Digital Payments in the Philippines: All You Need to Know

The COVID-19 pandemic became a great catalyst that propelled digital payments in the Philippines to new heights. As Filipinos look for convenient, safe, and efficient means to receive and transfer funds, pay bills and shop for necessities during the pandemic, the country's use of electronic payment systems increased significantly. Of particular note, the country's Quick Response payment scheme (QR Ph) for person-to-person payments grew by over 5,000% in December 2020, just a year after its launch. 

In response to this need, the Bangko Sentral ng Pilipinas (BSP) continues to provide an enabling environment that promotes financial innovation while safeguarding the integrity and stability of the financial system. BSP believes that online payments are an engine of financial inclusion and economic growth. The Philippines targets to become a digital-heavy, cash-light society, with 50% of all transactions going digital by 2023 and 70% of Filipino adults having formal bank accounts by 2023.

The State of Digital Payments in the Philippines

Still cash-dominated, the Philippines is showing steady growth in digital payments. The value of digital payments, excluding business-to-business payments and payments at the point of sale with mobile card readers (terminals), is expected to reach US$28.54 billion in 2022, according to Statista. The digital commerce payments sector contributes the majority share with a total transaction value of US$24.36 billion in 2022. The total transaction value would be US$55.75bn by 2027, representing an annual growth rate (CAGR 2022-2027) of 14.33%. 

Source: Statista

Bank transfers, QR Ph and digital wallets are experiencing rapid growth in the country. New-age payment schemes like Buy Now, Pay Later (BNPL) are also picking up steam. 

Some statistics on these digital payment methods are below. 

• InstaPay (a digital payment system for smaller person-to-person transactions) volume and value reached 43.3 million and P284.2 billion, respectively, as of June 2022, compared to 37.1 million and P213.2 billion in June 2021, according to official statistics. 
• PESONet (a payment system that replaces cheque usage in governments and businesses) volume and value reached 7.3 million and P548.1 billion as of June 2022, compared with 4.3 million and P362.5 billion a year ago.
• Person-to-person transactions via QR Ph stood at 527,800 worth P5.4 billion at the end of April 2022, growing by 171.7% in volume and 252.5% in value year on year.
• The number of mobile wallet users in the Philippines is estimated to reach 75.5 million in 2025, compared to 24.6 million in 2020, according to Statista.
• According to a survey, the Philippines' BNPL payment would grow by 109.7% yearly to $803.5 million in 2022. Between 2022 and 2028, the payment space would have a compound annual growth rate of 50.9%.

Digital Payment Transformation in Progress

The Philippine government is capitalising on its success with digital payments. It has launched several initiatives to significantly increase the adoption of digital payments over the next two years. These efforts align with its vision to be a cash-lite economy with high financial inclusion rates. The government believes digital payment innovations would lower transaction costs and eliminate the common barriers to owning a transaction account.

According to the central bank’s Digital Payments Transformation Roadmap 2020-2023, the country aims at creating an “efficient, inclusive, safe and secure digital payments ecosystem that supports the diverse needs and capabilities of individuals and firms”. The plan envisages: 

• The creation of innovative digital financial products and services
• A national ID System supported by more modern payment services to facilitate real-time processing of financial transactions
• More payment streams on top of the existing InstaPay instant payment stream and PESONet batched payment stream
• Digital finance infrastructure to facilitate interoperability of payment services and seamless transaction processing
• Extension of the National Quick Response Code Standard (QR Ph) to include person-to-merchant payments 
• Digital banks as a new bank classification for end-to-end processing of financial products and services through digital platforms and electronic channels

Aligning with the roadmap, the BSP launched an Open Finance Framework in June 2021 to enable portability, interoperability, and collaborative partnerships between BSP-supervised financial institutions and fintech players. It has opened opportunities for fintech companies within the country and abroad. 

Licencing for Fintech Companies

Foreign and local businesses that want to establish a fintech firm in the Philippines should register with the appropriate regulators, such as the SEC and the BSP. There are various types of fintech companies in the Philippines operating in sectors such as digital payments, mobile wallets, digital remittance, blockchain and cryptocurrency and alternative finance. 

Licencing for fintech companies includes the following:

• Electronic Money Issuer (EMI): In May 2021, the BSP started to grant licenses for fintech companies to operate as an official EMI. The EMI licence authorises these companies to deliver e-wallet services through mobile apps. The companies can also convert consumers’ cash into electronic money, which they can use to transact online. The BSP imposed a two-year moratorium on the issuance of EMI licenses to non-banks starting 16 December 2021.
• Operators of Payment Systems (OPS): OPS include firms such as cash-in service providers, bill payment providers, payment gateways, payment facilitators, and merchant acquirers that enable sellers of goods and services to accept payments, in cash or digital form. The BSP started issuing OPS licences in January 2020; there are 222 registered operators currently. 
• Virtual Asset Service Providers (VASP): The BSP defines a VASP as any business that performs an exchange between one or more forms of virtual assets, the transfer of virtual assets and the safekeeping or administration of virtual assets. The central bank granted licences to 19 VASPs as of June 2022. On 12 August 2022, the BSP imposed a three-year moratorium on giving licences to new VASPs. 
• Digital Bank: Digital banks offer the same services as traditional banks without needing physical branches. In September 2021, the BSP stopped accepting digital bank licence applications as it decided to cap the number of players to seven. 

Addressing Financial Crimes

Along with the rise of digital payments comes the threat of sophisticated financial crimes. While the country works hard to move out of the FATF grey list, players in the digital payments space are also facing intense regulatory scrutiny. The relative anonymity provided by online financial services and other features of technology, such as the speed at which transactions can occur and a lack of regulation from national and international authorities, contribute to the money laundering risk associated with e-wallets and mobile money.

The BSP is conscious of the financial crime risks within the country and is working with the Anti-Money Laundering Council (AMLC) to create strategies to create concrete anti-money laundering policies for new-age payments. The central bank had tightened requirements for licenses such as Electronic Money Issuer (EMI) and Operators of Payment Systems (OPS) to address Anti-money Laundering/Counter Terrorist Financing (AML/CTF) compliance. Fintech companies providing payment methods in the Philippines now require efficient and effective AML/CTF measures, apart from other corporate governance requirements.

Tookitaki Innovation for Digital Payment Companies in the Philippines

Today’s world of sophisticated cyber-enabled money launderers calls for cutting-edge technology and innovative solutions. Compliance departments rely on modern technologies such as artificial intelligence and machine learning to fight financial crime.

Fighting financial crime needs to be a collective effort through centralised intelligence-gathering. The Anti-Financial Crime (AFC) Ecosystem includes a network of experts and provides a platform for the experts to create a knowledge base to share financial crime scenarios.

This collective intelligence is the ability of a large group of AFC experts to pool their knowledge, data, and skills in order to tackle complex problems related to financial crime and pursue innovative ideas.

The AFC ecosystem is a game changer since it helps remove the information vacuum created by siloed operations. Our network of experts includes risk advisers, legal firms, AFC specialists, consultancies, and financial institutions from across the globe.

Tookitaki’s Anti-Money Laundering Suite (AMLS) covers the entire customer onboarding and ongoing processes through its Transaction Monitoring, Smart Screening, Customer Risk Scoring, and Case Manager. Together they provide holistic risk coverage, sharper detection, and significant effort reduction in managing false alerts.

The AFC Ecosystem and the AMLS work in tandem and help our stakeholders widen their view of risk from an internal one to an industry-wide one across organizations and borders. Moreover, they can do so without compromising privacy and security.

Tookitaki recently announced its launch in the Philippines with partnerships with payment gateway company Paymongo and the country’s leading all-in-one money platform. 

The Chief Executive Officer and Founder of Tookitaki, Abhishek Chatterjee said in an interview with BusinessWorld that the firm will offer Anti-Money Laundering Solutions (AMLS) to enable businesses to build comprehensive and customized risk-based AML compliance programs.

“Our goal in the next two years is to become the leader in AML software in the Philippine market, and when I say leader, I mean both building the network to fight and share knowledge so that the awareness in the industry is much more than what it is today,” Mr. Chatterjee said.

Talk to our expert to learn more about our AML solution and how Tookitaki can be your partner of choice for enhancing risk-based AML compliance programmes.