Speeding up the Philippines’ ‘cash-lite’ vision
The Philippines’ determination to shift to a “cash-lite” economy—with at least 50 percent of transactions done digitally by 2023—remains evident through an ongoing stream of initiatives to promote the adoption of digital payment systems and financial technologies among consumers and businesses.
But challenges to this vision abound: In the first half of 2022, digital transactions stood at only 31.5 percent. Then there’s the country’s archipelagic nature and the naturally high expenses that come from modernizing old processes and solutions. But data from 2018 to 2021 from the Philippine Statistics Authority show that the average annual family income has fallen by 2 percent in current prices, and 10 percent in 2018 prices.
Official data also show that in 2021, 18.1 percent of the population (20 million people) are officially considered poor, an increase of 1.4 percent compared to 2018. These are people living below the poverty line that’s approximately equal to P12,000 or $237 a month.
While the well-documented vision will eventually be achieved, there’s room to speed things up.
First, there should be increased investment in the integrated payment solutions sector. Various state grants, subsidies, and other development measures are not always sufficient on their own. A worthwhile measure would be to create more platforms where large investors can become familiar with ambitious startups. In the future, this can foster mergers and acquisitions.
Second, more payment companies and fintech (financial technology) players should consider incorporating additional software services, such as verification, payroll, and cash management, within their payment solutions. This may actually incentivize the population to use new digital financial solutions similar to how it was in 2020. Another initiative worth considering is for companies to create their own digital ecosystem with a maximum number of services and digital payment solutions. The availability of such services for any segment of the population and business size should be a priority.
Third, the thorough and long-term mainstreaming of financial literacy among the population is paramount, and should be complemented by special social programs. The middle class has to be further reached, both in terms of general activity and share of customers.
Fourth, existing government support can be expanded by creating more spaces where entrepreneurs could simultaneously show their ideas to public agencies and potential private investors.
At first glance, promoting digital transactions raises fair questions about economic feasibility. Cashless solutions are paid for mainly by private fintech companies that also provide commercial digital money management services. Therefore, in theory, the cost-benefit value cannot compare to that of simply using cash.
However, this is not entirely true: The convenience, reliability, and speed of fintech is a tangible “plus” and often imply greater customer benefits. Consider the following advantages:
1. Cost reduction. This includes reduction in the fixed costs for personnel required in any cash operation. There is also the possible cut in the printing of banknotes and minting of coins.
2. Risk reduction. Cashless fintech will minimize several operational risks, such as theft of cash by employees, or the use of counterfeit banknotes. Additionally, it will help reduce the risk of delaying obligatory payments.
3. Transaction speed. Digital transactions can be carried out according to pre-established forms and standards in a matter of seconds, at any distance, and in any volume. Instant social payments from the state to support the population and businesses are seen to be more viable.
4. Accurate data gathering. Automated platforms help the government quickly and accurately obtain economic information about cash flows in the country. They can then create development strategies and make important decisions based on high-quality data of a single standard.
5. Convenience. Obviously, with cashless fintech comes a faster processing of financial transactions. There is no longer a need to stand in queues at the bank to fill out forms to transfer money or pay utility bills. Loans can be applied for in the comfort of your home instead of driving to a brick-and-mortar location during rush hour. This can instead be done from the mobile app integrated in the country’s digital ecosystem.
6. Battling corruption. In a “cash-lite” society, “off the books” financial transactions are reduced to a minimum, undoubtedly a major advantage for the state but a hurdle for other economic agents.
7. Integration. Going digital offers limitless possibilities. A range of digital technologies from various providers and vendors can be combined into a single organism—a financial ecosystem that can always be there in a smartphone.
Admittedly, no company can put 100 percent of its trust in its security system that may be susceptible to cybersecurity issues. In transitioning to a “cash-lite” society, fraudsters would just modernize deceptive practices.
Inequality in access to technology also remains a challenge, with the unbanked likely to struggle even more in noncash environments. If smartphones become a common vehicle for transactions, those who cannot afford smartphones or access the internet will be left behind. What this means for fintech players is that they need to ensure that growth aspirations and a desire to provide purpose-filled systems will not come at the cost of inadvertently creating a technological chasm.
Needless to say, the transition from a cash-heavy to a cash-lite economy is a complex and slow process. But the pros in promoting digital transactions clearly outweigh the cons. This momentous transition requires joint participation and input both from developers-initiators and the public—the end users of digital financial services.
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Farit Shakirov is the country manager of consumer finance company Digido.
