Preference for electronic wallets (e-wallets) is fast catching up with hard cash among Filipinos while credit cards remained low despite long standing presence in the Philippines, according to a new study.

The TransUnion inaugural Credit Perception Index (CPI) study seeks to measure Filipino perceptions  towards credit, factors contributing to their perceptions and what these mean to the nation as a whole.

Notably, the study showed Filipinos' preference for e-wallets at 93 percent, closer to hard cash at 96 percent.

In contrast to the rising preference for e-wallets in the Philippines, credit card products have lower preference with Buy Now
Pay Later at 66 percent and credit cards 59 percent.

In fact, the study said that credit card penetration rates remain low despite longstanding presence in the Philippines, with only 25 percent of respondents owning a credit card. This is in sharp contrast to the 85 percent who have an e-wallet,   which   have   only   become   available   recently   in   comparison  to   credit   cards   in   the country.

As a result, the TransUnion CPI for the Philippines currently stands at 65 out of 100. The CPI factors in how Filipinos see credit across multiple dimensions, including their current attitudes, knowledge, trust, favorability, and future receptivity.
The fact that credit cards are a more widely held product in many markets around the world yet remain stagnant in the Philippines in terms of penetration, may indicate a prevailing conservative attitude surrounding credit among the Filipino public, the study noted.

The study finds that most Filipinos surveyed (69%) have a general understanding of the concept of   credit.  Across   credit   products,   they   tend   to   be   most   knowledgeable  about  credit   card installment payments (83%), followed by personal loans (77%), credit cards (71%), and Buy Now Pay Later (69%).

In contrast, they are far less familiar with mortgages (58%), auto loans (54%), and overdraft protection (25%).
Trustworthiness   in   different   credit   products   also   follows   a   similar  pattern,   with   credit   card installment payments (81%) and personal loans (78%) seen as being more trustworthy, and overdraft protection (42%) being less trusted among Filipinos surveyed. This suggests a likely correlation between knowledge and  trust – the more knowledgeable a consumer is about a credit product, the more trustworthy the consumer would find the product.
“Improving  financial   literacy   among   our   fellow   Filipinos   is   a   major  step   in   fostering a more inclusive   financial   ecosystem   in   the   country,”   said   Pia   Arellano,  president   and   CEO   of TransUnion Philippines.

“We are passionate about the work we do every day to help wider consumers understand more about credit and enable them to  access credit opportunities to achieve their life goals. By harnessing both traditional and alternative data to generate insights on an individual’s creditworthiness, it becomes possible for more consumers to be seen and included in the formal financial system, especially unbanked Filipinos constrained by the lack of available credit information on them,” said Arellano.

In addition, the study revealed that the unbanked Filipinos find themselves less knowledgeable and have less trust in credit. The CPI of the unbanked population is at 53 or 12 points lower than that of the general population.

According to the study, the biggest gaps between the unbanked segment and the population as a whole are related to credit knowledge, as well as trust and favorability. Among the unbanked respondents, 58 percent said they understand the general concept of credit.

However, on the knowledge of different credit products, the unbanked population scores themselves at 27 out of 100, significantly lower than the general population’s 54. The unbanked population also scores 39 (19 points lower) and 40 (14 points lower) out of 100 on overall trust and favorability, respectively.

Additional findings show that the notion of credit, or utang in Tagalog, is often associated with debt, overspend and irresponsibility among consumers in the Philippines. In fact, many among those   surveyed   believe   people   acquiring   credit   products   tend   to  overspend   (57%),   or   are already   in   debt   (50%).

Many   also   believe   that   these   borrowers  will   eventually   acquire unmanageable amounts of debt (45%) or will go to jail if they do not pay their debts (42%).  Despite these perceptions, there is still a high level of reliance on informal credit rather than on formal  credit systems. Nearly three quarters  of Filipinos (72%)  turn to family and friends to borrow   money,   and   the   percentage   goes   even   higher   to   reach 78% among the unbanked population.

Filipinos’ longstanding stigmas and perceptions of credit may be due in part to the sources of their credit knowledge. Most Filipinos learn about credit products from their family and friends (67%), followed by banks and financial institutions (61%) and financial advisors (42%). When looking at the unbanked population, apart from family and friends (69%), they rely mostly on Facebook (51%) and YouTube (45%) for financial education.

“There is an enormous opportunity for the public and private sectors to work together to provide more formal and reliable channels for the Filipino public to acquire financial knowledge, and thus transform  the  conversations of  credit  seen  as  mere harm  into  a gateway  to  improved economic opportunities. It is not simply about understanding personal finances and credit, but more   importantly,   leveraging   the   power   to   access   opportunities  made   possible   by   more informed   financial   decisions   and   responsible   lending.   Responsible  credit   use   empowers consumers to realize their aspirations, whether that be starting a business, pursuing further education, or building a home. On a national scale, it also serves as a catalyst for economic growth, as proven by a great many economies around the world,” concluded Arellano.

The   TransUnion  CPI   study   was  conducted   by  TRUE   Global Intelligence and commissioned by TransUnion. The study comprised of a survey targeting 1,100 consumers   of   the  general   population,   as   well   as   an   oversample  of   200   consumers   of   the unbanked population and an oversample of 200 small business owners between January and February   2023.   To   gauge   Filipinos’   current   attitudes   and   future  receptivity   towards   credit, respondents were posed a series of questions to rate their knowledge, trust and favorability surrounding credit and other financial products.

The study aims to provide a holistic view of credit perceptions across the landscape, and gain further insights to address gaps surrounding public perceptions of credit, what may influence them, and what may shift their perceptions.

The CPI study by TransUnion, global information and insights company and the Philippines’ first comprehensive private credit reference agency,  aims   to   inspire   meaningful   dialogues   and   actions   to  improve   credit   literacy   and financial inclusion at large for the Philippines.