Why the Philippines is Primed and Ready for Mobile Payments05 January 2015
The Philippines is primed for a shift towards mobile payments, marrying the country’s passion for mobile devices with the growing popularity of online shopping. But despite a mostly cash-based eCommerce market, local telcos like Smart Communications and Globe Telecommunications, alongside alternative payment providers like Dragonpay and PayPal, are transforming local mobile devices into viable payment solutions.
The eCommerce sector has grown significantly, particularly in developing economies like the Philippines. According to a 2014 study by Ken Research, the Philippines’ eCommerce market can expect an annual growth rate of 101.4% from 2013 until 2018, driven mostly by heavy internet usage and high mobile penetration.
As of 2014, the Philippines has over 33 million active internet users with the average user spending more than 6.2 hours a day online and close to 2.8 of those hours being spent on their smartphone. Based on internet usage alone, the Philippines has surpassed Malaysia, Indonesia and Singapore by a full hour of daily internet activity. In 2014, the overall mobile penetration rate exceeded 100% with the country having over 110 million mobile subscriptions across its 100 million population. Smart Communications and Globe Telecommunications, two of the leading mobile service providers in the Philippines, boasted a combined total of 70.5 million subscribers in 2014. Smart and Globe are perfectly poised to transform their subscription base into a formidable foundation for mobile payments as both companies expand their services to allow mobile phones to act as eWallets for online transactions.
Mobile Will Be Massive
In a 2014 study by On Device Research, the Philippines lagged behind the rest of Asia in terms of smartphone penetration with a penetration rate of 15%. However, that’s expected to change as early as 2015 with the penetration projected to jump to an astounding 50%.
This growth is fueled by a number of factors: lower priced local smartphones, more affordable mobile data plans and consumers’ growing need for greater convenience and flexibility. But the numbers go well beyond just smartphones. In the same study, On Device Research cited that 30% of mobile users were also tablet owners, topping laptop (25%) and desktop (23%) ownership by a sizable margin.
In a way, mobile devices are quickly becoming the primary screen of a lot of Filipino consumers, providing local telcos the leverage they need to turn the country’s passion for mobile devices into a viable payment solution.
Most Prefer Cash Over Card
The Philippines has one of the region’s lowest credit card penetration rates. In 2012, it stood at 7.46%, with only 55% of cardholders paying their credit card bills in full. This has led to a digital marketplace that depends greatly on cash-on-delivery (CoD) and bank transfers. AVA.ph, a premium lifestyle eCommerce site that targets affluent Filipino consumers, cites that a substantial number of its clients still settle their payments offline. In an article published by Tech in Asia in 2013, AVA.ph CEO Oliver Segovia writes, “30% of our transactions are via cash-on-delivery or bank transfers. For mid-market sites, this figure could be as high as 70%.”
Low-tech payment solutions like CoD and bank transfers have done well to acquaint local consumers with online shopping. However, faster and more convenient payments solutions are necessary for the customers that are growing increasingly tech savvy and want greater convenience on the go. Local telecommunication providers are addressing these concerns by providing solutions that are already in the hands of Philippine consumers – their mobile devices. The answer to the Philippine payment puzzle may not lie in the hands of banks and credit card companies. Instead, local telcos are stepping up by providing payment solutions.
Innovation By Telcos Drives Growth In Mobile Money
Smart and Globe currently have mobile payments through their respective services, Smart Money and GCash. Although both payment services were initially introduced in the early 2000s as a remittance and alternative payment solution for use in physical stores, Smart and Globe have since committed to expanding their services to cater towards the growing eCommerce sector. Smart Money and GCash can now be used as a credit card substitute, allowing consumers to pay for online transactions much in the same way consumers would do so with a credit card.
In an article published by J. Imperial Creatives, Robertson Chiang, founder, COO and CTO of alternative local payment gateway Dragonpay, admits that the mobile space will be essential to fuel eCommerce growth in the Philippines. Chiang says, “Today, for any e-commerce business to prosper, they have to consider alternative payments like mobile payments.” He also cites that 30% of Philippine e-commerce transactions are done through alternative payment methods.
“Powered by breakthrough innovations in mobile money, I can clearly see us becoming the digital commerce capital of the world not only as consumers or producers but also as a global center of excellence and innovation for mobile money and mCommerce,” says Smart e-Money CEO, Orlando Vea.
As part of its commitment to push into the mobile payment space, Smart has recently unveiled its Charge2Phone service, a tie up with Visa and Citibank which utilizes Near Field Communication (NFC) technology to allow mobile phones to act as a tap-to-use payment solution. These may seem like lofty goals for a company catering primarily to a developing market, but if the Philippines is to graduate from outdated payment methods, it is innovations like these that are best positioned to spark that very change.
But the Philippines’ mobile payment sector is also being spearheaded by companies like global payment giant PayPal and local alternative online payment solutions provider Dragonpay. Dragonpay has partnered with local banks to seamlessly integrate mobile internet banking with mobile payment solutions to offer consumers another secure eCommerce payment channel.
Consumer Readiness Will Drive Change
By leveraging on the growing popularity of smartphones, local telcos are diversifying their services by offering more than just a way for consumers to communicate, but a new way to transact. According to Mastercard’s Mobile Payments Readiness Index in 2014, the Philippines is more likely adopt to mobile payments due to the higher familiarity, willingness and usage of consumers of mobile payments. Of all surveyed countries, Mastercard ranks Philippines as the 13th most viable country for mobile payments. The highest scorers on the index are Singapore, Canada and the United States respectively. The key takeaway here is that mobile payments are not simply dependent on a country’s digital and financial infrastructure, but also on consumer readiness. The Philippines is primed and ready for growth in eCommerce and mobile will be leading the way.
http://www.slideshare.net/OnDevice/philippines-mobile-internet-trends (slide 14)