Telcos and banks battle over Philippines cashless payments
Cashless transactions growing, but compatibility and security issues remain
- The latest FTCR survey showed more Filipinos use credit and debit cards to make payments than those who use only cash.
- A fragmented industry composed of competing telecom companies and banks has hindered the growth of cashless transactions.
- Government regulations that encourage more players as well as collaboration will boost both cashless transactions and financial inclusion.
Banks and telecom companies are taking advantage of Filipinos' growing use of digital payments.
Our third-quarter survey showed respondents who used debit and credit cards as well as cash outnumbered those who use only cash. Among respondents, 39 per cent used debit cards in the previous three months and 34 per cent used credit cards. Just 31 per cent used only cash. Filipinos don't only use cashless transaction to pay bills; online shopping was cited as the most common reason (see chart).
With strong economic growth and a young consumer population, the Philippines will see a rise in cashless payments. The industry is being supported as the central bank pushes for online interbank transactions and telcos invest in mobile payment technology. Collaboration between banks and telcos would also lead to better e-money access.
Banks v telcos
Access to a reliable and convenient cashless payment system remains an issue in the Philippines, however. For instance, bank account holders are unable to conduct online cash transfers from one bank to another. Governor Nestor Espenilla Jr of the Bangko Sentral ng Pilipinas (BSP), the central bank, said online banking platforms "operate like a silo".
This is also true for the country's telecoms duopoly, Globe Telecom and PLDT, which have entered the cashless payment business with their mobile payment apps. Globe's GCash and PLDT's PayMaya are two of the most popular (see chart), but they are incompatible with each other.
This lack of compatibility has hindered cashless payment penetration. The BSP's vision is to enable consumers with a single e-wallet or online account to carry out a cashless transaction anytime, anywhere. "The goal is that anyone should be able to transact financial services using a smartphone," Mr Espenilla told FTCR.
To that end, the central bank is introducing a platform that will allow interbank electronic fund transfers. Starting this month, the rollout will be gradual, covering 33 banks and other mobile payment institutions, but the BSP expects more players to participate as demand increases. This will sustain the growth of cashless transactions, which has been strong since 2010 (see chart).
The central bank is also planning a platform that from next year will allow real-time online transactions. These developments are taking place as the banks face a challenge from telcos, which are also forging ahead with new technology.
Last month GCash launched a system that allows smartphones to scan Quick Response (QR) codes for payments in shops, mirroring developments in other Asean countries. This came after Jack Ma's Ant Financial Services Group bought a 45 per cent stake in GCash's holding company last February. PayMaya, meanwhile, tied up with Facebook so consumers can send money and pay bills through the social network's Messenger app.
Local telco alliances with foreign players should lead to higher investment in technology and allow them to expand their cashless payment services. GCash and PayMaya currently only have five million and one million users respectively, much lower than their mobile customer base.
Fragile bank security
Meanwhile, banks are having to upgrade their technology to improve cyber security. The country's two largest lenders in asset terms, BDO Unibank and Bank of the Philippine Islands (BPI), in June suffered a systemic glitch in their IT systems, causing panic among millions of customers and prompting a Senate investigation.
The incident illustrates the lack of trust among Filipinos in banking security. FTCR data showed 89 per cent of Filipinos were concerned about the privacy of their financial data when conducting online transactions, the highest among the Asean-5 (see chart).
Philippine banks are healthy and profitable, but installing new cyber security measures is costly in the absence of foreign investors. The central bank has been forced to extend the deadline for banks to beef up their security and reporting procedures from January 2017 to June 2018.
The slow pace of action suggests cashless innovations will take time, dragging on consumer confidence in the sector (see chart).
Collaboration is key
A number of rural banks have tied up with GCash to allow farmers and fishermen access to mobile banking. They have also forged a deal with PLDT's FINTQnologies to allow customers to get cheaper loans using a mobile banking platform. Major national banks are also working with telcos of the same business group, as in the case of BPI and GCash - both owned by the conglomerate Ayala Corp - to allow fund transfer between customers. Such collaboration fits with the government's development goal of growing mobile payments in an archipelago where financial inclusion remains a problem.