Philippines pushing for cashless society, but it’s a long way off

Imagine the day when scanning your face, waving your phone, or using some kind of a wearable are the new norms of paying for goods and services. The transactions could be anything – from buying a train ticket to sending money to a relative, buying clothes in the mall, or riding a jeepney.

The world dreams of a cashless society. And as it acquires a multitude of non-cash payment options, this dream only comes closer. The progress of economies varies, though. In Hong Kong, one can purchase tickets or eat in fast food outlets using the Octopus value card. In Sweden, the homeless no longer ask passers-by for loose change; they have card readers instead. While the cashless journeys of some may be advanced, those of most, especially developing nations like the Philippines, have only just begun.

In the Philippines, the government has launched an initiative to create a single electronic payments platform for all transactions in the country. Dubbed the e-peso, the platform is envisioned to be a B2B, B2C, and C2C system for epayments.

The initiative is part of a bilateral agreement between the Philippine and US governments. The USAID has awarded a US$25-million, five-year project to a company called Chemonics to support the Philippine government in the promotion and adoption of epayments in the Philippines.

The overarching goal, really, is simple: to eliminate, if not substantially reduce, the use of cash in financial transactions; turning the Philippines into a “cash-lite” economy within 20 years.

Benefits of going cashless

Here’s the problem with the use of cash: it’s inefficient, costly, and can be dangerous for consumers and businesses.

“Long queues, long distance traveling, and time wasting characterize the predominant payment for goods and services in the Philippines, as elsewhere in developing countries. The opportunity cost of using cash versus electronic means has real economic consequences, in terms of lost business activities and overall economic development,” says USAID in the draft statement of work for the ambitious project.

Also, with the availability of technologies for epayments, “[cash] doesn’t make sense,” Lorenzo Tan, president of the Bankers Association of the Philippines, was quoted as saying in a report

Going cashless gets rid of costs for storing and distributing notes and coins. It is more transparent because transactions are recorded electronically and can be tracked, avoiding leakage or in the case of government deals, kickbacks. In terms of delivery, it’s more secure and speedy.

The USAID says epayments will also allow for the poor and unbanked to participate more broadly in the formal economy. “The poor benefit from too few financial instruments to manage their low, uneven cashflows. As such, epayment systems have the potential to help the Philippines reach development goals faster and make those gains sustainable.” It states that only 26 percent of Filipinos enjoy access to formal financial channels, and 610 out of 1,635 municipalities in the Philippines do not have banks. Moreover, as much as one‐half of mobile users in the Philippines are unbanked.

But despite the clear benefits, by all accounts, the Philippines’ epayment penetration rate remains low. USAID explains: “According to some estimates, cash accounts for upwards of 98 percent of all retail payment transactions in the country. Yet around the world, there is a growing use of electronic instruments for payment transactions. Reaching US$283 billion in 2010, the global volume of non‐cash transactions grew by 7.1 percent, dominated by developing markets (growth of 16.9 percent). In high income countries, for example, people use an equivalent of five epayment transactions per week. Without a doubt, the Philippines’ retail payment system remains highly paper‐based and inefficient.”

The e-peso project therefore seeks to accelerate the shift from paper to digital transactions. Doing so will ultimately contribute to overall economic performance, USAID says, citing how an efficient epayment system glues an economy. “A country’s payment system facilitates trade and exchange […] USAID believes that epayments can transform development and facilitate access to economic opportunity.”