Impact Analysis: Remittances In Growth Markets - An Untapped Opportunity?

December 13, 2021
Remittances provide an essential economic backbone for the large growth markets of Indonesia and the Philippines, but innovation in this space has been scarce. However, rapidly changing consumer habits coupled with recent regulatory developments may provide the perfect opportunity for disruptors to capture an important and lucrative market in two of Asia’s hottest fintech markets.

Remittances provide an essential economic backbone for the large growth markets of Indonesia and the Philippines, but innovation in this space has been scarce. However, rapidly changing consumer habits coupled with recent regulatory developments may provide the perfect opportunity for disruptors to capture an important and lucrative market in two of Asia’s hottest fintech markets.


Cross-border payments play a key role in South-East Asia where personal remittance payments alone make up a significant portion of some countries’ GDPs; for example, in the Philippines, they made up nearly 10 percent of the country's GDP in 2020, according to the World Bank. Therefore, it is no wonder that the UN has set out the reduction of remittance costs to less than 3 percent as one of its sustainable development goals.

Despite the importance of cross-border payments, they have largely been limited to personal cash remittances. This is reflected by the sheer amount of remittances that the Philippines and Indonesia receive. That being said, consumer habits in these countries are changing quickly. This change has mostly been driven by the youth of South-East Asia who have been keen to take advantage of cheap smartphones and internet access. Perhaps the most stark example of this is Indonesia where 89 percent of people aged 18 to 29 say they use the internet or own a smartphone, compared with only 24 percent of those aged 50 and older, according to research from Pew Research Center. The coronavirus pandemic has also helped to precipitate this growth rather than dull it as consumers eagerly seize the opportunities that virtual connectivity allows them.

A product of this increasing use of smartphones has been the rise of superapps across Asia, which serve as a portal for multiple services, including payment and financial services. This suggests the populace is eager to adopt modern payments technology. However, superapps and their associated payment innovations have for the most part been confined to the national level as national QR code and retail payment systems are only now being joined through payment linkages.

This regulatory analysis will examine the regulatory opportunities available to fintechs looking to enter the traditional remittance markets in two of South-East Asia’s largest remittance markets: Indonesia and the Philippines.

The Philippines

In the first quarter of 2021 alone, nearly 10m Filipinos working overseas sent back 8.5bn US dollars in remittances, representing a year-on-year increase of 2.9 percent, according to Bangko Sentral ng Pilipinas, the country’s central bank.

Regulatory developments concerning the cross-border payment space in the Philippines have been relatively slow compared with its neighbours in the region (Thailand, for example, has payment linkages with Malaysia, Singapore, and Indonesia) but with the use of digital payments increasing rapidly in the country, this looks set to change.

In November 2021, Singapore and the Philippines announced that they will link their instant and cross-border payment systems. This linkage, once fully implemented, aims to provide quicker, cheaper and seamless cross-border payments for consumers in both these countries. With e-money dominating cashless transactions in the Philippines, this is a significant opportunity for payments firms that may already have a presence in Singapore.

Although the Philippines has only agreed on one payment linkage so far, this payment linkage with Singapore is of particular importance. Singapore, aside from being an Asian economic powerhouse, is a very popular destination for Filipino workers, with 1.6bn US dollars being remitted back from the island nation in January-September 2021 alone.

As Zennon Kapron, the founder of KapronAsia, a leading fintech consultancy based in Singapore, also pointed out during a VIXIO webinar on the growing payments region: Singapore is "the most straightforward choice for fintechs to gain a foothold in the continent”.

The Philippines, although not as advanced as Singapore from a regulatory perspective, still has clear and straightforward regulations in place for payment operators, with the central bank clearly setting out the requirements for payment firms. The Philippines also does not have a local shareholding requirement, unlike Indonesia, meaning that established fintechs do not need to sacrifice equity when entering the market. This coupled with the fact that English is the official language makes it an attractive choice for global payments firms wishing to capture the developing Asian market.

However, the central bank has announced that it will be freezing applications for e-money licences for two years starting in mid-December 2021, which it states will help promote stable and inclusive financial growth.


Indonesia is the most populous country in South-East Asia, with a population of circa 270m spread over its 17,000 islands. Several significant regulatory developments in Indonesia this year have clearly laid out the requirements for payments firms wishing to enter this market.

First, Indonesia released new regulations in July for payment service providers (PSPs). This was a comprehensive set of regulations regulating everything about PSPs from liquidity requirements to cybersecurity. These new requirements have effectively centralised the regulation of PSPs under Bank Indonesia, providing potential new entrants with an authoritative handbook on operating a payments business in Indonesia. Under these new regulations, PSPs will only require a 15 percent local shareholding to be licensed in Indonesia. This percentage represents a significant improvement compared with the local shareholding requirement for payment infrastructure providers, which still stands at 95 percent.

However, Kapron went on to explain during the recent VIXIO webinar that the presence of a local partner is more often than not the key to setting up a successful fintech, given the complex nature of ASEAN markets. This local shareholding requirement could be a good way to ensure that local partners give their best by ensuring that they too have some skin in the game. This sentiment was echoed by Camilla Bullock, the president of the Emerging Payments Association (EPA) Asia, who noted that when entering South-East Asian markets: “You cannot just take what you have done somewhere else. You have to take it and make it a little bit more domestic.”

Indonesia has also entered into a cross-border payment linkage with Thailand. However, unlike the Philippines, the majority of remittances received in Indonesia originate from its neighbouring countries; Malaysia being the biggest contributor due to its population of an estimated 700,000 Indonesian workers. Although currently limited to banks, the central banks of these participating nations have indicated that they will expand the linkage to include any firm that meets their criteria. Given Bank Indonesia is encouraging the use of cashless payments at all levels via accessible technology such as QR codes, and that it is part of the ASEAN Connectivity Initiative, which aims to liberalise financial inclusion and cross-border payments across South-East Asia, it is likely that payment linkages will be set up with more South-East Asian countries as seen with Malaysia and Singapore. This, in turn, could represent a great opportunity for fintechs to link markets with large Indonesian populations as these linkages open up.

In addition to these payment linkages, Indonesia implemented new central banking service regulations in September 2021, which, for the first time, will allow non-bank remittance companies to become customers of the central bank. Perhaps the most significant challenge for fintechs in terms of cross-border payments so far has been that they simply do not have access to the central bank’s cross-border settlement systems; therefore, this should open the door for them. That being said, the central bank has yet to provide further detail on exactly which remittance companies will be allowed to use its systems, but this still represents a promising step.

Value v Volume

Remittances in these countries are often low-value transactions given the nature of the jobs that overseas workers from these countries typically perform. For example, the World Bank estimates that the vast majority of Indonesian migrant workers in Malaysia work in low-skilled manufacturing, construction or domestic service jobs. This means that volume rather than value is likely to be the main driving point for remittance operators. Given the astute nature of South-East Asian consumers, a point Kapron observed as contributing to high customer acquisition costs, it is likely that any fintech with experience in attempting to provide cheaper cross-border payments will do well in these markets.

Remittance costs from Malaysia to Indonesia and Malaysia to the Philippines can be as high as 12 percent through traditional banks, and therefore makes sense that lowering the cost of them is part of the UN’s sustainable development goals.

These high costs also explain the popularity of services such as Western Union and Wise, which are generally cheaper than banks. That being said, these services are still either cash based, or require the sender and receiver to have bank accounts, which in Indonesia where financial inclusion is only approximately 50 percent and in the Philippines only 29 percent can be inconvenient and a stumbling block for development.

What Indonesia and the Philippines do have, however, is fast growing smartphone usage. In 2019, smartphone usage in the 18-29 age groups in Indonesia and the Philippines stood at 89 percent and 94 percent respectively. As a result, there has been the proliferation of e-money and QR codes in their payments landscape. It would certainly be conceivable then that a fintech company taking advantage of this emerging trend and undercutting traditional remittance services could do very well.


The remittance markets in both Indonesia and the Philippines represent important drivers of their economies. Despite this importance, there has been little significant innovation for some time.

Although companies such as Western Union and Wise have brought improvements to these markets, they have yet to overcome demographic and geographical challenges.

The current regulatory environment in both these countries represents a great opportunity for fintechs to overcome the challenges faced by more traditional remittance operators. By taking advantage of regional cooperation initiatives and emerging trends like e-money and QR codes, they have the opportunity to disrupt a very traditional industry and liberalise access to quick and cheap remittances.

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