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GCash looks beyond Philippines for growth

The Philippines’ leading fintech and its parent are thinking about what it can do elsewhere in Southeast Asia.



Oscar Reyes, GCash

GCash, the e-wallet provider with the largest market share in the Philippines, is looking to develop its presence overseas.

Oscar “RenRen” Reyes, Manila-based CEO of GCash’s holding company, G-Xchange, said, “We are going beyond borders to serve Filipinos abroad.”

For now the ambition is to grow GCash’s remittance service for citizens who work overseas or are traveling. But he wants to also grow lending and other financial products.

There are no plans to establish a separate overseas business – yet. But GCash’s parent, Globe Group, is also interested in expanding its footprint into other regional markets.

“Our ambition is wider than the Philippines,” said Juan Carlo Puno, vice president of corporate finance at Globe.

Building atop Ant

The two spoke at a media lunch in Hong Kong.

“Hong Kong plays a gateway role for us,” Puno said, noting the group wants to participate in the blockchain-based Web3 economy that is also a priority of Hong Kong’s administration. “We need a tell our story, because Filipinos will be a big part of the Web3 market.”

Neither Globe nor GCash are announcing a formal setup in Hong Kong. Rather they are touring the region in an effort to source partnerships. The timing is mainly down to the Philippines exiting its last formal Covid-related restrictions.

But Hong Kong is more than just a city with a lot of fintechs and crypto players. Ant Financial, the fintech arm of Alibaba, has been a major shareholder in GCash since 2017 (GCash is actually a joint venture between Ant and Globe). GCash was built on Ant technology, with the assistance of Alibaba engineers.

Globe is looking to find partners and to grow GCash’s services in other Asian markets. It’s also showing up with cash. Part of its outreach involves the firm’s corporate venture-capital arm, Kickstart Ventures, which invests globally in startups.

Minette Navarette, president of Kickstart, says a VC from an emerging market plays an important role in financial inclusion. “In budding ecosystems like the Philippines, it’s important to connect startups to their customers and with potential partners. A corporate VC can do that. 

“There is an opportunity divide in emerging markets,” she added, referring to a have- and have-not reality. “That means there is an innovation divide, which comes down to a gap in capital. We aspire to break the barriers of capital availability and lack of innovation, and to be more globally integrated.”

Digitalizing the Philippines

Puno added that big, old, family-owned conglomerates such as Globe (which is part of the Ayala family’s empire) have a “nation-building” duty, which includes trying to boost exports. The Philippines is not a big manufacturer. Its biggest GDP contributors are remittances and back-office processing, the latter of which is at risk of disruption by artificial intelligence.

Helping grow the local industry is difficult because the vast majority of employers are small and mid-sized enterprises (SMEs), even if the wealth is concentrated among an exclusive tier of conglomerates.

GCash was, like Ant, created to serve the masses, both individuals and small merchants. Companies such as GCash have helped address the problem of financial inclusion. But the problem remains formidable.

According to Puno, 44 percent of Filipinos remain unbanked, 50 percent lack access to primary healthcare, and 60 percent of high-school graduates can’t afford to go to college.

Digitalization is one way to tackle these problems, because going digital makes goods and services cheaper, easier to access, and transparent in how they are delivered. But most businesses have yet to embark on a digital journey. Most remain put off by the cost and uncertain benefit, and many people remain skeptical about digital services. In fact, most SMEs that have now begun to use digital tools have only done so since the Covid pandemic waned.

Serving half the population

That’s the challenge. The good news is that the Philippines is primed for a lot of growth in its digital economy. It boasts the second-youngest population in Asia, with 30 percent of people below the age of 14. Most people own a smartphone. Data usage is relatively low, but climbing. Filipinos are avid social-media users. Digital GDP is set to grow by 30 percent this year.

“It’s about delivering the infrastructure and the technology,” Puno said.

Globe Group can do so. It has 56 million customers, about half of the roughly 110 million population. The telco is transforming itself into a series of technology platforms, including fintech, that hub into the core telecom business. 

Reyes says GCash is making inroads in terms of financial inclusion. He says 56 percent of users have a financial account, and 51 percent have some insurance cover. About 8 percent now have a virtual credit card. The laggard is investment, at 2 percent of GCash’s userbase, but it’s growing.

“We began with cashless payments and transfers, but we now have the largest digital ecosystem in the Philippines,” Reyes said.

To bank or not to bank

GCash is not a bank (it cannot accept deposits), but it does nearly everything else a consumer bank might. It has a savings-like function that is used by Filipinos with bank accounts. It gives access to local and global mutual funds. It sells insurance. And its lending product now has disbursed $1.6 billion worth of loans to 3 million individuals.

The challenge is how to fund this activity. GCash is not a bank, so it can’t source cheap funding from deposits.

It has two solutions. First, it has a partnership with CIMB Philippines, the local unit of the Malaysian bank, which gives GCash access to its balance sheet in return for access to GCash’s proprietary credit scoring. Second, GCash relies on retained earnings (its own balance sheet) to lend.

This is less efficient than having a banking license. This was immaterial a short while ago. GCash, using its Ant tech, got a head start and built out its dominant market share, ahead of number-two wallet Maya.

Maya is now one of six players getting a fully digital banking license, however. There is a lot of new competition now. GCash no longer has the market to itself. Moreover, some of these digital banks are offering higher deposit rates, drawing on their cheaper cost of funding (or deep pockets of backers).

Finding workarounds

Puno says, however, the group is not looking to get a digital banking license. He says before Globe launched GCash, it explored launching a digital bank via another Ayala enterprise, Bank of the Philippine Islands. The effort flopped because the bank’s focus remained on regulation and compliance, and there was little scope for innovation. GCash, by avoiding the same regulation as a bank, was nimble and quick. Which was crucial to its success.

Borrowing without a credit history or bank account is ruinously expensive, around 20 percent ­– a day. GCash’s lending platform is using technology and credit scoring to bring this way down, to a range of 1.59 percent to 6.57 percent per month. That’s not just better than the loan sharks, it beats any credit card.

That requires a lot of funding to support, which is GCash’s weak point. Nonetheless, there is still no appetite internally to have GCash become a bank. Nor is there a desire to have it partner with BPI, even though this would be within the corporate family: such a relationship would draw the scrutiny of the central bank, Bangko Ng Sentral. The deal with CIMB works because GCash looks to be at sufficient arm’s length.

The future of growth

Reyes said GCash’s userbase tripled during the Covid pandemic. Can the fintech sustain that growth, especially with all the  new competition? He says yes for two reasons. First, GCash has a big lead. Second, it is looking to cross-border partnerships to give it an edge.

Remittances remains a huge target. GCash works with partners such as payment fintechs Remitly, Sendwave and PayPal – not to mention Alipay – to enable overseas Filipinos to send money from whatever app they are using to a family member’s GCash app. The fintech is working with Ant to enable GCash users to pay locally in 14 markets.

(It also leverages Ant’s global partnerships to provide some perks to Filipinos: for example, people can pay with GCash for Netflix or Disney content sourced via Alibaba.)

“Now half of remittances sent to the Philippines from Hong Kong go to someone’s GCash app,” Reyes said.

GCash Overseas

But GCash is building its own capabilities too. Earlier this year, it launched GCash Overseas, so people outside of the Philippines (using international SIM cards) can set up accounts, move money, pay bills, and borrow. It launched this in six developed markets (Japan, the US, Australia, etc) and is about to go live in Hong Kong and Taiwan.

The overseas product also gives users control over where their remittance money goes. “We found many overseas workers returned home only to find the money they earned wasn’t being used in the right way,” Reyes said. Now users can specify if their hard-earned money goes to paying rents, or utilities, or school fees, or medical bills.

“This is the tip of the iceberg,” Reyes said. “We’re looking for the right partners and solutions for consumers or SMEs that transact with the Philippines.”

GCash is also a portal for Filipinos to trade crypto and NFTs, and Reyes expressed interest in how this could apply to users in Hong Kong.

Reyes said, “Digital banks are offering good savings products and high interest rates. We will double down on our lending product. But I see a lot of underserved needs in the market. I think we’ve built a capability for financial services that competitors will find hard to address.”

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