Going cashless



A cashless pocket is not the end of the world. A credit card or a smartphone can save the day.
Nowadays, buying goods and services does not necessarily require one to shell out hard cash, at least at the point of sale. You can settle the transaction by a mere swipe of a debit or credit card, or the transfer of money value straight from your mobile phone.

The birth of electronic commerce (e-commerce) and the proliferation of mobile phones have revolutionized our buying experience. With the aid of smartphones, we are able to do shopping through the internet right in the comfort of our homes. In my case, I pay my electricity bills and even my gym membership fees through online payment facilities. Occasionally, I would get around the metro via cab-hailing services with my fare charged to my credit card. Extra-convenient and cashless!

The idea of a cashless society has fascinated many economies around the world. In his visit to the Philippines last week, Jack Ma, founder and executive chairman of the Alibaba Group, spoke extensively about the benefits of a cashless economy before a large audience. He shared the success story of Alibaba’s Alipay service, which is known today as the world’s largest payment platform.

The current payment system in the Philippines is predominantly cash- or check-based. A study conducted by Better Than Cash Alliance revealed that payment transactions in the Philippines in 2013 reached about P3.1 trillion per month. Just 1 percent of these payments, however, were done electronically. The low take-up can be partly explained by the fact that about 86 percent of Filipino households are “unbanked” – meaning, they do not have a formal banking relationship.

Traditionally, the payment business is the exclusive domain of banks. Now, banks are seeing increasing competition from non-bank players, such as retailers, telecommunication providers, and financial technology (or Fintech) startups. From payments to wealth management, from peer-to-peer lending to crowdfunding, a new generation of startups is forging new and disruptive business models. Apparently, investors are bullish and sanguine about Fintech startups as indicated by massive growth in funding, from US$5.6 billion in 2014 to US$12.2 billion in 2015.

Benefits of digital payments

Digitizing the payment ecosystem offers many benefits. Many believe that huge costs, risks, and inefficiencies that come with cash transactions can be addressed by digital payments. Due to the liquidity and transactional anonymity of cash, carriers of cash are vulnerable to street crime.

Digital payments can be a solution to these criminal activities. Also, recipients of digital payments can save precious time and will have more control over the flow and use of their funds. Rather than withdrawing money every now and then, recipients can cash out amounts from their bank accounts at their convenience, or directly transfer funds to pay bills such as water or electricity from their electronic wallets (or e-wallets).

Not surprisingly, the millennial generation is driving the evolution of the payment landscape. In the US, nearly half of the consumers surveyed by PwC skipped the physical bank branch altogether in 2016. This growing segment of “tech-savvy” customers gravitates toward lower fees, convenience and ease of use.

But the promise of digital payments goes well beyond convenience. Digital payments are driving consumer spending and spurring economic growth, both in developed and emerging countries. According to reports, e-commerce transactions contributed about 10 percent to the Philippines’ gross domestic product (GDP) in 2015. By 2020, the government expects that e-commerce volume will reach 25 percent of the country’s GDP, with the micro, small and medium enterprises (MSMEs) eyed as key growth drivers. Undoubtedly, digital payments can be an engine in expanding the value of e-commerce transactions.

For the government, going digital in its payment systems can help curb corruption while improving transparency and efficiency in payment flows. This idea inspired the administration of former President Benigno S. Aquino 3rd to launch e-payment facilities around the government’s procurement and tax collection processes to fulfill his campaign promise of transparency and accountability. Digital payments generally require stringent identification documentation, making it harder for ghost or fake beneficiaries go undetected. There is enormous potential to enhance tax collection as governments can trace all transactions in the digital economy.

Likewise, Fintech innovations can help governments in fulfilling their financial inclusion agenda. Regulators believe that innovative technology will be a key enabler in delivering financial services to the unbanked sector through secure platforms.

The road ahead

It is clear that the payments market is dynamic and there are multiple opportunities for competitive development. Regulators, however, have to put in place measures to manage security risk and fraud on the payment networks. For the digital payments ecosystem to survive and grow in emerging markets, it needs regulators that can balance growth with security.

On the domestic front, the Bangko Sentral ng Pilipinas (BSP), together with industry stakeholders, launched the National Retail Payment System (NRPS) Framework in December 2015. The NRPS Framework aims to fast-track the establishment of an effective electronic retail payment system, promote a “cash-lite” economy and ultimately improve the country’s economic competitiveness. For its part, the Bankers Association of the Philippines (BAP) manifested its support to the NRPS initiative by establishing the Philippine Payment Management Inc. (PPMI), an entity registered with the Securities and Exchange Commission last August 2017.

The journey toward a cashless world can be complicated and even more challenging in emerging markets such as the Philippines. Developing the right payment infrastructure that can provide access to all Filipinos across many islands is clearly a daunting task. The Philippines is branded as the “texting capital” of the world, thanks to the increasing internet penetration and the growing number of mobile phone users despite the rather slow internet connection. This trend is encouraging as mobile phones now serve as e-wallets that enable many unbanked Filipinos to engage in digital payments.

Banks can’t afford to sit on the sidelines when it comes to their digital capabilities. Fintech and other non-bank players are expanding their footprint in the payment space.

PwC’s Retail Banking 2020 survey reported that 59 percent of respondents expect the importance of branch banking to diminish significantly as customers migrate to digital channels. Banks that don’t move in this direction will find themselves on the wrong side of a relentless demographic shift. Customer-centricity will be the main driver for differentiation in the payments industry. Banks and other industry players must apply this thinking for their business to grow.

Zaldy D. Aguirre is an Assurance partner and concurrently Accounting Consulting Services lead partner of Isla Lipana & Co., a member firm of the PwC network. For more information, please email markets@ph.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.


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