This blog was written by Sophia Hasnain, Abigail Komu and Christopher Blackburn.
The Philippines is becoming the mobile money innovation hub
The geographic and demographic challenges of the Philippines demand creative mobile money solutions from all stakeholders; and it is interesting to see that mobile operators are driving this innovation. The world’s first mobile money deployment, Smart Money, was launched in 2001 by Smart Communications  in partnership with Banco de Oro (BDO)  to fill a gap left by the limited reach of banking infrastructure in the country. Following this, Globe Telecom launched GCash in 2004 and formed a separate entity called G-Xchange, Inc (GXI).  The Bangko Sentral ng Pilipinas (BSP) also played a positive role and created an enabling regulatory framework that provides an open and level playing field, allowing both bank and non-bank financial institutions—including mobile operators—to offer mobile money services.
There are a number of conditions that have contributed to the development of mobile money in the Philippines since then and which still continue to demand evolution of the service. These are:
- Unique geographical layout, and limited geographical coverage by formal financial institutions: The Philippines is made up of 7,500 islands (of which 2000 are inhabited). Bank branches cover roughly 50% of the islands, in fact 36% of municipalities (mostly in rural areas) do not have any bank branch 
- Large population : The population is in excess of 100 million, making it the 13th largest country in the world by population size
- High mobile penetration: There are 120 million mobile connections and 72.18%unique subscribers.  The Philippines is compares favourably in mobile penetration to the strongest mobile money markets in world, Tanzania 46.64% and Kenya 56.22%
- Low banking penetration: The banked penetration rate stands at just 31%—38 percentage points lower than the rate of East Asia & Pacific.
- Diverse non-bank financial institutions: There are a number of non-bank financial institutions with different primary business interests, from international remittances companies such as Western Union and MoneyGram, to informal money changers and pawnshops  serving different customer needs
- Domestic remittance needs: Two-thirds of the Filipino population lives in a handful of urbanized areas. It is typical for a breadwinner to live and work in Manila (or another urban centre), and regularly send money back to family in another province. This has created a huge domestic remittance market. In the Philippines, money flows in both directions between urban and rural areas. Philippines is also a large international remittance recipient market.
As there are a number of favourable conditions for mobile money to flourish in the market, other players have also entered the market. As a means of addressing this competition and ensuring continued sustainability, the mobile money providers have tried different models, products and services over the years and have found a niche for themselves:
- Smart Money is a leader in domestic remittance and a great deal is delivered via its over-the-counter service, called Smart Padala
- GCash through its GCash Remit service leads in the international remittance market as it has established a significant number of international remittance partners, and processes international remittances from an estimated 8 million Overseas Filipino Workers.
Today, factors such as a large percentage of the population under 25, a positive annual GDP growth, fast growing internet penetration, high mobile engagement, and a highly competitive market contribute to making the Philippines ideal for developing innovative digital and financial products and services. Both Smart Money and GCash are approaching this new market demand in different ways.
Smart Money’s Approach
Smart Money has taken an innovative approach in an attempt to fulfil new market demand and address competition from other fintechs. In 2015, PLDT (Smart’s parent company) and Rocket Internet launched an equal joint venture known as PayMaya Philippines Inc., to offer mobile-first payment services along with the existing mobile money services with a focus on young, tech-savvy yet underbanked market segment. In addition to services available via Smart Money and Smart Padala, PayMaya offers a number of solutions to the market:
- A prepaid online payment app that enables the unbanked and the ‘uncarded’ to pay online without a need for a physical card 
- PayMaya Business, a solution which allows businesses to receive payments from all cards anytime, anywhere
According to Paolo Azzola, co-COO of PayMaya Philippines Inc, the company has transitioned “…from a SIM-based, telco-based platform that is Smart Money […] into the app-enabled, OTT-based offering known as PayMaya, to serve more users, not just in the Philippines but also in other emerging markets worldwide.”
A SIM-agnostic service is not entirely a new concept, however this is the first time that a mobile operator has built a strategy based on an OTT concept to expand beyond their subscriber base and even leverage their existing platform and services outside of their home market.
Globe Telecom also sensed the challenge presented by fintech players in the market and responded by launching Globe Fintech Innovations, Inc. under the trade name Mynt (a fully-owned subsidiary), to not only offer broader financial services, but also to attract investment from a wider range of investors outside of telecom industry. With significant potential still existing in the market, Mynt is setting itself up to be able to grow in areas where Globe Telecom would otherwise be hindered as ‘just’ a mobile operator. Mynt has set a huge ambition for itself to ‘Become the next billion’s bank’.
When discussing financial inclusion in the Philippines, John Rubio, Mynt President & CEO, stated, “This situation presents a unique opportunity to address these gaps using mobile and digital technology. For example, it provides platforms where customers can access consumer loans in a non-traditional manner, and where they can do things like remittance in a more efficient manner.”
Both Smart Money and GCash have identified new opportunities as per the differences in their original underlying business models and now both operators are striving ahead with starkly different means. While it is great to see mobile operators driving innovation in Philippines, both raise a few questions for the future: Will PayMaya have to bend to conform to the regulations in individual markets to expand their footprint outside of the Philippines? Can Mynt innovate fast enough in a dynamic market? All eyes are on the Philippines once again to learn from the experience of these service providers.
 Smart Communications is a subsidiary of Philippines Long Distance Telephone Company (PLDT).
 BDO holds the license and maintains the customer accounts and the telco Smart takes care of the marketing and distribution and platform development and maintenance functions.
 GXI was formed to safeguard customer funds by separating telco and MM accounts. In the GXI model, the bank’s role is limited to cash collection for agent liquidity management and holding the pooled account of customer funds.
 Enhancing Financial Capabilities and Inclusion in the Philippines – World Bank Group July 2015. http://responsiblefinance.worldbank.org/~/media/GIAWB/FL/Documents/Publications/Enhancing-Financial-Capability-and-Inclusion-in-the-Philippines-FINAL.pdf – pg 7
 Markets within markets potential is significantly higher
 GSMA Intelligence
 As of 30 September 2013, there are 17,652 pawnshop head offices and branches and only 9,884 bank head offices and branches. Source: http://www.bsp.gov.ph/downloads/Publications/2013/Financial%20Inclusion.pdf
 PayMaya – Operates initially with a virtual card, physical card is issued upon request
 Globe Press release – https://www.globe.com.ph/press-room/shift-to-digital-lifestyle-to-boost
Very informative article. Gives a good walk through of the Philippines mobile money market at present.
Good article on the importance of appropriate regulatory environment and of taking into account market conditions for the uptake of mobile money.
On your first question, my view is this:
Unless there is an agreement between the regulators (financial and telecom) in the Philippines and other jurisdictions, PayMaya is more likely to bend to conform to the regulations in other markets to expand their footprint outside of the Philippines. Hence the importance of working toward effective collaborative approaches among regulators in different jurisdictions to promote digital-enabled cross-border remittances.
April Marie says:
Such a great article! It really talks to the current issues on how The Philippines is becoming the mobile money innovation hub. Thank you because it really helps me a lot.