Factors Supporting eCommerce

A growing middle class

According to the World Bank³, the Philippines is one of the most dynamic economies in the East Asia Pacific region. It sustained average annual growth of 6.3% from 2010 – 2018, up from an average of 4.5% from 2000 – 2009 and is on its way to becoming an upper-middle-income country (US$ 3896 – 12,055) in the near term.

Even though the external economy is weak and caused the country’s GDP growth to slow to 5.6 per cent in Q1 2019⁴, the World Bank estimates growth will accelerate back to 6.1% in 2020 and 6.2% in 2021. In fact, strong domestic consumption⁵ is one of the reasons why the Philippines’ GDP growth began recovering in Q4 2019.

Poverty has also been steadily reduced. The World Bank also reports that poverty declined from 26.6% in 2006 to 21.6% in 2015 while the Gini coefficient declined from 42.9 to 40.1. Lower Gini coefficients mean lower levels of income inequality.

A bullish economy is also propelling an emerging middle class of tech-savvy millennial spenders, the oldest of whom are now assuming managerial positions in organisations. In fact, the World Economic Forum predicts⁶ that this middle-class segment will outspend Italy’s middle class by 2030.

Meanwhile, the stream of foreign currency sent by overseas Filipinos to their families in the Philippines continues to break records with each passing year⁷. In 2018, overseas remittances reached US$32.21 billion, which, for the average Filipino family, is spent on food, clothing, entertainment, mortgages, rent, and other basic necessities.

The Philippines also has the second-largest average online shopping basket size in Southeast Asia⁸ according to iPrice, which only goes to show how eager local consumers are to find and buy products online. You can also have a look at our article on Philippines’ online shoppers and our downloadable Philippines eCommerce guide for more information.

Growing government support

Recognising the importance of eCommerce for the Philippine economy, the country’s Department of Trade and Industry (DTI) developed the Philippine eCommerce Roadmap 2016-2020⁹. Its primary goal is to get online business activities to account for 25 per cent of the country’s GDP by 2020, up from 10 per cent in 2015.

The government is committed to seeing through this roadmap, and has made especially in the areas¹⁰ of:

• Infrastructure – improving Internet access, eGovernment systems, eBanking, ePayment, tax systems, consumer protection, and logistics
• Investments – supporting and promoting opportunities such as foreign direct investment and capital flows
• Innovation – helping digital startups enter the commercial market

Overall, this means the Philippines is in the process of building clear rules and support systems for you and other online merchants. There are some kinks, as with any other country adopting digital transformation, but the government understands the importance of opening its doors to both domestic and foreign players in the eCommerce industry.

Interest in goods found abroad

Filipinos are prolific shoppers, hungry for goods and services not found in the Philippines—a fact you can leverage when figuring out which goods consumers in this market would be interested in. A typical Filipino holiday itinerary to nearby cities like Hong Kong and Singapore isn’t complete without a day or two set aside for shopping alone. In fact, going abroad used to be the only way Filipinos could shop at stores like H&M and Uniqlo, which only opened stores in the country in 2014 and 2012, respectively.

The desire for products not found locally was also cited by a Nielsen report as one of the primary reasons driving eCommerce consumers in the Philippines to shop online. The opportunity here for online sellers is obvious: you can stand out in this market by offering products Filipino consumers don’t have access to locally.

The convenience of a digitalised shopping experience

The Philippine population of 107 million people skews towards a young, tech-savvy group of Millennial and Gen Z consumers (the country’s average age is 25.7 years¹¹). Unsurprisingly, these consumers are prolific users of the Internet, spending an average of 10 hours and two minutes² browsing the Internet each day. Nearly half of that time—four hours and 12 minutes—is spent on social media.

Like other countries in Southeast Asia, the advent of powerful and affordable mobile devices is at the heart of this surge of Internet usage among Filipinos. The Philippines has been a mobile-first nation since 2014¹², and this can be seen in Hootsuite and We Are Social²’s findings that 89 per cent of adult Filipinos use mobile phones of any type. In contrast, only 38 per cent have access to a laptop or desktop computer.

As such, it’s important for you to provide an online shopping experience that’s optimised for the smartphone screens of mobile-first shoppers. That means simpler navigation requiring fewer clicks, clear call-to-action buttons, vivid but lean images that load quickly, an intuitive browsing experience, and even eCommerce ads optimised for mobile screens.

Looking for more trends and facts on eCommerce in the Philippines? Find out more in our eCommerce Guide to the Philippines!

Challenges of eCommerce in the Philippines

Cash-based payment methods dominate, for now

One of the reasons behind the relatively slow uptake of eCommerce in the country in the past few years is the continued dominance of cash-based transactions. According to the Philippines’ central bank¹³, cash accounted for 99 per cent of all local transactions as of January 2018.

In addition, the country has been slow to adopt eWallets, with only 1.3 per cent of Filipinos owning electronic money accounts¹⁴ based on Bangko Sentral ng Philippines’ 2017 Financial Inclusion Survey. Meanwhile, merely 1.9 per cent of Filipinos over the age of 15¹⁵ have a credit card. 68 per cent¹⁶ of Filipinos with savings keep them at home instead of at a bank in 2019.

As such, over 80 per cent of online retail players¹⁷ in the Philippines have had to offer cash-on-delivery or payment centres (like paying at a 7/11) as a payment option. This can be a headache for international sellers given the ease of cancelling or returning orders that buyers have not yet paid for, compared to those they have paid for in advance.

However, local e-wallets have been aggressively marketing their services in the country. Popular ones include GCash and SMART Money¹⁸, which are offered by two of the country’s largest providers of mobile accounts and Internet connections. Social commerce, especially through Facebook and Facebook Messenger, has also been found to drive the adoption of e-wallet payments¹⁹ in the Philippines, according to a report by PayPal.

The government of the Philippines has also been ramping up efforts to help its unbanked and underbanked population. Through its National Strategy for Financial Inclusion²⁰, it plans on doubling the number of Filipinos with bank accounts from 2019’s 35 per cent to 70 per cent by 2023 – which should lead to more Filipinos using debit and credit cards in the future.

What’s clear is that online merchants should be willing to accept cash-on-delivery, while also educating consumers about e-wallet payment options.

Logistics concerns due to unique geography

With the Philippines being an archipelago of more than 7,600 islands, logistics naturally presents a challenge you will have to prepare for when serving customers in this country. Consumers living in the sprawling capital of Metro Manila enjoy access to huge shopping malls, flagship brick-and-mortar stores, and even same-day online²¹ delivery from large marketplaces like Lazada and Shopee.

However, suburban and rural areas with fewer shopping malls are an underserved market where you can cater to customers who can’t find the products they want or need in nearby brick-and-mortar stores. To do this, you will need a reliable cross-border shipping partner and last-mile delivery service provider that can deliver packages nationwide, without drastically increasing your shipping fees.

But even with a logistics partner, it’s important to set realistic expectations on how soon customers can receive their orders. For example, online marketplaces like Lazada make it clear that they can deliver to all serviceable areas, with a few limitations due to geographic restrictions. For orders outside of Metro Manila, the promised turnaround time is 12 days²², even if deliveries don’t necessarily take that long.

You should also take note of the Philippines’ most popular eCommerce shopping events to anticipate supply and demand well in advance. In the Philippines, shopping season typically starts during the “ber” months (i.e. September to December).

This is also a good time to research sale wishlists to get an idea of what Filipino consumers are eyeing, especially during the end-of-year holidays. This will help you plan for timely delivery during the festive season.

Growing pains with Internet connectivity

The Philippines has one of the slowest and most expensive Internet connections²³ in Southeast Asia. Coupled with high mobile phone and social media usage, this means online merchants must pay attention to mobile optimisation, particularly when it comes to the sizes of their product images, This ensures that consumers can easily load on a smartphone on a 3G data connection.

Keep in mind that Facebook, the country’s most popular social media network² has a free version for mobile phone users in the Philippines. That means online merchants can leverage the network to advertise and sell their products.

In fact, PayPal’s research¹⁹ shows that 87 per cent of Filipino merchants sell products on social media. Facebook also drives traffic and engagement²⁴ on Lazada, Shopee, and Zalora.

Changing eCommerce perceptions

A universal challenge for any online merchant is gaining buyers’ trust. For eCommerce, this means using a combination of strategies, ranging from prompt delivery to accurate product descriptions.

You also need to account for the low trust Filipino consumers have in credit cards. According to a MoneyMax survey²⁵, many Filipinos are reluctant to get credit cards because they fear it will lead to overspending and debt.

Considering the challenges in Philippine eCommerce, online merchants can also build trust by offering alternative payment options to credit cards. This may be in the form of cash-on-delivery and local e-wallets.

Given the popularity of branded products, eCommerce merchants can also capitalise on consumers’ trust in major brands. This does not mean that you must sell only branded items. Merchants can sell non-branded or less popular products in bundles with major branded items, or sell similar products that provide the same features and functionalities.

When it comes to eCommerce in the Philippines, there are a few critical factors to remember:

• Pay attention to local economic conditions and plan your supply chain accordingly.
• Filipinos shop online to find products not found locally or in brick-and-mortar stores. Social media listening will go a long way towards understanding the unmet needs of Filipino online shoppers.
• The majority of Filipinos access the Internet on mobile devices, so be sure to optimise your eCommerce shopping experience accordingly.
• Cash is king in this country. Check if your eCommerce logistics specialist has partners or recommendations for last-mile-delivery service providers who have COD as a payment option.
• The Philippines’ geography presents challenges in terms of keeping shipping fast and affordable. Again, find a reliable logistics partner and be sure to set expectations ahead of time to ensure shoppers know how soon they can receive their orders.

The Philippines offers massive potential for eCommerce players who can beat the competition in establishing an online foothold in the country. However, doing so means responding to the challenges mentioned above. With planning, targeted marketing, and the right cross-border shipping partner by your side, you should be able to adapt to the needs and preferences of eCommerce consumers in the Philippines.

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Interested in e-commerce in the Philippines? Find more of our articles below:

• Main Philippines Country Page
• Guide to Ship to Southeast Asia
• Mini Guide on How to Ship to the Philippines
• Who are the Philippines’ Online Shoppers?
• The Philippines’ Top 3 eCommerce Product Categories
• The Philippines’ Hottest Online Sales Periods