Flourishing market in the Philippines-

Earlier this year, the Philippines’ two biggest telecom operators and arch-rivals signed an agreement for interoperability amongst their digital payments platforms. The deal has resulted in the integration of Globe Telecom’s mobile money service GCash with the digital payments mobile app of PayMaya Philippines, the digital financial services arm of PLDT and Smart Communications, allowing the users of both platforms to send funds to each other. This is claimed to be the first successful interoperability trial in Southeast Asia between two mobile money providers. Apart from domestic remittances, GCash and PayMaya are also expected to collaborate on merchant payments, bulk payments, government-to-person payments, and person-to-government payments, among others.

The move is seen as a key one and is likely to give a big push to the already flourishing mobile money market in the country. The Philippines currently is a major hub for mobile money usage, ahead of most its peers across the Southeast Asian region. In a country where 80 per cent of the population continues to be unbanked or underbanked, operator-enabled mobile money services have played a key role in extending the reach of financial services. As for urban users, mobile money has ushered in the convenience to send money and do transactions in one tap and on the move.

Several factors have been at play in helping the country in expanding its mobile money market. While the growing reach of wireless services and increasing affordability of smartphones have been the backbone of service proliferation, a major push by industry stakeholders has also been crucial. Telecom operators such as Smart and Globe have developed several innovative offerings to enhance mobile money usage amongst their customers. A key push to the market has also come through the Philippines’ central bank, Bangko Sentral ng Pilipinas (BSP), which has come forward with a policy and regulatory environment conducive to electronic and mobile payments. In December 2015, BSP launched the National Retail Payment System framework, which aims to create a safe, efficient, reliable and affordable electronic retail payment system that is interconnected and interoperable.

Initially, a key challenge for mobile operators in any market is to persuade customers to conduct financial business on a mobile phone. However, the Philippines is often called the texting capital of the world and the country’s mobile users are highly SMS literate, which has helped them to quickly get used to performing financial transactions on a handset.

Background

Mobile money services were introduced as early as 2001 in the Philippines when SMART Communications launched SMART Money in partnership with Banco de Oro (BDO). The service, which used the SIM toolkit, enabled customers to buy airtime, send and receive money through a mobile phone, and pay for goods using a card. After a short while, in 2004, Globe Telecom also forayed in this space with the launch of GCASH, an SMS-based offering, which used only a mobile phone to offer a similar suite of functionalities.

Key success factors

  • Rapid wireless expansion: Wireless services have grown at a substantial pace from just 3 per cent penetration in 2000 to close to 70 per cent at present. Widespread mobile networks have been leveraged by SMART and Globe to offer various products and solutions in the finance and commerce space to their customers.
  • Smartphone surge: As per IDC’s recent estimates, the Philippines is the fastest growing market for smartphones in the Association of Southeast Asian Nations (ASEAN). The report indicated that about 3.5 million smartphones were shipped to the country during the first quarter of 2016. Affordable, low-end smartphones have allowed Filipinos easy access to smartphones, thus enabling them to use mobile money services.
  • Spinning off its mobile financial
  • services business: Two of the country’s mobile network operators have spun off their financial service businesses into separate subsidiaries. The new businesses focus purely on financial service offerings. For instance, Mynt is a fully owned subsidiary of Globe Telecom that aims to build a unified financial services offering. Similarly, PayMaya  backed by Smart e-Money has close ties to Rocket Internet.
  • Government push: Several progressive regulations by BSP have played a key role in establishing an enabling mobile money ecosystem in the country. These include enabling mobile operators to offer e-money and allowing non-banks to perform cash in/out. Further, non-banks were allowed to do so at a large scale through the support of licensed remittance agents. Mobile operators have been provided with legal certainty through the formulation of guidelines in 2009, which govern the issuance of e-money in the country.
  • Innovative business models: Both SMART and GCASH have come up with innovative offerings to bring more users on board as well as explore additional revenue streams. SMART introduced a card in its offering, to allow its customers instant access to a large retail payment network. SMART was able to generate revenue on the basis of the bank interchange fee structure that governs the card payment networks. For instance, every time a SMART Money card is used at a merchant that has a tie-up with a bank other than BDO, then that merchant’s bank must pay a fee to BDO/SMART. The fee ranges from 0 per cent to 3 per cent of the transaction value. Even though SMART has a mobile payment facility, its card model continues to rule the market. As for Globe, the company focused on persuading retailers to accept GCASH as payment. Its main premise for persuasion was the savings of the 0-3 per cent merchant fee that they would have had to pay to banks if customers paid through cards. The scheme worked well for smaller retailers who did not have card acceptance infrastructure in place. GCASH also emerged as an inexpensive and convenient cashless retail payment option particularly catering to the needs of those at the bottom of the pyramid. Through partnerships with rural banks, GCASH can offer these customers formal financial services such as loan disbursement, deposit taking, micro-SME merchant and bill payment.

Further, Globe and SMART, have both revamped their mobile money strategies from time to time to match the changing needs of users. For instance, SMART offers a range of encashment options to customers depending on their technology friendliness. For those who are less technology savvy, SMART offers SMART Padala, which is available at SMART wireless centres and enables customers to hand over cash to an agent to be sent to the mobile of a registered SMART Money user. For customers who are technology friendly, SMART enables them to load e-value onto their accounts, and perform transactions by themselves without help from another person. As for GCASH, Globe has a chain of 3,000 cash-in and cash-out locations nationwide. Subscribers just need to visit one of these outlets and get assistance over the counter.

The way forward

The success of mobile money in any market depends on the level of user acceptance of these services and a progressive regulatory environment. Currently, the Philippines’ mobile money market scores well on both these counts. The recent news about bringing in interoperability across various mobile money platforms will go a long way in increasing mobile money use in the country.