Retail Payments Regulations in the Philippines

In the Philippines, the rules guiding retail payments are like the blueprint for a successful financial structure. Two crucial laws, the National Payment Systems Act (R.A. 11127) and the New Central Bank Act (R.A. 11211), lay the groundwork. Let's dive into these laws and the important rules that shape how businesses handle retail payments.

The Core Regulations

  • National Payment Systems Act (R.A. 11127):
    • Created in October 2018 and active from December 2018, this act defines key terms related to payments and gives powers to the Bangko Sentral ng Pilipinas (BSP). It lets BSP run its payment systems and introduces the idea of a "Payment System Management Body," a group ensuring everyone follows the rules.
  • New Central Bank Act (R.A. 11211):
    • Introduced in February 2019 and effective shortly after, this act officially names the BSP as the boss overseeing payment systems. It gives the BSP powers to regulate and check on payment system operators.

Additional Laws and Rules

  • Philippine Credit Card Industry Regulation Law (R.A. 10870):
    • While not about payments directly, this law looks at how credit cards are issued, especially in terms of consumer credit.
  • BSP Manuals:
    • Detailed rules are found in the Manuals of Regulations for Banks (MORB) and Non-Bank Financial Institutions (NORNBFI).
  • Important BSP Circulars and Memoranda:
    • Circular No. 649: How to Issue Electronic Money
    • Circular No. 808: Guidelines for Managing Technology Risks
    • Circular No. 900: Managing Risks in Operations
    • Circular No. 942: Rules for Money Service Businesses
    • Circular No. 980: Plan for National Retail Payment System
    • Circular No. 1000: Rules for Instant Retail Payments
    • Circular No. 1033: Changes in Rules for Electronic Banking Services
    • Circular No. 1049: Operators of payment systems
    • Memorandum No. M-2018-012: Rules for the National Retail Payment System
    • Memorandum No. M-2018-026: Where to Find InstaPay and PESONet
    • Circular Letter No. CL-2018-005: About Philippine Payments Management, Inc.

Additional Regulated Activities

Regulated activities extend beyond e-money issuance to cover "money or value transfer services." According to Circular No. 942, these services involve handling cash, cheques, or other monetary instruments and facilitating the corresponding payment to a beneficiary using communication, messages, transfers, or clearing networks. A significant inclusion in this landscape is "Remittance Platform Providers," defined as entities providing a shared platform and maintaining settlement accounts for remittance transactions within their network.

The Mandate of BSP Circular No. 1049

  • Operators of Payment Systems:
    • Issued in September 2019, BSP Circular No. 1049 mandates all "operators of payment systems" to obtain a Certificate of Registration from the BSP. The term "operators of payment systems" is broad, encompassing entities maintaining payment platforms, operating networks, processing payments, and engaging in similar activities. 

Electronic Payment and Financial Services (EPFS):

  • Separate Permissions for Banks and EMIs:
    • Banks and EMIs, despite their overlap in services, need separate permissions to offer "Electronic Payment and Financial Services" (EPFS). Circular No. 1033 makes this distinction, defining EPFS as services enabling customers to receive payments or initiate financial transactions through electronic devices.
  • Distinguishing Basic and Advanced EPFS:
    • The regulations further differentiate between "basic EPFS," involving fund receipt or information access, and "advanced EPFS," where transactions are initiated.

Electronic Customer Onboarding

Embracing technological strides, regulations permit electronic and remote customer onboarding. Circular No. 1022, dated November 2018, empowers market participants to conduct onboarding processes without physical presence. The Know Your Customer (KYC) process involves document verification through uploaded scans or photographs and additional confirmation via live video chats. This digital approach aligns with regulatory requirements, ensuring measures are in place to mitigate money laundering and terrorism financing risks, with the entire procedure meticulously documented.

Embracing a Risk-Based Approach: Our Analysis

The Philippines has embraced a risk-based approach to AML/CFT issues. This means that the regulations focus on mitigating risks while providing flexibility for certain financial inclusion products. While government-issued identification documents are typically required for account opening, exceptions are made for basic accounts with limited balances and transaction limits. In these instances, bank officers have the autonomy to employ alternative methods to verify the applicant's identity.

Balancing Financial Inclusion with Security:

  • Flexibility for Financial Inclusion Products:
    • Recognizing the importance of financial inclusion, the regulations offer leeway in collecting identification documents for basic accounts. This flexibility ensures that individuals with limited access to traditional banking services can still participate, striking a balance between inclusion and security.

AML/CFT Concerns and Mitigations

  • Sender and Beneficiary Information in Credit Transfers:
    • While the norm dictates including personal information of the sender and recipient in payment messages, regulations acknowledge situations where this information might be omitted. However, this practice, especially prevalent in PESONet and InstaPay transactions, poses inherent AML and fraud risks.
  • Three-Day Enquiry Window:
    • The regulations allow for the exclusion of sender and recipient details from payment messages, with a provision that the sending institution can furnish this information upon inquiry within three working days. This window acts as a safety net, ensuring necessary information is available when needed, even if temporarily omitted.
  • Account Number Matching in PESONet and InstaPay:
    • Specific to PESONet and InstaPay transactions, the processing is based on account number matching only. This streamlined approach, while efficient, has led to instances where financial institutions receive payment messages with missing originator details, especially for over-the-counter cash payments in branches.
  • Domestic Treatment of International Payments:
    • Notably, central bank regulations treat the domestic legs of international payments as purely domestic concerning name check requirements. This distinction is crucial in managing and securing the flow of funds within the country.

Conclusion: Navigating the Evolving Landscape

As the Philippine payment landscape evolves, businesses engaging in payment services must navigate a complex but well-defined regulatory environment. Understanding the distinctions between EMI, EPFS, and the obligations outlined in BSP circulars is paramount. This journey not only ensures compliance but also positions entities to embrace the opportunities presented by the dynamic world of digital finance in the Philippines.

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