Retail Payments in the Philippines: An industry in transition

On 6th and 7th December 2016, RFi Group was pleased to attend the Retail Payments Summit at the Dusit Thani Hotel in Manila along with 300 delegates from around the world. The summit was aimed for card-issuing and acquiring financial institutions, domestic bank card networks, e-payments operators, international payment schemes as well as telco providers and central banks, to explore the most important issues driving the consumer payments landscape in Asia.

Several prominent speakers shared their views on the future of retail payments, EMV, contactless & mobile proximity payments, as well as on the role of transport for contactless payment adoption in the Philippines.

We heard from Nestor A. Espenilla, Deputy Governor at Bangko Central Philippines on the current state of EMV chip cards migration in the Philippines. Douglas Swansson, Senior Director of Merchant Partnership Development at Visa shared his views on the technological advances and adoption of contactless cards in Asia. Alex Boorman, Research Director at RFi Group shared his insights on the global trends for contactless payments and opportunities for the Philippines.

Philippines is still in a nascent stage of development for cashless payments, with massive opportunities for players in financial services. Largely a cash dependent society, Philippines is making a slow but steady progress towards technology adoption. The internet penetration is at 54%, smartphone penetration stands at 42% and mobile users penetration at 35%.

The key drivers behind retail payments revolve around customer experience, IOT (internet of things) and innovation. Another major theme discussed on retail payments was security. There is broad consensus that EMV Chip and PIN cards are more secure than magnetic stripes and drive down card frauds.

Asia is in a state of transition with regards to EMV Chip Cards. After the central bank mandate, local banks are in process to replace the magnetic stripe cards to chip and pin cards, expected to complete distribution by 2018. Indonesia is expected to complete the migration by 2021 and India in an unexpected move by the government is on a fast track towards a digital economy. After demonetizing 86% of the currency in circulation, the government has issued a mandate for 260 million prepaid cards to be issued by 2018.

Presence of contactless cards is negligible in the Philippines. Most consumers are still relying on cash or magnetic stripe cards for payments. There is broad support by the local banks towards EMV cards due to well established benefits of security, safety, and convenience of making retail payments. Though, how fast the merchants adopt to the change remains to be seen, as they perceive EMV chip cards to delay the speed of transaction. Merchants also have a resistance to change their current habits (swiping and asking consumers to sign as opposed to entering a pin).

 A major challenge for the local banks is integrating contactless payment technology into a predominant cash based economy, which is still coming to terms with using cards as a payment method. The solution lies in parallel introduction of technology with payment players like Visa and Mastercard playing a crucial role in expanding contactless payments in the Philippines. Visa’s Paywave has been a huge success globally with presence in more than 100 countries and is working with the banks and merchants to bring that into the Philippines.

For consumers to adopt new technology for contactless payments, including mobile payments (using NFC technology), their payment behavior needs to change. Public transport and supermarket retailers play a huge role in changing consumer payment habits. Australia and UK have been leading examples of this where adoption of contactless cards is among the highest in the world.

Mobile Payments is another major future trend expected to grow at a fast pace. By 2019, M-commerce in the Philippines is expected to rise to PHP 4.8 T, smartphone penetration to reach 57% and around 150 million cards to be in circulation. Mobile payments hold promise in the Philippines as mobile phones with NFC technology can also be used as card readers and can provide an alternative solution to merchants.

However, high MDR rate, co-ordination between multiple vendors and difficulty of implementation are some of the major challenges facing mobile payment providers in the Philippines. 80% of the online sales are still cash on delivery and current ratio of cards to POS terminals stands at 500:1 which is way behind developed economies (40:1). In the current ecosystem, there needs to be greater collaboration between all the stakeholders including banks, merchants, OEM players, telco providers, payment processors and remittance processors to successfully implement mobile payments.

This is in line with research and case studies shared by RFi Group at the summit. London Tube supporting both open and closed loop contactless payments and Australian supermarket chains like Woolworths leading the way as shared by RFi Group’s Alex Boorman in his presentation were cited and acknowledged by various speakers. Data from RFi Group also showed an inverse rate of adoption between mobile payments and contactless cards and the current state in emerging economies like the Philippines.

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