Low credit card penetration, lack of trust constrain Philippines e-commerce

ONLINE retail sales in the Philippines account for only one percent of total retail sales in the country, a key e-commerce executive said.

Inanc Balci, Lazada Philippines co-founder and chief executive officer said this is much lower than in Western countries, which record online retail sales from five to 10 percent of the total retail sales.

One major constraint to the growth of e-commerce in the Philippines is the low credit card penetration. According to Balci, only three to seven million Filipinos are credit card holders and 30 million have bank accounts.

The lack of trust, customer knowledge, and market size are also challenges confronting e-commerce in the Philippines.

Because of this, Lazada led the “no risk” cash-on-delivery (COD) payment scheme, where buyers would only have to pay for the item they bought from Lazada when the item is delivered.

“Credit card penetration is low, but even those with credit cards prefer cash-on-delivery on their first few purchases,” Balci said.

Most of the transactions in Lazada are through COD.

In Lazada, top selling categories include electronics, fashion, and home products. These are delivered to the customers within one to 10 days upon purchase.

The geography of the Philippines is also affecting e-commerce.

“(There are) hard to reach, low-density areas with low retail presence and an expensive delivery infrastructure,” Balci said.

To address this, Lazada has been putting up warehouses in some parts of the Philippines.

Last Thursday, it opened a warehouse in Mandaue City to serve some areas in the Visayas. It will also open one in Davao in the next 12 months.

While online shopping is a relatively new concept in the Philippines, Balci is optimistic that the country will exceed Western countries’ five to 10 percent share.

“I believe the Philippines is going to be bigger than the Western markets,” the official said, saying the increasing smartphone use among Filipinos will drive e-commerce growth.

Balci said there were 10 million additional mobile Internet users in 2015.

“The mobile ecosystem is the big driver of Internet penetration. (There is a) $21 smart phone on Lazada,” he added.

Presently, Lazada holds 80 percent market share in the online retail segment. The company sees the Philippines as one of its fastest growing markets. The online shopping mall is also present in Indonesia, Malaysia, Thailand, Singapore, and Vietnam.

“I’m very optimistic with the Philippines, since we have experienced growth at a crazy rate,” Balci said.

Lazada was launched in the Philippines in March 2012.

More than half of Lazada buyers, or 54 percent of them, are males. People aged 18 to 34 years old account for 71 percent of the company’s customers.