Growth Enablers of Digital Payments in the Philippines
The internet has made the world smaller. People think nothing of calling up someone on another side of the world or sending a message and getting a response immediately. Digitalization is ubiquitous — how individuals, enterprises, and governments deal with payment systems included.
What is digital payment?
Digital payment, also called e-payment or e-money, is the transfer of funds from one account to another using a digital device. The device could be a smartphone, computer, or digital channel communication. These are payments through bank transfers, mobile money, and credit, debit, and prepaid (gift) cards. Aside from convenience, individuals, businesses, organizations, and governments will experience:
- Saving on costs through efficiency and speed;
- Transparency and security by strengthening traceability and accountability, which decreases corruption and theft;
- Financial inclusion by giving access to a host of financial services;
- Inclusive growth by providing entry to the financially excluded.
Growth of E-money in the Philippines
The Philippines was one of the early adopters of digital payments. A telecommunications company launched mobile money in 2001 to provide financial services to the unbanked and underserved segments of the population. Large-scale acceptance was slow, but there has been significant growth in the past four years. 14 years later, a 2015 Better Than Cash Alliance (Cash Alliance) diagnostic found that digital payments only had a 1% share of payment volume in the country. Two of the major obstacles to widespread adoption are the lack of trust and awareness in the concept of e-money.
Despite these hurdles, the use of digital payment to merchants increased steadily each year. Volume share was at 10% in 2018 and at 14% in 2019. The increase in volume can be attributed to efforts of the Bangko Sentral ng Pilipinas (BSP). BSP created regulatory reforms that pushed the modernization of retail payment systems. The coronavirus pandemic in 2020 raised the volume of digital payments further. Lockdowns and the preference for contactless merchant payments captured a 19% share in volume. E-money transactions during this year amounted to Php 2.39 trillion using Gcash, Maya, and GrabPay — the top three e-wallets Filipinos use.
E-payment is here to stay, even after mobility restrictions have been lifted, because of convenience and accessibility. 41 million Filipinos continue using cashless payment systems as of February 2022, according to BSP. This is not surprising as 74% of the population owns a smartphone. Experts predict the number of mobile wallet users may reach 65 million by 2025.
Barriers to e-money adoption
A second diagnostic by Cash Alliance in 2019 pointed out some barriers users face that affect the extensive use of digital payments.
- Lack of trust and reliable recourse mechanisms-anecdotal evidence of security risks, as well as the transactions that take too long or fail without a convenient recourse make people hesitant to rely on e-payments.
- Lack of awareness-majority of the Philippine population remains uninformed of digital payments.
- Digital payment solutions are costly relative to income levels-over half of individuals with accounts still prefer cash because of the lack of financial incentives in employing e-payments.
- Financial exclusion-many Filipinos remain unbanked because of documentary requirements.
- Payers do not see the benefit of shifting to digital payment when business processes for their transactions are not entirely digital.
- Poor internet connection.
Philippine e-commerce ecosystem
With the availability of digital payments, the Philippine e-commerce industry sprung up. Its growth, however, was not as straightforward as e-money. Sulit.com.ph was launched in 2006, ZALORA in 2010, Lazada in 2012, and Shopee in 2015. They were early adopters of e-commerce in the Philippines, but were unfamiliar to most of the population. The major factor that hindered e-commerce’s progress was the poor state of internet connectivity and high cost at the time.
In 2020, the COVID-19 pandemic and the strict lockdowns that ensued necessitated an alternative means to getting essential items. An iPrice Group study reported a spend increase of 57% for online services and the use of shopping apps went up to 53%. And it is not showing any signs of slowing down. The internet economy is worth $20 billion in 2022 and is expected to reach $35 billion by 2025.
Government initiatives
The Philippine government recognizes that digitalization and technology are major contributors to the country’s economic development. Different agencies have created policies and initiatives to support a digital economy, as well as address the barriers to its successful implementation.
The first Cash Alliance diagnostic in 2015 spurred the BSP to recognize that “digital payments are an enabler and driver of digital transformation.” BSP has since implemented the National Retail Payment System (NRPS), the National Payment Systems Act (NPSA), and the adoption of a national QR code payment standard.
Under the NRPS, BSP helped created InstaPay and PESONet. They are automated clearing houses (ACH) the allow the transfer of funds between any two accounts. Financial institutions are mandated to offer fund transfers through these ACHs. The NSPA expanded BSP’s regulatory oversight to include all payment service providers and operators of the payment platforms. The national QR code payment standard will enable consumers to pay for goods and services not just online, but also in brick-and-mortar establishments. BSP’s roadmap to digital payments transformation aims to strengthen customer preference for digital payments and more innovative and responsive digital financial services by 2023 in order to progress towards a cash-lite economy.
House Bill 8992 and Senate Bill 1764, also called the Promotion of the Digital Payments Act, are currently under review. The aim of the bill is to accelerate the adoption of digital payments through the involvement of government agencies and local government units, as well as improving overall infrastructure.
The Department of Trade and Industry (DTI) launched its Basta e-Commerce MADALI in 2022. Madali stands for the roadmap’s focus — Market Access, DigitAlization, and Logistics Integration. “Market access refers to expanding domestic or cross-border transactions, and where digitalization is emphasized vs digitization — to cover digitalization of government, businesses, people — and logistics integration means making the logistics and supply chain more efficient.”
The PhilSys project of the Philippine Statistics Authority aims to provide a single national identification system for all Filipinos. With a PhilSys ID, every Filipino has access to social service delivery and financial inclusion. It will also be part of the country’s transition to a digital economy.
Empowering progress
The Philippine’s DTI Secretary, Alfredo Pascual, acknowledges the crucial role of the private sector in the transformation to a digital economy. He says, “I believe the government will not be able to achieve its digital transformation goals on its own. The private sector, with its agile mindset and disposition, has to play a key role, particularly in implementing the digital transformation of enterprises, both large and small, as well as government itself.” He further states that if private industries continue to support BSP’s Digital Payment Transformation Roadmap 2020–2023, the country will reach BSP’s goal of a 50% increase in digital payments and a 70% financial inclusion for all Filipino adults by the end of 2023.
With digital payments and e-commerce platforms literally available at a touch of a finger, digital payment platforms are also taking off. Part of digital transformation is universalization and interoperability. These platforms not only offer payment solutions through e-wallets but also provide a host of online banking services to individuals. Users can take out loans or insurance, open savings accounts, invest, trade in cryptocurrency, and avail of Buy Now, Pay Later (BNPL) solutions. Businesses have also realized the value of digital payment adoption — from receiving payments from customers to any financial transaction with suppliers and government.
Here are the leading payment and technology providers in the country.
BUx was developed by UBX Philippines, UnionBank’s FinTech subsidiary. It is an all-in-one platform that processes over-the-counter, online banking, cash on delivery, and debit and credit card payments. Freelancers, casual business owners, SME, or large enterprises in any industry can take advantage of the seamless experience it offers to both merchants and customers. BUx is embeddable no matter where the seller is.
Dragonpay is the only Platinum PayPal partner based in the Philippines. It provides online payment solutions, even for consumers who are unbanked or do not have a credit card. With Dragonpay, customers can purchase online and pay through banks, ATMs, payment centers, brick-and-mortar stores, e-wallets or bank transfers.
PayMongo enables businesses to accept online payments via e-wallets, online banking, over-the-counter, and credit/debit cards. They also offer Atome and BillEase, their BNPL features. Business owners can use their onetime payment links, customizable checkout pages, plugins, and/or API to integrate payments within their chat, SMS, email, e-commerce page, or website.
Paynamics aims to provide payment solutions to businesses. They are connected with thousands of cash-in centers and over 50 local banks. They also offer Disbursement Gateway Solution (DGATE). It enables companies to send funds to their customers en masse. DGATE can be used for remittances, reimbursements, loyalty or rewards, supplier payments, commission payments, and payroll.
Xendit is a Southeast Asian FinTech company that provides payment solutions in Indonesia and the Philippines. Aside from payment integration, they also disburse payroll and loans. Their dashboard enables businesses to get detailed financial reports to make accounting easier.
Brankas provides financial services to everyone, including the unbanked and underserved, in Southeast Asia. They offer financial software and solutions that provide large-scale payment, transaction, and management systems for e-commerce, SMEs, Fortune, and ASEAN companies. With Brankas, banks and financial companies can roll out digital products and online services to their customers. They are the first to offer banking-as-a-service APIs in the Philippines.
The future of digital payments in the Philippines
A BusinessWorld article sees government regulations, low fees on micro transactions, and the growing number of e-wallet and payment portal players as catalysts that will bring digital payments in the country to the next level. There are many opportunities for innovation and growth, especially when the Philippines is set to have the highest consumption increase in the ASEAN region by 2030. Now is the time for businesses to speed up digital transformation, not just in business-to-consumer (B2C), but in business-to-business (B2B) as well.
AlphaBeta, an economic consultant based in Singapore, recommends three pillars of action the Philippine government can take in order to ramp up its digital transformation efforts in a 2021 report: enhance digital skills, accelerate digital adoption and innovations, and promote digital trade opportunities. “Industry transformation maps could be developed to provide information on technology impacts, career pathways, the skills required and reskilling options for different industries. Despite a comprehensive range of policies to promote digital adoption and innovation, the country faces several roadblocks, including the lack of access to capital, and a generally limited understanding of the benefits of digital transformation. To tackle these barriers, the government can consider funding the cost of acquiring digital talent and technologies, and providing businesses with access to digitalization resources. There is also strong potential for the Philippines to enhance its existing digital infrastructure to ensure affordable and reliable access to the internet nationwide. For the country to be well-positioned to capture the growth of cross-border transactions in the region, it is important that administrative procedures are streamlined to reduce the cost of compliance associated with non-tariff measures, and that customs procedures are harmonized with globally recognized frameworks.”
As customer behavior changes, the entire system needs to change, too. Finastra Global Payments Director Paul Snee says, “I think the acceleration of the payment industry will continue because consumers are now used to it; they’re expecting seamless frictional transactions and their payments embedded in not only their bank apps, but other apps as well.” The Philippine government, local enterprises, and financial institutions need to respond quickly to the demands of the consumers. Now is an opportune time to let go of legacy systems and modernize the ecosystem. As all sectors work together, the country can reach the goal of being a cash-lite economy.
