• M74 Editorial Team

The Future of FinTech in the Philippines

By Kyra Dalizon

As Kneron Mark Dulay stated in “Why the Philippines?,” our fellow Filipinos have been compelled to transition to more “tech savvy” lifestyles due to COVID-19. Even prior to the pandemic, though, the Philippines (PH) was one of the world’s largest providers of tech-based business process outsourcing (BPO) services. What does all this mean for the PH? It means that, with universal digitalization on the horizon, now is truly the time to invest in the Philippines.

Until recently, the Philippines had always been a cash-dependent country—and in a country where “cash is king,” how far can international businesses really reach? Filipinos generally trust paper money more than debit cards, credit cards, and mobile applications, in large part due to the many stories of fraud that have been reported over the years. However, people’s fear of the pandemic has started to outweigh their fear of fraud. Over the past several months, cashless (meaning contactless) transactions have become more frequent nationwide, as people avoid touching shared surfaces (like currency notes) and in-person transactions altogether, in order to prevent the transmission of the virus. So, what happens now to this cash-dependent country?

From “Cash Is King” to “Cash Was King?”

Gradual changes to how consumers move money had already taken place over the past few years, as electronic wallets (or “e-wallets”) grew in popularity among younger generations due to their convenience and efficiency. The fact that Filipinos are among the most active social media users in the world also bolstered this trend, seeing as a growing number of sales take place on social media (via both designated platforms and personal posts). Still, users of online payment methods comprised a very low percentage of the population. Studies in 2015 showed that only 1% of Filipinos used such methods to process transactions, and fears of fraud persisted.

The systemic poverty in the Philippines was the larger reason why online payment methods (and even debit cards) did not take off here as they had in other countries. According to the Business Diary PH, for most underprivileged Filipinos, depositing their money at a bank was not viable, since they were unable to maintain the minimum balances that banks here typically require—not to mention the difficulty of applying for an account in the first place. In order to avoid this hassle, low-wage earners would just keep their cash at home or on their person.

Even when Filipinos were able and willing to go “cashless,” the unreliable internet in the country remained an obstacle. Oftentimes, online transactions would not go through properly, due to connectivity issues. For this reason, cash remained the most practical option for many people.

Street vendors are all over the country—and, of course, they would only accept cash payments. Markets, bazaars, and mom-and-pop stores also lacked the means to go cashless. These types of businesses are the most patronized by Filipinos, seeing as most items there are much cheaper than at the big-box stores. Malls, however, have always been ready to accept cashless payments, given their comfortable situation when it comes to financing the necessary technology.

The circumstances described above had been changing though, even before the pandemic. In the past few years, cash was no longer necessarily “king.” By 2020, even many small businesses had made cashless payment options available. This is all thanks to the rise of financial technology (FinTech), especially easy-to-open online bank accounts that do not have the same restrictions (namely, minimum balances) that traditional offline ones do.

Top-ups Still on Top

Nowadays, almost everyone you see in the PH has a smartphone. With remote working and online classes now required in most parts of the country (due to the pandemic), the demand for smartphones and mobile data has grown even higher. Even before COVID, though, Filipinos were known to be avid internet users. At the start of 2020, nearly 73 million out of almost 100 million Filipinos reported using the internet “regularly.” For economic reasons, consumers in the PH tend to prefer prepaid mobile plans over postpaid ones. Accordingly, the similar concept of cards and e-wallets that can be “topped up” is something they have embraced.

“Top-ups” are, in short, prepaid bank accounts that require no commitments or minimum balances—you just add (or “top up”) your balance as much as and whenever you want. As more Filipinos begin to use reloadable cards and e-wallets, especially now in the COVID era, smooth transactions that require zero physical interaction are increasingly becoming the norm.

GCash from Globe Philippines, Paymaya from Smart Communications, and Eon Card from UnionBank of the Philippines are a few examples of booming e-wallet applications that owe their success to “top-ups.” These apps are all operated by or associated with the most trusted Philippine brands of telecommunications and banking, so that has helped allay the widespread fears of fraud discussed earlier.

COVID-19 Changes

The pandemic has given Filipinos a new and more urgent perspective on FinTech. Curfews, closures, and social distancing have forced Filipinos to embrace FinTech in their daily lives. Thanks to easy-to-use e-wallet apps (such as those mentioned above), Filipinos have been able to shop online (including for necessities, like groceries), send money to loved ones, pay bills, and much more, in spite of the lockdowns. Businesses in the PH have been accelerating their capacities to receive digital payments accordingly.

Delivery service apps are vital in promoting this new cashless culture. Thanks to these apps (that come equipped with card and e-wallet options), businesses of all types can virtually receive payments and dispatch their products straight to customers’ doorsteps, which eliminates the need for in-house delivery systems. Moreover, many of these apps allow for cash on-delivery, so even businesses and customers that do not use digital payments can still benefit.

Besides the fact that contactless payments promote social distancing, cashless transactions suit the needs of Filipinos who receive remittances. Many Filipinos have family members who work abroad (known as “Overseas Filipino Workers”), and, before COVID, bank transfers or money orders between them would typically be sent and received in-person. Upon discovering e-wallet apps during lockdown, they likely realized how much these apps reduce the time and costs of international transfers. Even once the pandemic is over, many may opt to never perform these transactions in-person at a bank or an office again.

A New Cashless Culture

A study from May 2020 found that 7 out of 10 Filipinos would be “willing to try” cashless transactions. While many of these affirmative responses can be attributed to our new COVID-induced reality, this data may also be linked to Filipino travelers who were introduced to the convenience of card and e-wallet payments while traveling abroad.

For years, the Philippines has been striving to keep up with other countries, in terms of being “international business-ready.” Now that the Philippines’ new cashless culture is thriving, and will likely continue to grow—thereby amplifying the country’s existing advantages in other areas, ranging from manufacturing to BPO—it may finally become other countries’ turns to keep up with the Philippines.

Kyra Dalizon is an intern at M74 from the Philippines. She studies Management and Politics at Ateneo de Manila University. Her interests include marketing, financial technology, and Southeast Asia’s socioeconomic development.

The views expressed above are those of the author and do not reflect the official position of the M74 Group, which remains neutral on all matters. Publishers assume no liability for content.