With fast-paced digitalization, electronic money (e-money) has rapidly become a regular part of the public’s daily transactions, particularly in the urban and urbanized areas. Since its introduction, e-money has much evolved, with various industry participants introducing differing consumer e-money products and platforms. During the recent pandemic, such e-money system has further become the staple transaction media of many consumers considering the convenience of its use. As of mid-2022, one of the largest EMIs (based on customer base) recorded over 60 million users, constituting 83% of the adult population in the Philippines.1
Given these rapid developments, local regulations are expected to keep abreast with changes in the manner by which the public transacts with e-money in light of its present scale. Hence, on Feb. 7, the Bangko Sentral ng Pilipinas (BSP), in an effort towards strengthening the regulation of e-money issuers (EMI), released BSP Circular No. 1166 series of 2023 amending the pertinent provisions of the Manual of Regulations for Banks (MORB) and the Manual of Regulations for Non-Bank Financial Institutions. The new BSP issuance on e-money aims to promote public safety and protection in dealing with e-money by updating regulations to be responsive and adaptable to existing circumstances.
Among the amendments introduced by the Circular are the expansion of the definition of e-money and the imposition of additional disclosure requirements as well as higher liquidity and capitalization requirements on EMIs.
NEW DEFINITION OF E-MONEY
Under previous regulations, e-money was defined as the monetary value as represented by a claim on its issuer that is: 1.) electronically stored in an instrument or device; 2.) issued against receipt of funds of an amount not lesser in value than the monetary value issued; 3.) accepted as a means of payment by persons or entities other than the issuer; 4.) withdrawable in cash or cash equivalent; and, 5.) issued in accordance with the provisions of existing regulations.2
E-money is now defined as electronically-stored monetary value that is: 1.) maintained in a non-interest-bearing non-deposit transaction account; 2.) denominated in or pegged to the Philippine peso or other foreign currencies; 3.) pre-funded by customers to enable payment transactions; 4.) accepted as a means of payment by the issuer and by other persons or entities including merchants/sellers; 5.) issued against receipt of funds of an amount equal to the monetary value issued; 6.) represented by a claim on its issuer; and, 7.) withdrawable in cash or cash equivalent or transferable to other accounts/instruments that are withdrawable in cash.3
While it appears that the definition has been substantially modified, certain additions were merely reproduced from the previous regulation and incorporated into the new definition of e-money. For instance, the new definition includes the phrase “non-interest-bearing non-deposit transaction account” based on other provisions of the previous regulations which already indicated that e-money shall not earn interest and are not deposits.
However, the following are the significant changes in the definition of e-money:
Being accepted as a means of payment by the issuer is no longer per se an exclusion from the definition. This means that acceptance for payment by the issuer does not result in taking out the instrument or device from the definition of e-money. However, it must be emphasized that the Circular distinguishes between a closed-loop and an open-loop electronic wallet system. Closed-loop electronic wallet system, pertaining to those wherein the money is accepted as a means of payment only by the merchant-issuer, is not covered by the relevant provisions of the MORB.4
Transfer to other accounts/instruments that are withdrawable in cash is now included as a means of redemption.5 Under previous regulations, the definition limits redemption of e-money to withdrawal of cash or cash equivalents. With the new definition of e-money, systems which only allow transfer to other accounts/instruments that are withdrawable in cash, even if such systems do not in itself provide for redemption in cash or cash equivalents, are now covered by regulations on EMIs.
The BSP reported 70 supervised e-money issuers as of Feb. 3.6 Given the foregoing modification in the definition of e-money, it is expected that more players may now be considered as EMIs and fall within the coverage of the relevant BSP regulations.
ADDITIONAL COMPLIANCE REQUIREMENTS FOR EMIS
The Circular requires EMIs to provide clear terms and conditions on the use of e-money and obtain acknowledgment from users and merchants that they have read the terms and conditions prior to their availment of e-money services.7 This disclosure requirement appears to be an attempt by the regulators to ensure transparency to the public when dealing with e-money, and, at the same time, to require EMIs to educate new consumers on the uses of and risks associated with e-money.
EMIs are also mandated to participate in the automated clearing house in accordance with the National Retail Payments Systems Framework.8 With this requirement, the transfer of e-money becomes closely integrated into the banking and payment system.
The new capitalization requirements for EMIs shall now be the higher of: a.) the required minimum capitalization for banks or non-bank financial institutions (NBFI) depending on bank category or NBFI type, respectively, or, b.) the minimum required capitalization based on EMI category as large scale (i.e., P200 million capital requirement) or small scale (i.e., P100 million capital requirement). A large-scale EMI is one with a 12-month average value of aggregated inflow and outflow transactions equal to or greater than P25 billion.9
Further, to be able to meet e-money redemptions at all times, EMIs are required to maintain sufficient liquid assets equal to the amount of the outstanding e-money issued for each currency in which the e-money obligations are denominated, subject to the criteria provided under the Circular.10
Existing EMIs authorized to issue e-money or engage in e-money operations must, within three months from effectivity of the Circular, submit to the BSP a certification of compliance with the applicable requirements above and, if necessary, an undertaking for full compliance therewith within one year from issuance of the Circular.11
In view of the foregoing amendments, prudence requires banks and NBFIs under the supervision of the BSP to re-assess whether the products or services they offer to the public fall within the new definition of e-money and to evaluate whether they meet the new compliance, liquidity, and capitalization requirements imposed by the BSP.
1 Cordero, T., “GCash now has over 60M users, covering 83% of adult population” published on May 24, 2022, available at https://www.gmanetwork.com/news/money/companies/832676/gcash-now-has-over-60m-users-covering-83-of-adult-population/story/.
2 Manual of Regulations for Banks, Section 702.
3 Manual of Regulations for Banks, as amended by BSP Circular No. 1166 series of 2023, Section 702 on Definition of Terms.
4 Ibid.
5 Id.
6 BSP List of Supervised EMIs published on Feb. 3, available at https://www.bsp.gov.ph/Lists/Directories/Attachments/7/emi.pdf
7 Manual of Regulations for Banks, as amended by BSP Circular No. 1166 series of 2023, Section 702 on Disclosure Requirements.
8 Manual of Regulations for Banks, as amended by BSP Circular No. 1166 series of 2023, Section 702 on Interoperability of Systems.
9 Manual of Regulations for Banks, as amended by BSP Circular No. 1166 series of 2023, Sections 702-Q, 402-S and 402-N on Capital Requirements.
10 Manual of Regulations for Banks, as amended by BSP Circular No. 1166 series of 2023, Section 702 on Liquidity Requirements.
11 BSP Circular No. 1166 series of 2023, Section 5
This article is for general informational and educational purposes only and not offered as and does not constitute legal advice or legal opinion.
Nathanael A. Quijano is an Associate of the Corporate & Special Projects Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).
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