1 The role of telecoms infrastructure in payment services and settlement _________________________________________ Reducing the cost of retail payments and remittances through new technology in the Philippines Presented by Eve Avila, Central Bank of the Philippines

2 Outline  Remote banking started it  Use of POS - a new database  The telcos’ business model Payment for air time load Creating an e-wallet account Is telco a low - cost alternative to payments?  Telco as an infrastructure service provider  Conclusion

3 Payment system – banking model face-to-face banking 24 by 7 access use of plastic card dispense cash pay bills remote banking 1980

4 Modes of access to account POS 1986 Merchant’sAt home Telephone 1988 PC 1997 Mobile 2003 Internet 1999 ICT convergence

5 ATM, networked ATM NETWORK more wallets for the customer 1990

6 ATM network as payment portal PC POS 2002

7 Cost to pay using bank account TransactionCost (Php) Check payment (listed for comparison only) 3.30 Over-the-counter inter-branch deposit 50 ATM network Inter-bank withdrawal Inter-bank transfer Balance inquiry Bills payment ATM network payment portal POS purchases Bills payment 0000 Internet banking Inter-bank transfer Bills payment Mobile banking (using SMS)

8 Cost to pay using bank account TransactionCost (Php) Check payment (listed for comparison only) 3.30 Over-the-counter inter-branch deposit 50 ATM network Inter-bank withdrawal Inter-bank transfer Balance inquiry Bills payment ATM network payment portal POS purchases Bills payment 0000 Internet banking Inter-bank transfer Bills payment Mobile banking (using SMS) Central bank said: PUBLISH YOUR CHARGES

9 Source of non-cash (electronic) payments Bank’s database Credit card company’s database Channels and instruments ATM card POS card Phone voice, data Computer data

10 It’s electronic Works on supplier-owned POS or device reader Uses paper or plastic card Suppliers have their database too… POS Suppliers

11 The telco as supplier of air time Sell air time Voice and data services Voice – P7.50 per minute Text - P1 per send Payment instrument: Prepaid card or Electronic air time load Data services use short messaging or the SMS telecoms protocol SMS traffic – > 1 billion a day

12 TELCO Retailers Sub-Dealers PREPAIDCARDUSERSPREPAIDCARDUSERS Earnings by commission (3-5% per level). Volume discounts may also be given. Distribution Network of prepaid cell cards Major Dealers Non-Traditional Dealers Business Centers Sub-Agents Physical prepaid card: user loads Virtual: agent uses a special SIM to load ABOUT 1 MILLION

13 Payments system – telco model To pass a load – Type Amount PIN Send to mobile number Sender pays P1.00 This is the basic syntax of the SMS. The prefix added to the mobile number determines the type of transaction. Credit transfer! Prepaid - settled when value is loaded Load passed as subsequent sale or gift or used

14 Great innovation It is a continuous buying and selling of air time. No air time? User-1 TXT telco to ask-a-load from User-2. Free TXT. Telco TXT User-2 amount and cell no. of USER-1 User-2 TXT telco AMT and PIN User pays P1.00 Send User-1 gets load Debit transfer!

15 Mobile phone market Philippine population 85 Mn No. of families of 5 17 Mn Mobile phone users 40 Mn creating mobile commerce Many mobile phone users are consumers who do not have bank accounts or credit card accounts (e.g., children and students of all ages, ambulant and market vendors, small and medium enterprises, low income families) e-wallet for mobile commerce

16 A new market segment Open an e-wallet account to pay for – Small purchases Transfer funds Pay bills Domestic remittance International remittance Get cash Inquire balance

17 Step 1 Go to any of the following: Telco’s Business Centers Loading Stations Remittance Partners Step 2 Fill out pertinent forms. You may be asked to present an ID Step 3 Pay the money to be loaded to the e-wallet account Step 4 You will receive a confirmation message when money has been loaded to your account Pass-a-load model applied to e-wallet Over-the-Counter

18 Debit Transfer Step 1Indicate your name and cell phone number on the form the merchant will give. Step 2The merchant will initiate the payment transaction using its service unit. Step 3You will receive an SMS request from the merchant to deduct the transaction amount from your wallet. Step 4Reply with YES (MPIN) (ref. no.) to confirm the purchase or NO (MPIN) (ref. no.) to reject the purchase Pay for purchases

19 Pay for purchases Credit Transfer Step 1TEXT to 270: space Step 2You will receive an SMS from the telco confirming your payment, including the merchant’s name, the transaction amount and the reference number. Your e-Wallet balance will also be indicated. For Globe, number to text to is There is an additional step after step 1: You have to reply with your G-CASH PIN.

20 Merchant or receiver collects Cash Settlement Step 1Beneficiary will get an SMS confirming receipt of money in his e-wallet. Step 2Beneficiary may encash through the following channels Telco’s Business Centers Authorized Outlets ATM (for e-wallet with a card)

21 Modes of access to payment account with bank, credit card or telco POS Merchant’sAt home telephonePC ATM Mobile phone - SMS Telcos’ database

22 Payment and remittance services: banks and MTOs vs. telcos BankTelco Open account AMLA account opening Min. value per transaction Max. value per transaction Max. value per day Maintaining balance P100 Yes P100 P10,000 P50,000 P100 0 Yes P1 P50,000 0 Domestic remittance OTC/ATM MTO P25 to P150 P39 and up P1 to P2.50 or 1-5%/P10 or 1% International remittanceP300 to P750P15 Mobile bankingP2.50

23 Regulator’s regulations Electronic banking activities registered with the central bank Review of mobile banking products includes telco as service provider Banks engaging in electronic banking covered by rules on risk management, customer protection, security and confidentiality, integrity of processes Agreement for an onsite review of operations of telcos’ Transaction caps Submission of semestral reports Virtual account opening requires ID presentation

24 Countryside banking using telcos Commercial banks branches ATMS 6,867 Mobile banking Rural and thrift banks branches ATMS Mobile banking 99% of rural bank customers have mobile phones Mobile phones have high penetration also in rural areas Telcos’ products promote m-commerce Micro-finance gaining ground in the rural areas Access to banking services could sustain momentum of economic activity and alleviate poverty TEXT-A-DEPOSIT, TEXT-A-PAYMENT

25 Widen access to payment services using telcos’ infrastructure Commercial banks branches ATMS 6,867 Mobile banking Rural and thrift banks branches ATMS Mobile banking Universal & Commercial Banks Thrift BanksRural & Cooperative Banks Total number4,3131,3222,075 ATMs6, Total banks7,710 Total ATMs6,867 Telcos cash outlets 9,000

26 Number of poor families Number of thrift and rural banks Population 85M Mobile phone users 40M Fixed line subscribers 6.5M 90% of RB customers have cp SMS per day 1B Slide borrowed from P. Roman

27 Conclusion It is common to decry the great digital divide evidenced by the low computer and internet penetration of less developed countries. The new adaptive technology developed by the Philippines may yet be the great equalizer. Standing in the shoulders of giants, namely the IT and wireless technologies developed by rich countries, the Philippines saw an advanced adaptation of the SMS that is truly suited to its culture. Many other emerging markets may find this killer application quite useful to their own requirements. In SMS: thank u

28 The use of the materials, findings, interpretations, and conclusions expressed in this presentation are entirely those of the presenter. They do not necessarily represent the view of the Bangko Sentral ng Pilipinas. Comments regarding this presentation may be sent to in SMS: thank u