By Ranier Olson R. Reusora, Researcher
The adoption of a second clearing house meant to process real-time money transfers is expected to push more Filipinos to use online channels for payment transactions.
Last month saw InstaPay, the country’s newest automatic clearing house (ACH), go live. The platform is expected to process electronic payments (e-payments) across accounts from different banks and digital wallets.
Specifically, InstaPay clears electronic fund transfers (EFTs) worth up to P50,000 per transaction and without a daily limit. The platform is available 24/7, with the funds to be made available to receivers almost immediately.
This is the second clearing house created particularly for e-payments after the Philippine EFT System and Operations Network (PESONet), which settles funds in batches, was rolled out in November last year.
For using InstaPay, the sender will be charged fees depending on the participating financial institution’s pricing strategy. The receiver, on the other hand, will get the full amount transferred without incurring any fees. Nevertheless, both senders and recipients must have accounts with participating financial institutions to be able to use the facility.
“InstaPay will be cheaper than most currently available alternatives given that the fund is received electronically and in real-time,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said.
Ms. Fonacier noted that InstaPay has a lower cost-to-serve compared to over the counter service or the use of third party collection agents, adding that it also presents an opportunity to “de-clog counters at branches.”
Aside from convenience, Ms. Fonacier said that the platform will also benefit customers and merchants by ensuring that payments made through InstaPay are final. “There is practically no waiting time for availability of funds to the recipient, no risk of bouncing checks or cancelled payments,” she said.
Lito M. Villanueva, chairman of FintechAlliance.ph and KasamaKA founder and lead convenor, said that adopting InstaPay would “really be more empowering” to consumers: “[Y]ou have to make sure that [the consumers] would be able to adopt to it… and see the benefits of doing this,” he said.
BSP Governor Nestor A. Espenilla, Jr. has said that the implementation of this platform under the National Retail Payment System (NRPS) is in keeping with the goal of raising the share of e-payments to at least 20% of total transactions by 2020, coming from a measly one percent in 2013. This, Mr. Espenilla said, serves as an “opportunity area.”
The rollout of ACHs such as InstaPay and PESONet would also help local banks by way of reducing their operating costs, according to a recent report by Moody’s Investors Service. The cost-to-income ratios of Philippine banks range from 50-75%, which Moody’s said is the highest compared to its peers in Southeast Asia.
Plans are also in the works to link the country’s payments platform to other digital clearing houses within Southeast Asia to facilitate real-time fund transfers across borders.
Of note, the Philippines is the third in the region to set up an e-payments platform. In November, the Monetary Authority of Singapore announced that it is working to link their PayNow platform with Thailand’s PromptPay system to allow people from either country to send money to each other using mobile phone numbers.
CHALLENGES AND OPPORTUNITIES
As of launch, there are only seven banks that offer real-time fund transfers while 11 other lenders and two electronic money issuers (EMIs) are able to receive payments, according to the BSP.
“As with any new system, there are challenges in technology development, policy and operational readiness and market acceptance,” BSP’s Ms. Fonacier said.
“As Governor [Espenilla] has noted at the InstaPay launch on April 23, the financial institutions will be challenged to develop innovative business models customized to their target markets’ needs, to ensure client loyalty, and to better compete for market share,” Ms. Fonacier added.
Ms. Fonacier also noted that the challenges, particularly the execution components, were viewed as “enhancements that were needed to be developed and implemented along with the formulation of the policy and regulatory framework suitable to the new payment stream being created under the InstaPay platform.”
“InstaPay would not have been possible without constant and close dialogue and collaboration of the BSP with the Industry and with the Philippine Payments Management, Inc. (PPMl), the industry-led self-governing body and an important ally of the BSP in the pursuit of the e-payments goal,” she said.
NRPS Core Team Chair Raymond O. Estioko said during InstaPay’s launch that banks are still developing their app solutions and that more financial institutions are expected to participate in InstaPay towards the middle of the year.
“A point in time will come that everybody in the InstaPay [platform] should be able to send and receive. It’s just that there are those banks who are ahead,” Mr. Estioko said as banks and other EMIs are updating their websites and their mobile apps to create an option to transfer funds via the platform.
FintechAlliance’s Mr. Villanueva said that there will definitely be some issues along the way that need to be threshed out, as industry players with various systems “are really not talking to each other.”
“That’s why the idea of having the NRPS is that, it’s practically having that interoperability in place. And we’re coming from that environment before of doing it in silo,” he said.
Launched in 2015 by the BSP, the NRPS Framework’s objective is to help promote a “cash-lite” economy wherein both physical and digital money find their own niche markets with the latter hoping to reach the unbanked especially in rural areas. This will improve the efficiency of transactions through the use of the electronic retail payment system.
The BSP’s report on the state of financial inclusion showed that there are 571 (34.9% of the total) unbanked local government units (LGUs) as of June 2017, down from the 589 unbanked LGUs (36%) in June 2016.
This was supported by the World Bank’s latest Global Findex report, which noted that only 34.5% of Filipino adults owned a bank account as of 2017.
And even more, those numbers were recorded ahead of the launching of the two ACHs.
Referring to the BSP data, Mr. Espenilla said that this is an “improvement already” from the 31.3% seen in 2014.
“So with a platform like this, there is more good reason to be able to open an account, and especially if you tie this up with the recent policy issuance of the BSP to create basic bank accounts, then the door is really wide open to enroll all Filipinos who want to have an account and be able to connect with one another digitally to this system,” Mr. Espenilla said.
Orlando B. Vea, president and CEO of Voyager Innovations, Inc., was of the same view: “[T]he only way to bring that now to the economic mainstream is providing them with a payment system that will operate outside even if they don’t have bank accounts,” he said during the InstaPay launch.
“[R]ight now, that is what we do as mobile wallet operators… and more and more, in significant rates, the users of mobile wallets are growing.”
Voyager Innovations is PLDT, Inc.’s digital innovations unit. Hastings Holdings, Inc., a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc., has a stake in BusinessWorld through the Philippine Star Group, which it controls.
POTENTIAL USE CASE
Other than simply transferring funds, InstaPay could also be used to make transactions with the government.
“We are offering both InstaPay and PESOnet as additional options for making payments to the government. That is why we are engaging our colleagues from the other government agencies to ask their clients — the public, to pay through digital means,” NRPS Core Team’s Mr. Estioko said.
For instance, state-run Land Bank of the Philippines (LANDBANK) already has tie ups with most government agencies. LANDBANK president and CEO Alex V. Buenaventura cited the case of using InstaPay for paying taxes to the Bureau of Internal Revenue (BIR) instantly through their accounts in any participating financial institutions.
“There’s a lot now who pay their taxes through the mobile app. Now, InstaPay will even make it easier for the public to pay BIR because they can use their existing bank accounts to pay BIR,” Mr. Buenaventura explained.
Before InstaPay, consumers need to have a LANDBANK account to access online payment to BIR. With InstaPay now accessible in LANDBANK (can only receive as of launch), anyone who has an account in any participating financial institutions can now pay their taxes instantly.
Besides the BIR, Mr. Buenaventura said that they also have payments arrangements with other government agencies such as the National Bureau of Investigation (NBI) for the application of the NBI clearance and Department of Foreign Affairs for applications of passports. Arrangements with the Bureau of Customs are currently in the works.
“Our goal in LANDBANK is to activate a payments system with all government agencies, and we hope that by the end of next year, all payments to government can be done electronically,” Mr. Buenaventura said.
BSP’s Fonacier, for her part, said that the platform strengthens the value proposition of electronic channels. “By creating a cheaper way to transfer funds to any participating institution, BSFIs (BSP-supervised financial institutions) are able to add more use cases for their mobile and internet banking channels apart from bills pay and balance inquiry.”
INSTANT, BUT ALSO SECURE
InstaPay is not only fast and convenient, but is also said to be secured thus avoiding the usual convenience-security trade-off that comes along with digital applications.
“InstaPay and the financial institutions that deliver InstaPay are subject to the security standards required by the BSP,” BSP’s Ms. Fonacier said.
She added that all institutions participating under the InstaPay are required to comply with regulatory issuances on cybersecurity, including BSP Circular 982, which details the central bank’s expectations for banks and other financial institutions in addressing and mitigating security threats.
“BSFIs are required to have a comprehensive and tested incident response plan supported by well-trained incident responders, investigators and forensic data collectors. Accountability for any loss depends on the results of the fraud investigation,” Ms. Fonacier said.
“Only financial institutions under the supervision and oversight of the BSP are eligible to be members of PPMI and thereby able to participate in the ACHs.”
Earlier this year, the central bank signed an agreement with the PPMI. to serve as the industry-led body in facilitating digital payments clearing operations.
PPMI will serve as the payment system management body for ACHs, while the BSP will serve as the primary overseer of the platforms.
“We all know the fact that cyberattacks or cyberthreats would always be there. That’s why I think the BSP has been steadfast and vigilant when it comes to providing various circulars to all the BSFIs to be extra cautious and provide additional layers of defense to weed out cyberthreats or cyberattacks,” FintechAlliance’s Mr. Villanueva said.
In the latest report from the International Telecommunication Union, the Philippines ranked 37th out of 194 economies listed in the 2017 Global Cybersecurity Index, which measured economies’ commitment to adopting cybersecurity practices.
Mr. Villanueva said that the BSP provided instructions or circulars wherein if any BSFIs has experienced any cyberthreat or has been compromised, then the reporting requirement has to be within 24 hours, or immediate.
To address these cyberthreats further, Mr. Villanueva advised that consumers themselves have to be educated and informed about the responsibility in securing their respective accounts while the banks and the regulators are doing their share of protecting consumers’ financial transactions.
THE NEXT STEP
As PESONet and InstaPay go online, the next step would then be to drive consumer demand, said BSP’s Ms. Fonacier.
“The BSP has been collaborating with various government institutions to use these payment facilities and to discuss regulatory frameworks that can facilitate growth of e-payments. Moreover, the BSFls are enjoined to educate their customers with information on electronic channels and have these embedded in their marketing campaigns and consumer education programs,” she added.
“The vision for InstaPay is that it will eventually be integrated as part of every Juan and Maria’s daily life — may it be in making payments to another person, to businesses or to the government.”
