E-payment system lack stunts e-commerce growth

THE LACK of a uniform electronic payment system in the Philippines is believed to be stunting the development of the local e-commerce market as the country continues to be primarily a cash-based society.

In a paper for Asia Briefing Ltd., a subsidiary of the Hong Kong-headquartered Dezan Shira and Associates, author Elizabeth Leclaire stressed the significance of developing both a national e-payment system and an e-commerce market as these would allow local consumers and businesses to increasingly engage in the global market and would offer numerous investment opportunities for foreign investors.

While it has started to gain ground,

e-commerce in the Philippines is expected to grow to a $2-billion market by the end of the year. This is considerably marginal compared to the the forecast of market research firm eMarketer that global online sales would reach $1.67 trillion this year.

According to Leclaire, the Philippines continued to face huge challenges in rolling out a national e-payment platform with 98 percent of all transactions within the country still being done in cash.

Leclaire explained that the Philippines’ lower socioeconomic classes often lacked access to online financial and transaction systems, rendering them unable to interact directly with the global market.

“Currently, only 26 percent of Filipinos can access formal financial channels, either online or offline, and 610 of the nation’s 1,635 municipalities do not have banks. Additionally, roughly 50 percent of all mobile phone users prefer to hold their savings solely in personal cash reserves instead of in banking institutions,” she said.

Citing data from the US Agency for International Development (USAID), Leclaire said that the Philippines would witness a 0.5-percent growth in consumer spending for each 10-percent increase in electronic payments.

She further quoted USAID as saying that the “primary difficulty facing the nation will be to either integrate the multiple private e-payment platforms into a national system, or devise a national platform to replace all existing models.”

“In addition to logistical difficulties, the Philippines’ consumer base is wary of a dependence on an independent online agency method of banking. Of the 40 percent of Filipinos with savings, 68 percent of them keep their money at home rather than in a bank. Moreover, lending is typically established on a personal basis and is often accompanied by high interest rates,” Leclaire said.

The Philippine government has pledged earlier this year to reduce its dependence on cash transactions and transform the economy from a cash-heavy to a “cash-lite” society within the next 20 years. The country had partnered with the USAID to create a nationwide e-payment system by 2018.

According to Leclaire, the United States and the Philippines are in talks on the specific design aspects of the e-payment platform, but have discussed plans to potentially mirror South Korea’s e-payment platform model, which would allow Filipino users to withdraw from banks and stocks/bonds transactions in addition to typical transaction activities. Estimates by USAID showed that having a national e-payment system in place could lower transaction costs in the Philippines by as much as 90 percent.

In addition to establishing a national

e-payment platform, the USAID also partnered with the city government of Batangas last year to install an online tax-paying system through mobile phone. Since its launch, the system has accumulated more than 4,000 members and the USAID has announced its intention expand the scope of similar projects in the coming years.