Y-Combinator backed NextPay.ph gets you paid faster amidst a fragmented Filipino financial system
APR 2021 — Ask anyone and they’ll most likely tell you that the Philippine financial system has enormous opportunity to evolve. The banking sector, whose total assets account for more than 80% of the total resources of the country’s financial system, plays a pivotal role in financial intermediation and is the main source of credit in the economy. Even with many Filipinos wanting change in terms of financial oversight, one of the biggest problems is the dark shroud around a heavily protected banking sector. According to a study done by International Monetary Fund in late 2020, “significant weaknesses in the legislative framework, arising notably from the bank secrecy laws and the lack of power to supervise the parent companies and their affiliates of banking groups, present a material hindrance to effective supervision.“
With the inability to directly use legislation to apply banking evolution from within banks themselves, the private sector has been making strides in leading this evolution for the masses. Over the past decade, we’ve seen the private sector taking matters into their own hands by using direct foreign investment to spark change. New players come to disrupt the country’s disjointed systems by bridging the gap between traditional banking and digital finance technology, ultimately bringing new liquidity to the Philippine economy.
Canadian-Filipino co-founders Aldrich Tan and Don Pansacola noticed the potential impact when they took their first business trip to the Philippines back in 2016 to examine the Pinoy start up landscape. “There was so much investment flowing into the country; it felt so right for innovation,” Aldrich Tan mentions. Being an experienced design leader back in Canada who had worked with clients such as BlackBerry, Getty Images, Artefact, and Remitly, Aldrich wanted to share his knowledge with aspiring Filipino designers, which is why he joined UXPH.org, the Philippines' largest community of UX experts. Since joining, he has helped host UXPH’s annual UX conference—one of the largest in the country.
The Birth of NextPay
A few years later, Aldrich and Don noticed that Filipino entrepreneurs and SMB’s were severely underserved in terms of financial services. This made them wonder how they can make bigger impact given their newfound knowledge of the Filipino space. Since then, they have been working hard on their new shiny star, NextPay.ph—an all-in-one digital banking solutions provider. By providing an integrated service in one platform, NextPay puts the power of big banks in the hands of small businesses. The platform gives growing companies access to easy and affordable financial services such as digital invoicing, cash management, and batch payments to any bank or e-wallet in the Philippines.
In the Philippines, banks don’t play nice with each other. As there is no partnerships within banking systems, banking customers are forced to use isolated services that each individual bank offers. There are various third party services that can transfer between multiple banks, but they often charge a commission fee and are unregulated in the space. Aldrich says that, “When COVID-19 hit and lockdown happened, we saw SMB’s paying their employees as a huge problem. It was highlighted by the pandemic where payments were delayed for weeks and employers were not able to release their salaries.” That’s when NextPay started offering one of their services, which allows for direct payment between banks quicker and cheaper than traditional offerings.
Automatic payslip delivery, allowing companies to pay their employee regardless of which bank they have.
Since its launch in 2020, NextPay has processed over USD $2.5 million (PHP 120 million) in digital transactions for more than 100 businesses—and is quickly growing. Customers of NextPay can enjoy reduced processing times from as much as 3 days to just 30 minutes.
“One of the most rewarding stories we heard was about a Manila based client who had a clinic in Cavite (2-3 hours away) and would frequently send an admin assistant to Manila to get a check and cash it to bank manually. Now, they can do so through our services automatically. Think about how much time they saved.”
Finance in general is an important topic within Filipino culture, but the ways in which to become financially independent is still a looming problem for the average Filipino and business owner. The way Filipinos decide to spend their income is vastly different from other nations for example. According to a study conducted by the World Bank in collaboration with the Bangko Sentral ng Pilipinas (BSP), 55% of respondents in the Philippines report not having enough money to pay for food or basic necessities and 26% say that this is a regular occurrence. At first glance, one would blame income gaps, but upon a closer look, some of main drivers stem from providing financial help to others (including dependent family members), unexpected expenditures due to illness or other emergencies, and lack of planning and budgeting. Rather than viewing a bank as solely transactional, Filipino banks should start deeply analyzing customer spending behaviors such as the shared income use case to build integrable products with better CX that fill gaps towards generalized financial illiteracy. Using their past knowledge about CX design, Aldrich and Don are doing exactly that—building NextPay as a result of analyzing Filipino financial barriers, rather than analyzing how to increase profits from the illiterate. Without these major private sector disruptions, Filipinos will consistently live in the reality of a traditional, fragmented system where marginally better financial services are only reserved for companies that can afford it.
What makes NextPay.ph different from other Filipino fintech disruptors and banks?
NextPay views itself as a banking platform that has a completely different business model when compared to a traditional bank. Additionally, traditional banks usually rely on deposits and reserves to accrue interest, while NextPay is a volume play. Aldrich mentions that “Way faster and more seamless compared to the mixed methods of financial tools available, Union Bank, is also our initial technology partner.” In recent years, Union Bank has been making moves to update its financial technology but their overall business model remains the same. Customers still need high amounts of ADB (Average Daily Balance) in their corporate accounts to do payroll, which hinders the breadth of potential new customers.
Other companies such as PayMongo and First Circle are also disrupting the space—but in very different ways. PayMongo is more focused on being a payment gateway that allows businesses to easily accept online payments from their customers online via credit card, e-wallets and over-the-counter. First Circle provides financing services to qualified SMBs in the Philippines that sell to other businesses or government agencies. Rather than a traditional business to business operation, NextPay focuses on business to bank relationships with a long term B2C vision, helping eliminate the barrier of entry for Filipinos to create a bank account.
As NextPay is still ways away from looking into global expansion, Aldrich says that other SEA countries are not off the table (easter egg: nextpay.world). In January 2021, NextPay was one of three Filipino startups to be accepted in Y-Combinator’s 2021 accelerator program batch, which has provided an initial seed funding round amount of USD$125,000. YC is known for its iconic digital platforms alumni Airbnb, Dropbox, Stripe, and Twitch. PTC is extremely proud and we are excited to see where NextPay will be in a year from now, especially after going through YC’s legendary mentorship program. Aldrich had some advice to share to fellow entrepreneur’s too:
It’s so important to understand good user experience design and always be customer centric. Get involved in a community here in the Philippines like UXPH or StartupPH to learn from others and share our learnings. Many times, who you know will be of great help to your projects, so make sure you build meaningful connections in the community, as we all benefit from each other's overall success. The Philippines is seeing so much movement now, and it's a great time to help raise each other up.
Entrepreneur Stats
NAME Aldrich Tan/Don Pansacola
COMPANY NextPay.ph
LOCATION Manila, Philippines
EDUCATION Simon Fraser University
