No way but up for e-commerce

By Melissa Luz T. Lopez, Reporter

In this age of smartphones, everything is a tap or two away for anyone online.

As a result, work and play have increasingly gone digital, helping boost demand for electronic money that can be easily sent and received using online payment settlement platforms.

As more and more Filipinos equip themselves with Internet-enabled devices, online financial transactions can only go up.

These transactions can be conducted anywhere — at home, cramped inside a public train, or sitting in the office; with a steady and stable Internet connection, shopping and payment for goods and services can be done at the tap of a finger or at a click of a mouse.

To ensure that these online transactions — and its related processes — incur minimal snags, the Department of Trade and Industry (DTI) last February launched a Philippine e-Commerce Roadmap spanning five years to 2020, covering infrastructure, laws, additional investments, data privacy, consumer education, and regional integration.

Besides helping support small-scale businesses, it will allow more Filipinos to avail of financial services online.

These moves are part of the government’s grand plan to bring the electronic sector’s contribution to 25% of gross domestic product (GDP) by 2020, coming from an estimated 10% share in 2015.

Along with the advent of online merchants and service providers came the use of Bitcoin, a payment system that allows users to send and receive payments without an intermediary.

Firm betting big on digital currency

Growing interest and demand for e-commerce and online exchange in the Philippines prompted Ron Hose, then a tech investor at the Silicon Valley, to come to the Philippines and set up Coins.ph, an online firm that serves as a platform for mobile payments.

“People use digital currency here to accomplish things,” Mr. Hose, co-founder and chief executive officer of Coins.ph, said in an interview last month. “You can directly use the services for people to send money home at lower costs and bypass that 7-8% (in service fees) to an average of 1-3%.”

“We allow people to pay their bills using their mobile phone, top-up their phones, those kind of things.”

Coins.ph is a downloadable app that serves as an e-wallet and mobile dock for multiple bank accounts, which can send and receive money across both members and non-registered users. Money is loaded on a user’s account through partner brick-and-mortar merchants such as 7-Eleven convenience stores and pawnshop outlets, and may be sent and received across bank accounts, e-mail addresses, text messages, and Facebook profiles through the platform. The credit may then be converted into cash through the same physical avenues above or via door-to-door delivery, and may also be used to pay utility bills and purchase items.

The app makes use of the Blockchain platform for each transaction, a Web-based settlements system that allows clearing in a matter of seconds. The amounts are still expressed in peso value, with its Bitcoin equivalent used as the “language” to transact under Blockchain.

“I’m a big believer that growth is going to come from Asia for the next two to three decades, and if you look not just in the Philippines but across other emerging markets, GDP is growing very quickly but a lot of people are being left behind without access to very basic services,” Mr. Hose said when asked why he ventured into the Philippine market.

“The thing that can change it is technology. Everybody has a cell phone, and increasingly people have smartphones even in really remote areas… The channel is there, you can access people and provide them with services.”

The Philippines has constantly been cited as a regional outperformer in terms of economic growth, but a gnawing gap between the rich and the poor remains, along with a large chunk of unbanked individuals. A 2015 survey from the Bangko Sentral ng Pilipinas (BSP) showed that only five in 10 Filipinos have experienced transacting with banks, while only a third of adults placing their savings in a bank account and about 70% opting to keep their money at home.

“In the Philippines, more people have Facebook accounts than a bank accounts… Not having access to the financial system actually ends up being very, very costly,” Mr. Hose said, pointing out huge spreads lost due to remittance and other processing fees in traditional modes of fund transfers.

Mr. Hose sees his business as complementing the growth in online-based businesses, while also contributing to the government’s efforts to broaden financial inclusion. In fact, he eyes to bring the share of Filipinos with access to formal financial gateways to at least 50% by 2020, coupled with work done by banks, technology providers, and government.

Philippines is world’s third-largest bitcoin market

An estimated $2 million to $3 million are being transacted via bitcoin exchanges in a month, BSP Deputy Governor Nestor A. Espenilla, Jr. has said, making the Philippines the third biggest Bitcoin market in the world.

Looking ahead, further growth is seen for the e-currency and e-commerce sectors, with the current regulatory environment deemed business-friendly. In particular, Mr. Hose described the country as a “great place to incubate start-ups” with solid economic growth, a relatively simple legal system, and low operating costs, along with cultural factors such as English-speaking residents who are “open-minded” and have a high sense of gender equality.

Mr. Hose also said he is looking forward to get electronic money recognized and covered by local regulators, while assuring that consumer protection and anti-money laundering systems are currently in place.

“Digital currency is still very new and it takes time for people to understand how it works and apply regulation to it,” the entrepreneur said.

BSP’s Mr. Espenilla has said the central bank is looking to amend its rules to cover virtual money issuers, particularly for those engaged in bitcoin trading. Unlike bills and coins, the Bitcoin is not issued nor guaranteed by the central bank.

Separately, the central bank and other government agencies are working on a National Retail Payments System to allow more retailers and consumers to shift to mobile payments and fast-track money transfers.

The regulatory environment remains favorable, with government agencies tweaking rules to accommodate innovation. This was seen with how the Land Transportation Franchising and Regulatory Board issued permits for Grab and Uber vehicles to offer its ride-hailing services in Metro Manila and key cities in the country, as well as the central bank’s move to allow non-bank firms to offer financial services to broaden access to formal channels.

Prospects for improved Internet service may also provide a lift to future business, with the government soon to dedicate a new agency focusing on connectivity under the Department of Information and Communication Technology.

“In order to drive this type of growth and transformation, you need the Internet as baseline infrastructure, a utility,” Mr. Hose said. “It’s really the great enabler. The fact that people have slow service is really slowing down growth.”

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Melissa Luz T. Lopez (@meltlopez on Twitter) covers the central bank and the macroeconomy for BusinessWorld after a year in the political beat. She gets by with a mix of wit and luck.