A FULLY operational and functioning National Retail Payment System (NRPS) promoting the use of cashless transactions will translate to faster economic growth, the central bank said.
Moving out of cash-based payments has led to higher gross domestic product (GDP) in other countries, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor Espenilla Jr. said on Friday.
The BSP official talked to reporters on the sidelines of the signing ceremony of the Charter of the Payment System Management Body (PMSB), which paves the way for the creation of two Automated Clearing Houses (ACH) under the NRPS-PESO Net and InstaPay.
“One of the issues we are trying to solve here is, right now, the economy basically runs on cash payments. So everything is cash. There’s really a cost to using cash in the system,” Espenilla said.
The BSP literally spends a lot of money to make money, which entails large-scale logistics operations on the part of the central bank, he said.
That burden is shared by banks, because of the need to move cash from bank to bank.
For clients like sari-sari store owners, it is an inconvenience to use electronic payments or e-payments as may not be available or it may be expensive so the fallback is cash.
“That’s why you need a big concerted effort to complete the ecosystem,” Espenilla noted. So people who have money get their money electronically. And when they are ready to spend it, they don’t have to go to the ATM to withdraw cash,” he said.
“We wanted to close the loop. Get even the merchants to accept e-payments, primarily mobile since it’s the one that is gaining more traction,” he said.
With the NRPS, he said the motivation to move in and out of cash is diminished.
“That is where are efficiency is coming in. It is documented in other countries that it has led to an increase in GDP, because the economy moves a lot faster that way,” Espenilla said.
E-payment transactions create information or digital footprints that are usable for inputs in the development of credit score mechanisms which will be the basis for lending down the road.
“In cash, you are not going to keep track, it’s all anonymous and you don’t know the flows of the money. So that is another benefit that is available here that will boost GDP,” he said.
NRPS is the flagship program of the BSP, in tandem with industry participants to transform the payments system and increase retail e-payment transactions to 20 percent of total transactions by 2020 from 1 percent, based on a 2013 country diagnostics made by the Better Than Cash Alliance (BTCA).
It promotes competition in terms of quality, availability and wide array of electronic payment products and services, as well as innovation that covers safety, speed and convenience to encourage usage, new business models adapted to the needs of target markets, and customer pricing that are reasonable and market-based.
NRPS seeks cooperation among participants. It centers on the payments clearing and settlement process since all have common concern on payment systems’ safety and efficiency.
The cooperation of participants is vital in moving the consolidation of governance of various domestic retail payment clearing schemes – existing and still to be created – into a single and formalized industry self-governance body under the PSMB.
The primary role of the PSMB is to formulate, issue and enforce a governance framework comprising of principles, policies, rules and guidelines on clearing transactions, including sound risk management, non-discriminatory membership and efficient dispute resolution.
The PSMB will cover all payment clearing processes. No bilateral clearing between participants will be allowed so as to gain visibility of all clearing results.
“The payment industry can certainly leverage on NRPS infrastructures and technology to devise products that are responsive and suited to the needs of consumers, including the excluded markets,” according to the central bank.
“Therefore, NRPS has huge potential to make the financial system stable and efficient, contribute to higher economic growth and help enhance the overall competitiveness of our economy,” it said.
Concrete steps that are necessary and significant milestones in the implementation of the NRPS is the creation of the Batch Electronic Fund Transfer (EFT) Credit or PESO Net” and Real Time Low Value Push or InstaPay.
During the transition period, the Philippine Clearing House Corp. (PCHC) will be designated as interim switch operator for the PESO Net. Bancnet will be named as interim switch operator for InstaPay to leverage on existing capabilities and fast track the start of operations.
After the transition period, the two automated clearing houses or ACHs will determine best arrangements for their clearing switch service requirements in a manner consistent with NRPS principles.
“Industry players are expected to actively participate in one or both of these ACHs,” the BSP said.
PESO Net facilitates fund transfers from one account (the payer) to one or several accounts (the recipient or payee). The fund transfer and payment instructions are processed in bulk and cleared at batch intervals with each payee receiving the full value in their respective accounts.
ACH supports recurring payments that are not time critical, thus serving as a channel for government collections and disbursements and an alternative to the overwhelming use of checks by businesses.
InstaPay facilitates real-time electronic fund transfers by enabling the payer to send instructions to his financial institution to irrevocably transfer funds from his account to the account of a payee who receives the full value immediately. The service is available 24/7 and credits to account of beneficiary are instant.
The NRPS, through the ACHs, allows payment options where clients can choose which product is most convenient, efficient and cost effective, the BSP said.
“By providing the means to perform financial transactions simply and quickly through electronic payments, the NRPS provides the gateway for unbanked, underserved markets to take the first step towards being served by the formal financial system,” it said.
“As consumers gain more purchasing power and experience, opportunities for more financial options could ensue. Financial institutions can cross-sell products like deposits and loans, investments and insurance,” the BSP added.