The Philippines Struggles to Keep Up With Southeast Asia’s Cashless Drive—Study

Shoppers in Southeast Asia increasingly rely on cashless transactions with their digital payments made in ZALORA growing to 81.20% in 2022, up from 74.61% in 2020. Digital payments are expected to power e-commerce spending in the region, but as Southeast Asia’s payment landscape is fragmented, integration may be held back by archipelagic Indonesia and the Philippines where cash remains king.

Transactions closed through the cash-on-delivery (COD) payment method has significantly declined in the last two years to between 15% and 20% from the previous 25%, according to the leading online fashion, beauty, and lifestyle retailer in the region.

“Despite the positive outlooks, the payment landscape in Southeast Asia has remained incredibly fragmented. In fact, due to the region’s diversity, integration from market to market is generally difficult for a single player to do at a payment level,” Achint Setia, chief revenue and marketing officer at ZALORA, told Retail Asia.

cashless payment card shopping online laptop stock tinhill pr

Photo from Tin Hill PR

The Philippines and Indonesia

Citing its Southeast Asia Trender Report 2022, ZALORA noted that cash transactions in 2021 in the Philippines reverted to pre-pandemic levels, whilst cash payments in Indonesia went up to 60% in 2021 from 58% in 2020. Setia linked this to the archipelagic topography of the Philippines and Indonesia.

“The challenge with the Philippines and Indonesia is their topography is a lot more diverse, and more spread out. There is a challenge, even logistically for incumbents to expand,” Setia said.

“It’s easier for digital incumbents to do that, but even from an offline market and building trust, it is sometimes tricky with so many different segregated and fragmented islands.”

Setia said some customers, who are in remote places, are reluctant to use digital payment methods and opt to play it safe by relying on COD. For instance, Indonesia, which has more than 17,500 islands, has a huge digital divide between customers in Central Java Island and those in remote islands. Citing data from the Boston Consulting Group, Setia noted that 57% of Indonesians prefer to pay in cash, 8% prefer mobile wallets, and 7% use Internet banking.

“There are still a lot of local intakes, but what brands and platforms can do is continuously incentivize customers to move to digital by streamlining the purchase journeys,” Setia said.

“If [brands] can reduce the time from carts to final payment in just one or two clicks, and also build comfort amongst customers in refunding their money; if they can do it consistently and repeatedly, then they will trust your returns and refund policy and some of these challenges can be overcome,” he explained.

ZALORA observed that consumers have become more comfortable with real and virtual worlds, but continuously struggle between the two as they seek personalized and more humanized experiences, without foregoing convenience.

On this note, Setia said retailers and brands should not be racing for total digitization to reach last-mile purchasers. Rather, the race should be geared towards “an attempt for agility in a volatile climate and an attempt to make sure that experiences across touchpoints are streamlined,” he said.

Hyperconsumerism in Southeast Asia

Connectivity and digitization that have grown exponentially in the region have also fueled hyperconsumerism as shoppers demand flexibility, convenience, and control. Setia noted, for instance, that a lot of high-value purchases were also enabled by “buy now, pay later” or BNPL.

ZALORA found that whilst credit cards dominate luxury transactions with 41.1% of shoppers using them as a payment method, luxury shoppers have also started using BNPL more. In 2022, 21.4% of luxury transactions were paid through BNPL, up from 12.9% in 2021. This is in comparison to the credit card option, which declined from 47.4% in 2021.

The BNPL method has also given shoppers access to other high-value products, such as those under home and lifestyle, beauty, and women’s accessories, to name a few.

Moreover, shopping festivals, such as Single’s Day and double-digit events, have also driven hyperconsumerism amongst Southeast Asians. Setia said brands looking to capitalize on these events need to establish a stronger online presence that will bring customers through a seamless journey from intent to delivery.

“Customers want to build long-term relationships with brands that they love, but they also don’t want it to come at the cost of a lot of hassle or lack of value for money. Both are equally important,” he said.

Towards this end, ZALORA scaled up its benefits program, ZALORA Now (ZNOW). Setia said that through ZNOW, ZALORA offers a unique experience to its customers by way of early access to big events, faster last-mile delivery services, and even allowing them to discover better products, amongst others.

Beyond this, Setia said brands need to ensure flexibility is integrated into the entire business model, especially amidst the current economic and geopolitical landscape that could disrupt supply chains.

“Whether it is sourcing, manufacturing, or production, they’ve all taken a hit, so companies are continuously adjusting their supply chains to adapt to the current environment. We have also seen the cost of transportation and logistics becoming more competitive in recent times and had really overshot in the past,” he said.

“Brands and sellers just need to ensure that they remain flexible. They should keep trying new business models to overcome the current challenges because they are not going away in a hurry,” he concluded.