Having attended the 5th Philippine eCommerce Entreprenuer’s Summit hosted by the DigitalFilipino.com, I had few ideas for improvement. E-Commerce is similar to a business except for its special marketing channel. It use of the internet make it innovative yet so complex. Internet being its critical-to-success factor, it is fitting that the improvement in the Philippine internet infrastructure will correlate to the growth of Philippine e-commerce. Based on the 2014 South East Asia Internet Speed Infographic of Inquirer.net, Philippines rank last among all nations within the region. Certainly, internet infrastructure needs improvement for Philippines e-commerce to grow.
E-commerce being similar to traditional brick-and-mortar businesses, regulations such as taxation and government support should be progressive enough to encourage business startups. Last year, the Philippines ranked 108th out of 189 nations in the World Bank Group’s Ease of Doing Business report, up 30 notches from 138th in 2012. Though the Philippines drastically improved, it is still way behind our South East Asian neighbors with Singapore in the top spot and Hong Kong somewhere in the top 5.
Business startups in Singapore are tax-exempt for their first three years. This is a major boost for businesses struggling to grow amidst the uncertain business climate. Furthermore, small matured businesses are exempted to pay taxes. For the e-commerce in the Philippines to grow, the Philippine government should revise its taxation and regulations favoring the small business and e-commerce entrepreneurs. Though the Philippine government would collect little-to-none taxes for business startups and SMEs in the short-run, the long term effects would be sustainable increases in GDP and employment. The Philippines actually has a law that exempts small business but based on conversations with entrepreneurs and from actual experiences, the application is not entrepreneur friendly. Application is an arduous process that only businesses with special contacts in the municipal government, particularly the Municipal or City Treasurer, are approved.
Another critical factor that is critical to the growth of Philippine e-commerce is digital divide on payment gateways. Many Filipinos are still do not have credit cards. Based on World Bank figures in 2012, only 3% of the Philippine populations have credit cards while banking penetration is at 27%, largely lagging from the South East Asian leaders. For the Philippine e-commerce to grow, the banking industry should also ramp up its operations to exponentially activate Filipinos on online payment gateways.
On the contrary, online payment in the Philippines is possible without a bank account. There are over-the-counter deposit services that banks all have. There is also an e-commerce payment gateway, DragonPay to be exact, which caters to the no-credit-card and no-bank-account Filipinos. However, there is still a need to integrate these independent payment platforms to capture the unique banking practices of the Philippine culture. Local commercial, universal and rural banks need to upgrade their online banking facilities to allow interbank transactions and provide a centralized Application Programing Interface that will allow such integrated e?commerce financial needs. An e-commerce clearing house is needed to be established to accommodate interbank deposits. At the same time, the same clearing house transacts with registered e-commerce businesses and acts as an intermediary among various banks. Doing so will eliminate the need to have “over-the?counter bank deposit” as a payment option for online businesses. This “over-the?counter bank deposit” eliminates the purpose of shopping at your fingertips as the traditional “over-the-counter bank deposit” still does not eliminate traditional transactions costs such as travel cost and inconvenience psychic costs for potential e-commerce customers.
The last issue that should be addressed for Philippine e-commerce to grow is the ASEAN Integration, particularly the 2015 ASEAN e-commerce legislation harmonization. This integration shall yield amplified positive and negative effects. Indeed, the market opportunities widen, however, the risks subsequently expand. Currently, the ASEAN e-commerce harmonization framework is still in the development stages.
E-commerce players in the Philippines should at least be aware of ASEAN e-commerce harmonization and mindful of its effects. Proactively, steps should be taken to build the capacities e-commerce entrepreneurs in relevant areas of e-commerce, especially cyber security concerns and building trust among potential consumers.1 Preparing for the ASEAN e-commerce harmonization shall be a proactive risk management for e-commerce entrepreneurs for both mitigating negative risks and leveraging market opportunities.
The Philippines being one of the lowest banking credit card penetration rates in South East Asia combined with its young population, growing economy and low internet penetration, the Philippines is ripe for e-commerce boom. According to Informa research, the Philippines will be the world’s twelfth most populous country with over 100 million people by 20142. Furthermore, with a median age of 22.1, over 76% of the population is under the age of 40.3
Further, the Philippines is positioned for robust e-commerce growth given its current business climate – high costs in setting up brick-and-mortar businesses as compared to e-commerce businesses. E-commerce is the ideal business structure because it both addresses issues on cost-efficiency and proximity. E-commerce business can have business presence that is able to serve the archipelago’s 7,000 islands, which traditional brick-and-mortar businesses cannot. In fact, most traditional businesses set up complimentary e-commerce channels.
According to the Third Team Media, the internet penetration in the Philippines is 34% in 2014. This relatively low internet penetration hinders the flight of the e-commerce industry. Though this is a short term constraint, internet penetration will eventually catch up with ASEAN leaders in the long run.
Based on current Philippine e-commerce elements, mobile and social media (Facebook) are poised to benefit from the potential growth in the country’s e-commerce industry in the coming 3-5 years. As the Philippine e-commerce market and its complementary business structure improve, the e-commerce will eventually take flight and be relevant in the Philippine economy.