BSP’s drive towards digitalized payments

The economy has faced challenging years, heralded by a very disruptive pandemic. Yet, in spite of the challenges, opportunities also emerged, among them accelerating digital finance as consumers were getting more attuned to cashless transactions using online and mobile platforms.

Commonly through financial technology, or fintech, the financial sector has taken this opportunity to make the most out of digitalizing their services, which enabled both individuals and businesses to access financial services via the Internet, whether on online portals or mobile applications.

Such fruitful transformation won’t be possible without the Bangko Sentral ng Pilipinas (BSP) being at the forefront of pushing digitalization in finance, especially as a means to enable financial inclusion in the country.

“Digitalization paves the way for greater financial inclusion among our people. Increased participation in the formal financial system is critical in deepening our financial and capital markets, growing consumer confidence, and extending products and services to previously underserved markets,” Former Governor Benjamin E. Diokno was quoted in a statement.

According to the Digital Transformation Roadmap 2020-2023, the BSP aims to strengthen the country’s payment digitalization. Particularly, the central bank targets digital payments to account for 50% of all retail transactions and integrate 70% of adult Filipinos into the formal financial system by this year.

Promoting digital payments, while also providing a secure and effective digital platform for financing, has been one of BSP’s actions toward a financially inclusive society.

In line with the National Strategy for Financial Inclusion, BSP has committed itself to digitalize retail payments, achieving sustainability, and promoting inclusive digital finance. In the past few years, as banks dominated the financial systems, electronic money was on the rise, providing an easier way for Filipinos to make financial transactions easier.

According to a special report by Mr. Diokno delivered in an event called “Ulat ng BSP sa Bayan” in 2021, digital financing, such as digital payments and digital transactions, has significantly grown and surged to record levels in the Philippines, allowing people to access financial services in the comfort of their homes.

“At the height of mobility restrictions, enterprises explored new digital approaches to keep their heads above water. Specifically, the rapid adoption of digital payments has facilitated the growth of e-commerce and propelled the shift to a more cash-lite economy,” Mr. Diokno stated.

More recently, according to outgoing Governor Felipe M. Medalla, who succeeded Mr. Diokno last year and served as BSP’s governor until June, the share of digital payments in the total volume of retail transactions in the country is now above 40%.

BSP’s most recent data showed that digital payments increased from 20.1% in 2020 to 30.3% in 2021 as more Filipinos turned to digital channels because of the pandemic’s mobility restrictions.

According to BSP’s 2021 Annual Report, the central bank saw increased participation of banks in digital payment services. The sector was integrating electronic payment systems like EGov Pay and InstaPay.

Also, according to Mr. Medalla, the rise of e-wallet accounts has caused a rise to more than 40% of all retail transactions digitally; while Filipino adults who had bank accounts increased from 29% in 2019 to 60% in 2021.

Under the National Retail Payment System (NRPS), which cleared the ground for the introduction of digital payments via PESONet and InstaPay, the central bank was able to meet its goal of 20% by 2020.

As of January 2023, BSP data show that the combined value of transactions done via InstaPay and PESONet grew by 37.3% to P9.94 trillion in 2022 from P7.24 trillion in 2021. In terms of volume, transactions coursed through both automated clearing houses increased by 21% to 633.47 million last year from 523.61 million in 2021.

Aside from the uptrend in digital payments, these recent years have seen the entry of digital banks into the Philippine banking system as they are given a distinct classification to boost the sector’s delivery of financial services to consumers.

Last year, two years after the BSP released the guidelines for establishing digital banks in the country, the central bank completed issuing digital banking licenses to six banks, namely Overseas Filipino Bank, Tonik Digital Bank Inc. (Philippines), UNObank, Union Digital Bank, Inc., GOtyme Bank, and Maya Bank.

With the central bank’s aim of digitalizing retail payments, the listed digital banks are in line with the central bank’s goal of delivering digital channels for providing financial products and services.

Last year, financial products and services by these banks already reached 1.4 million transactions.

Meanwhile, according to the central bank’s 2022 annual report, the goal to strengthen financial inclusion remains stronger in the banking sector. Along with the National Strategy of Financial Inclusion (NSFI) 2022 – 2028, national policies were also implemented focusing on financial inclusion.

In particular, Executive Order No. 170, a policy on the adoption of digital payment for government disbursements and collection, requires all government entities to use digital channels for financial transactions. This digital shift is a component of the country’s economic development and one step closer to an improved and future-ready economy.

Moreover, BSP’s initiatives in improving financial inclusion include using digital payments or cashless transactions at public markets, transportation, and access to other businesses.

For instance, the use of quick response (QR) codes in businesses or to access financial services has been increasing lately, providing a digital database for monitoring purchasing methods.

Furthermore, to strengthen the advocacy for financial inclusion, BSP has been collaborating with other government units to encourage the widespread use of a transaction account for digital payment and increase consumer trust in digital financing through laws and digital literacy.

The BSP has also collaborated with its development partners to empower regulators and service providers in supporting strategic initiatives to enhance financial services for the unserved and underserved communities.

The central bank has also been extending its hand the Philippine Identification System (PhilSys), the country’s national identification system, which is seen to play a vital role in advancing the delivery of financial services and the shift to digital transformation once the program completes its goal.

“Leveraging on the efficiency, safety, and affordability of the QR technology, this regulation nears far-reaching benefits by enabling micro and small merchants to accept digital payments which were meant for well-established businesses for the longest time,” BSP’s report explained.

According to BSP’s most recent Banking Sector Outlook Survey, BSP has also increased its efforts and initiatives in addressing the risks that come with digitalizing finance, especially cybersecurity risks.

“As a regulator, we are working toward managing and reducing these risks through tough and responsive regulations. The BSP is crafting cybersecurity policies that will require banks and other financial institutions under our supervision to adopt even more robust technology risk management systems and effective cybersecurity resilience controls and measures,” Mr. Medalla explained.

BSP has been supporting laws that will enable better cybersecurity management, allowing the country to fight and reduce cybersecurity risks and threats and creating a safe and reliable digital platform for financial services.

Also, in a webinar about fintech, financial inclusion, and MSMEs last year, Mr. Diokno said that the BSP is in a stronger position to address cybersecurity issues and improve consumer safety within the digital financial system with the passage of the Financial Products and Services Consumer Protection Act.

Financial Products and Services Consumer Protection Act (RA 11765) aims to protect financial consumers and incorporate financial inclusion and promote strong governance within the sector. Furthermore, it is also targeted at strengthening the power of financial regulators, ensuring that financial consumers are correctly meeting their financial needs.

This year, on top of its agenda, the central bank is already in the works of introducing its new developments like introducing its new digital payment streams, including InstaPay Debit Pull and Request to Pay, enabling direct debit to financial consumers.

For financial inclusion, the central bank will also launch a credit risk database project, which will create a credit rating model for MSMEs.

BSP also said it will continue on advocating for supporting the passage of and the Digital Payments Bill, which seeks to promote the adoption of digital payments for financial transactions of the government and all merchants.

“I am confident with all the talent that we have in this institution that this is the year we kick things off and realize our vision — from our targets under the Digital Payments Transformation Roadmap to our sustainability objectives to our plans and process improvements for the organization,” Mr. Medalla was quoted as saying in a BusinessWorld report earlier in January. — Angela Kiara S. Brillantes