Back in 2013, only one per cent of the population in the Philippines had actively used digital payments method. Seeing a missed opportunity, the number encouraged the Filipino government to make a move to increase the percentage.

Fast forward to 2018, there was already a significant increase in the use of digital payments at 10 per cent. However, this number is still far from expectation—so this is where Better Than Cash Alliance steps in.

The alliance performs a diagnostic exercise–the second to have ever been done on the country’s digital payments reach–to look at specific use cases that can help to drive overall digital payments usage.

What the analysis showed is that merchant payments are the key driver of digital payment use in the country. There were also several other use cases, including government-to-people (G2P), people-to-people (P2P), transportation and toll payments.

“To participate in this digital economy … you need access to a transaction account, and this can mean either a bank or a fintech-issued e-money account. But essentially, formal financial inclusion means that you have a regulated financial account that people can use to pay and receive money. That is essentially the rationale behind our work, what drives our work with governments,” says Isvary Sivalingam, Regional Lead – Southeast Asia, Better than Cash Alliance.

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Based at the United Nations, the Better Than Cash Alliance is a partnership of governments, companies, and international organisations that accelerates the transition from cash to responsible digital payments to advance the Sustainable Development Goals.

The alliance looks at two primary goals: Addressing the risks of digital payments (such as scams or frauds) and putting a focus on greater financial inclusion.

Driving digital transformation in the archipelago

While it is already a widely known consensus that the COVID-19 pandemic has accelerated digital transformation in many emerging markets, Sivalingam stresses that the shift into digital payments in the Philippines is something that “would not have been possible if countries had not invested in the infrastructure before.”

“The Philippines had started talking about this back in 2015. This was roughly five years before the pandemic. At that time, they had made a lot of investments in the digital payments infrastructure, building the retail payments infrastructure, and building consensus with the private sector to participate in this infrastructure. There was a lot of background work that was being done to get the digital payments real and the ability actually to use digital payments ready,” she explains.

She also highlights the BSP’s digital payments transformation roadmap that was launched in 2020.

“If you look at a typical warung or a sari-sari store, the business model [that they implement is one] where they sell a lot of things, but the amount of money they make on each sale is very little. This is what we call a high volume, low margin business model, which makes them extremely sensitive to price and cost,” Sivalingam says.

This can be a challenge as the use of digital payments require costs. This is why one of the key policies that BSP is working on includes how to drive this cost down. This might potentially include no fee for transactions below PHP500 (US$9) at a sari-sari store which might encourage small merchants and low-income users to use digital payments.

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“They have a public target of 50 per cent by 2023. So, there is this continued growth trajectory that the Philippines particularly aims for. They are looking at what additional policies can be issued … we prioritise two or three policies that can actually enable easier use of digital payments easier and make the value proposition of using digital payments more convincing,” Sivalingam says.

“The big challenge that remains for us who are working on this globally is that, in many emerging markets, we have cities where the people are connected. There’s a good infrastructure if you go to Jakarta; it’s easy to use digital payments. But when you go to Palu in Central Sulawesi, the reality is different.”

In large countries such as the Philippines, Indonesia, and India, a significant number of their citizens live and work in rural areas. Sivalingam believes that this segment needs to be the collective focus going forward.

How startups can play a role in promoting digital payments

Another initiative that will help scale digital payments in the Philippines is the launch of the QR Ph, the nationwide standardised QR code for payments.

With the launch of QR Ph and the BSP’s intention to push for its full implementation by June 30, one might wonder if there is a role that fintech startups can play in this.

According to Sivalingam, the process of setting up this national standardised QR code is a consultative one where various banks and non-banks financial services have been actively involved.

“This means that these financial institutions, which also include tech startups, are able to contribute to the development of the rules and agree on price. So, the process has been quite inclusive so far,” she says.

Sivalingam explains that in the Philippines, there is a large customer segment in the rural areas–consisting of smallholder farmers and fishermen–that are looking for financial products that suit their needs beyond payments.

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“There is definitely a business case at the last mile. As a call to action, fintech companies, with their ability to scale, leverage technology, and drive costs down, are uniquely positioned to serve these customer segments,” she says.

“They’re also considered to be more innovative players. They also have a unique ability to design products that suit [these last mile customers’] needs, which is one of the principles that we advocate for as part of the UN principles in designing for customer needs. Because that is what will effectively enable and encourage use of the product, ultimately.”

There are already fintech startups that are looking into this segment, but Sivalingam sees that there remains huge opportunities for them.

“There could be more players looking at it, because the gap to be filled is significant.”

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Image Credit: Kristine Wook on Unsplash

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