Digital payments stepping-stones to the next normal
The Next Normal will no doubt require a radical rethinking of how we approach interactions services, including how we make and receive payments. Digital payment systems offer the best approach for streamlining financial transactions, and will make it easier for us to keep a safe distance from others.
In the World Bank’s 2020 Philippines Digital Economy Report, we ranked 36th out of 100 emerging startup ecosystems, thanks to our market reach, talent, experience, and vibrant financial tech and e-commerce sub sectors. As of July this year, we already have 103 payment system operators registered with the Bangko Sentral ng Pilipinas (BSP), and we are already using instruments such as credit transfers and card payments online.
However, we will have to institute some major changes for us to fully take advantage of the benefits of integrated online financial services. Even as we seem to be using digital payments more these days, it’s estimated that only 1 percent of 2.5 billion payment transactions a month are done online—and this is already considering that there has been a 27 percent to 30 percent overall growth in digital payments.
One major issue is that relatively few Filipinos own a bank account. According to the BSP, about 37 percent of cities and municipalities in the country do not have banking offices, and that 81.3 percent of households in Metro Manila have not a single bank account among its family members. Without a home account, it will be difficult to use online financial tools and services.
Our lack of a National ID is another factor, as a unified ID system will make it easier for banks to confirm and authenticate financial transactions and fulfill their KYC (“Know Your Customer”) requirements. Thankfully, registrations are now underway for the Philippine Identification System (PhilSys).
Membership of banks and our financial institutions in payment networks like InstaPay and PESONet should also be encouraged. More people also have to be made aware of, and know how to use, digital payment systems. Payment instruments are also limited for now to batch payments and low-value credit transfers. Regulations and guidelines for privacy and security concerns should also be formulated, to minimize fraud and other crimes.
Finally, there is the large elephant in the room: our problems with connectivity, owing to our inadequate IT and telecommunications infrastructure. For digital payments to really take off, we have to make sure that we can handle the bandwidth. Filipino consumers only experience about 16.76 Mbps download speeds, much lower than the global average of 32.01 Mbps. Regionally, 3G and 4G download speeds are at 13.26 Mbps, while the Philippines is only as 7 Mbps.
These concerns are part of why I filed SB 1764, the Use of Digital Payments Act of 2020. The measure seeks to put into law the following: account-based digital disbursements for government offices, such as those for distribution of emergency funds and other similar payments to recipients; adoption of digital payment systems, like QR codes; guidelines for payment system providers, including accreditation and authorization based on RA 11127, the National Payments Act; interoperability among all digital payment systems and providers; and that local government units should incentivize the shift to digital payment systems, particularly for local business entities. The expansion and improvement of the country’s telecommunication infrastructure is also addressed in the measure, by defining which departments have to work with each other to give Filipinos faster speeds and larger bandwidth.
The private sector can also help with improving digital payment systems. For instance, ING Bank and UNICEF have launched an initiative, “Fintech for Impact” where they chose to invest in and provide mentorship to five businesses with digital solutions aiming to empower the youth and families. These include Agrabah, which connects farmers and fisherfolk directly with buyers and financial services; BeamAndGo, a remittance platform; Educ4All which connects students to loan services, and will offer courses on financial management; Reach52 which is expanding their apps set to provide microinsurance, healthcare services, and livelihood opportunities for women; and Saphron, which will provide microinsurance agents with tools to collect accurate data with a new AI-enabled platform.
Digital payments systems are building blocks for upgrading the economy. They can maximize production and efficiency through cashless and integrated transactions. They will keep our country globally competitive in the era to come. Most urgently, they can keep us safe, making it easier to enforce Covid-19 health guidelines during quarantine.
Sen. Sonny Angara has been in public service for 16 years—nine years as Representative of the Lone District of Aurora, and seven as Senator. He has authored and sponsored more than 200 laws. He is currently serving his second term in the Senate.
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