Online stock trading in the Philippines is becoming “Petmalu!”

The Philippines and Southeast Asia as a whole face increased demand for financial online services and KYC (Know Your Customer) solutions that cater to secure transactions and interactions between digital customers and financial entities such as online brokers for stock trading.

Digital landscapes emerging in Southeast Asia

An increase of volume and value in digital-driven transactions and interactions is emerging throughout Southeast Asia and especially in the Philippines. Expedited by societal circumstances due to the coronavirus pandemic, this economic development calls for platforms, services, and digital systems to automate, expand and facilitate access to financial services. Small and Medium Enterprises (SME) account for 99.5% of registered businesses in the Philippines, their revenue is therefore critical to the economy's growth. With a population that is largely unbanked or underserved by traditional financial institutions the Philippines strive to become a more financially inclusive country so that more SMEs get access to the financial services they require.

At this stage of digital development, the primary Philippine regulators are therefore adopting a balanced regulatory approach focused on risk-based and proportionate regulation and consumer protection. But historically nations have utilized different regulatory strategies at various stages of their digital development which indicates that some regulatory changes could be implemented later on. As many companies have had to learn by bitter experience in recent years: When investing in systems and solutions that cater to the digital customer processes of today it is wise to ensure these are adaptable to tomorrow's legislative changes with a minimum of further investments.

A breakthrough for online broker-dealers

Today there are 130 registered brokerage firms in the Philippines according to the directory of PSE (Philippines Stock Exchange) and only 33 of these offer an online trading platform to their clients. This doesn't align particularly well with the ambitions of the nation or the paradigm shift occurring in the world of investing. Online brokers are increasingly gaining popularity and lower costs for investors constitute a significant reason why. Another reason is the accessibility and convenience of having an online account granting the investor complete control of their portfolio. All trades can be executed immediately without having to notify a personal broker to act on behalf of the investor. The last couple of years show a rapid rise of the Filipino retail investor and it is clear that online trading has induced this boost. Out of the approximately 1.4 million accounts in the stock market, about 97.9% of the total number of accounts belong to retail investors, according to the PSE. Online accounts dominate the local course after cornering 67% of the total.

Even though there's much more improvement needed to further expand investment and growth opportunities while mitigating risks the trend has been established. According to the PSE, investors aged 18 to 29 today constitute 22,5% of the total stock market account holders, but that percentage could skyrocket in conjunction with the Philippine digital transformation. The effect of digital natives increasing in numbers and the fact that investors nowadays are younger poses a potential golden age for online brokers in the years ahead. However, investments in fintech solutions that cater to a digitized and automated KYC compliance process are a prerequisite to have a chance at becoming a competitive online broker in the new digital landscape of Southeast Asia. But those investments should be well thought through to ensure sustainable regulatory compliance and competitiveness.