Cash remains, by a very considerable margin, the most popular consumer payment instrument in the Philippines, and accounted for 99.5% of the country’s total payment transaction volume in 2017.
Cash’s dominance is mainly a result of the country’s high unbanked population, inadequate banking infrastructure, limited public awareness of electronic payments, and generally low levels of payment card acceptance at merchant outlets.
However, with ongoing concentrated efforts by the Philippine government and the central bank, the share of cash is anticipated to decline gradually over the next five years.
As part of the government’s financial inclusion plan, a number of micro-banking offices, electronic money issuers, microfinance providers, pawn shops and remittance agents are being employed to provide access to financial services in unserved or underserved areas.
Consequently, the number of payment cards in circulation, the transaction volume, and overall transaction value recorded strong growth rates between 2013 and 2017 – a trend that is anticipated to continue to 2021.
Debit cards have the highest transaction value in the country followed by credit and charge cards. The emergence of contactless technology and growth in the e-commerce market are also anticipated to support payment card market growth.
Rising investment in POS infrastructure and the proliferation of new payment solutions will further push electronic payments in the Philippines.
Debit card penetration in the Philippines is among the lowest compared to its regional peers.
As part of a key initiative to encourage financial institutions to establish branches in the country’s largely underserved rural areas, the central bank approved a new regulation in April 2015 whereby the processing fees associated with establishing new branches are waived.
The central bank has also expanded the scope of activities for micro-banking offices, allowing them to open bank accounts in rural areas.
As of September 2016, there were a total of 651 micro-banking offices operational in the country.
Remittances drive use
Remittances form a key part of the Philippine economy, accounting for roughly 10% of the country’s GDP in 2016.
Remittances also play an important role in driving growth in the country’s payments market. With levels of migration steadily increasing, banks are offering bank accounts and debit cards that allow migrants to transfer money to beneficiaries in the Philippines.
For instance, in November 2016 BPI partnered with Australian banking group Westpac to allow Filipinos working in Australia to send money to friends and families back home.
Credit cards gain
Though small in size, the Philippine credit card market has registered robust growth, which can be attributed to the steady rise in the middle-class and young working populations.
Also driving growth in credit card transactions are the introduction of monthly instalment facilities and pricing benefits such as annual fee waivers, reward programmes and cashback.
Furthermore, the government has introduced regulatory measures to strengthen and stabilise the credit card market. The implementation of the Philippine Credit Card Industry Regulation Law in 2016 is a key example of these measures.
To boost the credit card market, in August 2016 the Philippine Credit Card Industry Regulation Law was introduced granting Bangko Sentral ng Pilipinas (BSP) with powers to supervise all credit card issuers and acquirers operating in the country. Violation of any rules or regulations by credit card companies will result in a penalty.
BSP requires all credit card issuers to perform customer identification and due diligence procedures before issuing credit cards, and prohibits card issuers from adopting unfair and abusive practices when collecting credit card debt.
Prepaid card market
The prepaid card market in the Philippines recorded significant growth between 2013 and 2017, both in terms of the number of cards in circulation and transaction value.
This trend was primarily driven by the unbanked population, and the issuance of gift and travel cards, and cards for remittances.
To capitalise on the increasing inflow of remittances in the Philippines, issuers are offering remittance prepaid cards, allowing consumers to receive funds remitted on their cards.
For instance, the Philippine National Bank offers the Global Filipino Reloadable Card, allowing holders to receive money transfers onto the card. The card has a maximum monthly reloadable limit of PHP100,000 ($1,998) and supports debit features, allowing card holders to access funds at all local BancNet ATMs in the country.