It’s obvious that Filipinos are becoming more digital-savvy. Majority own or use a mobile phone or a computer that is connected to the Internet. This phenomenal growth in digital adoption happened over a long period, enabled by both government policies and private sector investments into digital infrastructure.
To have a better perspective, let’s have a quick review of the Philippines’ internet and social media figures:
- The Philippines’ internet penetration sits at 81% out of a total population of over 110 million, one of the highest in Southeast Asia.
- Filipinos are among the largest consumers of social media content. There are 76.2 million active social media users in the country, most of whom are on Facebook (72.5 million), while the rest are on Twitter (about 8.9 million) and LinkedIn (4 million).
- TikTok, which is becoming the most widely downloaded social media app in the Philippines, has over 40 million active users in the country. Filipinos also spend nearly 10 hours online daily, with 3.5 hours spent on social media.
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E-commerce, on the other hand, had a rough and tumble approach in the Philippines. There were a few early e-commerce marketplace adapters, starting with online forums, as well as local firm Sulit.com.ph (now called Carousell), but these came with challenges such as transportation of the goods as well as the payment itself.
It would come as no surprise that many problems would arise for the early adapters, such as unfulfilled deliveries, unpaid purchases, and even the selling of fake or damaged goods.
But those hurdles were gradually overcome, especially with tech companies joining the e-commerce bandwagon. Among the first issues resolved was payment with the entry of local telecom firm Globe releasing its GCash e-wallet service, followed by competitor Smart with its Smart Money, which later was replaced with PayMaya (now rebranded to Maya).
Apart from the payment facilities, new e-commerce marketplaces started to pop up in the late 2010s starting with Zalora, followed by Lazada and Shopee. Facebook also entered the e-commerce platform fray with its Marketplace. These companies helped provide Filipinos alternatives to purchase their items, but it was still a long march due to a number of factors.
One of these was the prohibitive cost of mobile internet data, which was around US$2 per 1 gigabyte in the early-to-mid-2010s. It also didn’t help that mobile signals were still slow at around 2.8 megabits per second during the same period. That has changed gradually to today when pricing now stands at US$0.43 per 1 Gb and speeds are up to 100 Mbps.
It took a few more years from the mid-2010s before online commerce really took off. What changed were several factors. Other than the availability of e-wallet payment facilities and faster and more affordable mobile internet, business-to-consumer (B2C) platforms initiated more price-off and flash-sale offers.
They also worked with several product forwarders and fulfillment companies and smaller courier service firms for direct-to-buyer deliveries. These end-to-end solutions allowed domestic merchants in their platforms to acquire products to sell from offshore manufacturers and send the purchased items to customers with faster delivery times.
The pandemic factor
But perhaps the biggest factor in demand was what happened in early 2020 when the COVID-19 pandemic affected nearly every part of the world. The Philippines was highly affected, as Filipinos were suddenly forced to stay indoors with the strict lockdown policies. This resulted in most of the population turning to the Internet for their normal activities such as school, work, socializing with friends and families, and attending social events.
But the more immediate effect was in the acquisition of food and drink. This necessitated a change in the procurement of essential goods. This was where e-commerce platforms and even ride-hailing service providers stepped in to complete the last-mile needs of consumers. These tech-based companies started offering deliveries for food, medicine, and other essential items. These services became lifelines for the next two years.
Malaysian firm iPrice Group reported in a study that e-commerce in the Philippines went up during the lockdown, with the Philippines experiencing the highest demand based on the use of shopping apps at 53%. Filipinos spend on online services also went up to 57%. In addition, the number of online businesses that were involved in retail climbed up to 80% in 2021.
Ramon M. Lopez, secretary of the Philippines’ Department of Trade and Industry (DTI) also acknowledged the effects of e-commerce among Filipinos during the pandemic. In a speech he delivered in 2021, he said: “ We saw this especially last year, with e-commerce coming to our rescue during the COVID-19 pandemic. Online retail, delivery services, online entertainment, digital services, telehealth, work from home arrangements, digital payments—all of these helped us in the past year and continue to do so until now.”
Lopez also noted the pandemic had forced the Philippine government to utilize e-commerce platforms, which he said would enable new business models to rise in the coming years.
Challenges and opportunities
Of course, like all good things, there are challenges in the further adoption of e-commerce platforms in the Philippines. On the technical side, Internet speed in the Philippines, while already fast compared to three years prior, is still relatively slower than in other countries. Based on Ookla’s global index for 2021, the country is ranked 60 out of 182 in fixed broadband speed, while it is ranked 93 out of 142 countries in terms of mobile internet speeds. Considering that the majority of e-commerce platforms are accessed via mobile devices, you could see there are still significant challenges in having more people trade or purchase without issues.
There is also a matter of fraud. For credit cards alone, there was a 21% increase in credit card fraud related to online purchases, according to a report from the Credit Card Association of the Philippines. The data as to how many scams or frauds there were related to e-commerce is yet to be determined but it can be said that with the increase in e-commerce, more scams would follow.
Another concern is volume: E-commerce only accounts for about US$2.4 billion in gross domestic product, less than 1% or US$63 billion in the Philippines.
Meanwhile, the Bangko Sentral ng Pilipinas, the Philippines’ financial authority, said about 45% of the country’s 77.2 million adult population have bank accounts. The DTI also stressed that the majority of the country’s population is still unbanked, which could be a hurdle to expanding the e-commerce trade. While not directly correlated, the absence of a bank account would be a shortcoming for those wanting to pay online for their purchases via e-commerce platforms.
There is a silver lining to these challenges. The fact that there are more Filipinos wanting to go online to shop for goods and services is driving more companies to consider creating, strengthening, or even moving their entire operation to the digital space. Good thing that they would be supported by the Philippine government.
DTI’s Lopez said that at the core of their E-commerce Philippines 2022 Roadmap is to “increase the contribution of e-commerce to the Philippines’ GDP.” This means increasing online retailers from 500,000 in 2020 to 1 million by 2022; establishing the core manpower to support the e-commerce sector through training, and strengthening partnerships between merchants and buyers.
One of the main projects planned by the DTI and another government office, the Department of Information and Communications Technology (DICT), is the ECGO, a dedicated group focused on national policy, implementation, and evaluation of e-commerce programs between the government and private sector.
Private sector projects are also varied, from the collaboration of telecom giant PLDT and entrepreneurship advocacy group GoNegosyo to Globe Telecom’s Business Consultation Caravan project.
Despite many challenges, there are a lot of activities to help e-commerce keep its growth momentum. Government and private sector groups and even smaller enterprises are willing to put their backs on turning the Philippines an e-commerce haven. It’s just a matter of time for that to happen.
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