In 2020, the estimated number of people around the world who own a smartphone surpassed 3 billion.
The device, which has become an extension of ourselves, is a door to many opportunities. Through it, people can communicate with their loved ones in real-time, access learning resources, stream different types of media, get to know strangers, and even explore places that are half the world away. Moreover, it is increasingly becoming the primary way for consumers to shop for their wants and needs.
The Philippines is said to be the fastest-growing internet population in the world as more Filipinos obtain smartphones. The Southeast Asian nation has enjoyed a 530% growth rate of mobile device usage in the last five years alone.
As a result, the e-commerce industry across the archipelago is also seeing a rapid rise. Between 2016 and 2020, the e-commerce industry will have an annual growth rate of 101.4%, an activity driven mostly by its largely young population.
Consumers prefer online shopping versus traditional retail because it offers speed, convenience, more options, and, often affordability. More Filipinos are expected to join the e-commerce revolution in the coming years as smartphone penetration among regular households becomes more widespread.
Despite its benefits, online shopping presents new risks.
Online Shopping Leads to Debts
In the United States, e-commerce has long been a normal way for consumers to procure goods and services, In 2019, e-commerce accounted for $343.15 billion of all retail sales.
However, the rise of e-commerce also comes with downsides. Recent reports revealed that digital spending is leading to credit card debts.
CouponFollow, an online couponing platform, conducted research on the e-commerce habits of over 1,700 Americans. They found that about two in five people, or 42% of all respondents, spent more than they intended in the past six months. Around 29% went into debt because of online shopping in the past six months.
Many consumers prefer to pay with a debit card, but many are also using their credit cards. Although a lot of people use a coupon during a digital transaction or have cashback cards, too many are still going into debt. Over a quarter of respondents reached a credit card balance of over $1,000 from online shopping in the past.
Debt from Online Shopping: Why It Is a Problem
Debt is not always bad. A mortgage is a type of debt but it is a necessary expense. On the other hand, an online shopping spree is more of a want than a need.
The amount of debt that a person has an impact on their credit scores. In the Philippines, several institutions have already implemented credit score solutions to predict a person’s capacity to pay off a loan. A bad credit score prevents a person from accessing financial products. They may find it a challenge to be approved for a mortgage in the future or apply for another credit card.
Accumulating credit card debt is also bad because it usually has high-interest rates. The more you wait to pay the whole balance off, the harder it will become for your dues to be eliminated from your record.
Credit Card Debt Among Filipinos
In 2020, Citibank Philippines revealed that more than 50% of their customers are using credit cards for digital transactions. The country has been pushing the population to go cashless, an effort that was further increased during the pandemic to limit close interaction between people. Benjamin E. Diokno of Bangko Sentral ng Pilipinas (BSP) hopes that, by mid-2023, 50% of transaction volumes will be done digitally.
However, many Filipinos fall into the trap of credit card debt. In 2015, there were 7 million people who own a credit card in the Philippines. Many of them were in debt.
Consumers need to be more aware of how they are using their credit cards. Because there is no cash in hand, people do not feel that they are spending their own money. But, it is borrowed money that they have to pay off sooner than later.
Going into a credit card debt is not a crime in the Philippines, nor would it lead to jail time. However, having debt alone, especially one that increases significantly month after month can cause immense amounts of stress. It can also continue to haunt debtors for years to come because it will be reflected on their credit score, stopping them from bouncing back.
E-commerce is not bad. It provides access to goods and services to all consumers no matter where they are. People are given more options that may be of higher quality or cheaper. But it also has a downside. It can lead to overspending and debt. Consumers should, therefore, track their own spending and create shopping habits that will not push them into a personal financial crisis.