The Philippines growth in the cards and payments channel continues as the number of cards increases by 7%. CI looks at the current state of the Filipino market and what can be expected from it over the next few years
Steady growth was recorded in the Filipino card payments channel during the review period (2008-2012), as the number of cards in circulation increased at a CAGR of 7.65%, rising from 40.8m in 2008 to 54.8m in 2012. This growth was primarily driven by the prepaid cards category which registered the highest growth rate at a CAGR of 17.26%. Over the forecast period (2013-2017), the number of cards in circulation is expected to increase from 58.1m in 2013 to 72.9m in 2017, after registering a CAGR of 5.84%.
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In terms of transaction value, the card payments channel rose from PHP705.6bn (US$15.9bn) in 2008 to PHP1.1trn in 2012, at a review-period CAGR of 11.58%. The channel is forecast to grow further, from PHP1.2trn in 2013 to PHP1.5trn in 2017, at a forecast-period CAGR of 6.40%. The channel is expected to decrease by 5.1 percentage points over the forecast period, as compared to the growth levels registered during the review period.
International banks dominate the credit card category while domestic banks lead the debit card category
The card payments channel is dominated by four large domestic banking groups – Metrobank, Banco de Oro, Bank of the Philippine Islands (BPI), and Land Bank of the Philippines. In the debit card category, domestic banks held a collective market share of 57% in 2011. Foreign banks such as Citibank and HSBC dominate the credit card business. In terms of number of credit cards in circulation in 2011, Citibank held the highest share of 20.6% with 1.4m cards, followed by HSBC with 10.8% and 747,676 cards.
Remittances driving debit and prepaid card categories
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By GlobalDataThe cards and payments industry benefits from international remittances due to the large number of Filipinos migrating to other countries. Remittance money rose by 5.6% to US$10.7bn in the first six months (January-June) of 2013 and it is expected to grow further as more Filipinos seek employment abroad. In response to this, banks are offering a number of remittance debit and prepaid cards, allowing migrant Filipinos to transfer money to beneficiaries in the Philippines. OFW Cash Card and On-time Remittance Card are examples of some of the prevailing remittance cards in the country. In 2011, BPI held 25% of the remittance business market share, followed by Philippine National Bank (PNB), the Metropolitan Bank & Trust Co. (Metrobank) and Rizal Commercial Banking Corp. (RCBC) with respective market shares of 15%, 11% and 6%.
Increased focus on technology to differentiate offering
As competition intensifies, banks are implementing innovative strategies to attract new customers and retain existing ones. Shopping rebates, raffles, installment programs, discounts and freebies at partner retail merchants on credit card purchases are common tactical promotions. To differentiate their offerings, banks are adopting new technology and redefining customer segmentation. Analytics-based platforms are used to improve customer segmentation and develop targeted offering. There is also an increased focus on rewards to retain customers and drive revenue growth. BPI Bank provides BPI Express credit cardholders with instant rewards at merchants while tracking each purchase made through a smart chip embedded in the card.
Interconnectivity is driving transaction volumes
The number of card transactions was positively impacted by the interconnectivity of domestic ATM and POS terminal network operators such as MagaLink, BancNet and Expressnet. In 2010, these three domestic operators connected their POS terminals across the country. Interconnectivity drove card transaction growth at a review-period CAGR of 10.74%, rising from 153.2m transactions in 2008 to 230.4m in 2012. Transaction volume at ATM terminals grew at a slower pace compared to transactions at POS terminals, at a review-period CAGR of 6.79%, representing the shift from cash to cashless payments.
Increased focus on prepaid cards to drive growth and improve margins
Over the forecast period, the prepaid cards category is expected to record the highest growth at a CAGR of 15.77% due to increased adoption by the government and corporate companies. The card volume increased from 11.2m cards in 2013 to 20m in 2017.
The debit card volume is projected to register nominal growth over the forecast period at a CAGR of 3.10%, reaching 43.6m cards in 2017. The credit and charge card categories are expected to record CAGRs of 2.92% and 0.12% respectively over the forecast period.
The key drivers for prepaid cards are travel, remittances, government welfare schemes and online purchases. The government adopted prepaid cards to distribute social benefits and prepaid travel cards present another key growth area in line with a steady increase in outbound leisure vacations and business trips.
Targeted product offerings based on consumer behavior to drive future growth
Targeted card product offerings are becoming increasingly popular. There is an increased focus on targeting niche categories such as cards for the young population, high net worth individuals (HNWIs), and specialized professionals such as teachers, doctors and bankers. For instance, Metrobank offers the Femme Visa credit card exclusively for female customers with special discounts on unique purchases such as personal care products and accessories. This trend is expected to intensify over the forecast period as card issuers focus on developing customized products based on spending behavior and consumer attitude.
Emerging technologies on smartphones to foster card payments
To improve the payment infrastructure in rural areas, the Department of Science and Technology (DOST), a government organization is planning to introduce a new wireless data communications standard ‘TV White Space’, wireless technology which works on a radio frequency model, in the Philippines. The technology provides wireless internet access to rural areas where inadequate wired internet infrastructure exists, and is expected to increase internet access on smartphones.
In April 2013, Smart Communications Inc. (Smart), a technology services provider, introduced the mobile payment tool, Smart Pay, which allows merchants to accept MasterCard payments made through smartphone. Smart Pay functions as a POS terminal and can be integrated onto a smartphone or a tablet that allows MasterCard debit and credit card payments. Over the forecast period, card payments are expected to increase as a result of emerging technologies such as near field communication (NFC) and new mobile payment tools supported by internet access on smartphones.
