The International Monetary Fund (IMF) warned that the Philippines’ fragmented financial infrastructure has left consumers facing retail transaction fees that outpace its regional peers, highlighting the urgency of local digital currency initiatives.

Disparities in the country stem from the mismatch of payment networks and standards that disrupt frictionless transfers, the Washington-based lender said in a technical report published Friday. Financial intermediaries navigating these disconnected systems frequently pass the resulting operational expenses down to end users, the IMF added.

According to the IMF, a prime example of this inefficiency is the coordination required between the country’s two main automated clearing houses, which have recently been merged.

Transactions moving between PESONet and InstaPay involve two different clearing system operators—BancNet, Inc. and the Philippine Clearing House Corp. (PCHC)—leading to cross-settlement fees that inflate the final cost.

“For end users, retail transaction fees in the Philippines are higher on average compared with its regional peers,” the report said.

Most regional peers generally do not charge fees for small person-to-person transfers, while Philippine banks typically levy about ₱10 to ₱25 per transaction, with higher charges for corporate clients that can reach up to ₱500 per transaction.

Data cited by the IMF also showed that while payment systems like Singapore’s PayNow are free, the Philippines’ InstaPay transactions can cost around ₱9 to ₱30.

This assessment follows an IMF technical assistance mission conducted in late 2024 to assist the Bangko Sentral ng Pilipinas (BSP) in exploring a wholesale central bank digital currency (wCBDC).

A CBDC is a broad category for digital money issued directly by a central bank, representing a secure, risk-free asset for financial transactions. Meanwhile, a wCBDC is a specific subset of CBDC designed exclusively for high-value institutional transactions between financial institutions, government agencies, and financial market infrastructures.

According to the report, the mission aimed to assist the BSP in studying and testing whether a wCBDC could help address challenges in the Philippines’ wholesale payments system.

It said two use cases emerged as priorities for further study: settlement of tokenized government bonds and improvements in cross-border payments.

Feedback from local banks and regulators showed that “inefficiencies in cross-border payments present the most significant gaps for improvement, followed by a need to further develop the capital market.”

To address these gaps, the IMF and BSP developed a preliminary roadmap based on the IMF’s “5P methodology,” which covers preparation, proof-of-concept, prototyping, piloting, and production.

However, the IMF cautioned that technical progress alone will not be sufficient. It stressed the need for a strong legal framework to support wCBDC testing and possible issuance, as well as the development of incentives to ensure sustainable adoption of wCBDCs.

While the BSP continues to refine the roadmap, the IMF suggested that the successful implementation of a wCBDC could eventually help lower costs passed on to consumers by creating a more integrated and efficient settlement layer for the country’s financial system.

Last week, the Securities and Exchange Commission (SEC) and the BSP approved the merger of BancNet, Inc. and the PCHC, with BancNet acting as the surviving corporate entity. Effective June 1, the merged company began operating under the new corporate name Payments Network of the Philippines Inc. (PNPI).