Amando M Tetangco: The transformation of the Philippine retail
payment system
Speech by Mr Amando M Tetangco, Jr, Governor of Bangko Sentral ng Pilipinas (BSP, the
central bank of the Philippines), at the National Retail Payment System (NRPS) Event - Signing
of PSMB Charter and ACH Agreements, Manila, 31 March 2017.
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We are pleased that you have joined us this morning to witness two ground-breaking events that
will transform the Philippine Retail Payment System to become truly inclusive and eventually
serve all payments transactions across the country.
The first is the signing of the Charter of the "Payment System Management Body" or PSMB
under the National Retail Payment System framework.
The PSMB is a critical and unique entity that will serve as a strong foundation of a modern, digital
retail payment system in the Philippines. It is industry-led, bringing together and organizing all
direct clearing participants in all important retail payment systems, into a self-governing body that
will assist the BSP in overseeing the national payments system.
As a fine example of public-private partnership, the BSP and the payments industry will work
together to promote the sound development of the payment system based on the principles of
cooperation, good governance, healthy competition and consumer protection.
The second is the signing of the Expression of Interest to establish and activate within this year
two specific Automated Clearing Houses (ACHs) that are being prioritized because of their huge
potential to immediately provide digital payment solutions to current payment challenges being
encountered by government, by businesses, and by ordinary consumers.
The first ACH will be called "PESO Net" which is a batch electronic fund transfer credit payment
scheme. This can be the electronic alternative to the paper-based check system but it will also
be more inclusive in terms of participants and users. The PESO Net supports bulk payment
transactions of various users. For instance, it will enable companies, including the government,
to conveniently pay salaries and invoices to the bank account of choice of their employees and
suppliers. Employees and suppliers will therefore no longer be compelled to open and manage
several accounts just so they can receive and make payments affordably.
The second ACH will be called "InstaPay", a real-time low-value push payment scheme for
transaction amounts up to P50,000. This is a new retail payment system designed to facilitate
small value payments that will be especially useful for paying for toll fees and tickets, and for
ecommerce to enable MSMEs.
Payment products can be built on InstaPay that will enable merchants to accept digital payments
from both e-money and bank accounts even without a POS. By using digital payments, MSMEs
will be able to build a rich digital transaction history which can help establish their
creditworthiness and provide them access to credit from formal lending institutions at a price that
reflects their good risk profile. This shows that the benefits of using electronic payments
especially by MSMEs go beyond convenience and affordability. Electronic payments can even
provide greater access to other financial services.
These concrete developments mark a significant milestone in our journey towards modernizing
the retail payment system in the country -- an accomplishment that would not be possible
without the cooperation of the payments industry players with the BSP. We also recognize
USAID which has provided the technical assistance for this strategic initiative.
This journey officially began in December 2015 when we launched the National Retail Payment
System Project or the NRPS. As a policy framework, the NRPS lays down the principles and
necessary elements of our envisioned safe and efficient retail payment system.
Let me just highlight for a moment the concept of efficiency. Efficiency in the retail payments is
essentially about speed, convenience and affordability. These are features and requirements
that can clearly be supported by a shift to electronic payments. And that is why a key outcome of
the NRPS is the increased adoption of electronic retail payments.
When we decided to embark on this journey, we knew from the get-go that we have our work cut
out for us. As it stands, the share of electronic payments in the estimated 2.5 billion monthly
payment transactions in the country is a measly 1% based on a baseline survey conducted in
2013. We want to bring this to 20% within the next 3 years, or by 2020. Some might think this as
quite an ambitious target. And perhaps it is. But realizing how important a shift to electronic
payments is for the country, we knew we had to embrace this target and buckle down to achieve
it.
So what is at stake? Aside from the considerable cost-savings and productivity that it can
generate for businesses, the government and the financial sector at large, a safe and efficient
retail payment system can potentially transform the economy by enabling greater financial
inclusion. As it facilitates low-cost and convenient transactions, our envisioned retail payment
system supports the viable and sustainable delivery of a wide range of financial products that
cater to the needs of all users, especially the small-value, high frequency transactors of the
lowincome segment. A well-designed retail payment system serves as a pillar of an inclusive and
expansive digital finance ecosystem - one that is able to meet the diverse needs of all users in a
manner that is convenient, sustainable, affordable and reliable.
Just as it is a goal, financial inclusion is also a tool for achieving an efficient retail payment
system. As more people participate in this system, greater economies of scale are secured -
thereby making the system even more efficient. The unserved market of the payments industry
is still huge, considering that based on the latest World Bank Findex report, only 31.3% of adult
Filipinos have a transaction account which enables them to participate in the retail payment
system. By enabling its user to store funds and use electronic payments, a transaction account
can provide the unbanked the means to eventually avail of more sophisticated products, like
credit, insurance and investments. Providing a transaction account to the remaining 69%
untapped potentially high-volume market therefore presents opportunity for financial service
providers to expand their customer base and add new income streams.
Clearly, therefore, we cannot overemphasize the importance of establishing a safe and efficient
payment system which the NRPS aims to achieve. The NRPS provides the framework for our
deliberate approach to securing the promised gains of modernizing retail payments for the
benefit of the consumers, the industry and the economy as a whole. This approach is built on
three core principles: interoperability, inclusivity and "coopetition".
Interoperability is defined as a state in which customers can transfer funds from their own
account to any BSP-regulated transaction account using any device. This means that a
customer need only maintain one account - whether a bank or an e-money account - to be able
to conveniently and affordably transact with anyone in the system.
The inclusivity principle, on the other hand, demands that all qualified financial service providers
must be able to effectively participate in the system - regardless of their size and type of
transaction accounts offered. This fosters greater competition and spurs innovation to better
support the diverse needs of the consumers.
The third core principle espoused by NRPS is "coopetition" - a portmanteau (combination) for
"cooperation" and "competition". NRPS promotes both cooperation and competition in the
industry. The industry is expected to cooperate in matters that directly impact on our shared
objectives of system efficiency and resilience. This includes clearing and settlement rules and
standards, industry governance and risk management. Product features such as end-user fees,
delivery channels and customer service fall outside the cooperative sphere and will be used as
basis of competition.
The formation of the PSMB and the PESO Net and InstaPay ACHs essentially sets in motion the
operationalization of these NRPS principles. The PSMB serves as the industry-level cooperation
and governance body composed of qualified banks and e-money issuers. By organizing as a
formal body, participants can effectively identify and drive strategic initiatives to promote the
efficiency and resilience of the system and promote the sustained growth of the industry.
The multilateral ACHs, on the other hand, lays down the clearing and participation rules for a
particular payment stream to facilitate electronic fund transfers among its participants. Payment
streams that are covered by a multilateral ACH promotes greater efficiency, better risk
management and interoperability compared to those that are covered by separate bilateral
agreements as currently practiced.
Our journey towards a modern retail payment systems is just beginning but we can take pride in
the significant progress we have made thus far.
We couldn't have gotten to this point if not for the willingness of the key stakeholders present
here today to collaborate, dialogue, and commit to the NRPS vision.
And so let me conclude by expressing our deep appreciation for your support to the NRPS. With
the same commitment and cooperation, we shall move forward with the full implementation of
the NRPS and realize its vision of establishing a safe and efficient retail payment system in the
country, a vision of a highly digital financial system in the Philippines that serves the interest of all
financial consumers.
Mabuhay po tayong lahat!