So far, looking at data exclusive only to him for now, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. is confident of achieving their goal of digitizing 50 percent of all transactions into e-payments this year.
“We feel good that when you look at the share of digital payments to total transaction, we are seeing a shift from cash to digital payments,” he said in a recent investors’ forum.
As of the end of 2022, 42.1% of all payment transactions have shifted to digital. “This year, we are hoping to reach 50%. It has brought people into the formal financial system,” said Remolona.
The other goal is onboarding 70 percent of all adult Filipinos to have formal accounts such as in banks or other e-money versions.
As of end-2021, the BSP chief reiterated that already, 56 percent of Filipino grown ups have financial accounts. “We hope this year, it will be 70%,” he added.
Based on the BSP’s Digital Payments Transformation Roadmap and its National Strategy for Financial Inclusion, by end-2023, half of all payment transactions should be in digital form while 70 percent of adult Filipinos should have formal accounts.
“To make growth more inclusive, we’re trying to fashion a payment system that serves the unbanked,” said Remolona. The share of digital transactions in total payments has been growing steadily with both InstaPay and PESONet. Also, more people are using the QR Ph code for payments.
BSP’s push for digitalization
The BSP’s digital payment system currently has two strategies that Remolona calls the local strategy or e-money basic deposit account (BDA) and the international side which is the collaboration with regional central banks for an easier, faster, transparent cross-border transfer of funds.
“We have the local strategy (e-money BDA), that leads to bank credit for the unbanked, and that leads to other financial services, so the unbanked becomes a part of the whole financial ecosystem. That’s the domestic side,” said Remolona.
“On the international side, we have an exciting collaboration in ASEAN. For our neighbors, in our case InstaPay, we are collaborating on a platform. This will avoid dollar and correspondent banks. We go into a platform where pesos can be easily exchanged with other currencies. It’s gonna be very efficient. And the costs will come down to 1%,” he added.
MSMEs
The number of banks with BDAs for micro, small and medium enterprises (MSMEs) have grown from just 121 in 2020 to 158 banks this year.
First introduced in 2018, BDAs are low-cost, no-frills account with an initial deposit of just P100 or less. It also has no maintaining balance, no dormancy charges, and requires only simple identification for account opening. In value terms, BDA deposits totaled P27 billion as of end-March, up by 432 percent from P5.1 billion in 2022.
According to the BSP, BDA transactions increased because of accounts opened under the Philippine Identification System (PhilSys). The co-location strategy by the Philippine Statistics Authority and state-owned Land Bank of the Philippines raised an additional 7.5 million BDAs during the first three months of 2023.
Meanwhile, at the end of 2022 the BSP drafted proposed rules on the basic merchant account (BMA) framework that will specifically cater to ambulant vendors and convenient stores.
BMAs are basically accounts that will allow MSMEs to accept digital person-to-merchant and business-to-business payments. This will be offered by all banks, bank-owned e-money issuers (EMI) and non-bank EMIs.
BMAs are specifically designed for ambulant vendors or street hawkers who travels – whether on foot or on tricycles or bicycles – to sell their goods. But it also includes gasoline stations and restaurants, among others.
Cross-border Nexus
The BSP and four central banks in the region such as Singapore, Malaysia, Indonesia and Thailand, will connect their domestic instant payment systems (IPS) to the Nexus system.
The Nexus, which is a prototype developed by the Bank for International Settlements (BIS) Innovation Hub Singapore Centre with the central banks of Italy, Malaysia and Singapore, connects payment system operators with the Eurosystem’s TARGET Instant Payment Settlement (TIPS), Malaysia’s Real-time Retail Payments Platform (RPP) and Singapore’s Fast and Secure Transfers (FAST).
Remolona has said many times that under the Nexus project, he expects to bring down the costs of cross-border digital retail payments including fees on remittances from five percent to just one percent.
The Nexus is still in its first phase. The second phase is expected to enable central banks in the region to have a multilateral connectivity of fast payment systems. It will enhance cross-border real-time retail payments that can facilitate financial integration within the region.
The BSP, BIS and the central banks in the ASEAN trade bloc expect the Nexus’ standardised and multilateral network will link the different IPS for a wider connectivity and multilateral cross-border network.
The BSP has said previously that in the next phase, BIS and the central banks of Indonesia, Malaysia, Singapore, Thailand and the Philippines will jointly work towards connecting their domestic IPS through Nexus.
The collaboration includes Bank of Italy, Central Bank of Malaysia (BNM) and Monetary Authority of Singapore (MAS), and the payment systems operators PayNet and Banking Computer Services (BCS).
The BIS and the central banks including the BSP plan to have Nexus implemented globally.
The future
The central bank’s journey to digital transformation still has a long way to go amid a challenging landscape, according Remolona.
He has said often that BSP is on track to achieving its e-payments target since already -- “the payments that we use, in shops and in stores, are increasingly digital.”
By end-2022, with 42.1 percent of payment transactions in digital form -- higher than 30.3 percent end-2021 -- the BSP is almost where it wants to be.
When the BSP started this, only one percent of transactions was in digital form in 2013. By 2018, the volume increased to 10 percent and then to 14 percent in 2019.
By the time the pandemic hit the globe, digital payments expanded to 20.1 percent of all transactions in 2020.
The BSP itself has assisted in the fast migration of non-digital to digital because the central bank has become highly digitalized since the start of the pandemic.