Embarking on a journey towards digital economy
One of the biggest and most important differences between the world before and after coronavirus disease 2019 (COVID-19) is invisible to the naked eye. That is, if you’re not looking at a screen.
The pandemic brought the world to its knees in 2020, forcing governments to close off borders and impose quarantine measures to contain the spread of the virus. With everything physical essentially shut down and face-to-face contact becoming discouraged, people flocked to the only available alternative — the digital world.
Now, thanks to internet connectivity, many of the activities people used to enjoy before COVID have found a digital counterpart, from ordering food from restaurants to going shopping or even getting a doctor’s prescription. Powering these digital transformations is the growth of e-wallets, virtual currencies, and other cashless payment options, all of which have been newly accepted into mainstream culture.
According to the Bangko Sentral ng Pilipinas (BSP), digital payments made up 20.1% of all transactions in 2020 — meaning that one in five payments or a total of 910 million transactions were done online. BSP Governor Benjamin E. Diokno noted that this is a rise of 10.1 percentage points from the 10% total transaction volume recorded in 2018.
“We are seeing an accelerated rate of increase in the usage of digital payments. This could strongly indicate that Filipino consumers are moving away from conventional cash payments toward digital payments,” Mr. Diokno said.
“While the COVID-19 pandemic may have disrupted our way of life, it also created exceptional opportunities to boost digital payments and financial inclusion in the country,” he added.
Behind the rise in the share of digital payments are payment-to-merchant and person-to-person payments, which grew by 47.8% and 18.1% year on year, respectively. Meanwhile, digital transactions made up 26.8% of total transactions in terms of value in 2020, up by 6.8 percentage points from the 20% share seen in 2018.
Mr. Diokno further pointed out that the government’s efforts to fully digitalize its payment of employee salaries of government employees last year contributed to the higher volume of online transactions. It also pushed the government to become the most cash-lite in 2020, as 93.2% of its payments were done digitally. This was followed by individuals (23.4%) and businesses (5.4%).
Long way to financial inclusion
The central bank had long been a proponent of shifting the Philippines into a cash-lite economy, as it previously announced its target of raising the share of digital payments to 50% of all retail transactions and expand financial inclusion to 70% of Filipino adults by 2023. These goals were outlined in the Digital Payments Transformation Roadmap 2020-2023 that it unveiled last year.
Digital payments are a powerful tool towards achieving financial inclusion, as they have the added benefit of being easily accessible through any modern mobile device. According to the BSP data, about 51.2 million adult Filipinos remained unbanked as of 2019, with only 29% of the adult population owning a formal financial account.
A study by US-based VMWare, Inc. found that 76% of Filipino consumers are open to tapping digital payments. While this is smaller than those in neighboring countries like Singapore (88%), Malaysia (87%), Indonesia (90%), and Thailand (85%), the potential of getting a significant number of Filipinos into the financial system is there.
Based on the study, more than half (55%) of Filipino respondents now prefer doing banking services through apps over branch transactions, as many (62%) find that digital engagements save them time. Furthermore, 63% of Filipino consumers believe their phones are more important than their wallets for their financial transactions.
The Better Than Cash Alliance (BTCA), a United Nations-based partnership of governments, companies and international organizations aimed at accelerating the transition from cash to digital payments, noted that the Philippine government’s COVID-19 response have also done a lot to boost awareness and use of digital payments. Through the efforts of the BSP, the Department of Social Welfare and Development (DSWD), and the Department of Labor and Employment, many Filipinos were exposed to digital payment platforms through the digital delivery of emergency subsidies, conversion of cash cards to transaction accounts, and digital salary payments.
“This is testimony to the need for coordinated focus and action by whole of government to achieve digital payment transformation at scale,” BTCA wrote in its State of Digital Payments in the Philippines 2019-2020 report.
Particularly, the organization noted that the second tranche of the Social Amelioration Program of the DSWD was primarily disbursed through nearly 10 million newly created transaction accounts, which significantly boosted financial inclusion in 2020. This is in addition to efforts to convert the limited-purpose cash cards used for its Pantawid Pamilyang Pilipino Program (4Ps) into full-service transaction accounts.
“Social aid beneficiaries can prospectively use the funds received to make various payments for food, clothing, and other essential needs through these full-service transaction accounts. Plans for a new unified beneficiary database for DSWD programs and the expansion of payment options for beneficiaries are under way. The integration with the new national ID system (PhilSys) will also enable timely and reliable verification and enrolment of new beneficiaries,” BTCA wrote.
The Department of Transportation also gained recognition for its efforts toward the further digitization of payments through the implementation of the Automatic Fare Collection System (AFCS), designed to benefit both passengers and operators through seamless, interoperable, and contactless fare collection. All tollway operators have also been mandated to implement cashless toll collections on all expressways and major toll roads.
“COVID-19 has created an opportunity to ensure all payments are responsible. The COVID-19 crisis has seen a global wake-up call on the importance of a digital ecosystem that enables the continuation of social and business interactions and commerce. The pandemic has helped to boost adoption of digital payments,” BTCA observed.
“In the Philippines, earlier investments to develop a National Retail Payment System founded on interoperability paved the way to reap the benefits of digital payments in times of crisis. In this period of rapid digitization, it is imperative to ensure that the digital divide is not exacerbated. This translates to a firm commitment to equitable access to digital payments and data protection for all Filipinos, as well as providing a better value proposition to traditionally underserved groups, by working to include lower income people, micro and small businesses, and women, in every possible way.” — Bjorn Biel M. Beltran