How far has the cashless society in the Philippines evolved? Current Status and Future Outlook

Introduction: the rise of digital payments in the Philippines

In recent years, there has been a growing trend towards cashless payments globally, and the Philippines, as a major economy in Southeast Asia, has been steadily advancing on this wave. This paper will comprehensively analyse the current status of the development of the cashless society in the Philippines, the challenges it faces, and its future prospects.

Part I: Current Status of Cashless Payment Development in the Philippines

1.1 Mobile wallet penetration

According to the latest data, mobile payment users in the Philippines have surpassed the 40 million mark in 2023, accounting for nearly 50% of the adult population. two local e-wallet platforms, GCash and PayMaya, dominate the market, with more than 30 million and 20 million registered users, respectively. These platforms not only provide basic money transfer functions, but also integrate bill payment, online shopping, investment and financial management and other diversified services.

1.2 Effectiveness of the promotion of the QR Ph standard

Launched in November 2020, the national QR code standard, QR Ph, has become an important tool in promoting cashless transactions. More than 300,000 merchants already accept QR Ph payments, including large supermarket chains, fast food outlets and small community shops. This standardisation initiative has significantly reduced the cost of access and the technical barrier for merchants.

1.3 Progress towards BSP's digital payments transformation goal

The Bangko Sentral ng Pilipinas (BSP) has set a target of converting 50% of retail transactions to digital by 2025. Data as of the end of 2023 shows that this has reached about 351 TP3T, a significant increase from 201 TP3T in 2019. Two major e-transfer systems, PESONet and InstaPay, are credited with this.

Part II: Analysis of enablers

2.1 Catalytic role of the COVID-19 epidemic

The epidemic was a turning point in the acceleration of digital payments, with the need for "social distance" forcing many traditional offline merchants to start accepting electronic payments. According to statistics, 60% of new e-wallet users during the epidemic said they would continue to use this payment method.

2.2 Assessment of the impact of "financial inclusion" policy drivers

BSP's nationwide financial education programme has shown significant results - bank account holdings have increased from 291 TP3T in 2019 to 561 TP3T in 2023. the easy account opening process, especially in rural areas, has attracted a large number of people who are new to formal financial services to join the digitalisation process.

Table:Comparison of major mobile wallet platforms

norm	GCash	PayMaya
Number of registered users (millions)	>30	~20
Number of cooperating merchants (thousands)	>500	~300
Featured Functions Diversified choices of investment products/insurance/credit services; extensive international remittance network.	Virtual VISA card supports cross-border spending; one of the channels for government subsidy disbursement

Part III: Challenge profiling

Despite some achievements, there are still many obstacles to overcome in order to achieve a truly 'cashless society'.

Firstly, the 'last kilometre' problem - weak infrastructure on remote islands has led to unstable signals or even a complete lack of signal; secondly, a lack of awareness of internet security has led to a high incidence of fraud - last year alone, nearly 10,000 complaints were reported; and thirdly, the cost of switching is also an obstacle - many vendors are reluctant to change their business habits because they believe that fees are eroding their already slim profit margins. The cost of switching to micro and small enterprises is also one of the hindering factors - many vendors believe that the handling fee erodes their already meagre profit margins and are reluctant to change their business habits...

It is also worth noting that the difficulty of the elderly in adapting to new technologies, as well as the concerns of some people about the risk of privacy breaches, are affecting the overall speed of progress... These issues need to be addressed by the government in collaboration with businesses to ensure sustainable and healthy development...

Finally, it should not be overlooked that the regulatory framework is lagging behind the pace of technological innovation, which poses compliance risks that need to be addressed in a timely manner...

Part IV: Predicting the Future Development Path

Based on the current situation, the following directions can be foreseen as key breakthroughs.

Firstly, "super application" ecological construction - integrating transport and travelling/medical services/education and training and other life scenes to create a one-stop service platform to enhance user stickiness.

Secondly, "offline solutions" - the development of SIM-like stored value or Bluetooth/NFC near-field communication technologies to address practical needs in areas with poor network coverage.

Third, "deepening inclusive finance" - through cooperation with cooperatives and community organisations to design products and services that are more in line with the characteristics of low-income groups to lower the threshold of use...At the same time, the upgrading of the artificial intelligence risk control system will also significantly improve the level of security and protection to reduce the probability of fraudulent losses...

In addition, as the regional economic integration process accelerates, the proportion of Filipino remittances digitised from overseas is expected to increase from the current 65% to more than 80% after the implementation of the ASEAN Intra-Asia Cross Border Connectivity Project, which will inject more vital resources into the domestic ecosystem ......

In summary, although the road will not be easy, it is expected that with concerted efforts, Metro Manila may be the first to approach "largely cashless" status by around 2030, while the country as a whole will take longer to complete this profound transformation. ...... Ultimately, success will depend on balancing the pace of innovation with the affordability of society and finding the most appropriate development model for the country's context. Ultimately, success will depend on how we balance the speed of innovation with the capacity of society to absorb it, and find the most appropriate development model for our national context. ......

Part V: Progress towards cashlessness in niche areas

5.1 Digital breakthroughs in transport and mobility

The Philippines' transport payment system is undergoing significant changes. in 2023, the Manila light rail system was fully connected to GCash and PayMaya code-sweeping payments, with average daily e-ticketing transactions exceeding 500,000. jeepney, a traditional mode of transport, has also begun piloting a contact payment card system, and by 2025, it is expected that 30% of traditional bus routes will be supportive of cashless payments.

5.2 Speed of transformation in the retail market

While cashless payments in large supermarket chains have reached 60-701 TP3T, the penetration of small sari-sari shops (community grocery shops) is still less than 201 TP3T.To facilitate the transformation of micro- and small-scale merchants, the BSP has launched the Digital Sari-Sari programme, which provides subsidies on equipment and fee waivers. More than 100,000 micro-retailers have joined the programme.

5.3 Digitisation of B2B payments

The share of business-to-business e-transfers has grown from 151 TP3T in 2018 to 381 TP3T in 2023, with innovations in supply chain finance, such as buy now, pay later (BNPL) solutions, being particularly popular with small and medium-sized enterprises (SMEs). However, e-invoicing is lagging behind, with paper documents still dominating the business transaction process.

Part VI: Technological innovation and infrastructure support

6.1 Effectiveness of upgrading the "Philya" national payment system

The Real Time Gross Settlement System (RTGS), developed under the leadership of the Central Bank, has increased its processing capacity by 300% and can now support peak demand of 1,000+ transactions per second. The newly introduced API open platform has attracted access from 87 financial institutions, facilitating collaboration and innovation between banks and fintech companies.

Table: Comparison of key digital infrastructure indicators

sports event	2019	2023
4G coverage	67%	82%
Number of POS terminals (10,000 units)	28	53
Number of ATMs (units)	~25,000	~22,000 (-12%)

It is worth noting that the decline in the number of ATMs reflects a structural change in the demand for cash withdrawals - more users are choosing to perform account access operations directly through agent outlets (e.g. convenience stores)...

Part VII: Impact analysis of socio-cultural factors

An in-depth look at the unique socio-economic characteristics of the Philippines that have a complex impact on the cashless process reveals the following.

On the one hand, the culture of "Padala" (remittance) has fuelled the explosive growth of cross-border digital remittances - $36.5 billion in e-transfers from overseas workers were recorded through official channels last year - while on the other hand, the habit of "tingi" (retail) consumption has led to micro-cash transactions that continue to dominate the daily shopping scenario...This duality This duality has led to a clear divide between urban and rural areas...

Religious factors are also of concern - the sensitivity of interest charges in certain Muslim neighbourhoods makes the development of Shariah-compliant financial products a special issue... At the same time, there is a tension to be reconciled between the traditional concept of a joint family account and the privacy of a personal e-wallet...

In addition, the culture of red envelopes in the festive economy (Gcash's "Ang Pao" feature hit a one-day record of 2 million transactions during the Lunar New Year) suggests that traditional culture can be a catalyst rather than a barrier to the rollout of new payment methods...

Part VIII: Positioning assessment in an international comparative perspective

Placing the Philippines in the ASEAN coordinate system reveals the following.

Compared with Singapore (contactless payment penetration rate of 92%) and Malaysia (75%) there is still a significant gap; but with Indonesia (48%), Vietnam (42%) is in a similar stage of development; ahead of Cambodia (28%) and Laos (15%) and other latecomers ... its unique advantages are :

• GCash has become one of the region's most highly valued fintech unicorns
• BSP Regulatory Sandbox Mechanism Fosters a Rich Case for Innovation
• OFW groups form natural test bed for cross-border payments

Weaknesses include.
⊗ Fibre optic backbone construction lags behind neighbouring countries
⊗ Biometrics applications have yet to be rolled out on a large scale
⊗ Digital currency development is still at the proof-of-concept stage

This middle ground allows it to draw on advanced experience while exporting solutions to more underdeveloped markets to create unique competencies. ......

Part IX: Strategic recommendations and road map for development

Based on the foregoing analysis, the following policy recommendations are made.

Short-term focus (1-2 years).
✓ Expanding the network of village digital service stations to cover the last kilometre of blind spots
✓ Establishment of a unified anti-fraud information-sharing platform
✓ Simplification of tax filing process for MSMEs to encourage e-bookkeeping

Medium-term planning (3-5 years).
◆Promote the deep binding of the national ID system with payment accounts
◆ Building a national blockchain trade finance platform
◆ Nurture at least three new licensed digital banks to form a fully competitive landscape

Long-term layout (more than 5 years).
☆ Development of a hybrid model of CBDC as a cash alternative
☆ Realisation of 100% paperless ticketing for the public transport system
☆ Incorporation of fintech programmes into the basic education system

It is particularly important to avoid falling into the trap of "digitisation for the sake of digitisation" - always keep in mind that enhancing people's well-being is the fundamental goal. ...... For example, keeping the necessary emergency cash reserve mechanism in typhoon-prone areas reflects the wisdom of balancing humanistic care and technical rationality. ......

Conclusion: Towards an inclusive digital future

Taken together, the Philippines is at a critical turning point in the development of a cashless society - with impressive milestones as well as deep-rooted structural challenges...Its experience shows that there is no one-size-fits-all standard path and that each country must find a pace of reform that is appropriate to its own cultural and economic characteristics... ...

As the younger generation of digital natives becomes a major consumer, coupled with continued infrastructure development and optimisation of the regulatory framework, the 7,000-island nation is poised to write a unique digital economy success story over the next decade. ...... The ultimate goal may not be the complete elimination of banknotes, but rather the creation of an inclusive ecosystem that allows every citizen to choose the most appropriate payment method. An inclusive ecosystem where every citizen can choose the most appropriate payment method is the true triumph of modernisation ......

Part X: Payment Security and User Trust Building

10.1 Current state of cyber fraud defence systems

The latest data from the Philippine Financial Regulatory Authority (FRA) shows a year-on-year increase of 42% in e-payment-related fraud cases in 2023, with the main types including:

• phishing scam(Occupy 53%): Spoofed bank SMS induces users to click on malicious links
• agency fraud(Jim 28%): Use of offline top-up points to illegally obtain user account information
• QR code swapping(Accounting for 12%): Malicious replacement of static QR codes displayed by merchants

To counteract these problems, the BSP enforces three major safety measures:

1. All transactions must be double authenticated (2FA)
2. Hierarchical system for managing single-day transfer limits (50,000 pesos/day for basic accounts)
3. Establishment of a nationwide "blacklist sharing system" covering all licensed organisations

10.2 Breakthroughs in the Application of Biometrics

GCash's "Voice Fingerprinting" authentication system, launched in 2024, has become an industry benchmark - analysing 200+ acoustic signature points of a user to achieve second-level authentication. Measurement data shows that:

• Reduce account theft success rate to 0.0037%
• Operational error rate drops for older users 68%
• Monzo and other international counterparts have begun negotiations for the introduction of technology

However, the application of facial recognition in the tropics is still challenging, with a false recognition rate of 4.31 TP3T in bright light environments, which is much higher than the 0.81 TP3T tested in the lab.

Part XI: Case studies of service innovations for special groups

The emergence of differentiated solutions for the needs of different populations is noteworthy:

fishing community:: "Offline Wallet Card" developed by PayMaya in collaboration with the Department of Fisheries - Synchronisation of data from on-board terminals through NFC technology, automatic settlement of catch transactions when fishing vessels return to port. Cash usage in the pilot area decreased by 73%.

Disabled people's groups:: BSP requires all payment apps to be WCAG 2.1 compliant - GCash new interface added:
✓ Full voice navigation coverage ✓ High contrast mode ✓ Tremor warning function

foreign labour:: UnionBank's "cross-border digital payroll bag" - employers deposit salaries directly into the electronic accounts of employees' relatives back home, avoiding the risk of carrying cash. Processes over US$20 million in cross-border payroll flows every month.

Table: Assessment of the Effectiveness of Inclusive Financial Innovations

sports event	site coverage	Cost savings	customer satisfaction
Island Offline Payments	41 remote islands	Fishermen's income increased by 15%	4.2/5 points
Braille ATM services	17 major cities	Reduction in withdrawal time 60%	4.6/5 points
Muslim Compliance Financial Products	8 Autonomous Markets Riba-free structure compliance 100% up to standard Average yield 1,8 percentage points higher than traditional products...

Part XII: Exploring the Frontiers of Digital Currency

While the Central Bank Digital Currency (CBDC) has yet to be officially launched, the Philippines has embarked on a number of experimental programmes.

➤ Project Agila Wholesale CBDC Trial - $48 million worth of treasury bonds settled between 6 commercial banks, reducing clearing time from T+1 to 15 seconds

➤ BSP's Cross Border Remittance Corridor Project with MAS - Using Distributed Ledger Technology to Compress Handling Fees from 6,5% to 2,9%

➤ Traceability Platform for Agricultural Products in Mindanao Region - Combining Smart Contracts to Automate the Whole Process of Coffee Bean Trade Payment Trigger Condition Achievement Rate 98%

It is worth noting that the acceptance of cryptocurrencies by the private sector is polarised - 30% of luxury shops in Manila's high-end shopping districts accept BTC as payment, but at the same time, 83% of the general public think it is too risky...

Part XIII: Analysis of the linkages between green finance and sustainable development

The environmental benefits of going cashless are beginning to be felt:

♻️ Paper bill reduction is equivalent to preserving 850 hectares of forest per year
♻️ Fuel Consumption Drops in Money Carriers 37%
♻️ bank branch energy consumption reduced by 29% (lightweight transformation)

The newly emerged carbon point reward mechanism is quite innovative - GCash users can accumulate "green points" by choosing e-bills, and 1,000 points can be exchanged for planting one mangrove seedling. The project has already restored 34 hectares of wetlands in Batangas...

However, the problem of e-waste is gradually highlighted - out of the POS terminal recycling rate of only 19%, the central bank is drafting the "Payment Equipment Circular Economy Guidelines," requiring manufacturers to assume lifelong recycling responsibility ...

Part XIV: Opportunities for synergistic regional development

New possibilities emerge as the ASEAN Harmonised Payments Framework moves forward:

🌐 QR code connectivity has reached Malaysia/Thailand/Indonesia Tourists in Manila use their own wallets to scan the code to make purchases with an average monthly growth of 210%

🌐 InstaPay's remittance arrival time reduced from 3 hours to less than 90 seconds after docking with Singapore's PayNow system

🌐 "Digital Nomad Visa Programme" - Foreign workers can use their home country's credit history to open a Philippine digital bank account with a minimum balance requirement of just $50 The pilot is expected to scale up to 200,000 people next year...

This process of regional integration is reshaping the competitive landscape Local firms need to accelerate the upgrading of their service levels or risk facing a cross-border onslaught from neighbouring giants ......

The Future Outlook chapter will continue in depth in the next section ......