Sowing seeds – How PayMongo believes SMEs will drive digital payments in the Philippines

Cash is king in the Philippines. In this country where just about everyone has a Facebook account, physical money still the preferred form of payment. This is even when using Facebook and other digital services to conduct business.

While it’s true that the Philippines got on the digital payments train early—we were actually one of the first to pioneer them nearly 20 years ago—we’ve largely fallen behind our neighbors.

The Bangko Sentral ng Pilipinas (BSP) had initially planned to raise the share of digital payments to 50 percent in terms of volume by 2023. However, a 2019 report by the Better Than Cash Alliance showed that the share of digital payments had only reached 10 percent by 2018.

“The Philippines was a global early-mover in digital payments, with the launch of mobile money in 2001 … (but) the path to widespread adoption and usage has not been straightforward,” the report said.

These days, countries like Thailand and Indonesia are ahead of us when it comes to the use of digital money. And then there’s China, where a whopping 85 percent of internet users have used online payments according to an August report by Statista.

That’s not to say that local and entrepreneurs haven’t tried. Indeed, over the past few years, there’s been a veritable explosion of digital payment providers in the country.

Now, one of these startups has attracted the attention of investors who are betting big on both the company and the country’s digital payment segment: PayMongo.

PayMongo, going after SMEs that other payment providers have ignored

Founded in March 2019 by Francis Plaza, Edwin Lacierda, Jaime Hing and Luis Sia, PayMongo recently made headlines after it secured $12 million (Php 582 million) in a Series A funding round. Before this, the company was also the first Filipino fintech company to join Y Combinator’s accelerator program.

To get a better understanding of what this means not just for PayMongo but for digital payments in the Philippines, we got in touch with Nikko Dizon, PayMongo’s Head of Communications.

Talking with Dizon, it was clear that the people in the company were aware of the current state of digital payments in the country. In fact, when asked about the inspiration for PayMongo, the word she used was “frustration.”

“As with any start-up company story, ours started out of frustration over what we thought should be a service that is fast and convenient,” Dizon said. Part of this “frustration” is at how hard it is to get in on other existing digital payment systems in the country.

Dizon pointed out how their competitors’ systems require steep sign up fees, then give their clients complicated code that takes months to integrate into their systems. She then explained how PayMongo’s founders “knew that there should be a simpler, friendlier and more convenient way to do things.”

As part of this, the company is looking to focus on entrepreneurs and SMEs.

“We want the Filipino entrepreneur to appreciate a digital payments platform as a necessary tool for their growth,” she explains when asked about how PayMongo plans to push the digital payments segment forward.

Indeed, she says that part of the reason that digital payments haven’t grown as much as they could in the country is the lack of focus on SMEs. She explains that existing digital payment facilitators have focuses primarily on enterprise businesses.

For PayMongo, however, SMEs are “a huge untapped market.”

The pandemic has put SMEs into focus

The ongoing pandemic has certainly helped PayMongo’s case. Amid the storm of quarantines, work from home orders and layoffs, many Filipinos have turned to the internet to start their own small businesses to make do in these trying times.

Indeed, despite the economic havoc that the pandemic has wrought, things actually seem to be looking up for SMEs in the country.

A September poll conducted by SAP and Oxford Economics showed that 88 percent of SMEs in the country were confident in their growth in the next three years. Also, SAP has continued to recognize the Philippines as one of the fastest-growing markets in the world, even amid the global pandemic.

At the same time, the fear of the coronavirus and the need for precautions have also benefited PayMongo.

“Face-to-face transactions were discouraged as an infection prevention measure, such that consumers and businesses suddenly had to learn how to transact online,” Dizon explains. “Now, [Filipinos are] adapting to digital payments and digital financial products.”

That said, the company says that it needs to provide an “accessible and reliable” online payment experience if it wants to capitalize on this momentum.

With this in mind, PayMongo has decided to focus on two things. The first of these is helping SMEs do business online without having to go through complicated procedures.

One way the company is helping ease SMEs into their system is by not charging a merchant sign-up fee. Also, for their onboarding, Dizon says that the company has a rigorous know-your-customer (KYC) process combining both technology and highly-trained personnel. According to Dizon, merchants are able to sign up and use their platform within a week.

The second thing that the company is focusing on, is making sure that its digital payment experience is easy and convenient. Buyers can complete PayMongo’s payment process in three simple steps, which do away with irrelevant data or the need to be redirected to other sites.

To be able to provide both of these, PayMongo been developed the technology to fully automate all of their systems, from merchant boarding to customer payments. The company is a firm believer in developing the technology side of their business.

Dizon shares a quote from PayMongo CEO Francis Plaza who always says that the company’s “core strength goes beyond the payment processing aspect of the business.”

“We have always focused on building the technology that would allow anyone to start and grow successful businesses online,” Plaza likes to say. “Our easy-to-integrate tools and services, built-in fraud systems and automated, fast payout processes allow our merchants to focus on their products and services, and make their businesses grow.”

Building confidence in PayMongo and Philippine online payments

Building this technology, however, requires funding and, like any startup, PayMongo needed to attract investors. For this, its founders took the bold step of joining American seed money startup accelerator Y Combinator.

A quick look at the list of Y Combinator incubated companies reads like a who’s who of internet start-ups with the likes of Airbnb, Twitch, Reddit, Dropbox and Stripe to name a few.

Going into the program, Dizon said that PayMongo’s founders knew that “they would receive a lot of wisdom and guidance” on how to develop the company’s potential.

“Y Combinator is always a sign of confidence to investors, that if you went through its meticulous program, you are a start-up that has a potential to get big,” she explained. “Also, you are introduced to the program’s vast network of VCs, which will look if you are worth investing in.”

Following their initial go at Y Combinator, PayMongo has since, as mentioned earlier, received additional funding from companies such as Bedrock and fellow Y Combinator alum Stripe.

Dizon says that these investors liked how the company has made digital payments more accessible for Filipinos with their technology. In addition, the company’s focus on SMEs made them ready to adapt to their needs when the pandemic hit.

“Even before the pandemic, PayMongo has been tapping into SMEs, which comprise 98 percent of all enterprises,” said Dizon. “When the health crisis forced businesses to migrate online, we were ready to provide them with their needs. We believe that we are the only payments processor that has wanted to serve SMEs from the get-go.”

In addition, the company also believes that the investor’s confidence in PayMongo also says something about the potential of digital payments in the country, especially with how SMEs embraced online payments during the pandemic.

“We believe that the migration will continue even post-pandemic as both Filipino customers and businesses have discovered the convenience in doing online transactions,” Dizon explains.

Now flush with fresh capital, PayMongo looks to capitalize on this migration to further grow online payments in the country. With its focus on serving SMEs and overall ease of use, perhaps the company can yet bring online payments back on track to where we thought it would be years ago.