EPESO Y3 annual report.pdf

USAID/E-PESO ACTIVITY

3rd Annual Report October 1, 2016 – September 30, 2017

October 30, 2017

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

ACRONYMS…

EXECUTIVE SUMMARY

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, Female Empowerment, and Disability Action

3.2 Policy and Governance Support

4. PLANNED ACTIVITIES FOR NEXT QUARTER INCLUDING UPCOMING EVENTS

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ACRONYMS

ACH Automated Clearing House

AFCS Automated Fare Collection System

AML Anti Money Laundering

ATM Automated Teller Machine

BAP Bankers Association of the Philippines

BIR Bureau of Internal Revenue

BSP Bangko Sentral ng Pilipinas

BTCA Better Than Cash Alliance

BTMS Budget and Treasury Management System

CDA Cooperative Development Authority

CDI Cities Development Initiative

COA Commission on Audit

DBM Department of Budget and Management

DBP Development Bank of the Philippines

DICT Department of Information and Communications Technology

DILG Department of Interior and Local Government

DOF Department of Finance

DOTr Department of Transportation

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

E-TRACS Enhanced Tax Revenue Assessment and Collection System

G2P Government to Person

GPH Government of the Philippines

HDMF Home Development Mutual Fund

IFAO Inclusive Finance Advocacy Office

LBP Land Bank of the Philippines

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LGU Local Government Unit

MOA Memorandum of Agreement

MOU Memorandum of Understanding

MSME Micro, Small, and Medium Enterprises

NATCCO National Confederation of Cooperatives

NBSFI National Baseline Study on Financial Inclusion

NGA National Government Agency

NMIS National Meat Inspection Service

NRPS National Retail Payment System

P2G Person to Government

PCHC Philippine Clearing House Corporation

PFG Partnership for Growth

POS Point-of-Sale Device

PPMI Philippine Payments Management Inc.

PPP Public Private Partnership

PRC Philippine Regulation Commission

PSA Philippine Statistics Authority

PSMB Payments System Management Body

RBAP Rural Bankers Association of the Philippines

SGM Settlement Guarantee Mechanism

TWG Technical Working Group

USAID United States Agency for International Development

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EXECUTIVE SUMMARY

The USAID/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 98% 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 10% of retail transactions by the year 2020.

A key strategy for e-payments adoption is to work with national government agencies such as the Bureau of Internal Revenue (BIR), Department of Budget and Management (DBM), and other agencies to act as early adopters for e-payments and to become models for rapid e-payments adoption. These agencies also serve as catalysts for the private sector to follow suit since tax payments and government disbursements have significant transaction volumes.

To enable the move to e-payments, during Year 3, E-PESO has worked with key private sector partners such as banks and payments service providers to build the minimum technology infrastructure and expand e-payments options. For example, E-PESO played a critical role in linking the Land Bank of the Philippines (LBP), the Development Bank of the Philippines (DBP), the Credit Card Association of the Philippines (CCAP), Globe Telecom’s GCash, and PayMaya to work with the BIR to enable BIR’s acceptance of debit cards and mobile money for tax payments. E-PESO also facilitated public-private sector dialogues to integrate tax software products and computerized accounting software providers to these payment platforms to expand the business user base of electronic payments for taxes.

Crafting a sound and consistent policy and regulatory enabling environment for e-payments is another strategy that E-PESO followed during Year 3. E-PESO continued to assist the Bangko Sentral ng Pilipinas (BSP) in the formulation of regulations consistent with the policy directives under the National Retail Payment System (NRPS) approved by the Monetary Board in March 2017. Aside from reviewing draft regulation on e-banking, E-PESO also provided technical assistance to several previously issued circulars on anti-money laundering and financial consumer protection, and their implications to encouraging large scale electronic funds transfer.

With emerging banking industry support for the NRPS, E-PESO assisted the BSP in organizing public-private dialogues with the financial services industry and helped the BSP’s NRPS technical working group with developing the rationale, framework, and policies supporting e-payments in the Philippines. As a result, the BSP completed its NRPS Roadmap which led to the signing of a memorandum of understanding (MOU) with industry participants to organize the Payment System Management Body (PSMB). This subsequently led to the signing of a memorandum of agreement with the PSMB during 2017.

While the PSMB is being organized, the BSP has decided to oversee and regulate industry actions, particularly the formation of prioritized automated clearing house (ACH) agreements, including PesoNet batch electronic fund transfer (EFT) and InstaPay (real-time low value credit EFT).

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The final strategy for e-payments adoption is for E-PESO to bring this effort to key cities identified under USAID’s Cities Development Initiative (CDI). By building an e-payments ecosystem in these urban areas, mass adoption is initiated through local government leadership.

During Year 3, E-PESO worked with partner cities such as Quezon City, Valenzuela City, Batangas City, and Cagayan de Oro City that offer e-payments services. In particular, E-PESO supported the local government units (LGU) by sponsoring joint activities to conduct on-site promotional drives during the peak payment season (January to March); informing taxpayers that e-payment options are available;

inducing trial usage; arranging e-payment services and user support mechanisms (e.g. a hotline, manuals, handover mechanism for personnel, knowledge sharing by hosting study tours and speaking in conferences); promoting e-payments via targeted social media campaigns through LGUs, mayors, and local influencers’ social media accounts; and sponsoring events as well as serving as a resource for the small and medium enterprise (SME) roadshows, e-commerce events, and e-payment forums.

E-PESO also collaborated with three new CDI partners—Zamboanga City, Puerto Princesa City, and Tagbilaran City—and sought their commitment to digitize P2G payments and G2P disbursements. These new partners worked with E-PESO through the e-payments implementation process by setting up an e-payments project team, securing the legal foundation for implementing e-payments via a local ordinances, assessing technology and business user requirements, and introducing LGUs to e-payment service providers. E-PESO also rekindled working relationships with Iloilo City and Pulilan, Bulacan to revive interest on the use of e-payment channels such as mobile money and credit/debit cards for payments to the LGUs.

To promote cross-cutting issues, E-PESO consistently integrated women’s inclusion in formal financial systems during Year 3. Past and on-going trainings track participation of women, which now has reached 72% cumulatively among total number of participants. E-PESO also sees e-payments as a critical factor in empowering women to have control over their financial lives through tools for financial management such as debit cards and mobile phones which are typically left at the care of women in Philippine households.

The upcoming institutional baseline survey shall include questions identifying women decision-makers in businesses to gain insight on their e-payment behavior and identify a market for women-led enterprises.

During the first quarter of Year 3, E-PESO conducted a comprehensive Year 3 work plan review to align the implementation schedule with an anticipated reduction of funding for the rest of fiscal year 2017.

While annual funding was pending, E-PESO’s implementation was managed by carrying out cost-efficient activities mainly in Metro Manila, to control spending. This allowed E-PESO to manage activities starting with a small surplus of funds, saved from cost efficiencies realized in Year 2. It also facilitated the continuation of critical NRPS and CDI technical work while Year 3 funding obligation was delayed.

With funding cuts, E-PESO was not able to conduct full market research assessment for Year 3, interventions with some private sector partners were foregone, and product development for many financial institutions was delayed. Given this, Indicator 1.3 was reduced to 300 due to significant reduction in budget affecting support activities to address the indicator. These activities require a level of scale that are cost intensive due to the staffing and material support needed. Given the reductions, this translated to significantly reduced trips outside of Metro Manila, removal of marketing support budget for partners, limiting interventions to technical assistance, and hiring freeze of additional personnel such as a deputy chief of party, component leads, and area coordinators.

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Given these resource constraints, moving forward E-PESO will prioritizing working with strategic partners and relying on their field presence. For example, Rameses Systems Inc., the systems provider of Tagbilaran City and Puerto Princesa City’s Enhanced Tax Revenue Assessment and Collection System (E-TRACS), is working on enhancements to the E-TRACS system. The enhancements will fully automate the complete collection cycle: from assigning accountable forms to collectors, remittance, and liquidation, up to deposits.

Currently, the City Treasurer’s Office and City Accounting Office manually prepare collection reports and abstract of collections and segregate by fund type. As soon as the enhancement to the E-TRACS system is complete, Tagbilaran and Puerto Princesa will proceed with on-site integration testing, formalize commercial agreements with electronic payment service providers and proceed to launching the service.

The launch will also allow Rameses to offer the whole system—fully automated E-TRACS with e-payments—to its 60 LGU customers.

To catalyze the market’s transition to e-payments, it is therefore vital for government and large businesses to initiate and continue the adoption process. For the coming year, E-PESO will begin to address gaps in policy and regulatory framework in areas peripheral to payments, such as the issuance and recognition of electronic invoices and official receipts, as well as expanded withholding tax certificates for businesses.

This will be accomplished by providing advisory support and linkages to technology providers. These changes will enable government agencies to pay for e-payments services rather than passing them on to counterparts as is currently the practice. E-PESO will also assist the BSP in formulating an effective cybersecurity policy and capacity building of its internal unit on digital security. E-PESO will further support the BSP through technical assistance provided by a team of experts with experience in digital security and payment systems, supplemented by an international payments system expert.

Finally, E-PESO will build on its success with the BIR to work with other government agencies such as the Department of Transportation, the National Meat Inspection Service, Philhealth and Pag-ibig Fund to fully embrace e-payments for the collection of government fees or disbursement of funds. E-PESO will also continue to work with existing CDI partners to expand e-payments in other areas of local government transactions such as business permits and licensing as well as leverage relationships with payment service providers to expand in areas outside of CDIs, which E-PESO cannot accomplish on its own.

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1. PROGRAM OVERVIEW AND INTRODUCTION

Program Name:

USAID/E-PESO Activity

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

Name of Prime Implementing Partner: Chemonics International, Inc.

Contract Number: AID-492-C-15-00001

Name of Major Subcontractors: Leonine Initiatives

Major Counterpart Organizations

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

Geographic Coverage (cities and or countries)

Philippines

Reporting Period: October 1, 2016 – September 30, 2017

The USAID/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 98% 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 actors 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 10% of retail transactions by the year 2020.

To shift from a cash-based economy to an electronic, E-PESO supports the development of a lasting, inclusive economic environment and sets the stage for new financial products to enter the market that explicitly meet the needs of those striving to improve their lives. Enabling access to electronic transaction accounts will provide the backbone needed to ensure that 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-P ESO builds on 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 majority of Filipinos have access to electronic transaction accounts.

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Over the next five years, Filipinos will benefit from new, more affordable and innovative e-payment products, an increased number of outlets through which to spend electronic money (e-money), improved transparency and accountability in their transactions with the government, and benefit from a stronger 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 the adoption of e-payments, E-PESO supports digitization of large-scale payment streams in both the private and public sectors. E-PESO will provide technical assistance to GPH agencies to improve 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 (EFT), 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 focus on key cities identified under USAID’s CDI.

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2. ACTIVITY IMPLEMENTATION PROGRESS

2.1 Progress Narrative

Indicators

Year 2 Actual

Year 3

Target

Y3/Q4 Actual for the Quarter

Y3/Q4 Target for the Quarter

Performance Achieved for Y3, 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)

New

Cumulative

0.503 million 11.4

TBD

0.45

11.85

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

16.2%

16.5%

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, 1 0 2 0 0 --

New 1 1 3 1 1 33% Cumulative

Desired Purpose (DP): Scope of e-Payment Usage Reaches Tipping Point for Scale Indicator DP 1: E-payments accounting for at least 10% of all retail payment transactions, Percent of e-payments accounting for retail payment transactions

2.76%

3.42%

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

Number of active e-payment users, 10.2

0.4

10.9

Notes: As discussed with USAID in the past, tables are shown to compare current year versus previous year, current year’s actual versus target, and current quarter’s actual versus target. Year 1 is not included since it is not part of the analysis.

TBD – To be determined. Actual results will be derived from the BSP’s financial inclusion survey which will be sometime January-March 2018.

(a) Targets derived from Better Than Cash Alliance (BTCA) Philippines Country Diagnostic Study, July 2015, and 2016 Philippine Individual Payments Baseline Study that covers all types of electronic card instruments (ATM/debit cards, credit cards, pre-paid cards, and e-money cards). Updated based on USAID approval of March 1, 2017 to reduce E-PESO work requirements.

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Indicator DI 1&2 are top level indicators measuring e-payment usage in the population to establish adoption. Due to budget constraints, E-PESO will not be able to implement expensive annual or biennial national surveys to track this over time. Instead, a baseline study and a near end-of-project study will be done. In the intervening years, such as Year 3, E-PESO will rely on BSP to implement similar research to establish e-payments adoption. Since E-PESO depends on BSP’s timeline, the results of their latest survey have not yet been concluded. BSP is still conducting a pilot survey during late last quarter of Year 3. Results will not be due until January-March 2018 or after the full survey is completed.

Indicator DI 4 is lagging due to E-PESO’s dependency on banks to execute their product development strategies targeting the low-income market segment. At this point, financial institutions are busy building internal systems and working among other players to build interoperability. Once the infrastructure is in place, E-PESO will see robust product development efforts leading to product launches by the latter half of Year 4. Similar to DI 1&2, Indicators DP 1 and DP 2 depend on BSP’s execution of the research in the intervening years to track e-payments adoption in terms of active usage and percent of retail transactions.

However, results will not be due until January-March 2018 or after the full survey by the BSP is completed.

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

Annual Target

Y3/Q4 Actual for the Quarter

Y3/Q4 Target for the Quarter

Performance Achieved for Y3, 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, 33%

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, 66% Indicator 1.3: New e-payment implementation and adoption by 300 (small, medium, and large) businesses, Number of businesses introducing or enhancing e-payment options as a result of E- PESO support, 5%

Indicator 1.4: Over 16,000 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 9,148

9,501

10,000

9,501

9,500

41% 95%

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For Indicator 1.1, the Department of Social Welfare and Development (DSWD) and Bureau of Internal Revenue (BIR) have so far adopted e-payment services. However, DSWD has indefinitely suspended its pilot project on the use of ATM/debit cards for disbursing cash grants to beneficiaries upon the request of Land Bank which, according to them, had to redeploy its technical resources for a more pressing need to comply with BSP regulation on Euro Mastercard Visa (EMV) payment card standard by June 2018. As result, E-PESO is lagging on at least two national government agencies to adopt e-payments for Year 3, which will have to be carried over to Year 4. To compensate, the National Meat Inspection Service (NMIS), with E-PESO’s assistance, is about to complete its e-payments technical implementation by the first quarter of Year 4. In addition, Philhealth has drafted the MOU with USAID for its e-payments implementation which is already undergoing review process by USAID.

The National Meat Inspection Service (NMIS)’s adoption of Land Bank of the Philippines’ (LBP) Electronic Payment Portal (EPP), an off-the shelf product, was thought to be a fairly straightforward implementation process that would take approximately 6-10 weeks to launch. The group however encountered delays as they uncovered a Bureau of Treasury (BTr) policy issue that required clarification and encountered operational gaps within LBP’s government institution acquisition procedures. Given these obstacles, E- PESO facilitated a discussion with the BTr to address the policy in implementing payment systems. E-PESO also worked with LBP and NMIS to facilitate NMIS’ enrollment in the EPP. Although these caused delays to the NMIS project, the positive effects of these interventions are that it will be easier for GPH agencies to enter into payment systems implementation agreements and LBP will have a more efficient GPH acquisition process moving forward. The NMIS and LBP formally launched the EPP project on October 16, 2017.

E-PESO’s talks with Philhealth to finalize the MOU began in early Q4 2016 with the timeline to sign the MOU by December 2016 and immediately begin afterwards. Philhealth experienced significant delays in seeking clearances and clarifications from its internal stakeholders, the Department of Health, and the Office of the President before it could proceed with MOU negotiations. Eventually, PhilHealth got clearance to proceed, and in July 2017, prepared its draft MOU for review.

For Indicator 1.2, the target of three additional CDI cities adopting e-payments was not met. The work plan called for a launch of e-payments services in Iloilo City, Puerto Princesa City, and Tagbilaran City.

Due to budget constraints, restricted travels within CDIs outside Luzon island slowed much of the work for Year 3. For example, the launch of Iloilo City’s online business permit payments using Visa credit card and selected Bancnet ATM cards took place last April 5, 2017. However, e-payments was not yet made available to the public pending some policy gaps identified by the city’s IT head. E-PESO would have wanted to travel often to Iloilo and other CDI partners to resolve issues, but had to settle for off-site coordination.

E-PESO has also not been able to meet regularly with the e-payments technical working group of Zamboanga, Cagayan de Oro, Iloilo, Tagbilaran, and Puerto Princesa due to the same budget constraints.

The team adjusted by carrying out the action items remotely as well. The arrangement, while also yielding results (e.g. Tagbilaran City’s Sangguniang Panlalawigan was able to pass the resolution authorizing the Mayor to enter into agreements with e-payment service providers in August 2017), naturally has slowed down implementation of other action items.

On the other hand, some CDIs also faced political issues that curtailed working with them. For example, in December 2016, the Office of the Ombudsman dismissed Puerto Princesa Mayor Bayron from office for administrative offenses. The implementation of e-payments for LGUs was endorsed by Mayor Bayron and with his dismissal, E-PESO had to seek the support of the acting mayor. In June 2016, Mayor Bayron was reinstated, only to be dismissed again in August 2017. E-PESO has yet to secure the commitment of the new Mayor to continue the plans outlined for e-payments implementation.

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Due to these resource constraints, E-PESO is placing more effort to working with strategic partners and rely on their field presence. For example, Rameses Systems Inc., the systems provider of Tagbilaran City and Puerto Princesa City’s Enhanced Tax Revenue Assessment and Collection System (E-TRACS), is working on enhancements to the E-TRACS system. The enhancements will fully automate the complete collection cycle: from assigning of accountable forms to collectors, remittance, and liquidation, up to deposits. Currently, the City Treasurer’s Office and City Accounting Office manually prepare collection reports and abstract of collections and segregate by fund type. As soon as the enhancement to the E- TRACS system is complete, Tagbilaran and Puerto Princesa will proceed with on-site integration testing, formalize commercial agreements with EPSPs, and proceed to launching the service. The launch will also allow Rameses to offer the full system (fully automated E-TRACS with e-payments) to its 60 LGU customers.

While Rameses is completing the enhancements, E-PESO will assist Rameses with building a viable revenue model for online payments services. Rameses’ business model for E-TRACS is the open source module – LGUs get the software for free but Rameses charges for maintenance and support to monetize the open source.

For Indicator 1.3, E-PESO continued to see a lag in the adoption of e-payments by targeted businesses.

The lag is caused by delays in completing the tax e-payment value chain intended to introduce these businesses to e-payment, and the discovery of policy and procedural gaps in BIR that prevent accreditation of tax software providers (TSP). With the expected launch of the Development Bank of the Philippines (DBP) Internet Payment Gateway (IPG) and Land Bank of the Philippines (LBP) e-Pay electronic payment services that will allow online payment, E-PESO planned to integrate Tax Software products and Computerized Accounting Software to these payment platforms to expand the business user base of electronic payment.

Furthermore, E-PESO discovered that BIR currently does not have accreditation guidelines for TSP’s.

Consequently, E-PESO initiated a dialogue between TSPs and BIR and is currently assisting BIR in drafting the policies and technical specifications to enable the bureau to accredit TSP’s moving forward. Parallel to this, E-PESO also facilitated preliminary technical and commercial meetings between the CAS providers, TSPs, and acquiring banks to discuss technical and commercial integration points. E-PESO is confident that the adoption of e-payments by business through CAS and Tax Software products will start to gain momentum in Year 4 as both LBP and DBP services are expected to be available by October 2017, and because BIR has completed the first draft guidelines to accredit TSPs. BIR expects to have the final version issued by end of 2017.

Lastly, Indicator 1.4 is closely on track to meet its training target by achieving a 95 percent actual target rate. For the latest quarter alone, 353 people were trained raising the cumulative number trained to 9,501, only 499 people off from the 10,000 target for Year 3. Most of the year’s training came from CDI partners such as Cagayan de Oro City, Quezon City, Tagbilaran City, and Zamboanga City.

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Component 2: Infrastructure for e-Payments Expanded

Year 3 Annual Target

Y3/Q4 Annual for the Quarter

Y3/Q4 Target for the Quarter

Performance Achieved for Y3, 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, 60% 91%

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, 75%

Indicator 2.3: E-payment infrastructure gaps identified, Number of gap analysis reports at industry or ecosystem level(a), 100%

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.

As discussed with USAID in the past, tables are shown to compare current year versus previous year, current year’s actual versus target, and current quarter’s actual versus target. Year 1 is not included since it is not part of the analysis.

The USAID/E-PESO activity achieved progress in Year 3 under Component 2 despite not having a Component Lead or any full-time staff. For Indicator 2.1, these were the partners supported by E-PESO to improve/expand the front-end infrastructure:

Year 3 Quarter 1 (October 1 – December 31, 2016)

- PayMaya Year 3 Quarter 3 (April 1 – June 30, 2017)

- Tagbilaran City

- Iloilo City

With assistance from E-PESO, PayMaya finished development and internal testing of their electronic payment implementation for BIR. This will enable PayMaya users to pay taxes using their PayMaya electronic money account.

For Indicator 2.2, clearing participants, through the ACH working groups, continue to work on the priority ACH agreements, particularly PESO Net and InstaPay. Until the rules and agreements have been formalized in accordance with NRPS principles, payment streams will continue to follow current rules as instituted in PCHC and BancNet. Furthermore, preparations for a national Institutional Baseline Payments Study has begun. The study aims to establish the scale, scope, and requirements of merchants or businesses to adopt e-payment products and services offered by financial institutions.

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Component 3: Enabling Environment for e-Payments Improved

Year 3 Annual Target

Y3/Q4 Actual for the Quarter

Y3/Q4 Target for the Quarter

Performance Achieved for Y3, 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, 33% 80%

200% 115%

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), New 0 0 1 0 0 -- Cumulative 0 0 1 0 0 --

Indicator 3.3: Interoperability in the national payment system achieved(b), Level of Interoperability.

Batch EFT 4 TBD 2 -- -- -- Real-time EFT 1 TBD 2 -- -- --

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

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(c) system

67.7%

61.5%

69.0%

63.0%

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, 0* 1*

300%

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

4*

300% 122%

8**

113%

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Notes: As discussed with USAID in the past, tables are shown to compare current year versus previous year, current year’s actual versus target, and current quarter’s actual versus target. Year 1 is not included since it is not part of the analysis.

TBD – To be determined. Actual results will be derived from a study with the Philippine Payments Management Inc. (PPMI) this January-March 2018 for interoperability and a follow-up BSP financial inclusion study for the same period.

(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.

(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) 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 e-money issuers.

* Proposed changes to targets.

** Year 3 to LOP targets for Indicator 3.6b exceeded. Changes proposed adjusting to higher targets.

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. For Year 3, E-PESO assisted the BSP in various NRPS consultations and discussions with various payments industry stakeholders. These included addressing the following concerns:

• Payment System Management Body (PSMB), Bankers Association of the Philippines (BAP) –

Further clarifications on the roles and responsibilities of the PSMB, suggestions on the PSMB Management Office’s functions, rationale for the NRPS governance structure vis-à-vis payments governance in other jurisdictions;

• Selected Clearing Participants – Clarifications with clearing participants on concerns regarding implications of current anti-money laundering provisions on electronic funds transfer, exposure for discussion the Security Guarantee Account concept that need to be implemented by the BSP for the clear-before-settle ACHs such as InstaPay;

• Rural Bankers Association of the Philippines (RBAP) – Review of key NRPS concepts and how rural banks can participate in NRPS and the ACHs, clarifications on proper representation from the rural banks in the PSMB Board of Directors;

• National Confederation of Cooperatives (NATCCO), Mindanao Alliance of Self-help Societies and Southern Philippines Educational Cooperative Center (MASS-SPECC) and Cooperative Development Authority (CDA) – Discussion on possible options that may be pursued by NATCCO and MASS-SPECC, with secondary level cooperatives, so they continue to participate as clearing participants even though they are currently not supervised by the BSP.

At the local level, Tagbilaran City issued Ordinance No. 21-16 on November 3, 2016 adopting the use of e-payments.

For Indicator 3.2, E-PESO continued to assist the BSP in the formulation of regulations consistent with the NRPS-related policy directives approved by the Monetary Board in March 2017. Aside from the review of the draft regulation on electronic banking, E-PESO likewise reviewed several previously issued circulars on anti-money laundering and financial consumer protection, and their implications to encouraging large scale electronic funds transfer. As a result of this review, E-PESO recommended to the BSP the following:

• Ensure clarity and alignment of definitions / circulars (distinguish electronic funds transfers from remittances);

• Prohibit reception fees for electronic funds transfers;

• Revisit anti-money laundering (AML) implications to electronic funds transfers;

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• The need to issue supporting formal guidance which may be in the form of circular letters or memoranda to the payments industry to explicitly clarify implications of specific provisions in current regulations as they apply to electronic funds transfers (these would include clarifications made in dialogues with selected clearing participants).

Indicator 3.3 (interoperability in the NRPS achieved) is a qualitative indicator that 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). During Year 3, E-PESO supported the BSP, the banks, and the payments industry in forming rules and policies to establish the real-time EFT ACH and the batch EFT ACH and in setting the agenda towards eliminating consumer barriers to adoption of upcoming e-payment instruments. This involved the necessary step of assisting in the formation of the Payment System Management Body (PSMB) where the rules for the payment system will be formed and managed and the establishment of the priority ACHs – Batch EFT (PESO Net) and Real-Time Low Value Push (InstaPay).

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

However, results will not be due until January-March 2018 or after the full survey by the BSP is completed.

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. For instance, in late Quarter 2 and early Quarter 3, a social media campaign was implemented and analyzed to entice the public to use e-payment services of Valenzuela City.

Digital security modules were included in the trainings conducted for Quezon City residents and Zamboanga City LGU employees as part of the e-payments and financial inclusion orientation. BSP and E- PESO also participated in the Seamless Philippines event, regional trade forum for financial technology and payments, last September 27-28, 2017 at the SMX Mall of Asia to share practices in promoting e-payments in the banking industry.

Target

Y3/Q4 Actual for the Quarter

Y3/Q4 Target for the Quarter

Performance Achieved for Y3, Actual

vs. Target

2.2.3 Local Government and Decentralization(a)

2.2.3-5 Number of sub-national entities receiving USG assistance that improve their performance, New 3 2 1* 0 0 200% Cumulative 6 8 7* 8 8 114%

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 72% 72% 50% -- -- 144% Cumulative as of the year 73% 72% 50% -- -- 144%

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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), New 5 3 2 0 1 150% Cumulative 13 16 15 16 15 107%

Notes: As discussed with USAID in the past, tables are shown to compare current year versus previous year, current year’s actual versus target, and current quarter’s actual versus target. Year 1 is not included since it is not part of the analysis.

(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.”

For Indicator 2.2.3, E-PESO provided technical assistance to Tagbilaran City and Iloilo City to improve their performance particularly in the area of e-payments for local taxes and fees. E-PESO also exceeded gender targets by achieving a 72% female participation in its training programs designed to increase access to productive economic resources (assets, credit, income or employment). In terms of PPP, Tagbilaran City, Puerto Princesa City, and Iloilo City engaged the private sector such as banks and payment service providers to develop e-payment processes and service offerings for its citizens.

During Year 3, USAID also added new standard indicators below beginning October 2016 to comply with guidelines from USAID Washington DC.

Standard Indicators

Target

Performance Achieved for Y3, Actual vs. Target

EG.4.2-1

41% 95%

Total number of clients benefiting from financial services provided through USG-assisted financial intermediaries, including non-financial institutions or actors (a) 8,876 353 852 New 9,148 9,501 10,000 Cumulative

EG.4.2-2

Number of financial intermediaries serving poor households and microenterprises supported by USG assistance (b)

New 0 1 1 100% Cumulative 0 1 1 100%

Notes: (a) Derived from number of people trained (via consumer education) on the uses of e-payments

(b) Direct count of financial intermediaries including banks, microfinance institutions, and cooperatives

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Overall, efforts by the USAID/E-PESO activity 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. By the end of Year 3, E-PESO has rolled out five learning events in CDIs to train 353 individuals of which 40% were women. In terms of cumulative numbers, E-PESO has already trained more than 9,500 individuals of whom 72% were women. This figure does not yet include the tens of thousands of users already transacting electronically. Additionally, working with E-PESO partners LandBank and DBP have allowed the adoption of e-payment options among LGUs. With government agencies and local governments mandated to bank only with government depository banks such as the two partners, efforts at e-payments adoption have been faster with their support. This has also translated to receiving salaries and benefits, or paying taxes electronically, by ordinary citizens touched by LGUs such as government employees, micro and small entrepreneurs, and senior citizens.

2.2 Implementation Status

Component 1 and 2: Rapid Adoption of e-Payments in Financial Systems; Infrastructure for e-Payments Expanded

Bureau of Internal Revenue (BIR)

Intervention with DBP

USAID/E-PESO provided technical assistance and partner support to BIR in adopting e-payments by facilitating the integration with Development Bank of the Philippines’ (DBP) Internet Payment Gateway (IPG). DBP’s IPG will allow tax payment through credit card, debit card and BancNet accounts. The launch of the IPG is important for both E-PESO and BIR since acceptance of credit cards, ATM/debit cards, and payment through BancNet accounts open tax e-payments to a wider base of users. This will also enable other third party products such as Computerized Accounting Software (CAS) and tax software products to extend e-payment user bookkeeping and tax form preparation and filing services to include e-payments.

In turn, this is expected to contribute to the rapid adoption of electronic payments by businesses.

E-PESO facilitated dialogue and technical consultations between DBP and BIR to properly scope requirements and sequence activities leading to the service launch. E-PESO also assisted DBP in formulating the data alignment process and forms using DBP’s IPG to match BIR’s tax payment data requirements. With E-PESO assistance, DBP and BIR designed the service, commercially agree, technically integrate, test and accept the implementation of tax payment through DBP’s IPG.

E-PESO expected a Year 3 launch for the service, but the group encountered some delays in IPG implementation due to DBP and BIR’s uncertainty regarding BTr Treasury Circular 3-2013, which requires all BIR collection to be remitted to the Bangko Sentral ng Pilipinas (BSP) Treasury Single Account (TSA) one day after collection by the Accredited Accepting Bank (AAB). As interpreted by DBP, this presented a challenge when using card payments, e.g. BancNet ATM/debit cards and credit cards, since all card payment collection are deposited in the BTr-BIR account in DBP one day after the card payment was made, and can only be remitted to the TSA another day later. Therefore, card payments can only be remitted to the TSA two days after the card payment was made. Since BTr required the remittance to TSA be made one day after collection, DBP could not offer card payments to government agencies. This interpretation was common to all AAB’s, which explains the hesitation in providing card payments to government agencies.

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To resolve this issue, E-PESO facilitated a meeting with DBP, BIR, and BTr to clarify the policy and communicate how it prevented government agencies from adopting card payments. In the discussion, BTr clarified that collection date was not necessarily the same as payment date, but was considered the day on which the payment was deposited to the BTr-BIR account in the AAB. BTr also clarified that they can only recognize the payment as government income after it is deposited to their AAB account.