Clearing participants in the upcoming PESONet Multiple Batch Settlement (MBS) digital payment streams must have the necessary operational and liquidity risk management measures in place to ensure there will be no prefunding issues, said the central bank in a draft circular.

The Bangko Sentral ng Pilipinas (BSP) in its proposed “Guidelines on the Settlement of Electronic Payments Under the National Retail Payment System (NRPS) Framework” has set the minimum requirements to operate a settlement mechanism such as batch and multiple batch settlement of electronic payments.

Based on the draft circular, clearing participants will agree on thresholds for the Clearing Switch Operator (CSO) to be used as basis in determining if demand deposit accounts (DDAs) are adequate for clearing and settlement in any given settlement cycle.

In the case of batch settlement of electronic payments, the CSO is also expected to “provide a system that will enable clearing participants to monitor movements and place additional funds, when necessary, in their DDAs in a timely manner for each and every settlement cycle.”

By BSP definition, batch clearing and settlement of electronic payments pertains to the bulk processing, clearing and settlement of payment instructions at set intervals based on a specified cut-off time. Multiple batch settlement, on the other hand, is a settlement mechanism of electronic payments involving more than one batch settlement cycle in a clearing day.

PESONet, an automated clearing house (ACH), is a batch electronic fund transfer which can be considered as an electronic alternative to the paper-based cheque system.

In setting the MBS guidelines, the BSP said it will “ensure efficiency of payment systems in the country” and requires participating BSP-supervised financial institutions (BSFls) in ACH for instant retail payments electronic payments to “provide certainty of settlement of the multilateral clearing obligations of the clearing participants.”

The BSP said the “settlement scheme agreed upon by the clearing participants will form an integral part of the comprehensive credit and settlement risk management for instant retail electronic payment services.”

This includes the monitoring of sufficient DDAs. These DDAs, according to the BSP, are interchangeable with “secured settlement account” and provides certainty that electronic fund transfers for retail payments are fully settled.

Clearing participants are responsible for monitoring and ensuring that their respective DDAs are sufficient to settle their obligations for each and every settlement cycle, said the BSP.

The draft circular also said that for batch settlement and multiple batch settlement of electronic payments, the CSO will allow clearing participants to effectively monitor their DDAs and “should the balance of a clearing participant’s DDA be insufficient to settle their net clearing results, the participant will ensure prompt settlement by funding their DDA with the BSP either prior to the specified settlement cut-off time or within the agreed upon grace period after the settlement cutoff time.”

The draft circular is currently being circulated among BSFIs and has a feedback deadline of Dec. 24.

The BSP achieved its target of reaching 20 percent of digital payments volume by 2020 and even slightly exceeded the target at 20.1 percent. Based on the BSP Digital Payments Transformation Roadmap, this will reach 50 percent by mid-2023.

The increased usage of digital payments was largely driven by high-frequency, low value retail transactions such as person-to-merchant (P2M) payments and person-to-person (P2P) payments such as electronic fund transfers, said the BSP.