By Sarah Daway-Ducanes, Nicole Gutierrez, and Geoffrey Ducanes
THE World Health Organization is encouraging countries to take advantage of e-payment systems as an alternative to cash-based transactions. This is to limit the use of cash in making transactions, since cash itself is a potential agent of transfer of the COVID-19 virus. Accordingly, several central banks, including the Bank of England, the Bank of Korea and the US Federal Reserve, have resorted to burning cash or at least mandating banks to sanitize their cash holdings and place them in quarantine for 14 days.
According to the World Bank’s Global Findex Database, 25% of the adult population in the Philippines (at least 15 years old) used an e-payment instrument in 2017. This is up from about 20% in 2014, but is still very low. Except for Cambodia, Laos, Myanmar and Vietnam, the rest of Southeast Asia, China, Hong Kong and India have higher e-payment utilization rates than the Philippines, ranging from 28.7% in India to 90% in Singapore and 95% in Japan. Even in nearby Indonesia, the utilization rate is 10 percentage points higher at 35%. Using the e-payments system includes the use of e-cash, debit card, credit card, or the use of either a mobile phone or internet-based system to make a transaction.
The e-payment system appears to be a crucial element in flattening the COVID-19 curve. The existence of e-payment systems can especially facilitate social distancing and staying at home among Filipinos by enabling the virtually contactless door-to-door delivery of groceries, medicines, etc. bought or sold online; payment of utilities and other recurring bills; and, remittance of money to loved ones and/or other households in need. This alternative form of payment moreover minimizes the exposure of the elderly and other persons, who are identified as high-risk of contracting COVID-19. At this time when enhanced community quarantine (ECQ) allows only one designated household member aged 18 to 60 years old to leave the house during scheduled hours, accomplishing as many transactions online as possible will minimize the need for this designated household member to leave the house. This also minimizes the probability of exposure to the COVID-19 virus of the elderly and other household members identified as high risk in the event that the designated member is exposed to the virus.
A 2016 survey conducted by the United States Agency for International Development (USAID) e-Peso Program shows that 79% of the 1,200 respondents (age 15-74 years old, 300 respondents each from Metro Manila, Balance Luzon, Visayas and Mindanao) know at least one e-payment instrument. However, only 25% (as in the Global Findex dataset) used an e-payment instrument in the last 12 months. Although the rate is relatively high in Metro Manila at 49%, it is only at 28% in the rest of Luzon and a paltry 13% and 9%, respectively, in Mindanao and Visayas. E-payment utilization is particularly low at only 15% for those earning below P15,000 per month, and 31% for those earning from P15,000 to less than P40,000, compared to 73% for those earning higher. And although those in older age groups do not compare unfavorably with the younger age groups, still, only 26% of those belonging to the 50-74 age group — arguably the group most vulnerable to COVID-19 infection — utilize e-payment.
The use of e-cash, or the use of digital money rather than actual cash to pay for goods and services, is even lower. In the same USAID survey, only 5.5% of the respondents used e-cash in the last 12 months, although this number should have already increased due to the recent more aggressive advertising of Fintech companies and banks. An enabling factor for this increase is the now more widespread ownership of mobile phones. The rate of e-payment utilization for mobile phone owners is almost 2.5 times that of non-mobile phone owners. Similarly, the use of e-cash for mobile phone users is four times that of non-mobile phone owners. In Metro Manila, 84% of respondents reported owning a mobile phone, 76% in the rest of Luzon, 67% in Visayas, and 61% in Mindanao. As expected, mobile phone ownership is related to income, 64% of respondents earning less than P15,000 owned a mobile phone compared to 84% among those who earn more than P15,000, and even 100% among those who earn more than P80,000. Some e-payment schemes may be accessed through short message service (SMS) keywords or unstructured supplementary service data (USSD) menus available in any type of mobile phone. For feature phone and smartphone users, the availability of app-based payment systems opens up more online payment options. This is especially promising as smartphone penetration in the country was already at 65% as of January 2019.
Indeed, the United Nations Better Than Cash Alliance Report shows that in 2013, the monthly share of e-payments in the total volume of monthly payments (estimated at around 2.5 billion) was around 1%. By 2018, this share increased to 10%, making up 20% of the monthly value of e-payments.
Utilizing and further developing the e-payment system is also crucial at this time when the government is exploring ways to bring help and relief to the highly vulnerable sectors of society. (This is also in line with the Bangko Sentral ng Pilipinas’ National Strategy for Financial Inclusion and its commitment to significantly raise the utilization of e-payments in the Philippines.) In Thailand, for instance, the government is channeling part of 100 billion baht in government liquidity support via its e-payment system. In a similar manner, the Philippine government may then use the e-payment system, particularly e-cash, to transfer cash grants not only to the most vulnerable households, but also to small and medium businesses affected by the COVID-19 closures as provided for in the COVID-19 Adjusted Measures Program (CAMP). Doing so would enable contactless cash transfers, minimizing mass gatherings and long queues at disbursements centers. Moreover, coursing relief cash grants through the e-payment system would help ease the logistical cost and requirements of government relief programs, freeing up resources for other pressing needs.
In operationalizing this, the Philippine government across national and local levels can partner with Fintech players, such as GCash and PayMaya, to enable fund transfers to targeted beneficiaries in their respective jurisdictions. The national government, primarily through the Department of Interior and Local Government (DILG) can take stock of which cities and municipalities have already existing partnerships with current Fintech players, and perhaps, use these as patterns for developing protocols. Some examples are Makati, which has partnered with GCash; and Valenzuela with PayMaya. Both Fintech players have a similar setup with these local governments:
• Eligible beneficiaries of the local government are identified.
• Identified beneficiaries are each given a prepaid card, which may be activated through SMS in any type of mobile phone or a mobile money application, available on feature phones and smartphones to set up a mobile money account.
• E-cash transfers can then be made to the beneficiaries’ mobile money accounts.
There are obstacles that need to be hurdled at the onset, mainly transactional and psychic costs, as well as concerns regarding account safety and security. Costs should be minimized to the extent possible and security concerns should be allayed by utilizing more secure methods, such as multi-factor authentication mechanisms, for example. The benefits far outweigh the costs, more so at this time, when lives and overall well-being are at stake.
• See www.bangkokpost.com
Sarah Daway-Ducanes and Nicole Gutierrez are with the University of the Philippines School of Economics, and Geoffrey Ducanes is with the Ateneo de Manila University Department of Economics