Back in 2013, only 1% of the population in the Philippines had actively used digital payment methods. Recognizing a missed opportunity, the government decided to take action to increase this percentage.

By 2018, there was a significant increase in digital payment usage, reaching 10%. However, this number fell short of expectations, leading to the intervention of the Better Than Cash Alliance.

The alliance conducted a diagnostic exercise, the second of its kind in the country, to identify specific use cases that could drive overall digital payment adoption.

The analysis revealed that merchant payments were the primary driver of digital payment use in the Philippines, along with other use cases like government-to-people (G2P), people-to-people (P2P), transportation, and toll payments.

“To participate in the digital economy, access to a transaction account is crucial, which can be a bank or a fintech-issued e-money account. This is the essence of formal financial inclusion and what guides our work with governments,” said Isvary Sivalingam, Regional Lead – Southeast Asia, Better Than Cash Alliance.

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The Better Than Cash Alliance, based at the United Nations, is a partnership aiming to accelerate the transition from cash to responsible digital payments to support the Sustainable Development Goals.

The alliance focuses on addressing digital payment risks like scams and frauds while promoting greater financial inclusion.

Driving digital transformation in the archipelago

The COVID-19 pandemic accelerated digital transformation in many emerging markets, including the Philippines. Sivalingam emphasized that this shift to digital payments would not have been possible without prior investments in digital infrastructure.

She highlighted the BSP’s digital payments transformation roadmap launched in 2020 to drive the adoption of digital payments in the country.

“One of the challenges faced is the high-volume, low-margin business model prevalent in many small businesses. They are sensitive to costs, which can be a barrier to adopting digital payments. BSP is working on policies to reduce these costs, such as waiving transaction fees for low-value transactions,” Sivalingam explained.

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The Philippines aims to achieve 50% financial inclusion by 2023, with a focus on rural areas where the challenge of digital payment adoption remains significant.

How startups can play a role in promoting digital payments

The launch of QR Ph, the nationwide standardized QR code for payments, is expected to scale digital payments in the Philippines. Fintech startups can contribute to this initiative by participating in the development of rules and pricing.

Sivalingam noted that there is a large customer segment in rural areas, including smallholder farmers and fishermen, seeking financial products beyond payments. Fintech companies have the potential to serve these last-mile customers with innovative and tailored products.

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While some fintech startups are already targeting this segment, there are still significant opportunities for more players to fill the gap and meet the needs of last-mile communities.

Image Credit: Kristine Wook on Unsplash

This article was originally published on July 5, 2023

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