EPESO Y2 annual report.pdf

2July 2008

E-PESO ACTIVITY

2nd Annual Report October 1, 2015 – September 30, 2016

October 28, 2016 Prepared for the United States Agency for International Development by Chemonics International Inc. under Contract No. AID-492-C-15- 0001. The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

CONTENTS

1. PROGRAM OVERVIEW AND INTRODUCTION

2. ACTIVITY IMPLEMENTATION PROGRESS

2.1 Progress Narrative

2.2 Implementation Status

2.3 Implementation Challenges

2.4 PMP Update

3. INTEGRATION OF CROSSCUTTING ISSUES and USAID FORWARD PRIORITIES

3.1 Gender Equality and Female Empowerment

3.2 Policy and Governance Support

3.4 Public Private Partnerships

4. STAKEHOLDER PARTICIPATION AND INVOLVEMENT

5. LESSONS LEARNED

ACRONYMS

4Ps Pantawid Pamilyang Pilipino Program

ACH Automated Clearing House

ATM Automated Teller Machine

ATVI Auto Top-Up Ventures Inc.

BAP Bankers Association of the Philippines

BIR Bureau of Internal Revenue

BSP Bangko Sentral ng Pilipinas

BTCA Better Than Cash Alliance

CCT Conditional Cash Transfer

CDI Cities Development Initiative

CEPALCO Cagayan de Oro Electric Power & Light Company

CICO Cash-In/Cash-Out

CITSG Core IT Specialist Group

COA Commission on Audit

COWD Cagayan de Oro Water District

CTB Chamber of Thrift Banks

DBM Department of Finance

DICT Department of Information and Communications Technology

DILG Department of Interior and Local Government

DOF Department of Finance

DOST Department of Science and Technology

DSSV Digital Secured Store Value

DSWD Department of Social Welfare and Development

DTI Department of Trade and Industry

EBPLS Electronic Business Permitting and Licensing System

EFT Electronic Fund Transfer

EIU Economist Intelligence Unit

EMI Electronic Money Issuer

FICCO First Community Cooperative

FPI Facilitating Public Investments

G2P Government to Person

GPH Government of the Philippines

ICM International Care Ministries

ICT Information and Communications Technology

IFAS Inclusive Finance Advocacy Staff

JMU Joint Memorandum Circular

LGU Local Government Unit

M&E Monitoring and Evaluation

MOU Memorandum of Understanding

MSME Micro, Small and Medium Enterprises

MUST Mindanao University of Science & Technology

NATCCO National Confederation of Cooperatives

NBSFI National Baseline Study on Financial Inclusion

NRPS National Retail Payment System

P2G Person to Government

PALECO Palawan Electric Cooperative

PCHC Philippine Clearing House Corporation

PFG Partnership for Growth

PSA Philippine Statistic Authority

PSMB Payments System Management Body

RBAP Rural Bankers Association of the Philippines

SIMM Scaling Innovations in Mobile Money

SME Small and medium enterprises

SSS Social Security System

USAID United States Agency for International Development

USSD Unstructured Supplementary Service Data

UV University of Visayas

USAID / E-PESO YEAR 2 ANNUAL REPORT 5

1. PROGRAM OVERVIEW AND INTRODUCTION

Program Name: E-PESO Activity

Activity Start Date And End Date: March 18, 2015-March 17, 2020

Name of Prime Implementing Partner: Chemonics International, Inc.

[Contract/Agreement] Number: AID-492-C-15-00001

Name of Subcontractors/Subawardees:

MicroSave Pvt. Ltd.

Leonine Initiatives The Nielsen Company (Philippines) Hamlin-Iturralde Corporation (TeamAsia)

Major Counterpart Organizations

Bangko Sentral ng Pilipinas Department of Budget and Management Department of Social Welfare and Development Bureau of Internal Revenue

Geographic Coverage (cities and or countries)

Philippines

Reporting Period: October 1, 2015 – September 30, 2016

The E-PESO Activity is a USAID/Philippines program supporting the objectives of the U.S.-Philippines Partnership for Growth (PFG), which focuses on addressing binding constraints to achieve sustained, more inclusive economic growth. With 99% of payment transactions in the Philippines taking place through cash, promoting a shift to electronic payments (e-payments) represents unrealized potential to promote inclusive economic growth. E-PESO partners with the Government of the Philippines (GPH) and the private sector to achieve a rapid, widespread increase in e-payment adoption and usage. Through program activities, E-PESO’s goal is for e-payments to account for 20% of retail transactions in five years’ time.

To shift from a cash-based economy to electronic, E-PESO supports the development of a lasting, inclusive economic infrastructure and sets the stage for new financial products to enter the market that explicitly meet the need of those struggling to escape poverty. Enabling access to electronic transaction accounts will provide the backbone to ensure the majority of Filipinos can use e-payments, which provide a secure and cost-effective means to access a full range of payment and financial services. This broader range of financial services can help Filipinos build assets, better withstand economic shocks, and participate more broadly in the formal economy. E-payments also offer an improved ability to track financial flows in line with GPH’s thrust towards greater transparency and accountability in financial transactions.

E-PESO builds on the GPH leadership in promoting e-payments as a vehicle for expanding financial inclusion. Recognized in 2014 by the Economist Intelligence Unit (EIU) as one of the global leaders in promoting financial inclusion, the Philippines’ successful track record in deepening financial inclusion mirrors worldwide trends: Countries that institute national financial inclusion strategies tackle poverty at a higher rate than those that do not. Leading the charge, the Bangko Sentral ng Pilipinas (BSP)’s National Strategy for Financial Inclusion capitalizes on global trends and focuses heavily on ensuring that the majority of Filipinos have access to electronic transaction accounts.

USAID / E-PESO YEAR 2 ANNUAL REPORT 6

Over the next five years, Filipinos will benefit from new and innovative e-payment products, an increased number of outlets through which to spend electronic money, improved transparency and accountability in their transactions with government, and a strong regulatory environment that protects consumers. The exponential growth in e-payments will stimulate private sector investment where all adult Filipinos have access to critical financial services and set the stage for a more inclusive society.

To fulfill PFG goals and E-PESO objectives, the activity focuses on four components:

• Component 1: Rapid Adoption of E-payments in Financial Systems. Incentivizing adoption of e-payments, the activity supports digitization of large-scale payment streams in both the private and public sectors. E-PESO will provide technical assistance to GPH agencies in improving their services by expanding the use of e-money and e-payments in government-to-person (G2P) and person-to-government (P2G) payments. E-PESO also works to bring the benefits of digital payments to targeted businesses that have national reach or local impact, including businesses such as those from the fast-moving consumer goods industry that have large retail payment flows.

• Component 2: Infrastructure for E-payments Expanded. To increase the value proposition to customers using e-payment instruments, E-PESO promotes interoperability among the various digital finance products, services and players (e.g. mobile devices, ATMs, debit/credit and stored value cards, electronic fund transfers, banks, e-money issuers, payment service providers, e-money agent networks and other financial service providers). E-PESO also supports the complex array of front-end and back-end providers, backstopping them to connect users as well as reduce transaction and search costs.

• Component 3: Enabling Environment for E-payments Improved. Building trust, convenience, and security in e-payments, E-PESO supports the BSP in its initiative to establish a National Retail Payment System (NRPS), intended to rationalize the fragmented payments system into an interoperable and interconnected one. E-PESO provides technical assistance as BSP oversees the implementation of the NRPS. The activity likewise provides technical assistance and training to support BSP in promoting digital security, consumer protection, e-payments confidence, financial inclusion, and e-payment stability within the broader payment system.

• Component 4 (cross-cutting): E-payment Ecosystem Developed in Key Cities Identified under USAID’s Cities Development Initiative (CDI). Promoting global knowledge sharing of emerging trends, E-PESO identifies and addresses supply and demand constraints inhibiting broader e-payment usage, including addressing policy and regulatory gaps. E- PESO also supports the expansion of e-payment ecosystems with particular focus on key cities identified under USAID’s CDI.

USAID / E-PESO YEAR 1 ANNUAL REPORT 63

2. ACTIVITY IMPLEMENTATION PROGRESS

2.1 Progress Narrative

Indicators Year 1 Actual

Year 2 Actual

Y2 Annual Target

Y2/Q4 Target for the Quarter

Y2/Q4 Actual for the Quarter

Performance Achieved for

Year 2, Actual

vs. Target (%)

Desired Impact (DI): Efficient, Transparent, and Inclusive Retail E-Payment System Contributing to Broad-based Growth Indicator DI 1&2: Increased economic opportunity,

a. Number of e-payment users(a)(d) New

Cumulative

b. Percent of population 15 years old and above who are e-payment users (b)

10.9 million

16.1%

0.503

11.4

16.2%

0.503

11.4

16.2%

100%

Indicator DI 3: Transparency and efficiency of the retail payment system improved. (This indicator will be tracked under outcome Indicator 3.1 - Financial regulation refined to manage growth of e-payments.)

Indicator DI 4: More predictable and reliable financial tools for the poor, Number of financial products, services or applications that are designed/enhanced to meet the needs of low income clients, New Cumulative

Desired Purpose (DP): Scope of E-Payment Usage Reaches Tipping Point for Scale Indicator DP 1: E-payments accounting for at least 20% of all retail payment transactions, Percent of e-payments accounting for retail payment transactions

1.03% 2.76% 3.42% -- -- 81%

Indicator DP 2: Growth in the number of active e-payment users to reach scale, (c) Number of active e-payment users, 6.9

10.2

300k

10.5

97%

Notes:

(a) Baseline for e-payment users refer to registered e-money accounts as of December 2014.

(b) Number of e-payment users over number of Philippine population aged 15 years old and above derived from the Philippines Statistic Authority (PSA) census projections (http://www.nscb.gov.ph/secstat/d_popnProj.asp, accessed May 17, 2016).

(c) Baseline from Better Than Cash Alliance (BTCA) Philippines Country Diagnostic Study, July 2015. However, yearly targets are derived from the Philippine Household Survey on Payments that covers all types of electronic card instruments (ATM/debit cards, credit cards, pre-paid cards, and e-money cards).

(d) Baseline from Inclusive Finance Advocacy Staff of BSP as of December 2014. However, yearly targets are derived from the BTCA Philippines Country Diagnostic Study, July 2015, and the Philippine Household Survey on Payments that covers all types of electronic card instruments (ATM/debit cards, credit cards, pre-paid cards, and e-money cards).

For Indicators DI 1&2, E-PESO used baseline data provided by the Inclusive Finance Advocacy Staff of the BSP and the Philippine Statistics Authority (PSA) census projections. The data is based on the

USAID / E-PESO YEAR 1 ANNUAL REPORT 64

number of e-money accounts reported by electronic money issuers. It excludes data on ownership and usage of credit cards, debit cards linked to deposit accounts, as well as prepaid cards issued by entities that are not supervised by the BSP. However, with the use of E-PESO’s Philippine Household Survey on Payments, the data will now include credit cards, ATM/debit cards, pre-paid cards, and e-money linked cards. Further, Indicators DI 1&2 only have annual targets since the method to track the indicator is through surveys conducted once every two years by E-PESO. Hence, there is no quarterly target except for the last quarter.

On the other hand, financial tools referred in Indicator DI 4 are products, services, educational materials, technology and the like that allows access and use of e-payments by the poor. Indicator DI 4 has only one target for the year, which was already met, due to long-gestating work with the Department of Social Welfare and Development (DSWD) that required roll-out of a financial literacy tool and debit cards to conditional cash transfer (CCT) beneficiaries at the start of Quarter 2. To measure e-payment usage reaching the tipping point for scale, Indicator DP 1 data is derived from the Better Than Cash Alliance (BTCA) Philippines Country Diagnostic Study that looked into e-payments transactions across individuals, businesses, and government. However, targets are derived from the USAID E-PESO Philippine Household Study on Payments and the PSA population projections for 2015 and 2020. Similar to Indicators DI 1&2, Indicators DP 1 and 2 only have annual targets since the method to track the indicators is through the Philippine Household Survey on Payments conducted once every two years. Hence, there is no quarterly target and results.

Component 1: Rapid Adoption of e-Payments in Financial System

Indicators Year 1 Actual

Year 2 Actual

Y2 Annual Target

Y2/Q4 Target for the Quarter

Y2/Q4 Actual for the Quarter

Performance Achieved for

Year 2, Actual vs.

Target (%)

Desired Outcome 1: Rapid Adoption of E-Payments in Financial Systems Indicator 1.1: Adoption of new e-payment services as collection/disbursement option in five (5) national GPH agencies

Indicator 1.2: Adoption of m-money and e-payments in all cities of PFG CDI and other cities/municipalities, Number of CDIs (and other cities/municipalities) that introduced or enhanced m-money and e-payment options, 150% 120%

Indicator 1.3: New e-payment implementation and adoption by 500 (small, medium, and large) businesses, Number of businesses introducing or enhancing e-payment options as a result of E- PESO support, 2% 10%

Indicator 1.4: Over 25,000 people trained (via consumer education) on the uses of e-payments and m-money services for improved household financial management, Number of people trained (via consumer education) on the uses of e-payments, 8,876

2,600

1,500

341%

USAID / E-PESO YEAR 1 ANNUAL REPORT 65

272 9,148 4,000 4,000 9,148 229%

During Year 2, E-PESO continued to assist national government agencies such as DSWD and the Bureau of Internal Revenue (BIR) to adopt e-payments as an option for disbursements of CCT benefits and collection of taxes respectively. Cities supported by E-PESO under the CDI, such as Batangas City, Quezon City, and Valenzuela City, continued to expand options for e-payments. Working with Batangas City, Cagayan de Oro City, and Quezon City, the local government units (LGUs) launched their e-payment windows for business licensing fees and real property taxes through an e-payment caravan called eBayad Tour. In Year 3, E-PESO will also work with Tagbilaran City.

Year 2 continued to see a lag in the adoption of e-payments by target businesses since most efforts were directed towards national and local government agencies. In Year 3, however, E-PESO will increase its efforts to on-board businesses in e-payments adoption by working with payment aggregators and small-to-medium financial institutions (FIs) offering payroll, bills payment, and merchant payment solutions to small and medium enterprises (SMEs) and businesses in semi-urban and rural areas. Nonetheless, the effort has begun by engaging micro, small, and medium enterprises (MSMEs) in Cagayan de Oro City during an MSME Business Forum held June 10-11, 2016 where more than 100 business owners and entrepreneurs attended an orientation on the benefits and advantages of e-payments. The event was considered a success with 45% of surveyed participants describing it as ‘remarkable’ and 60% believed they are a ‘great deal more confident’ in using e-payments for transactions.

E-PESO is on-track to train people on the uses of e-payments and m-money services with more than 8,800 people already trained on the benefits and features of e-payments, as well as the security measures required for its use. More than 73% of trainees were women and members of cooperatives.

Component 2: Infrastructure for e-Payments Expanded

Indicators Year 1 Actual

Year 2 Annual

Y2 Annual Target

Y2/Q4 Target for the Quarter

Y2/Q4 Actual for the Quarter

Performance Achieved for

Year 2, Actual

vs. Target (%)

Desired Outcome 2: Infrastructure for E-Payments Expanded Indicator 2.1: Growth of front-end e-payment infrastructure expanded, Number of institutions supported by E-PESO to improve and/or expand their front-end infrastructure, 80% 90%

Indicator 2.2: Back-end e-payment infrastructure strengthened, Number of institutions supported by E-PESO to improve and/or expand their back-end infrastructure, 50% 75%

Indicator 2.3: E-payment infrastructure gaps identified, Number of gap analysis reports at industry or ecosystem level (a), Notes: (a) This indicator refers to gap analysis reports done in large scale among industry players or the payments ecosystem. This does not refer to infrastructure gap analysis done at the firm level or agency level.

USAID / E-PESO YEAR 1 ANNUAL REPORT 66

During Year 2, E-PESO continued to actively support the strengthening of front-end and back-end infrastructures in six LGU partners: Batangas City, Cagayan de Oro City, Puerto Princesa City, Quezon City, Valenzuela City, and Zamboanga City. It also worked with the BIR to launch e-payment options for tax payers and assisted Mindanao University of Science and Technology (MUST) and University of the Visayas (UV) to develop e-payment methods within their campuses.

E-PESO also supported the expansion of e-payments infrastructure among businesses by looking at payment agents and establishing partnerships with e-payment providers such as Mynt/Globe Telecom, OmniPay, Payswitch/ATVI, ECPay, and RuralNet. For example, E-PESO provided a free software algorithm to Palawan Electric Cooperative (PALECO) and Auto Top-Up Ventures Inc. (ATVI) for billings and enabled Cagayan de Oro Electric Power & Light Company (CEPALCO) to work with ECPay and offer e-payment services through 7-Eleven convenience stores in its franchise area.

E-PESO completed three gap analysis reports on the e-payments landscape, state of the Philippine agent networks, and survey on payments. At the firm level, E-PESO conducted extensive discussions with front-end and back-end service providers, as well as with partner institutions, to identify gaps in their e-payments infrastructure. E-PESO also implemented CDI-level research in Cagayan de Oro City to establish the payments landscape in three sectors: LGU, utilities, and schools. The knowledge gained from the agent network and household payments studies, as well as the CDI research, will determine customer touch points and market demand for e-payments that drive e-payment awareness, usage, trust, and satisfaction across channels and instruments.

Component 3: Enabling Environment for E-payments Improved

Actual

Year 2 Actual

Y2 Annual Target

Y2/Q4 Target for the Quarter

Y2/Q4 Actual for the Quarter

Performance Achieved for

Year 2, Actual

vs. Target (%)

Desired Outcome 3: Enabling Environment for E-Payments Improved Indicator 3.1: Financial regulation refined to manage growth of e-payments,

a. No. of circulars, regulations, and/or local ordinances refined or clarified to support e-payment growth

New Cumulative

b. No. of public-private dialogues to support strengthening e-payment environment

250% 140%

125% 113%

Indicator 3.2: Increased competition among m-money and e-payment platforms, Number of policies removed or added to reduce barriers and encourage competition (a), TBD

Indicator 3.3: Interoperability in the national payment system achieved (b), Level of Interoperability Batch EFT Real-time EFT

400%

USAID / E-PESO YEAR 1 ANNUAL REPORT 67

Actual

Year 2 Actual

Y2 Annual Target

Y2/Q4 Target for the Quarter

Y2/Q4 Actual for the Quarter

Performance Achieved for

Year 2, Actual

vs. Target (%)

Indicator 3.4: Increased consumer awareness and trust in e-payments(c),

a. % of population 15 years old and over aware of e-payments

b. % of population 15 years old and over that trust the e-payment (d) system

25.6%

52.0%

67.73%

61.46%

68.4%

62.2%

68.4%

62.2%

99%

99%

Indicator 3.5: Security measures in e-payments strengthened, No. of guidelines developed and forums held that promote awareness on digital security best practices or consumer protection, 33% 33%

Indicator 3.6: Global knowledge-sharing on e-payments promoted,

a. No. of articles promoting e-payments

New Cumulative

b. No. of global knowledge-sharing events that highlight the Philippines e-payment environment/players

133%

500% 350%

Notes:

(a) Increased competition among m-money and e-payment platforms is a contextual indicator. This indicator refers to the number of policies removed or added to reduce barriers and encourage competition in e-payments. In collaboration with the BSP, targets shall be determined after identifying policies that foster competition. TBD refers to policy targets to be determined.

(b) Interoperability in the national payment system achieved is a qualitative indicator. This tracks milestones in the development of the NRPS. Interoperability is measured through 5 levels: 1) Theoretically interoperable; 2) Technically interoperable; 3) Functionally interoperable; 4) Interconnected; and, 5) Effectively interconnected as explained by the Alliance for Financial Inclusion (AFI).

(c) The reason for the significant jump from baseline to year 1 is due to different data sources. Baseline figure is derived from the National Baseline Study on Financial Inclusion by the BSP with awareness and transparency rating on e-money and ATMs as a proxy to awareness and trust respectively. However, yearly targets are derived from the Philippine Household Survey on Payments that covers all types of electronic card instruments (ATM/debit cards, credit cards, pre-paid cards, and e-money cards). The approach done by the payments study is a more reliable basis for target setting due to slightly different method used in the baseline study by the BSP. The payments study asked more direct questions on awareness and trust unlike the BSP financial inclusion study that uses only e-money as a proxy for awareness.

(d) For E-PESO, e-payment targets refer to electronic card instruments used for e-payments. These instruments include credit cards, ATM/debit cards, pre-paid cards and e-money cards issued by banks and non-bank electronic money issuers.

Indicator 3.1 looks at the laws, circulars, regulations, and ordinances enacted to support e-payment growth. Often, there are public-private dialogues supporting efforts to introduce such rules and regulations. During Year 2, E-PESO shared the latest technology and regulatory developments for e-payments in the country. In addition to the MSME Business Forum held in Cagayan de Oro City, E- PESO shared lessons at local gatherings, including the Impact of m-money in the Bottom of the Pyramid Summit and Agent Network Accelerator Course Training Course. E-PESO also participated in public-private dialogues at the Chief Information Officers’ (CIO) Forum where heads of the information technology units of government agencies discuss the implications of a national payments system.

Speakers from both the BSP and the private sector provided input on how an interoperable payments system can facilitate government transactions in a transparent manner.

USAID / E-PESO YEAR 1 ANNUAL REPORT 68

E-PESO also participated in public-private dialogues arranged by the USAID Strengthening Urban Resilience for Growth with Equity (SURGE) Activity for stakeholders in Batangas City on January 19 and Tagbilaran City on January 26-27. E-payments were introduced as part of the strategy to improve local governance and support economic growth through a fast, efficient, and transparent payment ecosystem.

Furthermore, in its efforts to institutionalize e-payments at the local level, with assistance from E- PESO, the Puerto Princesa City LGU issued an ordinance adopting the use of e-payments in local government transactions last December 2015. This ordinance paves the way for e-payment service providers to propose methods and channels for settlement of local taxes and fees using e-payments.

Additionally, to broaden and increase competition among m-money and e-payment platforms, Indicator 3.2 refers to the number of policies removed or added that reduce barriers and encourage competition in e-payments. In collaboration with the BSP, targets shall be determined for this indicator once policies that foster competition are identified.

Indicator 3.3 (interoperability in the NRPS achieved) is a qualitative indicator. This tracks milestones in the development of the NRPS. Interoperability is measured through five levels: 1) theoretically interoperable; 2) technically interoperable; 3) functionally interoperable; 4) interconnected; and, 5) effectively interconnected, as explained by the Alliance for Financial Inclusion (AFI). This shall also be tracked in collaboration with the BSP during Year 3. Moving forward, E-PESO will continue to support the BSP and the payments industry in forming the real-time electronic funds transfer (EFT) automated clearing house (ACH) and the batch EFT ACH and in setting the agenda towards eliminating consumer barriers to adoption of upcoming e-payment instruments. This will require the BSP to issue circulars that institutionalize measures to eliminate regulatory and industry barriers.

Indicator 3.4 (increased consumer awareness and trust in e-payments) shows only annual targets since the method to track the indicator is through surveys conducted by E-PESO once every two years.

Indicators 3.5 and 3.6 refer to milestones on guidelines, fora, and articles of a cross-cutting nature that revolve around digital security, consumer protection, and knowledge sharing of best practices.

Activities related to these indicators seek to inform and support regulators, industry players, and the general public on the latest trends on e-payments. The launch of the ePay Pilipinas portal (www.epaypilipjnas.com) on September 6, 2016, together with key partners, address this desire for in-depth, strategic information in a central hub that gathers knowledge about trends, best practices, and toolkits on e-payments. In front of an international audience, E-PESO also highlighted digital financial technologies and e-payments as enablers for innovation and sustainable development at a keynote presentation during the Innovative Strategies for Development Summit 2016, organized by the Department of Science and Technology, Asian Development Bank and the International Telecommunications Union. Similarly, E-PESO led the panel on digital payments during the 2016 International Urban Development Conference for local and international government executives and urban development practitioners.

Lastly, E-PESO is in the process of compiling best practices on consumer protection and digital security. Together with the BSP's Financial Consumer Protection Department (FCPD), E-PESO will roll out a training program for supervised FIs to support consumer protection and trust in e-payments.

Actual

Year 2 Annual

Y2 Annual Target

Y2/Q4 Target for the Quarter

Y2/Q4 Actual for the Quarter

Performance Achieved for

Year 2, Actual

vs. Target (%)

2.2.3 Local Government and Decentralization (a)

http://www.epaypilipjnas.com/

USAID / E-PESO YEAR 1 ANNUAL REPORT 69

2.2.3-5 Number of sub-national entities receiving USG assistance that improve their performance

120%

GNDR Gender (b) GNDR-2 Percentage of female participants in USG-assisted programs designed to increase access to productive economic resources (assets, credit, income or employment) For the year Cumulative as of the year

85% 85%

72% 73%

144% 146%

PPP Public/Private Partnerships (c) PPP3 Number of organizations (for and not-for-profit, and government) that have applied new technologies and/or management practices due to USG-supported Public- Private Partnerships (PPPs), 65%

Notes:

(a) This standard ‘F’ indicator measures engagement by E-PESO of sub-national entities such as local government units.

This corresponds to custom indicator “Indicator 1.2: Adoption of m-money and e-payments in all cities of PFG CDI and other cities/municipalities.”

(b) As part of its contract, E-PESO also measures gender impact of the Activity. This indicator measures E-PESO impact on equitable access to productive economic resources through training and similar programs for both men and women.

(c) This indicator corresponds to the sum of government and private sector partners that have applied new technologies or management practices as a result of E-PESO supported PPP activities. This is derived from custom indicators “Indicator 1.1: Adoption of new e-payment services as collection/disbursement option in five (5) national GPH agencies”, “Indicator 1.2: Adoption of m-money and e-payments in all cities of PFG CDI and other cities/municipalities, Number of CDIs (and other cities/municipalities) that introduced or enhanced m-money and e-payment options”, and “Indicator 1.3: New e-payment implementation and adoption by 500 (small, medium, and large) businesses.”

Overall, efforts by USAID E-PESO to support the adoption of e-payments have not only been far reaching, but also cross-cutting in the areas of transparency, public-private partnership, financial inclusion, and gender. Working with Philippine national agencies and LGUs to provide e-payment options to citizens requires implementing clearly defined processes that promote transparent government services from the local user level up to the national government level. It forces practitioners to craft better policies and implement rules as part of the means to automate payment streams.

To support such activities, technology infrastructure requirements were spelled out and led to public-private partnerships alongside merchants and payment service providers. This allowed the private sector to work with the government in building an e-payment ecosystem. This shall result in simplified and more accessible financial products and payment services enabling financial inclusion and more equitable gender access to financial services. As a result, E-PESO has already impacted two national government agencies, six cities, and five businesses and utilities, and more than 8,800 trained users of whom 73% are women. This figure does not yet include the tens of thousands of users already transacting electronically.

2.2 Implementation Status

Component 1: Rapid Adoption of E-payments in Financial Systems

DSWD and USAID formalize partnership on financial education

USAID / E-PESO YEAR 1 ANNUAL REPORT 70

On March 22, 2016, USAID Mission Director Dr. Susan K. Brems and DSWD Secretary Corazon Juliano-Soliman signed a memorandum of understanding (MOU) to formalize the provision of technical assistance for training and client education of all Pantawid Pamilyang Pilipino Program (4Ps) beneficiaries shifting to prepaid debit cards. The memorandum also defined the specific commitments that DSWD and USAID, through the E-PESO Activity, will endeavor to do. Both Dr. Brems and Secretary Soliman lauded the use of e-payment technology as increasing opportunities for the program’s beneficiaries.

Photo: USAID Mission Director Dr. Susan K. Brems and DSWD Secretary Corazon Soliman led the signing of the Memorandum of Understanding in a ceremony at the DSWD headquarters in Quezon City.

4Ps, a CCT program since 2008, reaches approximately 4.4 million families who receive support every three months largely in cash or cash cards. DSWD began pilot testing the use of e-money linked prepaid debit cards to some beneficiaries last year, with the goal to transition all beneficiaries from cash and cash cards to e-money linked prepaid cards to provide beneficiaries more access to financial services. With this development, E-PESO will now scale up its assistance to DSWD and assist the transition of a sizable portion of government benefits to e-payments.

Thousands of cooperative members trained on e-payment options and security

More than eight thousand members of Mindanao’s leading cooperative, First Community Cooperative (FICCO), benefitted from a training on e-payments provided by E-PESO. The training, led by E-PESO IT Specialist Donato Pua, coincided with the 61st Annual General Assembly of FICCO held on March 19 and 20 in Cagayan de Oro City. The training familiarized cooperative members with the benefits of using e-payments, particularly the FICCO Power Pay card, which it developed with Gcash, and gave useful tips for using ATM cards safely and securely.

E-PESO is now working with FICCO to utilize e-payments for loan disbursements and amortization payments, and to strengthen the cooperative’s position as a cash in/cash out outlet and bills payment agent. FICCO indicated in the Chairman’s Report, circulated at the General Assembly, that one of the cooperative’s priorities for 2016 was its work with E-PESO to facilitate wider adoption of e-payments.

As of December 2015, FICCO had more than 263,800 members from 78 offices nationwide, and assets amounting to PHP 8.3 billion.

BSP takes discussion of batch EFT option to the Department of Finance (DOF)

USAID / E-PESO YEAR 1 ANNUAL REPORT 71

DOF, through Undersecretary Jeremias Paul, responded positively to the proposition from the BSP for the government to adopt batch EFT as an option for its disbursement.

DOF requested a follow-up meeting with the BSP’s NRPS Core Team on March 7 to discuss policy recommendations and to include representatives from other government agencies such as BIR, Department of Budget and Management (DBM), Bureau of Treasury (BTr), and the Commission on Audit (COA) in future discussions. The BSP is expected to release a formal paper to be taken up in the Development Budget Coordinating Committee (DBCC) with members coming from the DOF, DBM, BSP and the National Economic Development Authority (NEDA).

BIR re-launches e-tax filing and payment system

The BIR re-launched the electronic filing and payment system for national taxes on April 12 in Quezon City as part of its reform program to improve tax collection and administration, curb corruption, and strengthen the business climate in the country. The system allows taxpayers to file online and pay using the GCash m-money service at any time without going to BIR offices or banks. The use of m-money for tax payments was first introduced in 2005, and the new system has been expanded to allow payments for all types of taxes. USAID E-PESO and USAID Facilitating Public Investments (FPI) Project have been assisting the BIR on the implementation of this initiative, together with Mynt (GCash) and LandBank of the Philippines. The launch was witnessed by BIR officials including Deputy Commissioner

– Information Systems Group Lilia Guillermo and Deputy Commissioner for Operations Nelson Aspe, USAID/Philippines, USAID FPI, E-PESO, Mynt, LandBank, and media guests.

E-PESO collaborated with FPI and Globe Fintech Innovations’ Mynt to assist the BIR improve tax collection efficiency by enhancing and expanding the existing mobile payment system and introducing other forms of e-payments to taxpayers. The objectives of the support are to:

• Streamline or simplify the existing GCash BIR payment facility;

• Expand the type of taxes that can be paid through GCash from five to 38;

• Introduce technical enhancements like check digits to validate the tax identification number

(TIN);

• Streamline data fields to simplify the payment experience and weed-out unnecessary data fields;

• Make the payment menu universal to all BIR tax types; and,

• Make the service available online in addition to USSD and mobile application modes.

Subsequently, E-PESO will expand the mobile payment facility to include other providers and other forms of e-payments.

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Photos: (Top) BIR Deputy Commissioner for Operations Nelson Aspe talked briefly about the mobile tax payments initiative of the BIR. (Bottom) Officers of BIR, Mynt, LandBank, USAID/Philippines, USAID FPI and USAID E-PESO celebrate the re-launch.

Joint memorandum circular (JMC) on revised business permits and licensing system (BPLS) standards

Three national government agencies, including the Departments of Trade and Industry, Department of Interior and Local Government (DILG), and Information and Communications Technology, signed a joint memorandum circular on August 30, 2016 in Makati City, enjoining all cities and municipalities to streamline business permits and licensing systems (BPLS) using revised standards. Under the new joint circular, LGUs are directed to cut processing time to two days for new business registration and one day for renewals. It also directs LGUs to use a unified form, both in print and electronic form.

USAID E-PESO provided inputs during the draft stage of the joint circular to ensure that the policy is in line with promoting and enabling the capacity of LGUs to accept e-payments for business taxes.

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Photo: Department of Trade and Industry Secretary Ramon Lopez (4th from left), Department of Interior and Local Government Secretary Ismael Sueno (5th from left), and Department of Information and Commuication Technology Undersecretary Jorge Sarmiento (6th from left) sign the government circular that will further speed up process of issuing business permits and licenses.

Component 2: Infrastructure for E-payments Expanded

E-PESO presented initial results of the Agent Network study to industry players

E-PESO presented the Philippine Agent Network Assessment draft report on February 9, 2016 in Pasig City, explaining how to increase e-payment touchpoints to an assembly of technology providers, cooperatives, agent aggregators, and regulators. The presentation discussed the baseline findings of agent networks in the Philippines and pointed to areas of action to increase the number of agents supporting financial services in general and e-payments in particular. Attendees participated in workshops, exchanged information, and explored areas of partnership, providing industry feedback on the draft report. MicroSave, an E-PESO subcontractor, will incorporate reactions from industry in the final report.

The assessment was launched on October 26, 2015 and interviews with field agents in Metro Manila, Rizal, Bulacan, Cavite, Iloilo and Cagayan de Oro were completed in December 2015. After the presentation of results, E-PESO and MicroSave then developed a customized Core Agent Network Accelerator (CANA) training program using best practices and insights derived from the study and conducted training to selected payment providers and agent networks to boost e-payments transactions through agents.

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Photo: MicroSave Senior Manager, Digital Finance – MNOs and Agent Networks Denny George discussed agent networks best practices in developing countries.

Photo: Vice Catudio of E-PESO discussed in detail the findings from the Philippine Agent Network Assessment draft report.

Collaboration with e-payment service providers to promote e-payments

E-PESO established initial discussions with e-payment service providers and secured verbal agreements to help in promoting e-payments in the country. Initial meetings were held with the providers listed below. E-PESO is also facilitating partnerships between e-payment service providers and partner institutions from both government and the private sector to implement e-payments.

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Payment service providers benefit from world-class agent network management course

Twenty-three representatives from 18 key payment service providers in the country underwent the Core Agent Network Accelerator (CANA) training course organized by E-PESO on April 25-29, 2016 in Pasig City. The training was delivered by resource persons from MicroSave, which manages the Kenya-based Helix Institute of Digital Finance that provides world-class training for digital financial service providers.

The course was tailored for the Philippine context, and gave participants a solid foundation for crafting a successful strategic plan for agent network management. Through lectures, live panel discussions, group work, field visits, and workbook consolidation, the course touched on various aspects of agent networks such as network build-up, agent selection, on-boarding and training, pricing and agent compensation, liquidity management, branding and marketing, and monitoring and support. The Core Agent Network Accelerator Course is part of E-PESO’s support for the expansion of Philippine agent network operators, which will provide the essential infrastructure to support the uptake of e-payments and digital financial services in the country. It builds on the evidence and insights from the agent network assessment (discussed earlier) that USAID E-PESO commissioned in late 2015.

Electronic Money Issuers

• Globe Fintech Innovations / Mynt

• Smart E-Money, Inc.

• Omnipay, Inc.

• Nationlink

Online Payment Gateways

• DragonPay

• AsiaPay

• Ipay88

• Paynamics

• HelloPay

Agent Networks

• MLhuillier

• Cebuana Lhuillier

• Palawan Pawnshop

• Remitbox

• USSC

• ATVI

• Ultra Mega

• Puregold

• SM Retail, Inc.

ATM Networks

• BancNet

• MegaLink (undergoing merger of switch operations with BancNet) Banks

• BPI BanKO

• Metrobank

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Photos: (Top) Participants pose for a class photo with USAID/Philippines Program Management Specialist Maria Teresita Espenilla, USAID E-PESO team, and trainers. (Middle) Helix Institute expert gives a lecture on digital finance services constraints framework. Participants gather around during a group work session.

(Bottom) PayMaya’s Lawrence Ferrer, GCash/Mynt’s Mark Jacinto and Bayad Center’s Pit Quevedo share key opportunities and challenges for digital financial services during a live panel discussion.

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Support implementation of e-payments by partner institutions at the national level

E-PESO has been providing technical assistance to the National Confederation of Cooperatives (NATCCO) in crafting its e-payment roadmap and in defining the requirements for its e-payment platform that includes an e-wallet system and an agent network management system. The e-wallet can be accessed through a mobile phone, i.e., mobile application, SMS application or USSD menu. The agent network management system includes capabilities such as tellering, cash-in/cash-out (CICO), remittance (fund transfer) and bills payments, among others. NATCCO is currently in discussion with Software Group (SG), the sub-contractor of Temenos, its core banking system provider, to implement the e-payment platform.

E-PESO will continue to work with NATCCO on the implementation of its e-payment roadmap and promote its services to its member cooperatives particularly in CDI cities. E-PESO will also provide technical assistance to NATCCO to implement an agent banking strategy thereby helping cooperatives expand their reach and extend access to financial services in communities where they operate.

Photo: Facilitators from USAID E-PESO and NATCCO conduct planning workshop with senior officers of both organizations.

BSP studies Philippine Clearing House Corporation’s facility for EFT

To support the technology infrastructure for the NRPS, staff members from the BSP and E-PESO met on March 17, 2016 with the Philippine Clearing House Corporation (PCHC) to know more about its project to upgrade the current facility for bank-to-bank EFT Electronic Peso Clearing Settlement (EPCS) to electronic funds transfer (EFTN). BSP is investigating potential use cases for government payments, initially with tax payments as a pilot case. PCHC is a neutral service provider of cheque

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clearing service to participating banks, and its EFTN presents a possible use case. Follow up meetings are being planned to further discuss and evaluate PCHC’s facility.

Palawan Electric Cooperative adopts E-PESO’s algorithm system

For businesses and utilities in particular, the Palawan Electric Cooperative (PALECO) agreed to implement the check digit algorithm system developed by E-PESO and to expand payment channels to include e-payments. PALECO is experiencing increased challenges in reconciling daily collection reports with its wider use of alternative payment channels for bills payment. Its current providers include Palawan Pawnshop, China Bank, Union Bank, RCBC, Asia United Bank (AUB) and First Consolidated Bank. E-PESO developed the check digit algorithm system to facilitate quick e-bill payment deployment for power and water utilities. The system enables “off-line” e-bill payment without the need to integrate back-end system of utilities with e-payment service providers, which is costly, complex and time-consuming. The check digit algorithm will minimize or eliminate errors at the point of data capture by payment providers, which are usually the biggest problem of off-line bill payment systems. The algorithm uses the reference number which contains the account number, the amount due, the due date and the binary check digit to validate the information. The system was successfully tested with ATVI.

Valenzuela City explores additional payment gateways for government fees

Within the Metro Manila area, E-PESO facilitated meetings between the Valenzuela City LGU and internet payment gateways AsiaPay and Paynamics. Both AsiaPay and Paynamics presented their payment gateway and value-added services, reference clients and typical set-up with acquiring banks and merchants. E-PESO is assisting the Valenzuela City LGU to implement other card brands in addition to Visa, which is currently offered through their partnership with the Development Bank of the Philippines. Both AsiaPay and Paynamics can process Visa, Master Card, American Express, Diners Club, Japan Credit Bureau (JCB), China Union Pay and BancNet card brands. Valenzuela City plans to offer all card brands for its online real property tax and business permit payments, and consequently, for building and construction permit fees.

USAID E-PESO supports expansion of CICO network of OmniPay for 4Ps

The USAID E-PESO Activity met with OmniPay on May 13, 2016 to discuss a partnership to expand the CICO network to support 4Ps cash grant distribution using the Landbank-OmniPay prepaid card.

USAID E-PESO will support OmniPay to expand the reach of its existing CICO network which includes LBC, M Lhuillier and ECPay by facilitating potential CICO partnerships with participants of the Agent Network Accelerator Course Training Program such as Bayad Center, Ayannah, Philpost, ATVI, Rural Net, Tapp Commerce and Tao Group, as well as leverage its work in CDIs by tapping local CICO networks such as First Consolidated Bank (Tagbilaran City) and Palawan Pawnshop (Puerto Princesa). Also, through its previous work under USAID Microenterprise Access through Banking Services (MABS) Project, E-PESO can leverage its relationship with the Rural Bankers Association of the Philippines (RBAP), regional rural bank confederations and key rural banks. For its part, OmniPay can extend and white-label its platform to CICO networks that have no front-end systems to enable them to process CICO transactions.

OmniPay and Landbank of the Philippines entered into a strategic partnership in December 2015 for OmniPay to provide e-payment service for the Philippine government’s conditional cash transfer (CCT) program. Through the partnership, Landbank’s prepaid cardholders can enjoy greater banking convenience through wider access to other channels including over 10,000 CICO agents, 16,000 ATMs, and 45,000 point of service (POS) terminals under the BancNet network, as well as access to ATMs and POS terminals abroad through JCB and China Union Pay (CUP).

Subsequently, OmniPay signed the MOU with USAID on June 8, 2016. The accompanying letter of partnership, which will cover the detailed roles and responsibilities of the parties, is currently being

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drafted. Once the accompanying letter of partnership is ready, E-PESO will submit the MOU to USAID for signature.

Pilot of new technology – digital secured stored value – being studied

Photo: Officers from USAID/Philippines, USAID E-PESO and eCurrency Mint met with Landbank of the Philippines President and CEO Gilda Pico (center) to propose a pilot of digital secured stored value system.

E-PESO facilitated a meeting between eCurrency Mint, Ltd., and Landbank of the Philippines about a proposal to pilot Digital Secured Stored Value (DSSV), a highly secure stored value system that is interoperable, efficient, and behaves like cash. eCurrency Mint, Ltd. has plans to rollout other e-payment systems with Bank of the Philippine Islands, Smart E-Money, G-Xchange Inc., as well as merchant networks like Puregold and Ultra Mega. USAID E-PESO offered to support the pilot through research and development particularly in on-boarding partners, such as payment service providers, merchants and support for study tours, when necessary.

Experience of sari-sari stores in using e-payments and mobile solutions studied

Photos: (right) USAID E-PESO’s Vicente Catudio interviews a sari-sari storeowner about her experience of using Prime Path’s mobile ordering app. (left) A storeowner shows his store’s bills payment and mobile top-up services made possible through use of Prime Path’s mobile solutions.

Trade visits and interviews with community stores/sari-sari stores were conducted on June 21 to look into the experience of storeowners in using mobile solutions, as well as their openness to e-payments.

The stores visited are clients of Prime Path Corporation that provide innovative solutions to community stores, including a mobile application that allows owners to order goods for replenishment of their inventory and…