ON Thursday, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Nestor Espenilla Jr. delivered a piece of bad news when he commented to reporters on the sidelines of the Sustainability Summit hosted by BPI that the country would need to wait another three to five years before the national retail payment system (NRPS) became a reality.
Espenilla explained that the two main hang-ups to developing the NRPS are the creation of an “interoperable ecosystem” and the “constitution” of the NRPS, which is actually funny if you understand the jargon, because he basically just said that what the NRPS is still lacking is, “everything.”
That is not too surprising, considering the rather backward state of the Philippine banking environment, which could be described as one in which the available financial resources and expertise are being constrained by a system that could be generously described as “arcane.” One of my favorite examples of this was my attempt, a few months ago, to enroll a personal account in my bank’s mobile banking program, only to be informed that to do so I would have to visit my local branch and fill out a paper application for it—which to my spoiled, 21st-century mind seemed to completely defeat the purpose of “mobile banking.”
To clarify things for those readers who may not be fluent in central bank nerd-speak, a retail payment system is any system that provides for the payment, processing, and settlement of financial transactions without the use of physical instruments such as cash or checks. When you go to 7-11 and buy a slurpee and a hot dog using your credit card, or pay your phone bill online, those are retail payment systems. A national retail payment system, of course, is one in which all the various non-cash payment options (For the record, using your credit card at 7-11 is not actually a wise financial decision. Don’t do that.) are integrated on a national scale, so that customers who are part of one-bank subsystem can seamlessly transact with merchants or service providers who are part of another.
The “constitution” Espenilla referred to is the overall set of rules and regulations that would govern the NRPS. At first glance, this would appear to be relatively easy to create. In fact, it would not even require a lot of original thought; back in October 2012, the World Bank helpfully produced a 110-page primer entitled “Developing a Comprehensive National Retail Payments Strategy” that reads like “NRPS for Dummies,” and could be used as a blueprint without too much modification.
The BSP, however, has decided the NRPS should be largely self-governing. That is perfectly sensible, because it relieves much of the regulatory burden on the central bank and gives the system flexibility to evolve relatively quickly to suit stakeholder demand. But the downside is it requires inputs from and has to satisfy the objectives of a huge number of actors—competing banks, quasi-bank service providers, merchants, big collectors like telecom and utility companies, and consumer watchdogs. Getting all those disparate interests together on the same page, even if they are enthusiastic about cooperating with each other, will take a great deal of time.
The bigger problem lies mostly outside the sphere of the payment system issue, and is likely to be much tougher to solve: the moribund state of the Philippines’ telecommunications infrastructure. In order for NRPS to work, it has to have a fast, reliable, and secure system for electronic communications, none of which are features of what is offered now by the duopoly that controls the country’s telecom sector.
It is not just a matter of gathering the corporate heads of PLDT and Globe in a room and jabbing them with cattle prods until they agree to stop providing crappy service at an exorbitant cost (although that would be a good idea, as a matter of general principle), but in somehow finding a way—which will be difficult if not impossible—to otherwise overcome the paradox they have created.
That is, in order to encourage development of NRPS, and the big investment that requires, there has to be evident demand for it, and that evidence comes in the form of high usage of such payment systems as already exist.
Those systems, however, are handicapped by a terrible communications infrastructure; in an experiment I did about six months ago, I attempted to use a Starbucks prepaid card every day for 30 consecutive days (Yes, I go to Starbucks quite frequently. Don’t judge me.), and was unable to do so because “the system is down” on 13 of those days—a failure rate approaching 50 percent. When performance is that poor, there is very little incentive for consumers to switch from the fast, reliable method of simply pulling cash out of their wallets; the resulting low demand for retail payment systems then makes putting much effort and money into developing them appear to be bigger risks than banks or other stakeholders, particularly here in the conservative Philippine environment, are generally willing to accept.
Three to five years is a long time to wait for NRPS under the best of circumstances, but even that may be optimistic. Let’s hope that doesn’t turn out to actually be the case.