Cebuana Lhuillier in July.
TrueMoney is the digital finance joint venture of Thai conglomerate Charoen Pokphand Group and Ant Financial. The company has over 70,000 financial services locations in Thailand, Cambodia, Myanmar, Indonesia, Vietnam, and the Philippines.
Cebuana Lhuillier, on the other hand, has more than 2,500 branches in the Philippines, with 20,000 domestic partners and 1.7 million physical and virtual touchpoints.
“Money movement is essential – often, livelihoods and financial survival are directly linked to it. Hence, it’s critical in these times to move money responsibly, and we are glad to do so with Western Union,” said Eugene Go, Chief Executive Officer & Country Managing Director at TrueMoney, during the launch of the partnership.
Western Union is one of the pioneering international money transfer service providers in the Philippines. It was among the market leaders until newcomers, including Palawan Pawnshop, started eating into its market share.
Established in 1985 originally as a pawn brokering firm, Palawan Pawnshop has grown to become the ordinary Filipino’s remittance shop of choice. It is a no-frill remittance centre without air conditioning, where claimants line up in slippers and household clothes.
This shows that even with a country where 73 million people, or more than half of the total population, are internet users, traditional remittance firms and banks continue to be popular.
For 14 years, Ramil Ramirez Pitos, 52, a senior instrument service maintenance worker in Al Khobar, Saudi Arabia, has been sending money to his family in Cebu City through a remittance centre near his place of work.
His wife then claims the money through Palawan Pawnshop or a local bank. He said he feels safe sending the money personally instead of doing the transaction online.
“I don’t fully trust online apps when sending my hard-earned money to the Philippines. It’s better to go to a remittance shop so I can easily make complaints if the money doesn’t go through,” Pitos told DealStreetAsia in an online chat.
Falling victim to a scam is what also keeps Yolanda Maglangit, a domestic helper in Singapore, from shifting to online remittance apps. For 10 years, Maglangit relies on a branch of a Philippine bank in Singapore in sending money back home.
“There are just too many scams online, especially involving money. I don’t feel safe at all,” Maglangit said.
The network effect
The coronavirus pandemic and concerns on health could change these sentiments.
“The COVID-19 pandemic has spurred increased digitisation of businesses, and higher uptake of digital payment solutions by consumers, which we feel is the right step forward and is something that will stay,” Ripple’s Lee said.
Ripple does not directly operate in the remittance space. Instead, it uses blockchain technology to enable partner financial institutions to send money across borders.
More than half of its customers hail from the Asia Pacific region. However, the Philippines stands out as an especially important market for Ripple as one of the top remittance destinations globally.
Last year, it joined Barclays, the Mastercard Foundation, and other investors in the $1.7-million funding in Philippine-focused blockchain remittance startup SendFriend, which aims to convert USD to PHP at the lowest rate available.
In February, Ripple also partnered with European-based money transfer service Azimo, which aims to send “faster and cheaper” cross-border payments to the Philippines.
Dubai-based bank RAKBANK also teamed up with Philippine bank BDO Unibank to enhance its remittance service for OFWs in the Gulf state. The partnership will use Ripple’s blockchain technology.
Lee, however, stressed that while several solutions to the pain points in payments and remittance exist today, the world has yet to settle on a single standard for sending and receiving money.
“In today’s digital-first world, it’s easy to send information to anyone — emails, photos, text messages — yet it’s difficult to send money because the payments world is filled with hundreds of smaller networks that don’t speak the same language,” he said.
Looking at the Philippines for example, while PayMaya, GCash, and GrabPay payments can be sent to users within those respective networks, Lee said the majority of the players today serve as a single namespace that only work within one product or company.
This means that Coin.ph users in the Philippines cannot send money to a friend with a DeeMoney account in Thailand, Lee added.
“To prevent payments from becoming further siloed and fragmented, it is crucial that the financial industry leads the development of an open payments network that works for all, and fast, or they risk falling behind the likes of Google, Apple, and others, who already have the potential to connect the masses through payments, but are closed networks,” he said.