The sun rises in the east: Philippines’ startup breakout moment

2021 was another breakout year for venture capital in Southeast Asia with over $25 billion in funding deployed. The funding amount, which was more than 2.7 times of funding in the previous year, represented the continued drive of global investors to tap the region’s potential amid the growth of its digital economy. 

South-east Asia is now well established as a startup destination, with Indonesia holding its crown as the first regional market to mature, evident with public listings of the likes of GoTo and Bukalapak.

But things are shaking up. 2021 has also been the break-out year for another lesser known market to step up onto the mainstage – the Philippines.

FinTech Philippines: acceleration to lift-off

Whilst the world was in lockdown, the puzzle pieces locked into place in the Philippines.

First, the Philippines’ central bank, BSP, is making good on putting in place frameworks to achieve its strategic plans for 2023, which include firstly, digital payment penetration of 50 per cent and secondly, bank account penetration of 70 per cent.

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Several key initiatives will support this growth; 6 digital banks were approved to launch, stepping up the country’s foray into FinTech. The central bank also launched a pilot framework for open finance, working towards generally accepted standards for consent driven data portability.

On the digital asset trading front, BSP issued a new circular setting out clear guidelines to the operations and reporting obligations of virtual asset service providers.

Finally, the Philippines will also launch a pilot implementation of a central bank digital currency(CBDC), which is targeted to launch in the fourth quarter of this year.

Second, a young, growing population coupled with increased digital adoption is now poised to unlock $101.3 billion worth of economic value by 2030.

For example, GCash closed 2021 with 55 million registered users, 4.5 million merchants, and gross transaction volume (GTV) of $72 billion. That’s a four-fold growth in GTV from 2020, and widely observed not just at GCash, but generally across the entire market.

For example, UBX, UnionBank of the Philippines’ FinTech arm, saw payment processing volume increase 33 times in 2021. Metamask, the crypto wallet available as a browser plug-in, saw monthly active users grow to 30 million this month and its biggest user base globally is in the Philippines.

Third, break-out investments were made, attracting local, regional, and global attention.

PDAX, the centralised crypto exchange, raised $50 million from Tiger Global. Tonik, a digital bank, raised $131 million from Mizuho and others to build out its consumer bank. Brankas, the open finance enabler, raised a $20 million Series B financing round from Insignia and Visa. KKR led Growsari’s most recent round with a $45 million check to digitise Sari Sari stores. GCash counts Insight Partners and Warburg Pincus as investors, raising $300m in November 2021 at a $2B+ valuation. Payment platform PayMongo recently raised a $31 million Series B financing round.

Fourth, the local seed funding ecosystem has evolved and is now maturing. Many of the companies mentioned above were seeded by local investors.

Early movers like UBX, Kickstart, and Foxmont, are now joined by prolific early-stage investors like Gentree, Kaya, and others. As the Philippines continues its recovery towards a post-pandemic economy, this trend will continue to grow significantly and investor interest in the country’s seed funding ecosystem will only be increased.

Finally, the Philippines has become a hub for Web3 innovation and investment. A few notable deals include a16z, which invested in YGG, the leading enabler to getting more people involved in play-to-earn games. It also invested in BreederDAO, which facilitates and optimises in-game NFT creation. Union Digital, UnionBank of the Philippines’ soon to launch digital bank, inked a strategic partnership with YGG as it plans to offer seamless banking across both fiat and digital assets. XLD.finance builds bridges between DeFi and TradFi, allowing people to use digital assets to fund day-to-day expenses, such as buying telco credit. 

Tiger Global placed its bet that PDAX would be the leading centralised exchange for local on- and off-ramp and regulated trading. Many Web3 founders and teams have set up temporarily or permanently in La Union, with probably the highest concentration of digital asset teams in all of Southeast Asia based in a 40,000 population surf-town. It’s the closest thing we have seen to a hub in Balaji Srinivasan’s idea of a network state, with Joncy Sumulong’s unassuming but fantastic Flotsam and Jetsam at its heart.

So, what is next?

There is a lot still to come. On the Web3 side, we will see the build out of remittance, lending, trading, earn propositions, and local currency stablecoins. Growsari has competition from interesting new players like Peddlr and Lista. We have yet to see retail investment, savings, or trading apps, like Ajaib and Pluang in Indonesia. Employer-led benefit solutions are now seeing a lot of interest, ranging from HR SaaS companies like Sprout.ph and earned wage access companies like Advance.ph. Insurance more broadly is still relatively untouched, with no one breaking through in this space yet.

For now, we expect more and larger funding rounds in the Philippines for FinTech, and a further acceleration of growth in the sector.

The writer is managing partner at Integra Partners.