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President Rodrigo Duterte has issued an executive order mandating all public agencies to offer digital payment options, while the Philippines central bank (BSP) is cracking down on fraud.
On May 12, Executive Order 170 (EO 170) was signed into law by President Duterte, mandating acceptance of digital payments for public agency collections and disbursements.
The order directs all government departments and agencies, including state-owned universities and colleges, and state-owned or state-controlled companies, to adopt digital payment channels for collections and disbursements.
All agencies covered by the order must provide a digital channel for the payment of goods and services and other disbursements, including distribution of financial assistance, payment of salaries, wages, allowances and other compensation to employees.
Benjamin Diokno, governor of the Philippines central bank, said the order aims to promote safe and efficient delivery of government services.
“Digital collection of payments will expedite transactions, generate savings for the government, and reduce the risk of graft and corruption,” he said.
“EO 170 is also expected to generate swift delivery of financial assistance to our countrymen in need.”
Following the order, covered agencies will be allowed to disburse funds directly into the transaction accounts of recipients or beneficiaries, whether held in government or private financial institutions, without the need of a special arrangement from the financial institution concerned.
For this purpose, covered agencies may use the facilities provided by government servicing banks (GSBs), such as Landbank of the Philippines, the Development Bank of the Philippines and the Philippine Veterans Bank.
Agencies covered by the order can use GSB services, such as advice to debit accounts (ADAs), or interoperable electronic fund transfers (EFTs) to facilitate digital transactions. Subject to agreement, GSBs will be allowed to collect fees for EFT services.
Safety nets and PSPs
To ensure that payments can still be made during emergencies, the order states that all covered agencies must adopt a “business continuity plan”.
Although all agencies are mandated to offer a digital mode of collecting payments for taxes, fees, tolls and other charges, exclusive use of digital channels is not mandated.
As such, the order stresses that agencies may continue to accept cash and other “traditional” modes of payment.
To ensure that a variety of digital payment methods are offered, the order notes that government agencies may use secure payment processing services provided by established payment service providers (PSPs).
These PSPs must provide interoperable digital payment solutions that are compliant with the central bank’s National Retail Payment System (NRPS).
Philippine government push towards digital
The executive order is consistent with earlier legislation designed to promote digital financial inclusion, such as the 2018 Ease of Doing Business and Efficient Government Service Delivery Act.
Moreover, the order complements the central bank’s Digital Financial Payments Transformation Roadmap 2020-2023 and its National Strategy for Financial Inclusion 2022-2028.
The Philippines has invested significant amounts in improving its national payments infrastructure, including the launch of a new updated real-time payments service, Instapay, which is managed by Mastercard.
In October last year, the central bank expanded the use of digital payments at merchants, announcing the full rollout of the QR Ph Person-to-Merchant (P2M) payment facility, which it described as “another milestone in the country’s digital transformation journey”.
Although the Philippines has a fast growing payments market, usage and penetration of digital payments instruments is well below that of some regional neighbours, such as Thailand.
Mandating government agencies to accept and offer digital payments can play a vital role in helping grow adoption and providing the foundation for changing habits that support other use cases.
An early driver for Thailand’s instant payments service, PromptPay, which launched in early 2017, was the government’s decision to move its disbursements to the service.
Thai citizens had a clear financial incentive to sign up to prevent any delays from receiving key government payments, such as welfare, subsidies and pensions.
Philippines policymakers will be hoping for a similar impact as in Thailand. In 2021, Thailand had the third largest instant payments service globally according to VIXIO analysis in terms of volumes, with 10.1bn transactions.
By contrast, Philippines’ Instapay had 452m transactions during the same period according to the central bank, a 94 percent increase on the previous year.
According to the Philippines government: “The adoption of digital payments for government disbursements will facilitate the expedient distribution of financial assistance to beneficiaries, thereby providing a catalyst for financial inclusion for the most vulnerable sectors of society.”
Fraud not forgotten
In related news, Governor Diokno has also emphasised the need for greater fraud monitoring and detection systems at Philippines’ financial institutions, given the rise of the country's digital payments ecosystem.
In a virtual briefing last week, Diokno referred back to an earlier central bank circular issued in March this year, which called on financial institutions to implement real-time, automated fraud monitoring solutions.
He added that such regulations are necessary in light of intelligence showing that cyber-attacks and cyber frauds often target two or more financial institutions at once.
“The BSP believes that a holistic and coordinated approach among the industry players is necessary to ensure that funds cannot be easily syphoned off by fraudsters and cybercriminals,” he said.
To ensure security, Diokno said that fraud monitoring systems should be linked to or integrated with other financial crime prevention systems, such as anti-money laundering solutions.
“In line with this, the BSP shall continue to engage with relevant stakeholders to ensure that policy frameworks and supervisory actions are effective and responsive amid a fast-evolving cyber security environment.”
As the Philippines' digital payments ecosystem continues to grow, so too do reports of cyber fraud and other types of financial crime.
“The rising use of digital payments helps us move closer towards our goal of having a cash-lite society,” said Diokno.
“The BSP will continue to ensure that systemically important payment systems (SIPs), which facilitate the settlement of digital payments among banks, follow standards which are at par with global practices to ensure safety and reliability.”
