By Lee Chipongian
Philippine banks are growing their digital financial services at a very fast rate and according to the Bangko Sentral ng Pilipinas (BSP), digital payments will cover a full 100 percent of all transactions in less than 10 years.
“That is doable,” said BSP Governor Benjamin E. Diokno. “We will speed up adoption (of e-payments). The key here, first and foremost, is the national ID.” The BSP is producing the foundational, biometric ID and investing ₱3.4 billion to do it.
The second crucial element is Internet connection speed and reliability. “Internet capacity and reach (is another key factor) but with the quadrupling of broadband capacity, it will be achieved,” said Diokno, adding that a third telecom provider will improve Internet connectivity, as well as existing players’ commitment to expand networks and reach.
Diokno said that in two to three years, all Filipinos will have their national ID. He reiterated that the national ID is a game changer as it will simplify public and private transactions through a reliable identification system, and enabling the unbanked and the vulnerable sectors to have proof of identity.
By early next year, the BSP will release about 15 million national IDs, another 15 million in 2021 and the rest by 2022. The target for the completion of the 116 million cards is mid-2022.
The Philippine ID system was 30 years in the making, said Diokno. The signing into law of the Philippine Identification System Act (PhilSys) only happened last August of 2018.
“The objective is for all Filipinos to be properly identified using a unified system that gathers basic identification and biometrics information. The BSP has assumed the task of printing the IDs (to) hasten financial inclusion, as this addresses the problem of lack of formal IDs—which are required to open a bank account,” said Diokno.
This year, Diokno said 30 percent of payments transactions are now e-payments, which is way ahead of the original 20 percent in 2020.
“As you know, digitalization is rapidly changing the way we live and work today,” he said during the BSP’s launch of the QR Ph and the EGov Pay last month.
The EGov Pay is particularly significant because e-payment services have greater transparency and will prevent corruption. “It is quite hard to do ‘under-the-table transactions’ when a payer deals only with a computer which captures the electronic footprints of every command it receives,” said Diokno. These platforms are an audit trail and a “deterrent to anomalies.”
“Any person with a sound mind is unlikely to commit fraud if he knows that there are clear traces of his activities,” said Diokno.
With EGov Pay, the government and the BSP are now working on the issuance of e-receipt and e-government collections. When these are being done, this will further increase e-payments.
The BSP, as the country’s supervisor of payment systems, implements the National Retail Payment System or NRPS for a safe, efficient, and inclusive retail payment system. The NRPS has allowed interoperability of payment service providers.
“When you look at all of this, these are all pieces of the roadmap that seeks to build a modern, best of class, national retail payment system which is digital first,” said Union Bank of the Philippines Chairman of the Board, Justo A. Ortiz.
“Are we building a field of dreams? A lot of it has to do with use cases. So, the rails are there, the infrastructure are there, and we are building an infrastructure that is safe, secure, which is easy to use and low cost. The dominant users of payments are the government, merchants (both large and small), and there will be other use cases (such as P2P). At the end of the day it’s about use cases,” said Ortiz.
“If it’s easy to use, quick, convenient, cost effective and it’s readily available, then you will have, hopefully, faster adoption,” he added. Ortiz is the Chairman of the Philippine Payments Management, Inc., the private sector partner of the BSP in the NRPS.
Last December 2, a Digital Payments Leaders Summit was held, and Diokno who was keynote speaker, called on all payment service providers and operators of payment systems to continue growing and “leveraging available financial technologies to be able to deliver more digital payment services that reach even those living in the most rural places.”
Credit rating agency, Moody’s Investor Service, in its 2020 Outlook for Banks in the Asia Pacific, said digitization will help banks scale down branch networks and reduce costs in the long-term.
Moody’s observed that competition “is intensifying between banks and fintech firms in e-payments, lending, investment and advisory” while more internet-only banks are emerging in the region and “further disrupting the incumbents.” Banks in many markets are scaling down and streamlining their branches because of declines in foot traffic and high costs, said Moody’s.
S&P Global Ratings, in the meantime, said Philippine banks with a focus on digital banking “will be able to weather higher competitive intensity from fintech players, given the underpenetrated nature of the banking system.”