You’re at your favorite coffee shop’s counter to pay for your cappuccino and, instead of pulling out your wallet, you use your phone to scan the shop’s Quick Response (QR) code to make a payment. Earlier, at the supermarket, you tapped your smartphone on a terminal to pay for your groceries. No cash, no plastic card.
While credit and debit cards are still the main vehicles for cashless transactions, mobile phones can now be used to make payments, thanks to innovations in smartphones and financial technology (fintech), and the establishment of non-financial companies or digital payment service providers that allow the unbanked consumer to be part of a cashless society.
Behind the rise of digital payments in the Philippines are some big players, such as PayMaya and Globe Telecom, and new digital payment service providers that have started to gain traction such as Coins.ph and GrabPay.
Michael Yeo, senior research manager at IDC Asia/Pacific Financial Insights, notes that with new players coming up as well as having great conditions for growth, the Philippines should see further sustained growth in mobile wallet transactions. IDC estimates that there will be US$702.7-million worth of businesses transacted through digital wallets in the Philippines this year, which will grow to US$1,748.4-billion by 2021.
A study conducted by digital payments service provider, PayPal, indicates that the Philippines is well on its way to be a cashless nation, with 25% of consumers surveyed saying traditional (physical credit card, bank transfer, internet banking, checks, etc.) and new payment methods are now their primary options. In fact, one-third of consumer respondents in the Philippines have already started transacting without cash, the study claimed.
Meanwhile, Visa’s 2017 Consumer Payment Attitudes Survey reveals that six in 10 (57%) Filipinos prefer using electronic payments as opposed to cash, up from 46% in 2015.
Results from security firm Kaspersky Lab’s Cybersecurity Index done during the second half of 2016 revealed that more Filipinos now use the internet for online shopping (90%), for accessing online payment systems and digital wallets (89%), and for online banking (74%).
Kaspersky Lab observed that Filipino consumers, majority of whom are unbanked or without deposit accounts, use mobile wallets as alternatives to bank accounts, noting the increasing preference of consumers to pay online not only because of the convenience it brings but it also serves as a more secure way to pay. Moreover, digital payments offer lower processing and transaction fees, provide tools to better manage finances, and allow tracking of payments.
“With most Filipinos unbanked yet are starting to make online payments through the use of mobile phones, digital payments have risen as an easy alternative to conduct financial transactions,” said Siang Tiong Yeo, Southeast Asia’s general manager at Kaspersky Lab, citing online shopping and online banking as among the contributing factors that led to the adoption of digital payments in the Philippines.
Digital technology enables greater financial inclusion
While digital payment holds a lot of promise, the service would only achieve mass adoption if more Filipinos have deposit accounts or mobile wallets, and own smartphones that enable it.
Results of the 2017 Financial Inclusion Survey (FIS) conducted by the Bangko Sentral ng Pilipinas (BSP) reveal that only 15.8 million of Filipino adults have a deposit account, and only 1.3% of them have an electronic money (e-money) account. Ownership of an account that can be used to save money, receive salary, send or receive remittance, and pay bills is a basic indicator of financial inclusion. Banks continue to have a higher share (11.5%) in account penetration than non-banks such as microfinance non-government organizations (8.1%), cooperatives (2.9%), and non-stock savings and loan associations (0.3%), reveals the BSP report.
While formal account penetration remains low and growth is modest, there are opportunities for greater financial inclusion enabled by digital technology, according to the BSP report. At present, accounts are still underutilized for payment and remittance transactions. Among account owners, only 18% are receiving salary, 12% are sending/receiving money, and 6% are receiving pension through their account. Nearly 9 out of 10 adults have payment transactions of which 60% are paying in cash.
Over-the-counter remittance transactions are very prevalent among senders and receivers of money as 93% used remittance agents in sending money while 83% used them for receiving money in the past six months. Digitizing these payment and remittance transactions is a crucial step towards digital financial inclusion, said the BSP.
Given a robust economic growth and a young consumer population, the Philippines will see an acceleration in cashless transactions despite apprehensions about digital payment systems as the trust towards cash is still there. To achieve this, however, the country must overcome the challenges that have to be encountered in migrating to, or implementing digital payment systems. The biggest hurdle in cashless payments are the lack of reliable and secure payment infrastructure combined with the still pervasive consumer mindset that cash remains fast and uncomplicated.
Jubert Alberto, country head of operations at IDC Philippines, claims infrastructure plays an important role in the wide acceptance of digital payment in the Philippines and issues like connectivity are one of the major inhibitors.
Siang Tiong Yeo stresses that while major cities in the Philippines enjoy relatively fast connectivity, most Filipinos are still struggling to log on and stay online. To overcome this, Yeo observes that the government is on its way in improving the country’s internet capability with the National Broadband Plan currently in the works.
Paolo Azzola, chief operating officer and managing director at PayMaya Philippines, cites mindset as another major challenge because the Philippines is a cash-driven economy, and Filipinos prefer to transact primarily in cash.
“There is a certain comfort level when paying via cash, but more and more Filipinos are seeing the benefits of going ‘cashless’,” said Azzola. “We’re glad that more and more Filipinos are seeing the benefits of cashless payments, because cashless means they no longer have to fall in line, or have to wait long to pay for a purchase, or have to carry as much cash or coins wherever they go. And they’re finding out that it’s easy and convenient because they can get an e-wallet account like PayMaya in as fast as one minute.”
Concerns about lack of public awareness and knowledge of the existence of digital payments and available digital payment schemes, especially in far-flung areas, are also seen as hindrances, and prevents people from making payments online, according to Alberto.
Alberto added that for markets like the Philippines where the banked population is still at a low level, getting funds into the digital wallet also presents a challenge. Service providers have addressed this through cash top-ups at partner outlets.
Importance of Technology and Collaboration
As the demand for digital payment rises, so is the importance of technologies and other factors that help drive the growth of cashless transactions. Alberto said the continued and sustained uptake of smartphones as well as cost-effective point-of-sale (POS) systems at the merchant side will be critical in achieving industry growth.
“The simpler the POS system at the merchant side, the more likely that the merchant will be interested in using such payment schemes. This is why QR codes have been so popular in other markets as they allow merchants to accept payments from even the most basic of smartphones and with minimal amount of effort on their side,” shares Alberto.
On the part of digital payment service providers, IDC’s Yeo said they need to continuously look for ways to make themselves more relevant to customers by engaging in partnerships and tie-ups that allow payments which are relevant for their customers.
“They need to offer a range of options for top-ups as well as convenient cash-out. Payments need well-formed ecosystems to thrive and this can only happen if service providers adopt an open approach to partners and merchants,” Yeo said, adding “they can also utilize a wide range of tactical techniques including discounts, loyalty schemes and other promotions in order to drive initial acceptance.”
The government, likewise, has taken initiatives to encourage cashless transactions and protect the interest of people who are using the digital payment technology. The Bangko Sentral ng Pilipinas (BSP) has been one of the more progressive central banks in Asia in terms of welcoming the rise of electronic payments and other financial technologies for use by the general public.
The BSP has launched two key initiatives – the National Retail Payments System (NRPS) and the National Strategy for Financial Inclusion (NSFI), both of which are designed to help bring the share of digital transactions from the current 1% to 20% by 2020 through a safe, efficient, and reliable payment system.
“We are one with the BSP in that mission, which is why PayMaya has been one of the early e-wallet partners for InstaPay, the real-time fund transfer system it launched last month. Through initiatives like this where it’s easier and more affordable to transfer money from one’s own bank account or e-wallet to another, cashless adoption will surely see a steady – if not exponential – rise in the next few years,” Azzola said.
Through InstaPay, individuals, businesses, and government institutions will be able to send and receive funds or make payments in real-time of up to Php50,000 per transaction, without limit in a day. The transferred funds are instantly received in full as no fee is charged for the electronic crediting of funds to the receiving party’s account in InstaPay participating institutions. Charges may however apply to sending parties. Recipients may also be charged for cash withdrawals.
Prior to InstaPay, the Philippine EFT System and Operations Network or PESONet was launched in November last year by BSP as part of its initiatives to modernize the country’s retail payment system and increase the adoption of greater use of electronic payments. A batch electronic fund transfer (EFT) credit payment stream, the PESONet is the first automated clearing house (ACH) under the NRPS which provides an electronic alternative to the still widely used paper-based check system.
According to Michael Yeo, governments can play a critical role if they understand the potential digital payments can have in reducing inefficiencies in current payment systems. He cited governments in Singapore and Thailand have identified digital payment as a key tool in increasing fiscal health, even to the point of using digital wallets to help increase tax revenue.
Yeo also said that a well-thought-out national-level payments plan which encourages the private sector to form parts of the overall payments solution can be highly beneficial in spurring overall development of payments in a nation. He added that moving towards a more holistic approach to smart city initiatives will also help in this pursuit as allied technologies and services to improve the level of digital payment adoption will be pushed.
Security is also becoming a major concern for users of digital payment platforms. It is one of the important factors that consumers need to check when choosing digital payment services, apart from convenience, cost, and efficiency.
Nearly half (46%) of account holders who have access to the internet are ambivalent about e-payments due to issues such as hacking, personal security breaches, and unsafe access, reveals the BSP report.
Kaspersky Lab’s Yeo noted that while the very technology of contactless payments requires several layers of protection, it still does not mean your money is 100% safe. “Many elements of bank cards are based on obsolete technologies like magnetic strip, possibility to pay online without additional authentication, etc.”
Yeo also relayed that all businesses are potential targets, especially those in the financial sector. “No business is safe from cyber criminals and, as such, organizations must be prepared to take responsibility for their cyber security. When it comes to protecting critical data and keeping operations up and running, there is simply no room for complacency,” Yeo said.
“In many respects, security depends on the settings used by financial institutions and retailers. The latter, in their pursuit of faster shopping and less ‘abandoned carts,’ at times prefer to sacrifice payment security to a bigger buck,” Yeo adds.
In the Kaspersky Lab Threat Predictions for Financial Services and Fraud report, it was noted that 2018 will be a year of innovation in financial services as the pace of change in this space continues to accelerate.
Yeo said as more channels and new financial service offerings emerge, threats will diversify. Among security issues they foresee in digital payments include real-time payment challenges, social engineering attacks, mobile threats, data breaches, cryptocurrency targets, account takeover, pressure to innovate, fraud-as-a-service, and ATM attacks.
The security of digital payments does not rest on the platform alone, but on how users safeguard their personal login information such as passwords, according to Azzola. PayMaya works very hard to keep its security systems updated, and continuously look for ways to make transacting on its platforms safe for their users.
Addressing emerging security risks and consumer trust in the digital payment system, Azzola claimed PayMaya, being a mobile-first payments product, is closely linked to a person’s mobile account, and they have made steps toward keeping everyone’s PayMaya account updated as soon as possible.
Azzola cited an example where each transaction – whether it’s online or in-store – is recorded in the app and sent as an SMS to the mobile number linked to the account in real-time. This gives account holders an instant view of the activities related to their account.
Azzola also said they have implemented multi-factor authentication, which sends a one-time PIN to your mobile number whenever you access your PayMaya account on a new device. This helps ensure that only the account holder has the sole access to his or her account.
OFWs Need to Know the Risks of Digital Payment
Meanwhile, the growing adoption of digital payment technology also affects the security of overseas Filipino workers (OFWs) in countries where digital payment is more advanced. This is driving the need to raise awareness about the risks of a cashless society.
According to Stephan Neumeier, managing director at Kaspersky Lab Asia-Pacific, in the Philippines, the adoption of digital payments is quite slow. It’s not so advanced but the rise in evils is coming up now. “With this, obviously people, particularly the OFWs, need to be better educated on what risk it might bring,” noted Neumeier.
Neumeier said the Philippines has an estimated 2.2-million overseas workers who work somewhere, and usually in countries where the adoption of electronic payments is more advanced. In 2017, these OFWs sent back to the Philippines remittances totaling $28.1-billion which form part of the country’s gross national product.
As these cash transactions play a crucial role not only for the Filipino families but to the country’s economy, it is high time to promote cybersecurity awareness among Filipinos working abroad as well as their families.
Neumeier also said that as cashless or mobile-based transactions rise, people need to be aware of whom they are transacting with. Customers also must understand or have knowledge of the technologies out there like e-wallet and QR app-based payment and check if these are secured.
Neumeier adds that while threats within the Philippines are not visible because of the lack of infrastructure and slow connectivity, danger lurks and will grow in number. For instance, an OFW working in a country where the digital payments infrastructure is more advanced could risk getting his smartphone breached by a cybercriminal or infected by a malware. That threat could spread to the smartphones or mobile devices of relatives in the Philippines.
To widen the adoption of digital payments services in the Philippines, service providers have partnered with merchants and have launched a variety of digital payment options, such as scan-to-pay.
PayMaya account holders can use their PayMaya cards in all establishments that accept Mastercard or VISA, which could number to hundreds of thousands if not millions of stores here and abroad. In addition, they can also use it for online shopping like Lazada, Zalora, booking flights in Philippine Airlines or Cebu Pacific, or subscribing to or buying virtual goods from their favorite digital services such as Spotify, Netflix, or Steam.
For PayMaya QR, PayMaya has partnered with the biggest brands that include The SM Store, the brands under Robinson Retail Holdings, LCC in Bicol, Mercury Drug and Rose Pharmacy, quick-service restaurants like McDonald’s and BonChon, grocery stores such as Super8, and entertainment venues like cinemas at Megaworld Lifestyle Malls – among many others – so that account holders have more avenues to pay using their PayMaya app.
“We’re definitely looking forward to growing our merchant-partner base in the next few years to provide more convenience and payment options to our account holders and give them more reasons to pay using their PayMaya accounts,” said Azzola.
On the other hand, electronic mobile wallet GCash can be used in buying load, paying bills, sending money, scan-to-pay with GCash QR, shop online with AMEX, shop using GCash MasterCard, book movies, and borrow load, among others.
Using its QR-based mobile payment technology, GCash is now accepted and can be used to pay goods and services in over 15,000 partner-outlets nationwide. Some of GCash’s latest partner-outlets include Alfamart Stores, Robinsons Retail, Handyman, Max’s Group, Western Union, and FooDee Global Concepts. It also powers easy payment of Real Property Tax for Quezon City residents.
To use the scan-to-pay features of PayMaya and GCash, a customer with an iPhone or an Android smartphone only needs to download or update to the latest version of the their app, register an account, and fund their digital wallet at any partner-outlets nationwide. Once done, the customer just has to tap on Scan QR, point a phone’s camera at the partner’s QR code, and pay.
Digital wallet and mobile payments app, Coins.ph, likewise is driving the promotion of cashless payment in the Philippines. Coins.ph enables everyone, including those without bank accounts to store value in their Coins.ph e-wallet, transfer money for family and friends, pay bills, buy load, reload beep cards, and make payments across the Philippines directly from their phone.
The Future of Going Cashless
“With more digital payment startup-companies opening in the Philippines, the industry is undoubtedly set for growth in the coming years,” said Siang Tiong Yeo. “While the cost can be anybody’s guess, the Philippines, with its young and internet-savvy population, is surely off to embrace the perks of using cashless transactions via mobile phones.”
Aside from the need to beef up the internet connection in the country to make this shift possible, the government and the public should also be ready for security hazards digital payments would bring about.
The strong economic growth and the acceleration in smartphone penetration as well as the growing online shopping business are also giving high hopes for the continued adoption of cashless payments in the country.
Another factor that can help contribute to the future of a cashless society in the Philippines are government initiatives, such as the BSP’s NRPS. The BSP aims to develop a digital finance ecosystem that supports the diverse needs of all users in a manner that is secure, sustainable, convenient, and affordable.
Azzola, on the other hand, sees exponential growth for cashless payments this year, especially with new businesses and merchants willing to accept digital payments for their products and services. They also fully support the government’s initiative of increasing the share of digital transactions to 20% by 2020, an ambitious but not completely impossible goal.