Digital options abound but cash still king in PH
In theory, the average working Filipino could go through an entire day—maybe an entire month, or longer—without ever having to touch a peso bill or coin to transact for his day-to-day needs.
Most people receive their monthly wages through their bank accounts, funds of which they can use for their daily consumption through credit, debit or prepaid cards. They can pay for their groceries and shopping needs with cards that are linked directly to their bank accounts or funded by them.
From here, they can pay their utility bills like electricity, water, phone services, among others, and even ride a taxicab, and soon ride a commuter train, using nothing but their financial information recorded on their cards’ microchip or magnetic stripe.
Need to travel? No problem. One can book trips online and pay for airfare and accommodations overseas using credit or debit cards. Need to order food or shop online? Same solution.
When one thinks about it, it is possible to go through a significant part of one’s life nowadays without ever having to touch a grimy peso bill again—in theory, of course.
The reality on the ground is very different.
“Cash still accounts for the bulk of consumer expenditures in the Philippines,” said Visa’s Philippine country manager Stuart Tomlinson in an interview, explaining that there remains significant room for growth for the so-called “digitization of payments” in this country of almost 100 million citizens.
Last year, an estimated 82.3 percent of the $190 billion—or roughly P8.5 trillion—in consumer expenditures were executed in cash.
“Credit card transactions made up only 9.2 percent of total transactions,” he added, noting that Malaysia’s credit card transactions during the same period amount to about 25 percent of total, while those of economically advanced Singapore stood at over 50 percent of total consumer transactions.
“So you see, there’s a huge opportunity in the Philippines to displace cash,” Tomlinson added.
There are many reasons why it makes sense for people to adopt payment systems as an alternative to traditional cash-based transactions.
There is the issue of convenience. Carrying peso bills and coins around can be inconvenient, and even more so when one is set to make big ticket purchases like appliances or durable goods. Why carry wads of bills when one can instead carry a small rectangular piece of plastic that can achieve the same effect?
Then there is the issue of security. Cash can be lost or stolen, while alternative payment systems have security features that help prevent theft and fraud should the owner lose or misplace them. The security systems are far from being totally secure, but they provide significantly higher degrees of security than having plain cash.
Despite these advantages, Visa’s Tomlinson said that there remain hurdles—both physical and psychological—which prevent the wider mass adoption of alternative payment systems in the Philippines.
This includes the relatively underdeveloped infrastructure where only a small portion of merchants in the country (more in large cities, and less in rural areas) accept payments via credit, debit or prepaid cards.
Then there’s the psychological barrier where even the most technologically savvy consumers hesitate to use electronic payment systems due to issues of trust at the outset.
These are the same challenges faced by one of the country’s most forward-thinking alternative payment systems called GCash—the business unit of telecommunications firm Globe Telecom Inc., which has been pushing for the adoption of a mobile phone-based payment system for the better part of the previous decade.
“You have the ‘banked’ market which is 15 to 20 percent of the market, and then you have the rest which is ‘unbanked.’ They keep their money under the mattress, so to speak,” said Xavier Marzan, who is the president of Globe’s G-Xchange Inc. “Even among the ‘banked’ population today, there are only about 6 million credit cards in circulation. It has remained at that level for a very long time already. The penetration is in the A, B and C markets, and banks don’t want to go below that.”
“There are still a lot of underserved segments, even among the ‘banked’ population,” Marzan said. “For example, there are the business process outsourcing workers with high income, but banks consider them too risky for credit cards, because they change jobs often, and they have very high default rates.”
This is where GCash comes in, as it has a quasi-banking service directly linked to one’s mobile phone service, giving the user an electronic wallet (funded by depositing funds into the account) that can be used for purchases the same way as a credit or debit card.
Apart from making purchases, GCash allows the user to send and receive money (from relatives working overseas, for example) or even transfer mobile phone credits to other users, all without the need for touching a single peso bill or coin.
In theory, the system—along with a service called SmartMoney offered by the rival PLDT group—is ideal for the Philippines where mobile phone penetration stands at 100 percent of the population. Yet the customer takeup numbers have left much to be desired.
Marzan said that potential users need to be further informed about the benefits of using phone based-electronic wallets (especially since usage shoots up sharply after they execute one or two transactions on their phones, increasing their comfort levels with cash alternatives).
And to beat this psychological barrier, Globe actually began offering physical debit or prepaid cards linked to their mobile phone GCash services.
Marzan believes that, to get users to eventually become comfortable with electronic wallets, they first have to be made comfortable with the older technology available on the market, which is plastic.
“We actually give people physical cards which they are used by swiping, just like credit cards. That’s what they’re familiar with,” he said. “Think of it as taking one step back to be able to take two steps forward.”
But whatever system proves to be ultimately successful in the Philippines, both Marzan and Visa’s Tomlinson agree that the future of Philippine payments will be a cashless one.
“From every standpoint, it just makes more sense,” Tomlinson said. “It’s more convenient and it’s more secure.”
And both agree: It is not a matter of ‘if’, but a matter of ‘when.’ It’s a matter of how fast the local financial system will get there.
