It’s Tuesday, and today we’re diving into Higala, a fintech company from the Philippines. Founded as a JV by Talino Venture Studios and Chemonics International, and headed by Winston Damarillo, the company recently closed a $4 million seed round, with the two founding organizations joined by Kadan Capital, Tenco Capital, and 1982 Ventures.

Oftentimes, when I’m writing these articles, it feels like, on the surface, there’s no there there.

What I mean is this: you look at the local angle, you see some issue or some enabling factor behind the protagonist company, and it doesn’t seem unique. It fits the overall ethos of the newsletter, an early-stage company tackling something relevant to emerging markets, but that same issue exists elsewhere too. Sometimes I still write about those companies because I find the company itself fascinating. Most times, I just skip those.

The same thing happened in this case.

On the surface, the Philippines’ payments sector looks similar in both development and structure to other emerging countries in Southeast Asia.

As in other emerging countries, the combination of an underdeveloped banking sector and digitization that started with smartphones rather than PCs means the non-cash payment sector is dominated by digital wallets, not credit or debit cards. Between 2019 and 2024, the share of digital wallets in e-commerce and POS payments expanded from 16% to 39%, and from 5% to 28%, respectively. In the wallet space, GCash is the dominant player, covering 69% of the country’s population and responsible for 85% of merchants’ wallet transactions.

And, again, as in other emerging countries, the Philippines has developed its own instant payment system called InstaPay. Launched in 2018, it enables real-time account-to-account transfers for banks and e-money providers. It works 24/7 and has a roughly $850 transaction limit.

Finally, 44% of Filipinos don’t have a bank account, which is, once more, a familiar story across emerging markets. This is not a problem for payments, and that’s what GCash is for, but it is a problem for everything else, like savings accounts or loans.

That’s where the basics end, and where things start to get interesting.

The unique piece to the country’s payment infrastructure is how limited InstaPay’s usage is. The system accounts for just 1.5% of the country’s payment flows, compared 46% for Brazil’s Pix and 82.7% for India’s UPI.

The core limiting factor is cost. Commission on each transaction ranges between $0.2-0.4, which is unusual for such a system since the reason why they spread so fast in other countries is near-zero transaction costs.

There are two main cost components to InstaPay:

The fundamental difference between InstaPay and similar systems elsewhere is that InstaPay was created by a bank consortium, while most analogues are government-led initiatives. On top of that, integration costs for banks are lower in those other systems. Both UPI and Pix, for instance, allow for indirect participants. They do this in different ways, but the point is the same: the costs that service providers have to bear are materially lower.

Because of BancNet fees and infrastructure development costs, smaller banks and microfinance institutions simply can’t afford to integrate with InstaPay. Just 18 of 400 rural banks are on InstaPay, leaving millions of Filipinos outside the system. To be part of InstaPay, a smaller bank needs to develop a secure mobile banking solution, digitize its records, obtain an Electronic Payment and Financial Services license, meet prudential criteria, and hire sufficiently skilled staff. For most, that combination is simply too much to bear.

To push InstaPay further, costs need to come down substantially. Higala is in the business of building solutions designed to do exactly that.

Higala develops two infrastructure solutions aimed at smaller financial institutions to help onboard them onto the instant payment ecosystem and lower transaction costs, which in turn increases overall payment volume.

The first solution is an instant payment network, what the company calls an inclusive instant payment system (IIPS). It’s built on Mojaloop, an open-source project developed by the Gates Foundation. The network handles payments in three steps:

In practice, it functions as an alternative to InstaPay.

The second solution is SynerFi, which is built by Higala in cooperation with RCBC, a local bank. It’s an open payments platform designed to help digitize small financial institutions. Through SynerFi, these institutions can offer their customers digital transactions via InstaPay: sending money, paying for goods and services, or making online purchases.

In this partnership, Higala provides the technology that connects rural banks and microfinance organizations to the payment network, while RCBC acts as the sponsor bank, handling compliance, clearing, and settlement. Taken together, the offering includes a white-label mobile banking app, digital onboarding, current and savings accounts, payments services, and a teller-facing web application.

Because banks don’t have to invest in their own infrastructure, they can afford not to charge transaction fees on their side.

Both products lower end-user costs. Mojaloop doesn’t rely on BancNet as the switch, and because it’s an open-source solution developed specifically for instant payments, the commission to execute a transaction is lower. There are also no fixed costs associated with building a digital platform, since SynerFi provides that layer.

It’s a unique, at least I haven’t heard of a similar one, and compelling idea.

Behind any digital payment solution there are two basic truths:
a) some percentage of transactions aren’t digitized, and digitizing them creates a market opportunity;
b) the ability to make digital transactions enables more discretionary spending because barriers to transacting are lower, meaning you don’t have to go anywhere to spend money.

Higala is enabling more digital transacting from two directions.

One solution, SynerFi, complements the existing rails by enabling and incentivizing more participants to join. The better Higala’s solution is, the more rural banks will come on board, the more of their clients will be onboarded, and the more transactions will occur.

The other solution, Mojaloop, makes digital transacting more compelling because costs are several times lower compared to InstaPay. As it scales, not only will more banks join the network, but new fintechs could also emerge to take advantage of the low-cost opportunity offered by Mojaloop.

Higala is developing a network similar to Mastercard and Visa, where there are merchants’ banks, a platform bank (RCBC), and the network itself, which is Higala and SynerFi. But unlike Mastercard and Visa, Higala also provides the application layer to participants and actively helps onboard them onto the network.

The company monetizes through transaction fees, charging roughly $0.015 per transaction.

The project is still in its launch phase and currently includes 40 participants that were initially onboarded, including rural banks that are part of RCBC’s ATMGo network.

There are two main risks to the business.

The first has to do with onboarding. For now, it’s expensive and difficult to join InstaPay, which is precisely why smaller banks aren’t on it. If the national ecosystem makes onboarding easier or cheaper, or if there’s a regulatory push to do either, Higala loses a key advantage unless it has already built a substantial client base to compete on scale.

The second risk is rural banks themselves. By definition, they are smaller, which raises a basic question: how large is this pie really? And will unbanked clients ultimately flock to established and perceived-as-safer banks instead of rural ones? Even if larger banks don’t have the branch network today, they might build it over time. There are also digital banks that the company sees as a competitive threat. The market seems enormous, but Higala is starting with one of the less attractive segments of it.

For smaller financial institutions to remain competitive in the future, they need to offer basic digital banking. Without it, they will gradually lose relevance to digital wallets and large banks. Higala offers that capability. And if it reaches sufficient scale, network effects start to matter. Banks that aren’t on Higala’s network would then find themselves at a competitive disadvantage.

Scaling should also be supported by broader structural trends. More payments will move to digital, and the national economy will continue to expand. Both should drive transaction volumes higher, giving Higala more capital to reinvest into additional offerings for financial institutions.

Many developing countries are already far ahead of the developed world when it comes to building modern fintech infrastructure. Much of the developed world still relies almost entirely on traditional card payments and legacy rails. I keep wondering whether those markets will also shift in the near future.