Businesses still prefer checks for payments

MANILA, Philippines - Checks remain by far the most widely used interoperable payment instrument in the Philippines despite the presence of digital payment instruments.

Based on the latest case study by the Better Than Cash Alliance, a large number of businesses insist on “hard copy” checks even if so many entities offer digital payment instruments like inter-bank electronic credit and debit transfers.

The Better Than Cash Alliance is an UN-based alliance that helps government, private sector and development organizations to accelerate shift from cash to digitalized payments.

Instead of using electronic inter-bank transfers, businesses tend to open multiple bank accounts with different banks and then initiate on-us payments to suppliers at their own banks.

One of the Philippines payment networks (BancNet) does offer low value credit transfers in real time between payment card accounts, but there are still a few takers.

Businesses are leaving substantial “money on the table” by failing to realize the cost savings that could be achieved through the use of digital payments.

If the corporate sector adopted digital payments instead of checks and cash, it could save an estimated 46 percent of its invoice-handling costs.

Further, if the banking sector also adopted digital payments, it could boost net profit by an estimated 8.5 percent.

To achieve these benefits, further initiatives are needed to build on the Philippines’ progress so far.

In particular, the switching costs and ongoing fees for digital payments for both payees and payers need to be lowered and made more transparent.

From interviews with Filipino corporates across sectors, it appears they are looking for the following characteristics in payment instruments: Acceptance from the payee (which implies convenience and low or no cost structure for recipient); Clear rules on recourse and liability; and, the ability to provide information with the payment to ease reconciliations.

These characteristics are no different from those found in other surveys of businesses around the world, such as in Canada and the US.

Filipino businesses understand the high administrative costs they face but are unable to make the switch today.

In this regard, they differ from Nigerian corporates of equivalent size, which have largely accepted the need to shift, and the inevitability of shifting, and are making steps in this direction — albeit in an environment where policy and costs promote their doing so.

The case study draws on in-depth interviews with commercial banks and Filipino corporates, complemented by a survey of 400 small businesses employing between two and 25 people in Metro Manila in 2014.