Financial divide narrowing

The march of digital payments is unstoppable, and it will play a pivotal role in driving financial inclusion across the Philippines. According to the Bangko Sentral ng Pilipinas, the share of digital payment transactions in total monthly retail payments surged from 42.1 percent in 2022 to 52.8 percent in 2023. This growth translates to an impressive P2.62 billion monthly transactions made digitally — an undeniable sign of the digital payment revolution taking hold.

The rise of real-time payments has emerged as a game-changer, offering unprecedented opportunities for millions of Filipinos who previously lacked access to traditional banking services. This shift is not just about convenience; it’s about empowerment. Real-time payments are opening new doors for financial inclusion, enabling individuals in even the most remote areas to engage in the digital economy.

For banks, this presents significant growth and profit potential. By embracing and modernizing payment technology, they can streamline services and tap into a broader customer base. Those who invest in real-time payment infrastructure today will be the leaders of tomorrow, positioned to benefit from the booming digital payment market.

Globally, the rise of real-time payments is projected to contribute an additional $285.8 billion to global GDP and create more than 167 million new bank account holders by 2028. These numbers underscore the transformative power of digital payments — not just for businesses, but for entire economies.

As digital payments continue to evolve, they will redefine how we approach financial inclusion. The Philippines, with its growing digital payment adoption, is at the forefront of this change, and the potential for societal transformation is limitless.

Perfect economic proxy

SM Investments Corporation (SM) stands out among conglomerates for its remarkable stability and resilience, having weathered crises over the years, according to analysts. This durability can be attributed to the interconnected strategies implemented across its diverse business units.

With inflation expected to ease from an average of 6 percent in 2023 to 3.2 percent in 2024, SM’s retail segment is poised for recovery next year. This, combined with the sustained strength of its property and banking arms, should amplify the positive impact on the group’s overall financial performance.

For the first nine months, SM reported a net income of P60.9 billion, marking a 9 percent year-on-year (y/y) increase and aligning with RCBC Securities’ estimates. This figure represents about 74 percent of the bank’s stock brokerage unit’s full-year forecast of P82.4 billion for 2024. A breakdown of net income shows that 15 percent came from the retail segment, 27 percent from property, 50 percent from banking, and 8 percent from its portfolio.

Revenues for the first three quarters grew by 5 percent y/y, totaling P462.5 billion. However, the retail segment’s performance revealed some challenges. SM Retail, which is unlisted, saw only a modest 4 percent revenue growth, with same-store sales growth (SSSG) of just 0.6 percent, a sharp decline compared to 9 percent in the previous year. This stagnation in retail was reflected in a drop in the segment’s EBIT (earnings before interest and taxes) margin to 6.5 percent from 7.4 percent, leading to a 7 percent decrease in its net income.

On the other hand, SM’s larger segments — property and banking — performed exceptionally well. SM Prime Holdings (SMPH) and BDO Unibank (BDO) both posted 12 percent growth in earnings for the nine months, showcasing the strength and resilience of SM’s core businesses.

SM’s share price has slightly outperformed the Philippine Stock Exchange Index year-to-date, gaining 3.7 percent. However, RCBC Securities believes the stock’s performance should be even stronger given the company’s solid fundamentals. Investors looking to capitalize on this potential should consider taking advantage of the nearly 6 percent dip in SM’s share price from the previous day.

As a proxy for the Philippine economy, SM offers a promising investment opportunity, especially as the retail segment recovers and the property and banking sectors continue to perform robustly.