Fintech developments in the Philippines

There are significant developments in fintech in the Philippines, with changes 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 systems

According to the BSP, digital payments in the Philippines comprised 52.8% of all retail payment transactions in 2023, up from 10% in 2018. To regulate this growth in the utilisation 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:

(1) Maintains the platform that enables payments or fund transfers, regardless of whether the source and destination of accounts are maintained within the same institution or in different institutions;

(2) Operates the systems or network that enables payments or fund transfers to be made through the use of payment instruments;

(3) Provides a system that processes payments on behalf of any person or the government; and

(4) Performs such other similar activities as may be determined by the Monetary Board.

Given the large volume of OPS operators, and to minimise the multiplicity of OPS services in the market, BSP Memorandum No. M-2023-005 required all OPS operators to adopt the QRPh standard by 1 July 2023 to enable interoperability of payment systems. As the name implies, it requires the use of standardised QR codes that can be used and read by the different apps of the payment service providers.

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, the 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”.

Digital banking

To date, there are six duly licensed digital banks operating in the Philippines. BSP Circular No. 1105, dated 2 December 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 8 August 2024, the BSP announced that the moratorium imposed on the establishment of digital banks in the Philippines will be lifted on 1 January 2025.

Cryptocurrencies

Under BSP Circular No. 1108, dated 26 January 2021, cryptocurrencies are treated as virtual assets (VAs) transacted through a virtual asset service provider (VASP). A VA is any type of digital unit that can be digitally traded or transferred, and can be used for payment or investment, while a VASP is an entity that offers services or engages in activities that provide facilities 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 the status of legal tender, but VASPs are considered money service businesses, which are “financial services that involve the acceptance of cash, cheques, other monetary instruments or other stores of value, 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 are examples of VASPs as cryptocurrency platforms. The three-year moratorium in granting VASP licences will be lifted in 2025.

Central bank digital currency (CBDC)

The BSP also has its own fintech initiatives. It has been exploring the issuance of its own CBDC through Project Agila, and aims 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. Unlike cryptocurrencies, a CBDC is considered money.

Conclusion

Technological advancements in fintech, partnered with the openness of Philippine regulators to innovations in the field, present a business-friendly environment for future investors while opening various options to businesses and consumers for smoother and flexible transactions. These advancements also offer a solution for streamlining cross-border transactions.

Roilan Rigil Kent A Alonzo is an associate at ACCRALAW