The Bangko Sentral ng Pilipinas (BSP) has recognized digital payments as a policy priority. It has advocated the migration from a cash-based to a digital or a cash-lite economy. It seems though that we have a long way to go because 85 percent of all retail sales in the country are still conducted in cash. Perhaps a culprit is the low-awareness about the different e-payment platforms. With the advent of fintech, our march toward a digital economy could be accelerated.
Digital payment is defined as a “monetary transaction between two parties [individuals, businesses, or government] through a digital payment instrument [such as cards, bank transfer, mobile wallet, etc.] in which both payer and the payee use an electronic medium.”
Digital payment is done using prepaid and debit cards, credit cards, and mobile money accounts. The use of debit cards in the country has almost doubled from 38 million in 2013 to 71 million in 2018. The use of prepaid cards has also doubled from 35 million in 2013 to 70 million in 2018. Prepaid cards comprise about 47 percent of total card use but comprises over 78.5 percent of total transactions. It is, therefore, the foremost form of digital payment. The use of credit cards has increased from 7.5 million in 2013 to 9 million in 2018.
The Philippines was one of the first countries to pioneer digital payments in 2001 with the launch of mobile money. It was first introduced in the country by Smart Communications Inc., a telecommunications provider. The platform allowed the transfer of funds, the payment of bills, and purchase of goods with the use of mobile phones and a reloadable prepaid card. But its adoption and use has been largely limited.
Since its introduction, mobile money has grown by leaps and bounds. In 2013, digital payments accounted for only 1 percent of the country’s total transaction volume (26 million out of 2.5 billion payments per month). By 2018, the volume of digital payments has increased to 10 percent (of overall payments) corresponding to 20 percent share in the total transaction volume (meaning, value). The 2018 monthly overall transactions was estimated at between 4.6 and 5.8 billion. It is estimated that there are 470 to 490 million digital transactions every month in the Philippines. A 20 times jump over the monthly digital transactions in 2013 (25 million). The BSP has targeted a 20 percent share of digital payments by the year 2020. Of the 470 to 490 million digital transactions, 85 percent of these were by individuals, 12 percent by businesses (B2X) and 3 percent by government (G2X). The overall growth rate in digital payments in the Philippines is estimated to be 27 percent to 30 percent, compared to 25 percent in emerging Asian countries. And yet, less than 5 percent of the population regularly makes digital payments.
Two regulatory initiatives are recognized as bolstering digital payments in the country. First is the National Retail Payment System, which was launched in November 2015. Under the NRPS, the BSP launched two automated clearing houses, the PESONet in 2017, and InstaPay in April 2018. NRPS also provided the framework for the governance of payments in the Philippines. Second is the National Payment Systems Act or Republic Act 11127, enacted in October 2018. This provided for the regulation of all payment service providers and operators of the payment systems by the BSP.
The use of payment cards has also increased over the years such that by 2018 about 21 million Filipinos own prepaid and debit cards. Mobile money has also gained popularity with 5 million accounts in 2018. Digital payment has also gained traction with the acceptance by merchants of digital payments. Yet only 12 percent or about 120,000 of all merchants accepted digital payments in 2018. The introduction of mobile wallets, such as GCash and PayMaya, ushered in new payment methods. The latest is the QR code-enabled payments, with about 60,000 merchants availing as of 2018. One thing working for the promotion of QR code platform is the cheaper hardware cost compared to the PoS terminal.
The growth of digital payments has been accelerated by increased investments in fintech companies. China’s Tencent and the International Finance Corp. have invested $175 million in PayMaya Philippines (formerly Smart eMoney Inc.), through its parent company, Voyager Innovations, a PLDT subsidiary. Ant Financial, an affiliate of Jack Ma’s Alibaba, has invested in GCash, through Globe Fintech Innovations Inc. (Mynt), a fintech start-up wholly owned by Globe Telecom, in February 2017.