BSP thinking ahead on electronic payments
THE announcement by Bangko Sentral ng Pilipinas (BSP) Gov. Nestor Espenilla on Monday that central bank considers linking its relatively new electronic payments system with others in the Asean region an “interesting prospect” is welcome news, and a potential boon to Filipino businesses and individuals.
The BSP oversees the National Retail Payment System (NRPS), a framework created to help shift the Philippine economy from a largely cash-based system to one with a greater percentage of electronic payments. In 2014, according to BSP data, just 1 percent of the more than 2.5 billion monthly transactions in the Philippines were electronic; the BSP is seeking to raise that to 20 percent by 2020.
There are two clearinghouses under the NRPS. One is the PESONet ( Philippine EFT System and Operations Network), which handles electronic batch payments and is intended to supplement and eventually even replace the tedious paper check system. The other is InstaPay, which is a domestic electronic fund transfer network connecting both banks and non- bank e- money issuers, allowing customers to send peso funds almost instantly to anyone through the network.
Linking the NRPS to other networks in Asean – so far, Thailand and Singapore have launched similar networks, and are experimenting with connecting them between the two countries – would provide secure, virtually instantaneous payment capabilities to Filipino businesses and consumers anywhere the systems are connected.
The BSP initiative is commendable, because not only are electronic payments, particularly cross-border payments, generally more secure than the SWIFT and IBAN legacy systems Because there is less infrastructure and handling involved, EFT transactions typically have per-transaction costs of only 0.15 to 0.5 percent, compared with per-transaction fees of 5 percent or more charged typically by banks.
Promoting electronic payment systems and seeking connections to other systems in the region is also a matter of making sure the Philippines is not left behind in its capabilities, or misses out on what is an explosively growing business.
A recent analysis from Statista drawn from central bank data worldwide showed that just one form of electronic payments – person-to-person (P2P) transactions, many of which are remittance transfers – are forecast to reach nearly $66 billion globally in 2018, and reach at least $134 billion annually by 2022, a growth rate of over 19 percent. Nearly 100 million people use P2P money transfers currently; by 2022, that number is expected to nearly double to 188 million, the majority of them remitting money from developed countries to countries in Asia, Africa and Latin America. The value per transaction for P2P money transfers is increasing as well, reaching an average of $362 in 2018.
Making electronic payments a normal way for Filipinos to do business still faces many challenges in increasing access and overcoming customer trust issues, but linking networks reduce risks in a couple of other key areas. One such risk is that of illiquidity, which is a potential consequence of how the networks handle the physical exchange of money through locally pooled funds, and threats posed by money laundering and other fraudulent activities.
The Philippines’ heavy reliance on OFW remittances and the broad penetration of mobile technology make this country a perfect testing ground for development of electronic payment systems. The initiative is also a perfect way to advance the current government’s aspirations toward own electronic payments framework and exploring crossborder linkages is a potential harbinger of real economic progress, and deserves approving attention.