In 2015, three former colleagues of McKinsey & Company — Georg Steiger, Ritche Weekun and Huyen Nguyen, who shared an entrepreneurial itch — decided to take the plunge and set up a fintech business with an aim to serve the underbanked population in ASEAN. They chose the Philippines to launch their business, First Digital Finance Corporation (FDFC), as they saw massive opportunities for financial services. The huge gaps in the services offered by traditional players also prompted them to launch the business in the country.
“Fintech was and is still an emerging opportunity in the Philippines,” says Co-founder and CEO Georg Steiger. “We are here to tap into the massive gaps in the services offered by traditional financial players such as banks.”
The beginning was not easy though for FDFC, and the founders faced multi-pronged challenges. Initially, it was about how to design the product and credit process. “We operated in an environment with scarce data, so we had to take a few iterations on what criteria to apply. However, things have improved for us; our products are working well and the business is scaling. We have also built an excellent team and acquired many customers,” Steiger adds.
The other major challenge came/comes from the fintech market itself — there are less fintech players compared to, say, Indonesia. This means there are fewer players to share the burden of building awareness. This is a double-edged sword, he says.
Betting on the smartphone growth
The fintech startup is betting big on the high mobile penetration and the changing customer behaviour. Filipinos love their mobile phones and are very open to technology. It is now a market with the highest Facebook penetration in the world. This is despite the fact that internet connectivity is still slower and more expensive than in most other ASEAN markets.
“For millennials and Gen Z, there’s a deep antipathy towards traditional financial institutions. But they’re the most welcoming to technology-driven financial services. However, for older generations, it’s pretty much polarised as some would still prefer traditional methods, while others are gradually embracing digital process which makes it more easier for them to access services,” Steiger explains.
For FDFC, the core strength lies in the fact that it helps reduce the cost of serving customers, compared to traditional financial services, claims Steiger. The company achieves this through automation and Artificial Intelligence, and this allows it to target segments that are too costly to serve for banks because of small ticket size or complexity.
“Based on this belief, we have developed a few products targeted at very specific segments. For example, with our Balikbayad brand, we serve Overseas Filipino Workers (OFWs). This is a segment that makes up about 15 per cent of the economy, but is very complicated for traditional players to serve,” Steiger shares.
Balikbayad is essentially a digital lending platform, on which OFWs and seafarers can apply for personal loans online. It eliminates intermediaries and removes lengthy screening process and tedious paper work that are common to banks and other lending companies.
BillEase is the other major offering from the startup. “Most shops in malls offer convenient instalment plans for customers, and this is very popular. And while e-commerce is becoming very popular, especially with the younger segments, no such service existed. This is why we launched a product to allow customers to split their online purchases into instalments. This has become very popular in the country, especially among the younger customers, who don’t have a credit card yet,” he adds.
What BillEase does is to offer customers an alternative to prepaid wallets and credit card when paying or booking online. It is essentially a digital credit payment facility (digital credit card/loan at POS) that is consumer-friendly and inclusive compared to other modes of payment.
“For customers, especially those with no credit cards, BillEase allows them to purchase big ticket items on our merchant partners through our convenient repayment options or equated monthly instalments (EMIs). They can choose to pay instalments with 0 per cent APR or pay full after a certain period. BillEase is ideal for millennial customers and ordinary Filipinos with no credit history because it allows them to enjoy goods and services instantly without worrying how to pay their purchases,” Steiger elaborates.
For merchants, he says, this can be a major growth booster. According to him, his business saw ticket sizes go up by as much as 5x. So it’s really helping to shift bigger purchases that would have been done offline to online.
But isn’t risky to provide loans to customers without pledging any collaterals? “Yes, this is a risk that needs to be managed well to make sure we are able to maintain low rates. Being efficient at making these decisions is where we see our competitive advantage. We invest in analytics and machine learning to automate our credit decisions. This is kind of our secret sauce, so we can’t give away too much,” Steiger smiles.
FDFC’s third product is Loan Ranger, which provides short-term instant credit to Filipinos. In Steiger’s view, Loan Ranger provides financial innovation in the Philippines through up-to-date technology that decreases operational costs while improving product efficiency.
The fintech startup is currently testing a new product — an unsecured business loan offering. This is a natural extension of BillEase, says Steiger. “We call it BillEase for Business; it provides an automated way for Filipino SMEs to access working capital. BillEase for Business essentially simplifies manual business loan application process to one that is fully digital and automated.”
With BillEase for Business, small, and medium enterprises can use their business data to submit an application on the platform and receive an answer within 24 hours, instead of waiting for months, and filling out numerous forms like traditional lending methods.
“We launched BillEase for Business early this year and are extending this platform to both online and offline merchants. So far, we’ve provided SMEs credit lines ranging from PHP 100,000 up to PHP 10 million (roughly US$2,000 to US$200,000).
FDFC has partnered with all major banks in the Philippines for its offerings.
While the business is on a growth path, mass adoption of these products is a major challenge for the startup. All of this is quite new to customers, so it takes some time to convince them. Also even if most customers will tell you that they are unhappy with their bank, very few will actually switch. Financial services are very sticky, Steiger believes.
A self-funded startup, FDFC raised its Series A round from a couple of private investors last year. “We plan to raise new funding in the medium term but not at the moment. Right now, we are focused on developing the team and growth on our platforms,” Steiger signs off.