Ray Alimurung is the CEO of Lazada Philippines and plays an instrumental role in growing the brand’s reach across the archipelago. As the company’s chief commercial officer from 2016 to 2018, he deepened its partnerships with major global brands. Today, his vision for e-commerce in the Philippines continues to shape the group’s strategic direction. He has more than ten years of consumer-internet and e-commerce experience, with prior roles including product and vendor manager at Amazon and CEO of aCommerce Philippines. In a recent conversation with McKinsey, Alimurung revealed his insights on the future of retail, the digital trends that are gaining speed, and the evolution and untapped opportunity of digital payments in the Philippines. This conversation is part of the broader Philippines Growth Dialogues interview anthology, which explores the opportunities and challenges to future-proof the country's next horizon of growth and innovation. An edited version of the discussion follows.
Leapfrog to mobile
McKinsey: What do you think have been the most exciting recent developments in the Philippines, and what is your outlook for the country?
Ray Alimurung: A development in the Philippines that I find particularly interesting is the leapfrogging of the country to mobile. I have noticed that a lot of Filipinos’ first interaction with the internet is through the use of a mobile app. The app and, in turn, the phone have become gateways to the internet for the Philippines, and the implications of this are astounding. This has resulted in the equipment of every citizen with a “supercomputer” more powerful than what was used to land Apollo 11 on the moon.
This supercomputer empowers the said citizen with access, and access is not just limited to interconnectivity. Access has a far wider reach of enabling digital inclusion—of giving the citizen access to information. Another implication of technological leapfrogging is the rise of new, innovative business models, such as the application of technology through location-based services.
The second element of interest is the marked progression of e-payments. And for this, I would have to credit our progressive government; we’ve seen amazing milestones in the last few years. You have chips appearing on ATM cards, automated switches that allow for interconnection with banks, and unified QR codes, as well as the emergence of e-wallets. This can be accounted for by a duality of government progressiveness and private-sector collaboration.
I am personally excited about the prospect of e-payments because Lazada’s business is in e-commerce, where close to 80 percent of our orders are cash on delivery, and we have seen very encouraging improvements now on Lazada Wallet and other digital forms of payment. This is a stark contrast to my experience in the United States, where cash on delivery was not an existing payment option.
The third development that has caught my interest is what I coin the “democratization of distribution and consumption.” I believe digital platforms have leveled the playing field for small businesses to be able to keep pace with big businesses. Digital platforms have lowered business costs significantly. No longer will an entrepreneur need to build all the components needed to run an online store—customer-care teams, tech teams, graphics teams. This has been streamlined to user-friendly drag-and-drop features. The gatekeeper, which historically was the retailer, no longer possesses the same amount of leverage over entrepreneurs, as small businesses can now sell their goods and services online.
On the democratization of consumption: the Philippines is one of the leaders in the business-process-outsourcing industry, and if an individual is working from 9:00 p.m. to 6:00 a.m., how are they able to shop in traditional malls limited by stated shopping hours? Online stores have increased not only the options by which a customer can access goods and services but, inevitably and sizably, the range of choices. A customer now has the option to select from the services, products, and quality of their choosing.
The mall experience
McKinsey: With an acceleration of retailers pivoting toward e-commerce, are traditional retail malls a thing of the past?
Ray Alimurung: In my opinion, social activity in the mall will continue to exist. A lot of people have approached me with the question, is retail—or offline retail—dead? And my response to this is that offline retail will continue to exist in an evolved form. With increasing consumer demand for unique and personalized shopping experiences, retailers will also need to adapt to these changing needs to engage with shoppers.
And we see this pronounced shift in our malls today: the ground-floor stores of malls tend to be experiential, and the retailers running smaller stores with little to no experiential elements for customers are being moved to the higher floors. There is an explosion of “hypermart” or community-center-type models, where the central area of the mall houses a food court, with a supermarket, a hardware store, and an array of stores providing services. I think this format will continue to see growth, as services have yet to witness high e-commerce penetration.
Offline retail will continue to exist in an evolved form. With increasing consumer demand for unique and personalized shopping experiences, retailers will also need to adapt to these changing needs to engage with shoppers.
Winds of change: Artificial intelligence and e-payments
McKinsey: Globally, there is an emergence of disruptive, technology-driven trends. What is most exciting for Lazada and for you personally as a consumer?
Ray Alimurung: One tech trend that has gotten traction is notably artificial intelligence [AI]. AI utilizes algorithms using data to create customized experiences for the consumer. For example, personalization through AI is something that we’ve done at Lazada. When you open your Lazada app, the home page looks different from the one of someone utilizing the same app beside you. And as you browse and purchase, AI computes the data to create a personalized shopping experience. It logs your shopping habits and anticipates what you might want to purchase.
I am compelled to believe that you will also start to see a step change in the use of e-payments, and this will largely be driven by online payments. Today, we at Lazada have retained cash on delivery as a payment method, as it continues to be the primary mode of payment for e-commerce companies. More so, it was to seek resolution in two prevalent problems: low e-payment penetration and a lack of trust.
A large proportion of consumers do possess a mode for which they have the ability to conduct e-payments—they currently maintain a bank account, a credit card, and maybe an e-wallet—but continue to use cash on delivery. And when asked why, often their response is that it is an issue of trust. But I believe e-payments are the future and will continue to proliferate, and the problem of trust will eventually dissipate with time. E-commerce will then see a huge uptick in the use of e-payments. I believe the driver of this would be a confluence of factors, of which two stand out: improving levels of trust and the increasing interconnectivity of e-payment methods.
I believe the driver of [e-payment penetration] would be a confluence of factors, of which two stand out: improving levels of trust and the increasing interconnectivity of e-payment methods.
This issue of interconnectivity is exacerbated by the fact that people who own bank accounts are not able to pay electronically because either they cannot connect the payment service with their bank account or the merchant simply does not accept e-payments. I believe bold entry moves by digital banks will pave the way in showing incumbent banks the latent opportunity of e-payments. Leading adopters—digital banks—are focused on obtaining use cases and funding for the scaling of e-payments and e-accounts. The rest of the banks will then need to follow suit.
Cost and convenience: The name of the game
McKinsey: What do you think are areas of stagnation in the Philippines? And what can be done to uplift the country in these areas?
Ray Alimurung: Payments is one of the key areas of stagnation for the country. We’re doing a lot to drive the adoption of e-payments in a very small subset of the economy. But in the rest of the economy, there is little to no view of even going digital—fast-food restaurants still mandate the use of cash. This underscores the importance of the adoption of e-payments by merchants, as in a hypothetical situation where the customer possesses a mode of which to make e-payments, the customer walks in the door of a retailer, and it only accepts cash. This has to change.
The shift of customers or Filipinos from utilizing cash to going electronic would need to address two main concerns: cost and convenience. On payment-acceptance cost, I am of the opinion today that businesses don’t appreciate the true cost of cash—meaning, what it would cost to collect, reconcile, and insure it. This is evident today. When you go into an appliance dealer, they will explicitly tell you on the price tag that payments with cards will incur a higher fee than payments with cash will. Businesses are of the view that there is a higher cost in the processing of an e-payment. If businesses properly understood the cost of cash, they would be able to reflect that cost implication in the cost borne by the customer.
Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.