Developments in fintech in the Philippines
There are significant developments in fintech in the Philippines. The changes are mainly in the areas of digital payment systems, digital banks, cryptocurrencies, and central bank digital currencies.
This sector is regulated by the Bangko Sentral ng Pilipinas (BSP).
DIGITAL PAYMENT SYSTEMSAccording to the BSP, digital payments in the Philippines made up 52.8% of all retail payment transactions in 2023 — a leap from only 10% in 2018. To regulate this exponential utilization of digital payment systems, Republic Act No. 11127 (the National Payment Systems Act) was passed, governing the registration of payment and settlement systems. Implementing this is BSP Circular No. 1049, which defined the functions of an online payment system (OPS) as follows:
A.) Maintains the platform that enables payments or fund transfers, regardless of whether the source and destination of accounts are maintained within the same or different institutions;
B.) Operates the systems or network that enables payments or fund transfers to be made through the use of payment instruments;
C.) Provides a system that processes payments on behalf of any person or the government; and,
D.) Performs such other similar activities, as may be determined by the Monetary Board.
Given the volume of OPS operators and to minimize the multiplicity of OPS services in the market, BSP Memorandum No. M–2023–005 required all OPS operators to adopt the QRPH standard (or National QR Code Standard) by July 1, 2023 to enable interoperability of payment systems. As the name implies, it requires the use of standardized QR codes that can be used and read by the different apps of the payment service providers.
To integrate with the ASEAN market, the BSP and four other central banks in the region announced that they will interconnect their respective domestic online payment systems through the Bank of International Settlement’s Nexus Project. The BSP also signed the Memorandum of Understanding in Regional Payment Connectivity with the Bank Indonesia, Bank Negara Malaysia, the Monetary Authority of Singapore, and the Bank of Thailand, to “connect instant payment systems and facilitate cross-border transactions for about 500 million people in the ASEAN region” (BSP – 2023 Status of Digital Payments in the Philippines).
DIGITAL BANKINGTo date, there are six duly licensed digital banks operating in the Philippines. BSP Circular No. 1105, dated Dec. 2, 2020 considers digital banks as a distinct class of banks, and defines these as banks “which offer financial products and services that are processed through a digital platform and/or electronic channels with no physical branch/sub-branch or branch-lite unit offering financial products and services.” On Aug. 8 this year, the BSP announced that the moratorium imposed on the establishment of digital banks in the Philippines will be lifted on Jan. 1, 2025.
CRYPTOCURRENCIESUnder BSP Circular No. 1108, dated Jan. 26, 2021, cryptocurrencies are treated as virtual assets (VA) transacted through a virtual asset service provider (VASP). A VA is defined as any type of digital unit that can be digitally traded, or transferred, and can be used for payment or investment purposes, while a VASP is defined as an entity that offers services or engages in activities that provide facility for the transfer or exchange of VAs, including:
1.) Exchange between VAs and fiat currencies;
2.) Exchange between one or more forms of VAs;
3.) Transfer of VAs; and,
4.) Safekeeping and/or administration of VAs or instruments enabling control over VAs.
VAs do not have legal tender status. However, VASPs are still considered money service businesses, which are “financial services that involve the acceptance of cash, checks, other monetary instruments or other stores of va1ue, and the payment of a corresponding sum in cash or other form to a beneficiary by means of a communication, message, transfer, or through a clearing network to which the service provider belongs.” Platforms like the Philippine Digital Asset Exchange (PDAX) are examples of VASPs as cryptocurrency platforms.
Barring a change in regulations, the three-year moratorium in granting VASP licenses will be lifted in 2025.
CENTRAL BANK DIGITAL CURRENCYThe BSP also has its own fintech initiatives. For instance, the BSP has been exploring issuance of its own Central Bank Digital Currency (CBDC) through Project Agila, and it is targeting to complete its pilot run by the end of 2024. A CBDC is “a digital form of central bank money that is denominated in a unit of account and functions as both a medium of exchange and a store of value” (Technical Working Group on Central Bank Digital Currency – Central Bank Digital Currency for the BSP, Fundamentals and Strategies).
Unlike cryptocurrencies, a CBDC is considered to be money.
CONCLUSIONTechnological advancements in fintech, partnered with the openness of Philippine regulators to innovations in the field, presents a business-friendly environment for future investors, while opening businesses and consumers to various options for smoother and flexible transactions. It also offers a solution for streamlining cross-border transactions. n
The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes only and is not offered as and does not constitute legal advice or legal opinion.
Roilan Rigil Kent A. Alonzo is an associate of the Corporate and Special Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).
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