BSP eyes tighter rules on transaction fees for consumers, merchants

THE BANGKO SENTRAL ng Pilipinas (BSP) is looking to tighten its rules on the pricing mechanisms for transaction fees charged by financial institutions and firms that process payments for merchants.

The proposed changes include requiring financial institutions to get regulatory approval before hiking or introducing transaction fees or charges for transfers, among others.

A draft circular posted on the BSP website seeks to amend sections of the Manual of Regulations for Payment Systems, Manual of Regulations for Banks, and Manual of Regulations for Non-Bank Financial Institutions on the establishment of a pricing mechanism for personal and qualifying merchant payment transactions.

The rules also cover the conduct of merchant due diligence by operators of payment systems with merchant acquisition licenses (OPS-MALs).

Under the proposed changes to rules applicable to transactions performed under the National Retail Payment System (NRPS) framework, the regulator will now require BSP-supervised financial institutions’ (BSFI) consumer pricing mechanism to be supported by an analysis of the costs they incur in delivering electronic payment products and services, which will be validated by the central bank.

This analysis must include costs related to payment handling, such as authorization, return, or cancellation costs; payments-specific infrastructure and maintenance expenses, including those for IT, clearing, switch, and settlement; security or fraud prevention costs; and costs for supporting activities like marketing, advertising and customer support.

The BSP added that BSFIs’ consumer pricing mechanism “shall not unduly favor one end-user relative to others, such as when the fees of a product or service are used to fund the cost of delivering another product or service.” It cited as an example the fees charged for off-us or interbank transactions to fund costs of on-us or intrabank transfers.

“In this regard, fees charged for off-us transactions should not materially differ from the fees charged for on-us transactions and any switch cost directly attributed to enable off-us transfers,” the central bank said.

Switch cost refers to charges imposed by the clearing switch operator to process transactions.

The BSP is also looking to require BSFIs to obtain its approval for any increase in existing fees or prior to the introduction of new charges imposed on electronic payment transactions.

“No approval is required for a downward revision unless the proposed revision will result in a reduction in benefits and/or features of the electronic payment product or service,” it added.

For person-to-person electronic fund transfers, the recipient will not pay for electronic crediting and shall receive the amount in full.

Meanwhile, for the pricing mechanism for merchant payment transactions, the BSP said OPS-MAL may charge fees from merchants availing of their payment acceptance activities, provided that fees on electronic fund transfers to qualifying merchants shall range from zero up to the actual switch cost.

“The pricing mechanisms for non-qualifying merchant accounts and other payment modes shall be reasonable, transparent, market-based, and proportional to the cost of the services offered in order to sustain the business operations of the parties involved. Such pricing mechanism must also be supported by an analysis of costs incurred with respect to the OPS-MAL’s merchant payment acceptance activities,” it added.

MERCHANT MANAGEMENT
The proposed circular also tightens the rules on OPS-MALs’ management of merchants, including monitoring for money laundering risks.

For the conduct of due diligence, the BSP said they must maintain a risk-based merchant identification system. For qualifying merchants, identification and verification shall follow simplified Know-Your-Customer (KYC) for low-risk customers.

“Additional due diligence shall be performed for qualifying merchants that no longer meet the criteria for classification, as required under existing regulations,” the central bank said. “Upon onboarding, an OPS-MAL shall also perform sanctions screening of the merchant, authorized signatories and beneficial owners, as may be applicable, pursuant to regulations on Targeted Financial Sanctions.”

An OPS-MAL must also conduct periodic risk-based monitoring of its merchants, the BSP said, including sanctions screening of the merchant and its authorized signatories and beneficial owners and detecting red flag indicators in both their relationship with their merchant and their transactions.

If approved, BSFIs will be given a one-year transitory period to comply with the circular, the central bank said.

“BSFIs shall submit to the Bangko Sentral a letter request indicating their proposed fees for electronic fund transfer transactions as well as the costs currently incurred in delivering this product or service. Costs declared should be clear and adequately supported, such that when deemed necessary, the same may be validated by the BSP onsite,” it added.

The central bank will accept comments on the proposed circular until May 26. — B.V. Roc