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What do Digital Wallets have to do with Financial Inclusion?

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By Ann Cuisia-Lindayag

Nations such as Canada, Sweden, and the United Kingdom are leading the way toward becoming cashless societies.  In Sweden, for example, people can pay for goods and services without having to bring out their paper money and coins. See, more than half of all transactions are done through “cashless methods”—via credit cards, debit cards, prepaid card, mobile payments, etc.

The Philippines, in contrast, has a low banking penetration rate and a much lower credit card ownership, which is why cash on delivery remains our most popular form of payment for online purchases.

That said, there is at least one form of cashless method at our disposal that does not need ownership of any bank card or credit card: Mobile money services such as those provided by local telcos. Here is where virtual wallets play a role.

Plight of the Unbanked Filipinos

In the bigger scheme of things, do we really need to go cashless in the way of Sweden or Canada?

My take is that for our country, this isn’t a matter of playing catch-up as much as it is about finding a way toward financial inclusion. A 2017 study published by think tank Philippine Institute for Development Studies confirms how many Filipinos do not have access to formal financial services. Citing Bangko Sentral ng Pilipinas data, it notes that 72 percent of Filipinos transact with informal resources. Also, only about 30 percent of small and medium enterprises (SMEs) have formal lines of credit and/or bank loans.

Of the almost 1,500 municipalities in the country, 12 percent have no access to banks or other financial service providers. Unlike in metropolitan Manila, there are many areas in Mindanao and Visayas where distance and the cost of traveling to get to a bank is a challenge. Those who are unserved by banks therefore turn to informal financial activities such as creating informal group savings or borrowing from moneylenders instead.

What Are Digital Wallets, Really?

Digital wallets are just the digital equivalent of your purse or physical wallet, secured by a technological process that substitutes non-sensitive information for sensitive, personal information, called tokenization.

These come in various (digital) forms and sizes. That is, they differ from each other in features: In the technologies used (near field communication, QR codes, bar codes), payment methods allowed (debit cards, credit cards, cryptocurrencies), specialty cards added (reloadable prepaid cards, gift cards), and device compatibility (phones, tablets, web browsers), among others.

Mobile wallets are the mobile version of a digital wallet. As its name implies, mobile wallets allow one to receive or send money via mobile devices such as smartphones.

Unlike bank cards,  services such as Smart Money and GCash, for instance, have mobile wallets that can be loaded with money by depositing cash not in banks but at the service providers’ commercial partners—i.e., convenience stores, supermarkets and business centers. This model gives Filipinos who do not have bank accounts an alternative way of paying for goods or services, receiving or sending money online.

However, we are yet to find virtual wallets that can transact with anyone “anytime, anywhere”.  There are wallets that are limited to devices with specific operating systems only. Others do not yet have the capability to direct payments received, to a bank account within a matter of minutes. Or if they do, their facility is available to accounts within a specific banking network only.

While we are yet to feel the contribution of the digital wallet in addressing the problems of the unbanked, its potential is undoubtedly there. After all, we have 51 million unique mobile subscribers, and 55 percent using the internet.  My hope is that, at the very least, the new technologies available can significantly slash the transaction costs of sending or receiving money—for our unbanked countrymen’s sake.

Ann Cuisia-Lindayag is the CEO of Traxion.Tech. She is passionate about social impact and leads her startup’s direction on blockchain for the common good. You may reach her at ann@traxion.tech.

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