E-payments and digital financial inclusion

Within eight months from the onset of the pandemic, we were forced to change gears and find ways to navigate a new world. A thread of hope in this seemingly daunting new economy is the emergence of compelling cases to use digital financial services, especially e-payments.

From our perspective in the Bangko Sentral ng Pilipinas (BSP), retail e-payment instruments are a critical prerequisite for Filipino citizens, especially the financially unserved and underserved sectors, to avail themselves of opportunities for recovery and growth.

A basic measure of financial inclusion is account ownership, which has shown improvement as the number of Filipinos with accounts rose from 23 percent in 2017 to 29 percent in 2019. The BSP, however, recognizes that more still needs to be done.

While people cite “perceived lack of utility” as among their top reasons in choosing not to open an account, most Filipinos, regardless of economic status, actually engage in payment transactions. Payments can drive people to open an account—enabling them to experience its utility for e-payments as a more convenient alternative to cash transactions.

This pandemic has provided an impetus for Filipinos to gravitate from cash to digital.

The benefits of e-payments are significant for sectors who also need them most: wage earners, microentrepreneurs and beneficiaries of government programs.

Through electronic fund transfers (EFT), they can promptly and safely receive salaries, pension, social security benefits, and other types of financial assistance such as those provided under the Pantawid Pamilyang Pilipino Program. Microentrepreneurs who are able to accept e-payments are also able to expand their market and client base.

Individuals and small businesses likewise build transaction histories as they use e-payments. These histories can support access to financial products, like credit, that are more responsive to their needs and context.

As previously unbanked users become more comfortable with e-payments, they can eventually be onboarded to use other value-adding financial services like savings, investments and insurance. In essence, e-payments can jump-start and catalyze financial inclusion.

The BSP encourages adoption and usage of e-payments as it supports the achievement of one of our key strategic objectives—digital financial inclusion. The BSP envisions a new economy characterized by universal, democratized access by all Filipinos to a wide range of financial services, through a digitally connected ecosystem of responsible and responsive financial institutions, whether banks or nonbanks.

The BSP is confident that we are on our way toward achieving this vision, not least in part due to the pandemic-induced necessities.

EFTs grew at 87 percent in volume and 42 percent in value before and during the enhanced community quarantine (ECQ). Around 4 million new accounts were opened digitally from March 17 to April 30, the height of the ECQ.

The account-based distribution of benefits under the government’s Social Amelioration Program resulted in the opening of millions of new accounts. The disbursement of financial assistance under the Social Security System’s (SSS) Small Business Wage Subsidy Program through PESONet benefited over three 3 million employees of MSMEs (mircro, small, medium enterprises) affected by the pandemic. Microfinance institutions are now recognizing the urgency to adopt digital solutions for sustainable and better customer service.

The BSP keenly monitors these trends to assess whether its policy reforms are taking effect. We can confidently say that the consumer shift to e-payments during the pandemic was made possible because enabling regulatory frameworks on transaction accounts, digital KYC, e-­ money, e-banking, payment service providers, and networks were already set in place.

The momentum and potential for digital financial inclusion are evident, even prior to the pandemic.

Momentum is evidenced by sustained uptake of basic deposit accounts designed for small savers, now numbering 4.6 million accounts with aggregate amount of P4 billion, lodged in 122 banks. The share of adults with a transaction account climbed from 23 percent in 2017 to 29 percent in 2019. E-money account penetration exhibited a remarkable growth, increasing to 8 percent in 2019 from 1.3 percent in 2017, and the number of account holders using e-payments doubled.

The potential market is huge, since only 12 percent of adults who own a mobile phone, and only 9 percent of adults with internet are making digital financial transactions. Among the unbanked, 7 in 10 of them have a mobile phone. These market segments already possess the means and are potentially ready for onboarding into the digital finance ecosystem.

To sustain the momentum and opportunities for wider digital payment adoption, the BSP launched a three-year Digital Payments Transformation Roadmap (DPTR), which aims to develop a digital payments ecosystem that facilitates inclusivity, innovation, and efficiencies benefiting individuals, businesses, and the economy as a whole.

Under the DPTR, the BSP is aiming for the digitalization of 50 percent of the country’s retail transaction volume and the financial inclusion of 70 percent of Filipino adults by 2023.

Commitment to innovation is a key theme in the DPTR. The BSP will be issuing a circular on digital banks as a distinct, new category to attract players with compelling digital-only business models. We are also pushing for the open finance initiative, which aims to empower consumers in the use of their data and support development of products tailored to their varying needs and preferences. The BSP will ensure that this pursuit of innovation will lead to optimal consumer outcomes and benefits.

The disruptions brought by the pandemic have only intensified BSP’s resolve to promote innovation and accelerate digital financial inclusion. Our ultimate goal is to make financial services accessible and beneficial to all citizens, bring the BSP closer to Filipinos, and promote an inclusive new economy.—CONTRIBUTED INQ

The author is governor of the Bangko Sentral ng Pilipinas.