Philippine peso

With the worsening traffic situation in the Philippines, online shopping has become a convenient option over heading out to one of the hundreds of malls in Metro Manila.  It has been quite exciting to see how e-commerce, particularly online retail, has evolved in the Philippines. What started out as personal and small sellers and buyers congregating in niche forums and product boards is now growing to shake up the market.

Online retail has seen a boost with the introduction of e-commerce functionalities on Facebook. The more tech-savvy sellers are now even putting up their own self-hosted e-commerce sites using popular free PHP scripts like OpenCart and WooCommerce. This is further bolstered by the entry of players like Rocket Internet’s Lazada and Zalora that provide merchants an e-commerce platform.

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However, while all of these developments in stores and channels create optimism, supporting business processes like payments must develop and mature for e-commerce to be truly viable in the country.

The problem with payments

Trying out these e-commerce sites, one can observe how the checkout processes are not quite smooth especially when it comes to payments. There are several payment options that are available – cash on delivery, bank deposits, remittance centres, credit and debit cards through payment processors, digital wallets, and telco-based e-money – but not all of these integrate seamlessly with the online stores’ systems.

Buyers are usually redirected to external pages or are sent payment instructions to complete the payment process. Only after a verification process (oftentimes manually done) will orders be confirmed.

Most of the available payment options partly betray the supposed convenience of online shopping, as buyers will still have to go out and transact at a brick-and-mortar facility. Some digital wallets only allow topping up either through credit cards or through over-the-counter banking. Online banking is dependent on the processor’s support of a particular bank.

The pressure is then placed on merchants to make available the most number of payment options that suits their target customers. For smaller ventures, this could be a challenge. There are payment processors that integrate online bank transfers and credit cards but costs can be prohibitive for sellers without much margin and volume. PayPal is available but with currency conversion, the need for either credit and debit card, and relatively higher fees for merchants, it remains a less-preferred option.

Many smaller merchants are then limited to accepting deposits through their bank accounts or through remittance centres. Others are even compelled to use online channels simply as classified ads and transact through the old ‘kaliwaan’ system of meet-ups and cash-based transactions. This is why cash-on-delivery becomes a competitive advantage for larger e-commerce platforms who can afford the risk.

Banking disruption needed

One of the issues in a developing country like the Philippines is the general attitude towards money. Most Filipinos still believe in keeping cash rather than putting money in the bank. Only 31 percent have bank accounts. Thankfully, a number of that are compelled as more employers now opt to credit salaries to employees’ payroll accounts. Credit card penetration still stands at around 7%.

For a very online population like the Philippines, digital banking appears to have lagged behind others in the region. In a 2014 McKinsey survey, only 12 per cent of Filipinos have tried online banking. Banks are quite established but consumer-focused technology, not so much. Each bank would have its own take on online banking and most are simply digital counterparts of their branch-based services or function as web interfaces of their ATM systems. This is in stark contrast to online banking in developed regions where online-only banks exist and interbank transactions can be done in real-time.

This can actually be an opportunity for financial technology (fintech) players to find newer ways for Filipinos to handle money. China’s banking and card penetration are also low but this allowed tech players to spin their services off into fintech. Tencent was able to leverage the 762 million users of its WeChat messaging app to use WeChat Pay to rival Alibaba’s Alipay.

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The Philippines is not alien to similar disruption. The boom of mobile phones allowed telephone companies to offer e-money linked to phone accounts. These appeared to be even have more popularity over banks as the cost of maintaining a prepaid account is much cheaper than keeping a savings account with a bank. The rise of smartphone usage should allow for more ventures to pursue innovation in digital financial services.

Merchant and customer-friendly fintech needed

We are already seeing both new and established players jockey for position in the digital payments sector. Telco emoney like GCash and Smart Money continue to thrive in the smartphone era. Payment gateways like DragonPay and PesoPay aggregate credit card and bank transfer methods. Money Rocket Internet has brought in their own HelloPay. PayMaya offers virtual cards for online use.

But if these are to truly distinguish themselves as the payment option of choice in e-commerce, the challenge then for them is to create a system that is friendly to both merchants and customers – something that improves the overall online shopping experience.

As such, a payment service should be accessible. Account creation should be stringent enough to conform to know-your-customer (KYC) policies but easy enough to encourage use.

The system should be secure enough to thwart fraudulent transactions and facilitate the timely and accurate transfer of funds between users. It should also be easily funded through a variety of sources – whether directly from bank account, credit or debit cards, and even cash.

The service should also allow easy integration to the popular e-commerce platforms so that customers can remain within context of the website and not be required to perform tedious steps to complete their checkout.

Lastly, it should make participation easy for everyone. Merchants have to be able to avail of the service at a price point that allows them to keep prices competitive and margins acceptable.

This, however, can be a very tall order as fintech players still have work with and work around established cultural and financial practices. Filipinos may have to improve on money habits and embrace the positives of banking and digital financial services to spur on change. Integration will continue to be a challenge as long as these banks continue silo themselves. Things may only open up if the mindset of collaboration can be nurtured.

Sum and substance

Philippine e-commerce will continue to thrive as more Filipinos find themselves online and, with a growing economy, gain more buying power. It will be challenge for merchants to provide engaging and seamless buying experiences for their customers. For this to happen, there should emerge an easy and ubiquitous method of payments that is accessible, secure, and affordable. Obstacles exist but this should be reframed as opportunities for new fintech ventures to address.

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