Southeast Asia is emerging as an extremely fast-growing market for ecommerce, with emoney transactions reaching USD 26 billion in 2019 in the region, according to a report by S&P Global Market Intelligence published earlier this year. Yet the Philippines, which continues to function mostly as a cash-based society, remains an outlier in the region (and not included in S&P’s figure), providing a tantalising opportunity for ecommerce and payments companies looking for new markets to break into.
The current landscape
One of the biggest challenges facing the country is that despite advances in technology, more than 51 million adults, or 71% of the adult population, remain unbanked. That’s not to say a shift to mobile and electronic payments isn’t being made. A comprehensive initiative to invest in technology and make ecommerce a priority has been launched by the government in an effort to improve financial inclusion and overcome the logistical challenges that the country’s unique geography of over 7,500 islands creates.
And even before this government initiative, consumers in the Philippines had begun to use electronic payments. GCash and Paymaya are the most popular digital wallets in the nation, along with Alipay and Grab. Consumers use those wallets for small-ticket items like subscription-billing payments, while citizens in more rural areas also buy groceries and other necessities via these wallets. Of note is that the number of active emoney wallets rose four times to 8.8 million from 2017 to 2019. That said, even as emoney transactions continue to trend upward in the Philippines, ecommerce merchants need to be flexible with payment acceptance and might want to consider cash-on-delivery (COD) services in order to widen their reach.
The challenges in play
As the country with the highest COD acceptance for ecommerce in Southeast Asia, cash is ingrained into the culture of the Philippines. COD is normally offered by social commerce sellers, along with newer merchants that do not yet have credibility with consumers. These merchant types likely offer COD to customers with a money-back guarantee policy, and use these methods to distinguish themselves in the market to gain trust and build loyalty.
Where cash remains king, global ecommerce merchants find themselves with a three-pronged challenge: they need to keep in mind that COD carries with it risks and potential for fraud, as well as delivery refusals that can be costly for sellers lacking the proper means to process returns. At the same time, emerchants still need to find a way to integrate cash into their payments offerings, even as Philippine citizens adopt emoney and the payments infrastructure begins to change. And they need to understand that citizens’ unfamiliarity with emerging payments technology and a reluctance to let go of cash payments may stall progress.
Logistical issues are also at play in a country in which it can take a week or longer for products to arrive after a transaction is made. A consumer might have to pay a 10% deposit when placing an order, with the remaining balance due once the product has arrived, and pre-authorisation transactions can be open for 14 days. These factors often force merchants to accept multiple payments in a single order.
The changing infrastructure will ease pain points in the long term but may add growing pains in the short term: the interoperability of payments across different payment methods is something that takes time, and in the initial stages, this interbank network will support participating banks but not ewallet players, as often seen in different markets.
That said, the country’s government encourages local businesses through grants, and those who are willing to adopt such payment technologies may also benefit through tax breaks or exemptions. Such relief is beneficial as Philippine SMEs often struggle to pay local business taxes, and therefore forgo opening a bank account for themselves.
The future
With the Philippines slowly adopting digital payments, now is the time for ecommerce merchants to fortify acceptance measures. Ecommerce merchants currently operating in the country—or seeking to—have opportunities to take advantage of this shift by working with third parties that understand the market in an intimate way. The ability to accept a variety of payment options, including cash, will help ecommerce merchants succeed in the Philippines and open up more opportunities in Southeast Asia.
About Sue-Ann Seet
Sue-Ann Seet is dLocal’s Head of Asia Expansion, responsible for developing the strategic expansion plans for operations in this key region. Prior to dLocal, she was the Payment Operations Team Lead at Wise (former Transferwise), where she helped launch the acceptance of 16 currencies in the Asia region. Concurrently, she introduced efficient processes to enable product scalability, crisis handling resolution, training, and onboarding. Sue-Ann is in the process of acquiring a Master’s Degree in IT in Business, from the Singapore Management University, and holds a Bachelor’s Degree in Social Science, from the National University of Singapore.
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