EPESO Y4 annual report.pdf

USAID/E-PESO ACTIVITY

4th Annual Report October 1, 2017 – September 30, 2018

Submission Date: October 30, 2018

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 Implementation Status

2.2 Implementation Challenges

2.3 PMP Update

2.4 Progress Narrative

3. INTEGRATION OF CROSSCUTTING ISSUES and USAID FORWARD PRIORITIES

3.1 Gender Equality, Female Empowerment, and Disability Action

3.2 Policy and Governance Support

3.3 Public Private Partnerships (PPP)

4. STAKEHOLDER PARTICIPATION AND INVOLVEMENT

6. LESSONS LEARNED

7. PLANNED ACTIVITIES FOR NEXT QUARTER INCLUDING UPCOMING EVENTS

USAID/E-PESO 4th Annual Report 3

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

BSFI BSP Supervised Financial Institutions

BSP Bangko Sentral ng Pilipinas

BTCA Better Than Cash Alliance

BTMS Budget and Treasury Management System

CAS Computerized Accounting 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

EPB Electronic bills payment

ERC Energy Regulatory Commission

ETRACS 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

USAID/E-PESO 4th Annual Report 4

LBP Land Bank of the Philippines

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

QR Code Quick Response Code

RBAP Rural Bankers Association of the Philippines

SGM Settlement Guarantee Mechanism

TSP Tax Service Provider

TWG Technical Working Group

USAID United States Agency for International Development

USAID/E-PESO 4th Annual Report 5

EXECUTIVE SUMMARY

The USAID/E-PESO Activity is a USAID/Philippines program that seeks to accelerate the shift of the Philippine economy from cash to digital payments for broad‐based economic growth and financial inclusion. It supports the objectives of the U.S.-Philippines Partnership for Growth with Equity (PFGE), which focuses on addressing binding constraints to achieve sustained, more inclusive economic growth. E-PESO also contributes to USAID/Philippines’ goals in democracy, rights and governance as the expansion of digital finance systems contribute to greater accountability, reduced corruption and exclusion of the poor, and better opportunities of good governance, particularly at the local level. E-PESO aims to work with the public and private sectors to grow the share of e-payments from 1% at the beginning of the Activity to 10% of the total volume of domestic retail payments transactions by year 2020.

Using the market systems approach, USAID/E-PESO’s strategy to achieve its goal is to (1) improve the enabling environment for e-payments; (2) support the expansion of e-payments infrastructure; (3) drive e-payments usage by government and businesses, and; (4) expand e-payments adoption in USAID partner cities.

Fiscal Year (FY) 2018 (Project Year 4), which ended on September 30, 2018, has been a very productive year for E-PESO, despite project funding uncertainties prevailing until the first half of the year, i.e. until March 2018. Thereafter, and in accordance with USAID’s guidance, E-PESO has broadened from a focus on primarily economic growth to a more comprehensive set of activities across democracy and governance that demonstrate how an expansion of digital finance lays the groundwork for stronger, more accountable and more inclusive institutional systems.

During the period, USAID/E-PESO has made great strides towards achieving its desired outcomes.

Under Component 3 on improving the enabling environment for e-payments, USAID/E-PESO helped achieve unprecedented and game-changing reforms in Philippine retail payments. In November 2017, the BSP issued circular 980 on the adoption of the National Retail Payments System (NRPS) Framework, restructuring the domestic payments industry to foster more cooperation, efficiency, reliability, safety, interoperability and inclusiveness in the retail payments system. Now, not only are the large local banks represented in the governance, but all financial institutions of varying sizes participating in the reformed retail payments system are as well. In January 2018, the BSP entered into an agreement with the Philippine Payments Management Inc. (PPMI), designating it as the Payments System Management Body (PSMB), the self-regulating organization that forms part of the governance structure as specified in the NRPS Framework. To enable real-time inter-bank payments in the country, the BSP issued circular 1000 in April 2018. BSP also issued various memorandums to ensure reliability, accessibility and affordability of e-payments. USAID/E-PESO supported all these reforms by providing advisory services on global good payments practices, conducting research, fostering public-private dialogues and consultations and implementing information, education and communications (IEC) campaigns to promote awareness on the NRPS.

On expanding e-payments infrastructure, USAID/E-PESO’s work contributed to the launch of the batch and real-time inter-bank electronic funds transfer payments services through the PESONet and InstaPay automated clearing houses (ACH) in November 2017 and April 2018, respectively. Similarly, USAID/E-PESO’s support in these historic and vital e-payments services came in the form of providing advisory services, arranging public-private dialogues and conducting a PESONet IEC campaign.

Moreover, to aid the financial institutions in delivering demand-driven e-payments products, USAID/E- PESO conducted the demand-side payments baseline study and market research to inform their product design, development and marketing strategies. As of the end of September 2018, PESONet is being offered by 46 banks processing more than 550 thousand transactions per month for a total of

USAID/E-PESO 4th Annual Report 6

Php63.6 billion in value; growing by 75% in volume and 35% in value since its launch in November 2017. For InstaPay, it is available in 32 banks and non-banks processing more than 58 thousand transactions a month for a total of Php679 million in value.

Ongoing activities on expanding e-payments infrastructure include the setting up of an efficient and inclusive bills payment service for use by government agencies, initially by the Bureau of Internal Revenue and/or TradeNet, for tax and fees collection using PESONet and/or InstaPay, the establishment of the cash in/out ACH to support government’s disbursements of social cash transfers, and the adoption of a national standard for QR code to enable widespread merchant e-payments.

Digitalizing payments for government collections, especially person-to-government (P2G), business-to-government (B2G), brings about higher collection efficiency and ease of doing business. Increasing collection efficiency makes more funds available for the government to deliver more public goods and services that the people need, e.g. social safety net programs, healthcare, education, agricultural productivity programs, infrastructure, etc. Improving ease of doing business attracts more trade and investments that generate more jobs and drive inclusive growth.

On driving e-payments usage in government and businesses, USAID/E-PESO worked with BIR to launch online tax collections via the platforms of the major state-owned banks, Land Bank and DBP, using the taxpayers’ accounts in these banks, as well as Visa/Mastercard credit and debit cards, and Bancnet ATM/debit cards. Since its launch in October 2017 up to the peak tax collection period in April 2018, there were a total of 95,705 e-payments tax collection transactions.

Aside from BIR, e-payments for collection of fees was also launched by the National Meat Inspection Service with the Land Bank in October 2017. In both these accomplishments, USAID/E-PESO contributed by providing product design support, project management and forging partnerships between the government agencies and the state-owned banks.

USAID/E-PESO also conducted IEC using social media for BIR’s online tax collection. 63% of the total population in the Philippines actively use social media. As such, USAID/E-PESO chose to augment above-the-line awareness campaigns created by the government and the banks with a social media-based campaign. Within just three months of rolling out the campaign, over 60 thousand saw the posts, at least 36 thousand read the posts and over 14 thousand commented, shared, or liked them. The social media campaign translated to over 39 thousand digital payment transactions. It proved more cost-effective as the conversion cost was just a third of traditional awareness campaigns.

Ongoing activities include the policy formulation, project management and technology support for BIR to launch the Tax Software Provider (TSP) program where private fintech firms are enabled and encouraged to take on the role of providing innovative and efficient electronic tax preparation, filing and payment products in the market and convert more businesses from cash to electronic payments of taxes. USAID/E-PESO is also completing the e-learning courses to assist the Department of Budget and Management (DBM) in rolling out the Budget and Treasury Management System (BTMS) to national government agencies (NGA) and paving the way to transition all NGA disbursements from cash to electronic payments via PESONet.

On expanding e-payments adoption by CDI cities, USAID/E-PESO worked with the Tagbilaran City LGU to launch e-payments collection of business permit fees in August 2018 with both Land Bank and DBP. This was the result of our assistance to LGU resource planning system providers (e.g.

Rameses Systems Inc.) to incorporate e-payments collections in their products. Thus, other LGUs who are using or will use these systems are already e-payments enabled without requiring additional support from USAID/E-PESO. Furthermore, through USAID/E-PESO’s policy formulation and project management support, Legazpi City LGU has passed a city ordinance institutionalizing e-payments adoption in financial transactions with the LGU. Launch is scheduled in October 2018.

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

Name of Subcontractors:

Leonine Initiatives Laggui and Associates Mode Devi Publishing, Inc.

CAI-STA Philippines Inc.

Major Counterpart Organizations

Bangko Sentral ng Pilipinas Department of Budget and Management Department of the Interior and Local Government Department of Social Welfare and Development Bureau of Internal Revenue Philippine Payments Management, Inc.

Geographic Coverage (cities and or countries)

Philippines

Reporting Period: October 1, 2017 – September 30, 2018

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. USAID/E-PESO also contributes to USAID/Philippines’ goals in democracy, rights and governance as the expansion of digital finance systems contribute to greater accountability, reduced corruption and exclusion of the poor, and better opportunities of good governance, particularly at the local level.

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 and good governance. USAID/E-PESO partners with the Government of the Philippines (GPH) and private sector actors to achieve a rapid, widespread increase in e-payment adoption and usage, as well as increased financial transparency and accountability, and more efficient and more equitable governance. Through program activities, USAID/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-based economy, USAID/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 a 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 and a system for transparent and traceable financial transactions. This broader range of financial services can help Filipinos build assets, better withstand economic shocks, and participate more broadly in the formal economy and increase the engagement of a wider Filipino citizenry. e-Payments offer an improved ability to track financial flows in line with GPH’s thrust towards greater transparency and accountability in financial transactions, and USAID’s objectives to increase participation and reduce corruption.

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USAID/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 most Filipinos can have access to electronic transaction accounts.

Over the life of the project, 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 government services, and a stronger regulatory environment that protects consumers. The exponential growth in e-payments will stimulate private sector investment and ensure that Filipinos have access to critical financial services that set the stage for a more inclusive society.

To fulfill PFG goals and USAID/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. USAID/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), person-to-government (P2G), government-to-business (G2B), and business-to-government (B2G) payments. USAID/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, USAID/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). USAID/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, USAID/E-PESO supports the BSP in its initiative to establish a National Retail Payment System (NRPS), intended to transform the fragmented payments system into an interoperable and interconnected one. USAID/E-PESO provides technical assistance as the BSP oversees the implementation of the NRPS. The activity likewise provides technical assistance and training to support the 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, USAID/E-PESO identifies and addresses supply and demand constraints inhibiting broader e-payment usage, including addressing policy and regulatory gaps. USAID/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

Implementation Status

SUB-PURPOSE 1: RAPID ADOPTION OF E-PAYMENTS IN

FINANCIAL SYSTEMS

Task 1.1: Facilitate Adoption of e-Payment Services in Government Agencies

The Better-than-Cash Alliance (BTCA) has identified three shifts on the journey towards “cash lite” societies, namely, the bulk payer shift, the shift to electronic bill payment, and the shift for purchases1.

In the Philippine setting, government is the largest bulk payer institution disbursing social subsidies and pension to persons (G2P) and paying suppliers and vendors (G2B), and the largest payment recipient institution through taxes, fees and licenses, and mandatory payroll benefits collected from both persons (P2G) and businesses (B2G). USAID/E-PESO continues to provide technical assistance to government institutions that are key aggregation points for payments to maximize the effect of interventions in achieving wholesale adoption of e-payments like the DBM, the Department of Social Welfare and Development (DSWD), and the Home Development Mutual Fund (HDMF). By adopting e-payments, these government institutions improve transparency, minimize corruption, increase operational efficiency, and improve the delivery of services to their customers. As key aggregation points, these government institutions have influence over a large customer or constituency-base and can serve as catalyst in scaling adoption of electronic payments in the country.

Sub-task 1.1.1: Support DBM in Rolling-Out the BTMS (revised)

USAID/E-PESO is assisting DBM in the development of the e-Learning system that will train the users of the Budget and Treasury Management System (BTMS), a government resource planning system that will be used across national government agencies to manage and report on budget, commitments and procurement, payments (including salaries), receipts, cash, and accounting. The BTMS is expected to facilitate electronic financial transactions among government, suppliers, and contractors as disbursements will eventually be coursed through PESONet, a new electronic fund transfer service launched under the NRPS framework.

1 Country Diagnostics: Philippines, Better-than-Cash Alliance, 2015

USAID/E-PESO 4th Annual Report 10

Figure 1: Functions Supported by BTMS and Interfaces with Other Systems

The e-learning project will facilitate the rollout of the BTMS to all national government agencies (NGAs) nationwide which supports GPH initiatives of improving public service, increasing integrity and accountability and managing resources more effectively and efficiently.

The kick-off meeting for the BTMS e-Learning project was held on May 24, 2018. The work flow and roadmap of the e-learning system, tasks of the technical teams, deliverables and resources were discussed during the kick-off which was attended by USAID/E-PESO, DBM representatives, and partner developer MoodLearning Inc. On June 22, 2018, MoodLearning presented the initial prototype of the system. Comments and inputs to the prototype were discussed, including the proposed new approach based on the flow of the new manual provided by DBM.

As of the end of September 2018, the Learning Management System (LMS), as well as selected e-learning modules have been completed and are undergoing review and testing by DBM. The modules include introduction, accessing the system, forms and user roles, and initial business processes such as payroll, maintenance and other operating expenses, and semi-expendable items. The remaining e-learning modules are expected to be completed and tested by the end of October 2018. The system will be deployed to production and launched on November 5, 2018.

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Figure 2: BTMS E-Learning Landing Page

Figure 3: Sample Content—Basic Solution Functionalities

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Figure 4: Sample Content—Disbursement Voucher Workflow

Sub-task 1.1.2: Support a GPH Agency with Influence Over a Large Base – Pag-Ibig or SSS

The HDMF, more popularly known as the Pag-Ibig Fund, is a Philippine government-owned and controlled corporation under the Housing and Urban Development Coordinating Council. It is responsible for the administration of the national savings program and affordable shelter financing for Filipinos employed by local and foreign-based employers. In 2016, Pag-Ibig Fund has 17.27 million members, of which 12.51 million are employed in the country while 4.76 million are working abroad.2 In the same year, it has approved home loans amounting to Php72.46 billion to finance 93,383 homes and disbursed short-term or multi-purpose loans amounting to Php45.8 billion to over 2.15 million members.3

USAID/E-PESO is working with Pag-Ibig Fund for the use of e-payments for its disbursement and collection functions. For its disbursement function, Pag-Ibig Fund disburses loan proceeds to members for home construction and short-term loans, pays real estate developers for properties acquired under its home loan programs, and pays government for applicable taxes to transfer home ownership to borrowers. On the other hand, Pag-Ibig collects fund contributions from employers and voluntary employees, and loan payments from borrowers.

USAID/E-PESO held several meetings with Pag-Ibig Fund to closely coordinate on e-payment initiatives.

On July 5, 2018, E-PESO Team met with Mr. Reynaldo Malaya, Vice-President and Head of the Financial Services Cluster to update Pag-Ibig on the E-PESO initiatives, particularly on the PESONet facility. A follow-up meeting was held with Mr. Jose Manalese, Manager of Treasury Department on August 28, 2018 to present proposed e-payment projects with Pag-Ibig, namely: (1) the Tax Software Provider (TSP) Project, (2) the Electronic Bills Payment (EBP) Project, and (3) disbursements to developers, suppliers and home loan borrowers through PESONet.

The TSP Project is being undertaken with the Bureau of Internal Revenue (BIR). Through the project, taxpayers will benefit through the convenience of batch e-filing and e-payment of taxes due to the BIR through their TSPs. Pag-Ibig Fund is one of the largest one-time tax transaction (ONETT) taxpayers paying capital gains tax and documentary stamp tax arising from sale and transfer of real properties.

2 Annual Report, Home Development Mutual Fund, 2016 3 Annual Report, Home Development Mutual Fund, 2016

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Through its TSP, Pag-Ibig Fund can automate the filling-out of tax forms and e-file in batches (as opposed to e-filing individual tax returns). Pag-Ibig Fund files over 80,000 tax returns per year. Pag- Ibig Fund is one of the pilot institutions for the TSP Project which will to go live in October 2018.

USAID/E-PESO is providing technical assistance to the Bangko Sentral ng Pilipinas (BSP) and the Philippine Payments Management, Inc. (PPMI) to implement the EBP Project. Once operational, the payment system will enable account holders of financial institutions participating in PESONet, InstaPay and future ACHs to pay their Pag-Ibig Fund contributions and monthly loan amortizations through their financial institutions’ online or mobile banking facility. Pag-Ibig Fund has committed to participate as one of the pilot government biller institutions under the EBP Project.

Currently, the Pag-Ibig Fund disburses payments to real estate developers and suppliers through GPH’s checkless payment facility with government servicing banks (GSB), also known as the Modified Direct Payment Scheme (MDPS), or through checks if the payee has no account with the GSB. Disbursement of loan proceeds to borrowers of home construction loans are done primarily through checks. Pag- Ibig Fund will shift check payments to electronic fund transfer (EFT) through the PESONet service of its GSB. USAID/E-PESO has organized meetings with the Development Bank of the Philippines (DBP) and the Pag-Ibig Fund in October 2018 to discuss how to operationalize disbursements through PESONet.

Sub-task 1.1.5: Support a GPH Agency with Influence Over a Large Base – Department of Social Welfare and Development

The DSWD is the government agency under the executive branch responsible for the protection of the social welfare rights of Filipinos and promotion of social development. DSWD is the GPH’s implementing arm for its social subsidy programs such as the conditional cash transfer and unconditional cash transfer programs.

GPH’s conditional cash transfer program, more popularly known as Pantawid Pamilyang Pilipino Program (4Ps), is a human development program that invests in the health and education of poor households. It provides cash grants to beneficiaries if they comply with the set of conditions required by the program. There are currently over 4.8 million registered households under the program with nearly 4.3 million active household4. In 2018, DSWD aims to serve 4.4 million households5 with a budget of Php82 billion for cash grants6.

DSWD is also implementing unconditional cash transfer program of GPH, also known as the tax subsidy program under the recently passed Tax Reform for Acceleration and Inclusion (TRAIN) Law or R.A. No. 10963 which seeks to provide cash subsidies to 10 million indigent Filipino families or individuals, including indigent senior citizens, to cushion the effect of the adjustments in the excise tax of petroleum products and sweetened beverages.7 Each beneficiary will receive Php200 per month for the first year of implementation and Php300 per month for each succeeding year and has a budget in 2018 of Php24.5 billion for cash grants8. By end of July 2018, 5.6 million beneficiaries have already received their Php2,400 cash grant for the whole year9.

USAID/E-PESO met with Assistant Secretary Leonardo Reynoso, National Program Manager for the Pantawid Pamilyang Pilipino Program (4Ps) of the Department of Social Welfare and Development

4 Pantawid Pamilyang Pilipino Program, Program Implementation Status Report, Department of Social Welfare and Development, 2nd Quarter 2018 5 Pantawid Pamilyang Pilipino Program, Program Implementation Status Report, Department of Social Welfare and Development, 2nd Quarter 2018 6 General Appropriations Act 2018, Department of Budget of Management, 2018 7 Over 5.6M poor Pinoys receive tax aid under TRAIN law, Department of Social Welfare and Development, 2018 8 Memorandum Circular No. 03 Series of 2018, Department of Social Welfare and Development, 2018 9 Over 5.6M poor Pinoys receive tax aid under TRAIN law, Department of Social Welfare and Development, 2018

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(DSWD) on July 17, 2018 to explore the resumption of USAID/E-PESO and DSWD’s joint project on improving 4Ps beneficiaries’ access to financial services. In the meeting, USAID/E-PESO updated the DSWD of the new electronic payment systems launched under the NRPS framework, namely the PESONet and InstaPay electronic fund transfer services.

DSWD disclosed that there are already 2.2 million household beneficiaries that have received cards (using Landbank’s cash card product) and are currently undergoing a re-carding program to comply with the BSP-mandated migration from magnetic stripe cards to EMV chip cards. DSWD also shared the issues they encountered while using Landbank’s cash card to distribute cash grants, particularly the Commission on Audit’s (COA) audit findings like idle accounts, remaining balance on the cash card (which may indicate wrong targeting), and multiple withdrawals (costing DSWD multiple transaction fees). DSWD also emphasized the absence of financial institutions in the rural areas which forces them to tap into conduits for manual distribution.

USAID/E-PESO met with the Land Bank of the Philippines E-Banking Group on July 3, 2018 for an update on the Philippine government’s cash transfer programs which includes 4Ps, fuel subsidy under the TRAIN law, and other programs. According to Landbank, as of July 2018, 1.4 million beneficiaries (out of the 4.4 million 4Ps beneficiaries and 10 million tax subsidy program beneficiaries) have cited the same constraints raised by DSWD which have limited their distribution of cash cards and electronic disbursement to beneficiaries.

As a next step, USAID/E-PESO and DSWD will organize a meeting with the different stakeholders to present and introduce new payment systems, identify issues or barriers that may hinder implementation, and secure implementation commitments. The stakeholders will include the Department of Finance (DOF), COA, and the different units in DSWD responsible for implementing social subsidy programs, namely, the Social Pension Program, the 4Ps and support functions such as Financial Management Services and ICT Management Services. The Bangko Sentral ng Pilipinas (BSP) will also be invited to the meeting as a resource. In parallel, USAID/E-PESO will do a high-level policy review (operating and financial management policies) to identify the policies that may be impacted by the new payment systems and recommend revisions or adoption of new policies to enable electronic payments at DSWD.

Task 1.2: Increase Private Sector Adoption of e‐Payments

Sub-task 1.2.1: PESONet Marketing Communications Awareness Campaign

In Year 4, USAID/E-PESO developed and implemented the PESONet Marketing Awareness Campaign to enhance the PESONet brand, increase demand-side awareness, and stimulate demand especially among businesses and government. See Table 1 for stakeholders who are involved in the campaign.

Table 1: Stakeholders of the PESONet Marketing Awareness Campaign

Stakeholder Roles

USAID/E-

PESO

• Develop the proposed awareness campaign communications plan including the specific activities to be implemented by the various stakeholders

• Develop the content that can be used by the various stakeholders in implementing communications activities

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BSP • Be the PESONet advocate

• Participate and/or implement communications activities

(i.e. media briefing, be part of interviews, post articles in BSP website, social media)

• Publish the fees charged by ACH participants to their customers

Financial Institutions

• Implement communications activities to feature pilot users’ experience in utilizing PESONet payments in accordance with the awareness campaign communications plan (i.e. display agreed marketing materials, participate in media briefings, be part of interviews, update website, social media)

• Nominate pilot users who can share their experience and testimonials on PESONet

PPMI • Collect and provide data to help monitor effectiveness of the campaign

• Administrator of the PESONet Awareness Campaign strategy and relevant materials for continuing PESONet communications activities after campaign period (after turnover from USAID/E-PESO)

The campaign was implemented in three (3) phases targeting the financial institutions, the enterprises (corporate customers) and the general population (retail customers). The accomplishments are outlined in Table 2.

Table 2: Accomplishments of the PESONet Marketing Awareness Campaign

Activities Outputs Target Market

Manuals and Creatives

• Communications Plan

• Social Media Playbook

• Communications

Guide

• Poster and Flyer (for finalization)

Financial Institutions

Financial Institutions and their customers

Digital Assets

• Landing Page (www.pesonet.info)

• Facebook and Instagram Accounts (@PESONetPH)

Financial Institutions and their Corporate and Retail Customers

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PR

Activities

• Stories in print newspapers and online news portals

• PESONet Media Forum (August 7, 2018)

• Interview with Gov.

Nestor A. Espenilla Jr.

on ANC’s The Boss (aired September 6, 2018)

• Radio interview with BSP’s Mary Rose Contreras on DZIQ “Banner Story with Jake Maderazo and Arlyn Dela Cruz” (September 25, 2018)

Financial Institutions and their Corporate and Retail Customers

The figure below shows social media (Facebook) marketing performance. Facebook followers grew by 32% from July to August and 15% from August to September – significantly higher than the target of 5% month-to-month increase in followers expected. Engagement rate from July to September, which measures the followers’ reactions, comments and shares to the posts has been above the 7% target.

Figure 5: Metrics for @PESONetPH Facebook Account

2,774

3,650

4,205

1,685 1,808 27.72%

46.16% 43.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00%

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Jul-18 Aug-18 Sep-18

Social Media Metrics

No. of Followers Engaged Users Engagement Rate

USAID/E-PESO 4th Annual Report 17

Below is a sample image displayed in the @PESONetPH Facebook and Instagram accounts:

For the landing page performance (www.pesonet.info):

• Total of 8,803 organic visits since July 1, 2018. Organic searches increased from 46% to 62%.

Keyword search used is “PESONet” and PESONet Website”. This indicates that there is increased awareness and interest in PESONet;

• Mobile visits account for 82.62%;

• Highest source of referral traffic is from Inquirer.net article “Businesses to Benefit from PESONet”;

• Additional 26 backlinks (i.e. mentions of the website from other web pages)

USAID/E-PESO 4th Annual Report 18

Figure 6: Traffic Sources for PESONet landing page (www.pesonet.info) from July to September 2018

Figure 7: Profile of Visitors to the PESONet landing page (www.pesonet.info) from July to September 2018

0% 10% 20% 30% 40% 50% 60% 70%

Organic Search

Social Media

Referral (PR Stories)

Direct Search

YTD Traffic Sources for Landing Page

Sep-18 Aug-18 Jul-18

80% 78% 75%

20% 22% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Jul-18 Aug-18 Sep-18

YTD New vs Returning Visitors

New Returning

USAID/E-PESO 4th Annual Report 19

Below is a sample screenshot of the PESONet landing page:

The following achievements resulted from the PR activities (as of end August 2018):

Table 3: PR Activities Achieved during the PESONet Marketing Awareness Campaign

Story Print Online Social Media Broadcast

Media Value

(in PhP millions)

Businesses to Benefit from PESONet

4 9 51.247

A Look at E-payments in the Philippines

4 4 5.593

Low-cost Fund Transfers with PESONet

2 15.193

Post Event:

Media Forum

8 22 8 3 40.913

Others:

Special Feature

5 1 112.336

Total 23 35 8 4 225.281

USAID/E-PESO 4th Annual Report 20

Below is a photo from the PESONet media forum conducted on August 7, 2018. It was covered by print newspapers, online portals, television stations and business and technology influencers:

From left to right – Unionbank Executive Vice President John Cary Ong, BTI Payment Systems Managing Director Dan Ibarra, Philippine Payments Management Inc. (PPMI) Chairman Justo Ortiz, BSP Governor Nestor A. Espenilla, Jr., BSP Payment Systems Oversight Department (PSOD) Director Raymond Estioko, Lazada Philippines Vice President for Finance Jonathan Bates and Citibank Treasury and Trade Solutions Head Arlene Nethercott.

Sub-task 1.2.2: Integration of Tax Software with e-Payments Functionality for Businesses to File and Pay Taxes

Bureau of Internal Revenue (BIR)/ Tax Software Provider (TSP) Certification Program

The BIR electronic tax filing and payment solutions certification project started the final quarter of the year primed for advancement, following the completion of several foundational activities. These included the issuance of a Revenue Special Order creating a technical working group (TWG) to implement the project; selection of sub-contractor CAI-STA to undertake the development and deployment of the TSP enrollment, certification and testing system, and backend modules; and the TWG’s sign-off on the policy for certification, process flows, and technical and functional requirements.

Following the completion of these initial milestones, sub-contractor CAI-STA consulted and interviewed key BIR personnel and participated in regular TWG meetings- where the process flow and requirements were laid out - to draft the systems requirement specifications (SRS) document.

The SRS describes the essential technical requirements of the enrollment, testing, and certification system, including the procedures and how the system will interact with external and internal users, computer peripherals, or other computers. The SRS will be the basis for subsequent activities on the project, i.e. the development of codes and test cases and will serve as the blueprint for the final deliverables. When testing the system, the behavior will be compared against the expected behavior as defined in the functional specifications.

USAID/E-PESO 4th Annual Report 21

The SRS document was reviewed during regular TWG meetings - with members providing feedback and CAI-STA incorporating modifications - and underwent six iterations before being accepted and approved in September. The sign-off of the systems specifications was significantly delayed because the TWG recommended adopting a new solutions design.

In August, the BIR Taxpayer Service Systems Division (TSSD), the department leading the technical requirements definition of the project, initiated an impact analysis and a comparative study of two solutions for the authentication and validation of BIR forms submitted using tax filing and preparation software of certified TSPs: 1) the Public Key Infrastructure (PKI) management and 2) the TSP tool solution, which entails creating a stand-alone, executable file per BIR form to validate submitted data, prepare extensible markup language (XML)10 files, compress and encrypt, and submit the files to the BIR form database. The tool will handle the loading, validation, preparation, encryption, compression and submission of files.

The study showed the security risk inherent with the PKI management solution, including the solution’s pre-condition of providing the BIR’s tax identification number (TIN) algorithm and file transfer protocol credentials to the TSPs for TIN validation. The TSSD recommended adopting the TSP tool solution to replace the PKI management solution. However, implementing the TSP tool requires additional manpower as each form requires the development of a library and executable file. Given the resources, not all of the BIR’s 36 eBIR forms will be made available. The TWG drew up a list of 18 priority forms that TSPs can initially apply for. The TWG selected forms that will be made available for certification based on the following considerations: (1) forms currently being used by clients of TSPs who indicated interest in pilot testing the certification; (2) forms that are used by the Home Development Mutual Fund (HDMF) One-Time Transaction (ONETT) filing; and (3) forms that are not impacted by the Tax Reform to Accelerate Inclusion (TRAIN) law.

CAI-STA is completing the systems development and preparing to conduct the user acceptance test.

In parallel, the TWG is reviewing and finalizing the draft revenue memorandum order (RMO), which lays out the policy, guidelines, and procedures for the use and deployment of the system.

USAID/E-PESO also completed the procurement for a production server that will be used to deploy the system into production. After putting out a request for quotation in August and assessing the submitted bids, USAID/E-PESO awarded the contract to First Data Corporation, who met or exceeded all minimum technical specifications and offered the lower total price. The Bureau of Internal Revenue was consulted during the drafting of the server specifications and verification of the technical specifications submitted by offerors.

SUB-PURPOSE 2: INFRASTRUCTURE FOR E-PAYMENTS

EXPANDED

Task 2.2: Strengthen Back-End e-Payment Infrastructure

Sub-task 2.2.1: Support Government Agencies in Participating in TradeNet

USAID/E-PESO is working with the BSP, through its Payment System Oversight Department (PSOD) and Inclusive Finance Advocacy Office (IFAO) for the establishment of an Electronic Bills Payment (EBP) service that can be utilized by government institutions to collect revenue (fees and taxes) from individuals and private institutions. The initiative promotes trade and investment, supports the anti-

10 Extensible Markup Language (XML) is a markup language used to describe the content and structure of data in a document. It is a simplified version of Standard Generalized Markup Language (SGML). XML is an industry standard for delivering content on the Internet.

Because it provides a facility to define new tags, XML is also extensible.

https://docs.oracle.com/cd/E13222_01/wls/docs100/xml/intro.html#wp187575 accessed 03 October 2018 https://docs.oracle.com/cd/E13222_01/wls/docs100/xml/intro.html#wp187575

USAID/E-PESO 4th Annual Report 22 red tape good governance policy of GHP, and enhances ease of doing business. It also promotes government operational efficiency and public service quality. Moreover, it will encourage more billers from the private sector to adopt e-payment to collect revenues from their customers. Following are the proposed strategies articulated by E-PESO to BSP for the EBP project:

• Focus on government agencies as billers

• Establish processes and standards that are applicable to most billers

• Encourage other billers currently not accepting EBP to participate

• Encourage current billers serviced by financial institutions to participate

USAID/E-PESO submitted a concept note on EBP to the BSP on July 31, 2018. The concept note outlines the conditions of the very low adoption of e-payments for collecting revenues and the underlying issues that limits adoption. To push the envelope, the concept note also presented a recommendation to set-up a centralized billers registry which will host billers bank details and provide validation service of payment reference number. The biller registry will provide service to existing and future ACHs and allow any account holder from any participating financial institution to pay billers acquired by another participating financial institution thereby creating one large network of billers and payers. The centralized billers registry concept is aligned with the NRPS which allows a value-added service (VAS) layer.

A series of consultative meetings with the BSP took place on August 30, 2018 and September 10, 2018 to discuss the concept note and brainstorm on the possible set-up of the EBP service. A discussion note was submitted by USAID/E-PESO to BSP on September 24, 2018 to summarize the data gathered through the initial consultative meetings and desk research and provide initial analysis to help expand the discussion on the proposed EBP service. The discussion note outlined three (3) options, namely,

(1) setting up of a centralized billers registry as VAS that will provide the service to existing and future ACHs, (2) setting up a new ACH specifically for EBP, and (3) using the existing credit push EFT without any modification. A comparison was also presented given certain parameters (see Table 4:

Comparison of EBP Service Options).

Table 4: Comparison of EBP Service Options

Option 1:

Centralized

Biller Registry

Option 2:

EBP ACH

Option 3:

Credit Push

EFT

Aligned with NRPS principles

Yes Billers registry should be a centralized service

No

Yes

Capability to scale up or handle high transaction volume

Yes Yes Yes

Cost effective to industry— financially viable to CSO, BSFI, VAS provider, biller

No But subject to economies of scale

No But subject to economies of scale

Yes Assumes no new infrastructure investment

Customer driven—addresses customer needs

Yes Yes No Does not provide the validation feature needed to ensure transaction

USAID/E-PESO 4th Annual Report 23 is accounted and reported

Changes to existing clearing rules

No No No May need to modify to allow inclusion of additional information (i.e.

reference number) in the message and corresponding handling

Maintains existing business arrangements (biller pays)

Yes But may entail additional cost (sender pays may still be applicable depending on the

ACH)

Yes But may entail additional cost

No Sender pays

Open to broader biller market (i.e., government, utilities, small billers)

Yes Yes No Can’t handle billers with complex reporting requirement

Time-to-market No Requires development and investment

No Requires development and investment

Yes

Given the available options, and advantages and disadvantages of each, USAID/E-PESO continued to recommend Option 1 (Centralized Biller Registry) to BSP for the following reasons: (1) it addresses the requirement of both payers and billers through a reference number validation feature; (2) as a shared service it has economies of scale which can potentially bring down transaction cost as opposed to each bank developing a system on its own; (3) it is faster to implement than creating a new ACH just for bills payment; (4) it will utilize existing ACHs created under the NRPS thus help to increase traffic and utility of the ACHs; and (5) it can be performed by existing providers operating in the market shortening the time to market or promote it.

Parallel to the work with BSP, USAID/E-PESO is also working with government biller institutions that will be tapped later as pilot biller institution in the newly created EBP service, namely the Bureau of Internal Revenue (BIR), the HDMF and the Department of Finance (DOF) for TradeNet.

USAID/E-PESO met with the Information System Group (ISG) of the BIR on July 9, 2018 on BIR’s plan to migrate certain taxpayer segments from its Electronic Filing and Payment System (eFPS) which is operating beyond capacity and experiencing technical issues. Taxpayers using eFPS account for about 80% of total taxes collected by the BIR annually. Currently, the eFPS service is limited to the online banking facility of authorized agent banks (AABs). With the recent launch of PESONet and InstaPay, there is an opportunity to expand the e-payment options of taxpayers through these new payment systems without the need for BIR to accredit new AABs. Taxpayers that will migrated from eFPS to eBIR Forms will need a new facility that will enable them to use PESONet and InstaPay. Through the EBP project, taxpayers will be able to pay BIR from any participating financial institution, beyond the 20 AABs that are connected to eFPS. The BIR has agreed to be the pilot for the EBP service.

USAID/E-PESO 4th Annual Report 24

In a consultative meeting on e-filing strategies held at the BIR on September 10, 2018, the different units within BIR, namely, Collection Group, Large Taxpayers Service, Customer Support Service, Regional Offices, and Information Service Group, agreed to limit the users of eFPS to large taxpayers (LT), taxpayers under the taxpayer account management program (TAMP), and national government agencies (NGAs). The BIR will issue a new regulation which will mandate the other taxpayers to shift to eBIR Forms and pay using the EBP service which will be piloted with the BIR. There are currently 180,507 taxpayers mandated to use eFPS for tax filing and payment, out of which 177,130 have enrolled, and 148,119 are using the system11.

Earlier, USAID/E-PESO participated in a meeting with the Bureau of Treasury (BTr), the BIR, the BSP on July 2, 2018 to discuss the viability of PESONet to be utilized for BIR tax collections. It was concluded that BTr does not need to issue an approval to BIR in the event it will utilize PESONet for tax collections provided that the process with comply with TSA framework (credit to TSA is on T + 1). PESONet is compliant with this rule since transactions are cleared and settled on the same day.

BIR and BTr will have to review current online tax collection processes and guidelines and rationalize policy requiring tax collection through AABs.

E-PESO also met and agreed with HDMF on July 5, 2018 and August 28, 2018 for HDMF to participate as one of the pilot government institutions in the EBP service for its collections, namely: (1) collection…