On the road to transforming payments

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Digital payment solutions are expanding in recent years. But majority of Filipino adults, as of 2019, remain unbanked. Furthermore, cyberthreats that escalated amid the lockdown are also a concern.

The Bangko Sentral ng Pilipinas (BSP) seeks to improve the digitalization of payments in the country as charted in its Digital Payments Transformation Roadmap 2020-2023. The objective is to establish “an efficient, inclusive, safe, and secure digital payments ecosystem that supports the diverse needs and capabilities of individuals and firms, towards achievement of the BSP’s mandates.” From this goal, the central bank envisioned two strategic outcomes.

One is a strengthened consumer preference for digital payments through shifting 50% of the total volume of retail payments to digital, as payment services are also a gateway of Filipinos to enter the formal financial system. This aim involves growing the number of financially included Filipino adults to 70% by onboarding them to the formal financial system through payment or transaction accounts.

The other outcome is to develop more innovative and responsive digital financial services with innovative financial products and services attending to consumer needs; the Philippine Identification System (PhilSys) for Know-Your-Customer (KYC) compliance; and next-generation payment and settlement services.

To accomplish these goals, the central bank noted three critical areas that the country should focus on for a successful road to a cash-lite economy.

The first of these three pillars is digital payment streams that comprise the BSP’s key initiatives to create digital payments use cases that would catalyze wider adoption among consumers and businesses. The second is enhancing digital finance infrastructure to support digital payment expansion and facilitate seamless transactions. Lastly, to ensure the alignment of these payment streams and systems with global best standards and practices, digital governance and standards should be formulated and implemented.

In the road map, the BSP also recognized broader challenges in developing digital payment ecosystem and financial inclusion, such as shifting mind-sets, the digital divide, and the lack of fast and reliable internet connectivity.

BSP Governor Benjamin E. Diokno said in a statement that with the launch of the three-year road map last October, the central bank aims “to hit two birds with one stone. We are securing the digitalization of payments, and increasing the number of Filipinos with access to financial services.”

The road map has seen some progress as some of its priority actions for 2020 to 2021 are pushing through.

One of the BSP’s strategic initiatives under digital payment streams is to expand QR Ph, the National QR Code standard, by implementing person-to-merchant (P2M) payments. Its pilot launch was held in April, and it was fully implemented in October.

Initially, the first use case of QR Ph launched in November 2019 is for digital person-to-person (P2P) transfers. By end-August this year, 23 InstaPay participants offer QR Ph P2P payment services to their clients. QR Ph P2M drew on such successful launch and adoption of QR Ph P2P.

According to the BSP, the implementation of QR Ph P2M would let businesses, including micro, small, and medium enterprises (MSMEs), and merchants experience the benefits of digital payments. Customers, on the other hand, have more convenient means to pay when purchasing from merchants. For payment service providers, they can potentially expand their customer base, strengthen business relationships with their accredited merchants, and enhance their financial products by participating in this facility.

Meanwhile, regarding digital finance infrastructure, the BSP’s key payment infrastructure development initiatives deal with supporting PhilSys to promote financial inclusion and innovate digital financial services; enhancing the Philippine Payment and Settlement System (PhilPaSS) into PhilPaSSplus; and moving towards an open banking ecosystem.

PhilPaSSplus was set to go live by June this year as the enhanced, next-generation version of the PhilPaSS, the country’s real-time gross settlement system. The BSP announced on Aug. 26 that the system is on live run.

The PhilPaSSplus, according to Mr. Diokno in a BusinessWorld report, will improve the safety and efficiency of retail and large-value transactions. Additionally, with the latest technology, the PhilPaSSplus will also significantly develop risk reduction, security levels, business continuity provisions, liquidity management, and data and information generation.

To support the increase of payment digitalization, the BSP’s initiatives under digital governance and standards involve Open Banking and Application Programming Interfaces Standards; Data Governance and Ethical Use of Data Policy; Adoption of the ISO 20022 International Messaging and Communication Standard; and Cybersecurity Policies and Measures, such as the development of Cybersecurity Maturity Model Framework and conduct Cybersecurity Controls Self-Assessment.

The BSP has achieved its target set in 2015 to reach 20% of digital payments volume by 2020. The 2021 edition of the country’s digital payments status report notes the volume of monthly digital payments in the previous year rose to 20.1% and 26.8% in terms of value.

“These figures demonstrate that the Philippines has made tremendous strides toward growing an inclusive digital payment ecosystem,” Mr. Diokno said in the report.

“We are optimistic that digital payments adoption will sustain the upward momentum during the post-pandemic years and would allow us to achieve the 50% target by 2023,” he added. — Chelsey Keith P. Ignacio