The increasing use of digital payments among Filipinos has prompted the Bangko Sentral ng Pilipinas (BSP) to seek the help of financial technology operators to establish better systems of settling fee-less financial transactions in the country.
BSP Governor Eli M. Remolona Jr. said enhancing digital payments, which eventually includes free transactions, is among their strategies towards achieving financial inclusion.
He added, however, they are tied with “network externalities,” referring to the requirements by network providers.
“Because of what we call network externalities, there should be a subscription fee, which is fixed rather than a fee per transaction. So we’re still trying to figure out how exactly to do that,” Remolona said on the sidelines of a Rotary Club event yesterday.
“We’re talking to GCash, we’re talking to Maya, we’re talking to all the participants and we’re gonna agree on something,” he said.
Remolona explained that the situation now is between an individual and a merchant.
“The merchant pays the fees. So the individual doesn’t see it but it’s made part of the price that the person pays. Between individuals, we’re thinking about making that zero. No fees in between, up to a certain threshold. We haven’t determined the threshold,” Remolona said.
Currently, no fees are imposed for transactions using the same app. But for transfers to banks or to a different app, a fee of P15 per transaction is imposed. Electronic fund transfers are made under InstaPay and has a limit of P50,000 per transaction.
Remolona said the banks are saying that if a threshold, or limit, is imposed, users who are above the threshold will just split their transaction into two or more transactions so they fall within the threshold.
“But there’s some more fundamental issue. It’s not about the fees per transaction. I think that’s the wrong model,” he said.
Remolona stressed they are looking at digital payments as a pathway towards financial inclusion.
“So digital payments, which we see as allowing more people to have, not necessarily a bank account, but an e-wallet account, which then makes it easier for them to open a bank account, eventually. And then with digital banks relying on data that is new and innovative, we are hoping that they would be able to lend to more people without requiring the usual amount of collateral that banks have so far relied on,” he said.
“The thing about payments is we are emphasizing what are called network externalities. I’m sorry to go nerdy on you, but if you look at the payment system, every time you add one more participant, that’s a cost. It’s a small cost, but that extra participant adds value to the whole system. You have a bigger network of participants. And so that’s what we call a network externality. And we want to try to maximize that by looking at the fee structure, rely less on fees per transaction, and rely more on subscriptions, which is kind of a fixed cost,” Remolona explained.
“We hope that will help us maximize network externalities in the payment system and hope that this will lead to greater financial inclusion.
Remolona also said about two of the six BSP-licensed digital banks are “doing very well” and the rest are “struggling.”
“We have allowed digital banks as an effort to promote lending digitally. We have six digital banks. We’re going to allow four more digital banks in the near future. So we expect to have 10 digital banks,” he said.
“Among the six, about two of them are doing well and the four others are struggling. But we’re looking for other business models. And so we have seen a lot of applications from banks with very successful business models abroad, and we’re just checking on their data and then very soon we will allow a few more digital banks,” Remolona added.
The 6 BSP-licensed digital banks are Overseas Filipino Bank (OFBank), a subsidiary of state-owned Land Bank of the Philippines; Tonik Digital Bank, Inc.; UNO Digital Bank; Gokongwei’s GoTyme Bank; Union Bank’s digital arm UnionDigital Bank; and Maya Bank, a leading digital bank in the country.
GCash, the most widely-used payment method in the country now, currently operates with “electronic money issuer and remittance agent” licenses from the BSP.
