The Rise of E-commerce in the Philippines: Opportunities and Challenges

Although brick-and-mortar stores are back and continuously sprouting all over the Philippines archipelago, the e-commerce landscape has yet to see any negative changes. According to experts, it is still skyrocketing and will continue to rise in the upcoming years.

As said by ECDB, country revenue is anticipated to show a compound annual growth rate (CAGR) of 6.6%, resulting in a projected market value of US$15,835.4 million by 2027.

COVID-19 was a dreadful occurrence in all parts of the world, but it paved the way for e-commerce in the Philippines. Currently, the country is one of the fastest-expanding markets in the e-commerce industry in Southeast Asia. 

In this article, we’ll dive more into the rise of e-commerce in the Philippines and its challenges and opportunities, so let’s get started!

Introduction to the E-commerce Landscape in the Philippines

The emergence of e-commerce within the Philippine market has been remarkable, reshaping how businesses operate and consumers shop subtly. Among other ASEAN countries, the Philippines has been actively challenging itself for growth and taking advantage of the digital economy.

Despite the size of the Philippines, almost the entire country is entirely tech-savvy, with over 85 million Filipinos using mobile devices and active Internet users accessing the Internet. 

The Internet was introduced in the Philippines in 1994, but the e-commerce market has only recently boomed. Data shows that between 2019 and 2020, the country’s e-commerce market for consumer goods grew from USD 3 billion to USD 4 billion. 

According to ECDB, here are the top 7 e-commerce markets that are continuously showing growth in sales:

• Electronics, with 23.8% e-commerce revenue;
• Leisure and Hobby, with 22.9% e-commerce revenue;
• Fashion (Clothes, Shoes, Accessories, etc), with 19.1% e-commerce revenue;
• Household care/Homeware and Furnitures, with 11% e-commerce revenue;
• Groceries and other goods, with 8.2% e-commerce revenue;
• Self Care Products, with 7.7% e-commerce revenue;
• DIY, with 7.3% e-commerce revenue.

With the Philippines being the second largest number of internet users in Southeast Asia, the global e-commerce market sales and gross merchandise value are expected to increase over the years.

Key Factors Driving the Growth of E-commerce in the Philippines

The swift growth of the e-commerce sector in the country is undeniably influenced by many dynamic and integral factors. Let’s take a deeper look at some significant key factors generating the growth of e-commerce in the Philippines.

High Internet Usage

Unlike in the past years, the Internet now plays a massive role in the lives of Filipinos, not just Filipino adults, but also teenagers and kids. But despite the age margin per user, one of the main reasons why there is a high percentage of Filipino internet users is because the population is relatively young, with a median age of 25 years old.

Study shows that Filipino millennials (people born from 1981-1996) and Generation Z (people born from 1997-2012) spend an average of over 10 hours daily browsing the Internet; over 4 hours is spent through social media platforms.

Throughout the pandemic, people have solely relied upon the Internet for their work, study, and online shopping. Filipino consumers did not have difficulty navigating through online marketplaces and e-commerce platforms because of their internet literacy.

Massive Use of Mobile Devices 

The massive internet usage of Filipinos is due to the high availability of mobile devices/mobile phones. Over 98% of Filipino adults own a mobile device, contrary to the low percentage of over 70% of Filipinos owning a laptop or computer.

Due to the high volume of mobile usage in the Philippines, with the help of mobile internet speed, Filipinos now have more access to online stores, resulting in increased online transactions that benefit the country’s e-commerce market.

Pandemic Silver-Lining

One of the most visible reasons e-commerce in the Philippines has seen massive growth was the time of the COVID-19 pandemic when people were forced to be in their homes.

Many brands, even foreign retail companies with physical stores, sought the opportunity to try and sell their brands online for the first time. There was also an increase in online sellers in the Philippines. Many entrepreneurs took the chance to start their own online business.

Livestream selling has also become very popular in the Philippines. Filipino online sellers can showcase their products on various platforms like Facebook, TikTok, Instagram, and other e-commerce platforms.

Now, over 73% of Filipino consumers say that they intend to maintain or increase their online shopping activity over time, and even though physical and convenience stores are back, they will continue purchasing online.

Opportunities for E-commerce Businesses in the Philippine Market

With the growing number of mobile usage in the country, the growth of e-commerce is ideal in the Philippines market. With Filipino consumers as the driving force, the number of e-commerce businesses in the country is expected to grow.

Below, we will discuss some of the critical opportunities seen in the landscape.

Changes in Consumer Behaviour 

Fueled by the hunger for convenience, Filipino consumers have shifted more into buying online goods and getting interested in various other products.

These include foreign goods, which is very helpful as foreign retail companies have been getting in touch with the country more. 

Middle-Class Anticipated Growth

The Philippines’ economic growth grew 8.3% this year, surpassing the 3.8% decrease it got in 2022.

The World Bank also projects that the Philippines has the potential to grow into an upper-middle income country soon, and this would mean that over 47 million Filipinos have more access to digital devices now and have greater spending power. 

More Innovative Payment Solutions

Developing various generally safe and versatile digital payment options has been essential to e-commerce growth.

Companies may greatly expand their consumer base and foster trust in online transactions by providing a range of payment methods to suit varying preferences.

Challenges and Obstacles Faced by E-commerce Companies in the Philippines

Despite the bright future of e-commerce in the Philippines, e-commerce companies still encounter some challenges and drawbacks.

These challenges and obstacles are some of the factors that make the e-commerce market complex to navigate.

Trust Issues on Financial Transactions

Over the years, there have still been some hacking incidents, weak cybersecurity protection, fraud, or chargebacks encountered.

New technologies have significantly simplified online payment methods for every consumer, with e-wallets, contactless cards, etc.

Marketing Ads/Promotions

Marketing promotions also became a challenge to the rise of e-commerce, especially for Small and Midsize Enterprises (SMEs). More prominent companies have a more significant advantage for promotions.

But regardless, many online sellers and budding entrepreneurs overcame this and are still overcoming it.

Customer Expectations

All consumers have different expectations, but many online buyers have certain expectations regarding fast delivery time, accurate orders, and responsive sellers.

Many times, this may not be fulfilled due to various reasons like logistic limitations, irresponsibility, or low customer engagement.

Government Initiatives and Support for the E-commerce Industry

The Philippine government has continuously supported the rise of e-commerce in the Philippines. Even before the pandemic and its immense growth, they have long supported it. The Philippine E-commerce RoadMap 2016-2020 was introduced by the Department of Trade and Industries (DTI) IN 2015.

This roadmap aimed to increase online business activities’ contribution to the country’s gross domestic product (GDP) from 10% in 2015 to 25% by 2020. During the pandemic, more businesses emerged, primarily contributing to consumers, businesses, and the increase of gross merchandise value.

The Philippines government is still on its mission to show the full potential of the e-commerce landscape in the country. DTI launched the updated e-Commerce Philippines 2022 Roadmap just recently.

Digital Payment Solutions and Infrastructure in the Philippines

The country’s use of digital payment solutions has increased significantly in recent years. As online payment methods became a trend for purchasing online, the fintech infrastructure of the Philippines was never the same.

One of the newest trends in the digital payment solution was the quick-response payment method (QR Ph) for person-to-person payments; it has significantly grown by over 5000% last December 2020.

In response to this growth, some central banks like Bangko Sentral ng Pilipinas (BSP) in pursuit of providing a simpler environment that would also give the finance system safety, stability, and integrity.

Even though the Philippines is still cash-dominated, the continuous rise of financial technology and digital payments is visible.

Here are some of the Digital Payment Solutions in the Philippines:

• GCash;
• PayMongo;
• Maya;
• PayPal;
• Dragonpay;
• PesoPay;
• Coins.ph;
• GrabPay.

Some of these digital payments may be familiar to you, as some are partners of an ecommerce platform or online shop you encounter. Some of these methods can also be found in some large convenience stores as partner payment centers (ex. 7/11).

E-commerce Platforms and Marketplaces in the Philippines

Online marketplaces have been increasingly in demand in recent years and continuously show significant changes in the country’s e-commerce market.

If you are a budding entrepreneur or want to know some of the e-commerce platforms and marketplaces in the Philippines, we have here 5 to get you familiarized with (in no particular order).

Check them below:

• Shopee;
• 2 Lazada;
• Facebook Marketplace;
• Zalora;
• Carousell.

These e-commerce platforms have been giving non-stop services to Filipino consumers, showing vast product categories, satisfying needs, and serving as a platform for online business.

Consumer Behavior and Trends in the Philippine E-commerce Market

Unlike in the height of the pandemic, when most consumers buy online in large quantities, the trend has been quite different. Filipino consumers have been purchasing in low quantities now, but frequently, that is why the e-commerce market is rapidly growing.

One of the main drivers of e-commerce in the Philippines has been steadily increasing because most consumers are millennials. According to a study, 52% of Filipino consumers’ ages range from 25 to 34 (millennials). Combining them with the percentage of Generation Z would make 80% of Filipino consumers relatively young.

The fact that most Gen Z were born and exposed to the digital age at a young age made their immense contribution to the e-commerce market possible. Digital and internet literacy paved the way for consumers to like online shopping. The convenience and digitalization it brings made it more enticing to the younger age group.

Strategies for Successful E-commerce Operations in the Philippines

As the future of e-commerce in the Philippines is bright, looking for ways to succeed in the competitive market is essential.

There are many factors you need to consider, and here are a few of them:

• Address logistical limitations;
• Use the power of social media;
• Offer Localize products;
• Secure digital payment methods;
• Partner with trusted merchants;
• Partner with trusted retailers.

Last but not least, try to focus on post-purchase experience in order to build a network of loyal customers.

Future Outlook and Growth Potential of E-commerce in the Philippines

The Philippine government is pursuing a bright future for the country’s e-commerce sector. Thanks to the Roadmap provided by DTI, there is a clear outlook of the growth potential of e-commerce in the Philippines.

Filipinos have already embraced and nurtured e-commerce as part of their lives. Despite the many challenges and drawbacks in the adoption, a significant amount of growth and evolution is still seen. As technology is continuously evolving, so are adoption and resilience.
The Philippines has yet to unlock its full e-commerce potential, but as seen in the growth, we may see it in the coming years.