EPESO Y5 annual report.pdf

USAID/E-PESO ACTIVITY

5th Annual Report October 1, 2018 – September 30, 2019

Submission Date: November 29, 2019

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 ................................................................................................................................................................. i

EXECUTIVE SUMMARY

PROGRAM OVERVIEW AND INTRODUCTION

PROJECT ACHIEVEMENTS

Sub-Purpose 1: Rapid Adoption of e-Payments in Financial Systems Sub-Purpose 2: Infrastructure for e-Payments Expanded Sub-Purpose 3: Enabling Environment for e-Payments Improved Sub-Purpose 4: Gaps in Broader e-Payment Ecosystem Addressed Cross Cutting and Supporting Activities Challenges and Lessons Learned

INTEGRATION OF CROSSCUTTING ISSUES and USAID FORWARD PRIORITIES

Gender Equality, Female Empowerment, and Disability Action Policy and Governance Support Public Private Partnerships (PPP)

STAKEHOLDER PARTICIPATION AND INVOLVEMENT

USAID/E-PESO 5th Annual Report (October 2018–September 2019) i

ACRONYMS

ACH Automated Clearing House

ATM Automated Teller Machine

B2B Business to Business

B2G Business to Government

BIR Bureau of Internal Revenue

BSFI BSP Supervised Financial Institutions

BSP Central Bank of the Philippines

BTCA Better Than Cash Alliance

BTMS Budget and Treasury Management System

BTr Bureau of Treasury

CCT Conditional Cash Transfer

CDI Cities Development Initiative

COA Commission on Audit

CSO Clearing Switch Operator

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 eBIRForm Electronic BIR Tax Filing Form

EFT Electronic Fund Transfer;

EMI Electronic Money Issuer eTPSCert Electronic Tax Software Provider Certification

ETRACS Enhanced Tax Revenue Assessment and Collection System

G2P Government to Person

GPH Government of the Philippines

GSB Government Servicing Bank

LGU Local Government Unit

MSME Micro, Small, and Medium Enterprise

NGA National Government Agency

USAID/E-PESO 5th Annual Report (October 2018–September 2019) ii

NRPS National Retail Payment System

OTC Over the Counter

P2G Person to Government

P2P Person to Person

Pag-IBIG Home Development Mutual Fund

PCHC Philippine Clearing House Corporation

PFG Partnership for Growth

PPMI Philippine Payments Management, Inc.

PPP Public Private Partnership

QR Code Quick Response Code

RPT Real Property Taxes

TSP Tax Service Provider

USAID United States Agency for International Development

EXECUTIVE SUMMARY

The E-PESO Activity is a USAID/Philippines program that seeks to accelerate the shift of the Philippine economy from cash to digital payments, to promote broader based economic growth and financial inclusion. E-PESO also contributes to USAID/Philippines’ goals in democracy, rights and governance, as the expansion of digital finance systems contributes to greater accountability, reduced corruption and exclusion of the poor, and better opportunities for 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 percent at the beginning of the Activity to 10 percent of the total volume of domestic retail payments transactions by the year 2020.

Fiscal Year (FY) 2019, which ended on September 30, 2019, was a very productive period yet again for E-PESO, despite project funding uncertainties prevailing until the third quarter of the fiscal year, i.e., until almost the end of June 2019. Thereafter, and in accordance with USAID’s guidance, E-PESO has increased its focus on cybersecurity of the payments system to instill public trust and boost the use of digital payments.

During the period, E-PESO made significant progress towards achieving its desired outcomes. Under Component 3 on improving the enabling environment for e-payments, E-PESO supported the Central Bank of the Philippines (BSP) with a digital security policy review and capacity building. The assessment, completed in December 2018 and well-received by the BSP, found BSP’s cybersecurity policy to be materially aligned with the cyber resiliency framework of both the National Institute of Standards and Technology’s and the Bank of International Settlements. However, it also exposed weaknesses in some key areas of compliance by BSP Supervised Financial Institutions (BSFIs) with the policy. BSP used this assessment as the basis to justify the implementation of an industry-wide Governance, Risk, and Compliance (GRC) solution. BSP also requested E-PESO to assist in this initiative. With BSP, E-PESO developed a scope of work defining project assistance to BSP and articulating the objectives and other planning parameters more clearly to obtain a clear mandate from the institution prior to project planning. E-PESO collaborated with the BSP and the Bureau of Internal Revenue (BIR) to conduct a revenue regulation and business process review to understand the root causes behind lower-than-expected adoption of digital payments by the business sector, and to recommend solutions to address these causes. Business interviews were completed by September 2019 as planned. Stakeholder dialogues and the final discussion paper will be completed in December 2019 and January 2020, respectively. In FY5, E-PESO completed the draft Philippine Payments Management, Inc. (PPMI) Prospectus and Starter Kit to support PPMI in expanding its membership and onboarding new participants. The Starter Kit will be made publicly available, pending PPMI’s completion of its website from where the resource can be accessed. In the meantime, materials will be tested with rural banks who will be joining or have recently joined PPMI or any of its Automated Clearing Houses (ACHs).

On expanding e-payments infrastructure (Component 2), E-PESO supported the Government of the Philippines (GPH) in improving collection efficiency by establishing interoperable digital bills payment service where a customer of any BSFI can pay a biller who is a customer of another BSFI. A pilot with the BIR was launched last August 2019 as planned. The expansion of the service to other government agencies was delayed pending final approval from BSP for the full launch, expected to be granted November 2019. To increase the number of e-payment users, E-PESO is also supporting payments industry participants to establish an interoperable cash agent network which will allow cash agents to facilitate the opening of customer bank/e-money accounts for their principal BSFI and servicing deposit and withdrawal transactions even if the customers are with other BSFIs. PPMI granted concurrence to initiate the project, and the formation of the start-up group of participants was completed by July 2019 as planned. E-PESO’s submission of proposed service description and clearing switch operator (CSO) selection criteria documents for PPMI and BSP approval was delayed in order to invest more time in deeper consultations with individual start-up group members, and to identify and plan better on managing contentious issues. E-PESO anticipates submitting the proposal to PPMI and BSP by March 2020.

On driving e-payments usage by government and businesses (Component 1), E-PESO handed over the Budget and Treasury Management System (BTMS) eLearning platform to the Department of Budget and Management (DBM) in May 2019 as planned. BTMS is being implemented in all national government agencies to have a single, integrated, accurate, and up-to-date information on the government’s fiscal position. With BTMS, the national government plans to centralize payments to suppliers and contractors via PESONet. In addition to accelerating the training of 15,000 users of BTMS nationwide, the eLearning platform is saving government more than half of what it would cost using the traditional classroom-type of training. E-PESO is also supporting the Department of Social Welfare and Development (DSWD), a government agency with influence over a large base of potential e-payments users, to transition limited-use cash cards of conditional cash transfer (CCT) beneficiaries to transaction accounts which are digital payments-capable. The project had anticipated obtaining a letter from the DSWD formally documenting the collaboration with E-PESO. We also expected the issuance of a department order mandating the DSWD technical working group to implement the project and proposed revisions to existing policies to support the shift to transaction accounts. The DSWD Executive Committee granted approval in July 2019, and the letter formalizing this is expected to be signed in November 2019.

The BIR is another government agency with influence over a large base of potential e-payments users.

E-PESO is supporting BIR to implement the filing reference number (FRN) project to facilitate tax collections via e-payments. The project is also working with BIR to host a #Hackatax innovation challenge to encourage the private sector to provide mobile app-based solutions to simplify delivery of frontline services and the collection of fees such as BIR registration. E-PESO is still in the process of negotiating final terms with the potential subcontractor that will support the FRN initiative. The #Hackatax will be launched in November 2019. E-PESO also supported the Department of Trade and Industry (DTI) to transition to collection of fees via e-payments for the business name registration system. The service was launched in September 2019 as planned.

E-PESO conducted the PESONet marketing awareness campaign to drive e-payments usage by the private sector by informing customers about, and encouraging them to use, PESONet. E-PESO created digital marketing assets and design for posters and standees. These resources are being used by several BSFIs and are displayed in their banking offices. The digital assets and designs were handed over to PPMI in April 2019. E-PESO planned to collaborate with large businesses in shifting their disbursements from checks to PESONet by conducting pilots with non-critical disbursements and documenting the quantitative and qualitative advantages of e-payments over checks. However, the businesses are keener to conduct the pilots once the e-invoicing reform is implemented by BIR.

On expanding e-payments adoption in cities including USAID-partner cities, E-PESO supported three cities in implementing their e-payments adoption projects, namely: Legazpi City (launched in October 2018); Puerto Princesa City (launched in March 2019), and General Santos City (launched in September 2019). Another city, Ligao City in Albay province, adopted e-payments using the toolkits developed by E-PESO and under the mentorship of neighboring Legazpi City, which E-PESO directly supported. The project also conducted social media workshops for LGUs to train them in promoting e-payments to their constituents.

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.

Moodlearning Inc.

SyCip Gorres Velayo & Company (Ernst & Young Philippines)

Major Counterpart Organizations

Central Bank of the Philippines 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, 2018 - September 30, 2019

The E-PESO Activity (E-PESO) is a USAID/Philippines project that supports the U.S.-Philippines Partnership for Growth (PFG) in addressing constraints to sustained and more inclusive economic growth. E-PESO partners with the Government of the Philippines (GPH) and the private sector to achieve the rapid, widespread adoption of e-payments in a country where 99 percent of payment transactions still take place through cash.

E-payments offer a secure, cost-effective means for Filipinos to access a broader range of financial products and services that can help them build assets, better withstand shocks, and participate more broadly in the formal economy. E-payment services also help better track financial flows, in line with the GPH’s drive for greater transparency and accountability.

In 2014, the Economist Intelligence Unit recognized the Philippines as a top global leader in promoting financial inclusion. Worldwide trends show that countries instituting national financial inclusion strategies also tackle poverty at a higher rate than those that do not. The Central Bank of the Philippines (BSP) takes the lead in capitalizing on global trends with its National Strategy for Financial Inclusion, heavily focused on providing most Filipinos access to an electronic transaction account.

E-PESO helps Filipinos benefit from new and innovative electronic payment products, more outlets that welcome the use of electronic money, improved transparency and accountability in transactions with government, and a stronger regulatory environment that protects consumers. It supports the development of a lasting, inclusive e-payment infrastructure that helps to explicitly meet the needs of Filipinos.

E-PESO focuses on four sub-purposes:

1: Work for the Rapid Adoption of e-Payments in Financial Systems. E-PESO supports the digitization of large-scale payment streams in both the private and public sectors.

It provides technical assistance for GPH agencies to improve services and fiscal management by expanding the use of e-payments in various transactions. E-PESO helps bring the benefits of digital payments to targeted businesses, including those from the fast-moving consumer goods industry with large retail payment flows.

2: Expand the Infrastructure for e-Payments. E-PESO supports the establishment of digital payment services that utilize the existing infrastructure under the BSP’s National Retail Payment System (NRPS) policy framework. These services include interoperable digital bills payment services, interoperable cash-in/cash-out agent networks, and merchant payments. E- PESO helps the industry set up these services, and works with government and private institutional users to pilot and adopt the services.

3: Improve the Enabling Environment for e-Payments. E-PESO supports the BSP in establishing and implementing an interoperable NRPS. It provides the BSP technical assistance and training to promote digital security, consumer protection and confidence, financial inclusion, and e-payment stability within the broader payment system.

4: Address Gaps in the Broader e-Payment Ecosystem. E-PESO promotes global knowledge sharing of emerging trends to help identify and address supply and demand constraints to broader e-payment usage. It builds electronic payment ecosystems with a particular focus on key cities identified under USAID’s Cities Development Initiative.

PROJECT ACHIEVEMENTS

E-PESO achieved major milestones in the past year. It turned over to the Department of Budget Management (DBM) the Budget and Treasury Management System (BTMS) eLearning system, which now has over 100 national government agencies (NGAs) using it and over 4,000 learners enrolled. E- PESO also engaged SGV & Co. to conduct a study on barriers to e-payment adoption. The study drew on stakeholder interviews and consultations to assess the processes and practices affecting business-to-business (B2B) payments. (Please see Tables 4 and 5 for a summary of root causes behind the low adoption of e-payment, and the recommendations to address them). This year, E-PESO completed and submitted a final report to the BSP on the control self-assessment questionnaire distributed to selected BSP-Supported Financial Institutions (BSFIs). The results of this were used to help define the BSP’s Governance, Risk, and Compliance concept. E-PESO has also begun laying down the groundwork for its tasks on cybersecurity, formally initiating technical assistance to the BSP’s Technology Risk & Innovation Supervision Department.

E-PESO conducted Social Media and Promotions Planning for E-Payments workshops in nine partner local government units (LGUs), which aimed primarily to address people’s lack of awareness of e-payment services. E-PESO also provided technical assistance to four partner LGUs that launched their electronic payment services in Year 5.

SUB-PURPOSE I: RAPID ADOPTION OF E-

PAYMENTS IN FINANCIAL SYSTEMS

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

Government is the largest bulk payer institution in the Philippines, disbursing social subsidies and pensions to persons (government to person payments, or G2P), and paying suppliers and vendors (government to business payments, or G2B). It is also the largest payment recipient institution with taxes, fees and licenses, and mandatory payroll benefits collected from both persons to government (P2G) and businesses to government (B2G). E-PESO provides technical assistance to government institutions that are key aggregation points for payments. By adopting e-payments, government institutions improve transparency, minimize corruption, increase operational efficiency, and improve the delivery of services to their customers. As key aggregation points, they have influence over a large customer or constituency base, and can serve as catalyst in scaling adoption of e-payments in the country.

Support DBM in Rolling-Out the BTMS

E-PESO helped the DBM in rolling out the BTMS, a government resource planning system to be used across NGAs to manage and report on budget, commitments and procurement, payments (including salaries), receipts, cash, and accounting.

E-PESO’s assistance involved the deployment of an eLearning System that contained interactive BTMS training modules that can be accessed by learners anywhere and anytime. The eLearning System is expected to aid in the training of over 15,000 BTMS users in two years, compared to six years using conventional classroom training methods.

All eLearning modules were completed and tested in May 2019. E-PESO conducted with its subcontractor, MoodLearning, Inc., a one-day systems administrator training/workshop to familiarize key DBM personnel from the BTSM Project Team, Information and Communications Technology Systems Service, and Office of the Chief Information Officer on the different functions and features of the eLearning platform.

Currently, 4,134 learner accounts from over 100 NGAs are enrolled in the Learning Management System, including agencies such as the DBM, Bureau of Treasury (BTr), Department of Social Welfare and Development (DSWD), Department of Public Works and Highways (DPWH), Department of Education (DepEd), and Department of Trade and Industry (DTI). Using the eLearning System, the total cost to train 15,000 learners is estimated at PhP 56.65 million (PhP 3,777 cost per learner in about a year), as against PhP 111.65 million (PhP 7,443 cost per learner in five to six years). GHP will save approximately PhP 55M (US$1.1 million) and accelerate the use of the BTMS significantly by using the eLearning System.

Support a GPH Agency with Influence Over a Large Base – Department of Social Welfare and Development (DSWD).

The DSWD is the lead agency implementing the conditional cash transfer (CCT) program, known as Pantawid Pamilyang Pilipino Program (4Ps), to benefit poor and highly vulnerable Filipino families.

In April 2019, E-PESO submitted a proposal to the DSWD for technical assistance to digitize disbursements for social subsidy programs, following a consultation workshop with the department and key stakeholder institutions such as the BSP, Land Bank of the Philippines, Philippine Veterans Bank, and select 4Ps beneficiaries.

E-PESO presented its recommendation to shift from cash cards to transaction accounts as store of value and the DSWD Secretary granted approval. The proposal has been referred to the 4Ps Project Management Office.

In August 2019, E-PESO and the 4Ps Project Management Office held a workshop where the DSWD presented updates on its disbursement process, cash card distribution status, and a series of consultations on transitioning from cash cards to transaction accounts. E-PESO’s proposal is expected to be signed by DSWD once other details, such as the scope of technical assistance and DSWD responsibilities are finalized. The targeted timeframe is Q1 Y6.

Figure 1. USAID Deputy Mission Director Patrick Wesner (2nd from right) attends the ceremonial handover of the BTMS eLearning system to the DBM.

Figure 2. E-PESO Chief of Party Mamerto Tangonan and E-PESO Digital Finance Advisor Vicente Catudio (1st and 2nd from left) in consultation with the DSWD.

Support a GPH Agency with Influence Over a Large Base – Bureau of Treasury

The BTr under the Department of Finance (DOF) is tasked to manage the GPH’s financial resources efficiently and effectively by maximizing revenues from available funds and minimizing financing costs.

The bureau’s mandate includes promulgation of fiscal and financial policies, collection of national government taxes and fees, and management of cash resources, including payments for obligations incurred by the national government.

The DBM prescribes the use of the BTMS system for budget utilization (BTMS-BU) by NGAs in carrying out expenditures under the General Appropriations Act by July 1 20191. Under the BTMS, NGAs will process and approve disbursement vouchers that will be routed to BTr for disbursement.

One disbursement framework supported by the BTMS-BU is the Treasury Single Account that BTr manages through electronic fund transfers (EFTs) to payee’s account in any bank.2

With the delay in DBM’s rollout of the BTMS (originally planned to go live by July 1, 2019), E-PESO has pushed technical support for BTr to 2020 (Y6). E-PESO will assist the BTr to implement the EFT disbursement method direct from the Treasury Single Account through PESONet. As envisioned by BTr and DBM, the disbursement process of NGAs will be simplified and centralized under BTr once BTMS is operational.

Support a GPH Agency with Influence Over a Large Base – Bureau of Internal Revenue

E-PESO is helping the Bureau of Internal Revenue (BIR) shift its tax collection from inefficient over-the-counter (OTC) cash or check payments to e-payments. By end of 2018, about 81 percent of tax payment transactions were still being done OTC, with only 19 percent through e-payments such as online banking, credit/debit/ATM card, and mobile payments. Shifting to e-payments will enable BIR to provide taxpayers with a convenient, safe, reliable, efficient and cost-effective way of paying taxes, as well as minimize, if not eliminate, opportunities for corruption.

E-PESO’s assistance to the BIR includes digitizing the filing of tax returns and select frontline services, and expanding digital payment options. In April 2019, it supported the BIR’s launch of Union Bank of the Philippines’ online payment system as an alternative channel to allow online payment of taxes. E- PESO also assisted the BIR to pilot an interoperable digital bills payment service as a new e-payment option catering to both Electronic Filing and Payment System and electronic tax filing forms (eBIRForms) filers. It helped soft launch the PESONet-enabled digital bills payment service for tax collection in August at the BSP, enabling taxpayers with accounts in any BSFI participating in the PESONet automated clearing house (ACH) to pay their taxes through Land Bank’s Linkbiz Portal.

In July, E-PESO facilitated a meeting between the BIR and BTr, where the project presented the new digital payment option utilizing the PESONet ACH under the NRPS. E-PESO advised the BTR on potential issues that may arise given the bureau’s current policies, such as the need to accredit authorized agent banks, and the requirements for settlement and reporting. The BTr approved the new payment system and, following E-PESO’s proposal, recommended that all government institutions use the facility for revenue collection. It further agreed to cover the PhP 25.00 transaction fee without cost to taxpayers, a significant savings from the PhP 40.00 transaction fee charged by banks for OTC payments. Currently, OTC payments total 15,342,596 OTC transactions. Shifting to the new payment system will save the government PhP 230 million in transaction fees per year. The new fee

1 DBM Circular No. 2019-4, issued January 2019, established guidelines on the adoption and use of the BTMS system for budget utilization (BTMS-BU).

2 The other framework is the Modified Disbursement Scheme (MDS) operated by government servicing banks (GSBs) through an auto-debit arrangement for payees maintaining an account with GSBs.

arrangement was implemented through an amendment to the BIR-Land Bank memorandum of agreement signed in August 2019.

Support a GPH Agency with Influence Over a Large Base – Department of Trade and Industry

E-PESO aims to ease the way of doing business through digitization and helps to streamline end-to-end business registration processes. The DTI manages the Business Name Registration System, an online facility for sole proprietors, mostly micro, small, and medium enterprises (MSMEs), to register their businesses. E-PESO supported the launch of the online system in September by introducing PESONet and InstaPay as additional e-payment options and facilitating DTI’s partnership with Land Bank, to enable PESONet payments through the latter’s Link.Biz portal. E-PESO also helped the DTI secure approval from the BTr for its interim arrangement with G-Xchange, Inc. (GXI), which offers mobile payment services, and PayMaya Philippines, Inc., a pioneer in mobile money and e-payments.

Sole proprietors can now register their business name online; pay via GCash, PayMaya, or Link.Biz Portal; and download their name registration certificate in just nine minutes.

E-PESO promotes digital payments to support growing e-commerce in the country, while DTI encourages e-commerce as a way of enabling and empowering local businesses, particularly MSMEs, which make up 99.6 percent of Philippine enterprises. Through e-commerce, Philippine MSMEs can become globally competitive. The DTI’s Philippine eCommerce Roadmap 2016-2020 provides strategic plans, policies, and other measures to harness the benefits of e-commerce, and aims to contribute 25 percent to the Philippines’ gross domestic product by 2020.

Figure 4. Payment Options for eCommerce Platforms

Figure 3. eCommerce Payment Ecosystem

The DTI’s eCommerce Program Office has taken the lead in updating the roadmap for 2020 to 2022.

In September, E-PESO provided digital payments expertise in consultation sessions organized by DTI, and in a focus group discussion on payment systems with other stakeholders from the payments industry. The discussions resulted in an updated overview of the payments ecosystem for e-commerce, including a list of industry players and their roles (see Figures 3 and 4); the rules and regulations governing the sector; a 10-year vision; proposed metrics and targets; current and future issues, and the strategic initiatives aimed at realizing that vision.

Task 1.2. Increase Private Sector Adoption of e‐Payments

Integration of Tax Software with e-Payments Functionality for Businesses to File and Pay Taxes.

The Electronic Tax Software Provider Certification (eTSPCert) is an online platform where tax software providers (TSPs) can apply to have their e-filing and e-payment software tested, evaluated, and certified by the BIR. The online platform, which includes submission of documents, verification by BIR, approval of applications, downloading of development tools, submission of test outputs, and certification is completely online, with no in-person meetings with BIR personnel required. The BIR launched the eTSPCert System in December 2018. In April 2019, BIR issued the first five certifications.

The process is summarized in Table 1.

Table 1. Summary of first five certifications issued by BIR.

Making BIR-compliant tax software available commercially will provide taxpayers with alternative electronic tax filing options to BIR’s eBIRForms, as TSPs can develop e-filing and e-payment software with more user-friendly and intuitive front-end/interfaces. BIR certifies the software and protects taxpayers by ensuring that their data is submitted to, received, and processed by BIR databases and that taxpayers’ filing and payment data are kept up-to-date. The top 5,000 individual taxpayers, top 20,000 private corporations, large companies, government bidders, licensed local contractors, insurance companies, stockbrokers, and national government agencies may also file and pay using the Electronic Filing and Payment System.

E-PESO provided inputs to the system’s technical design, project management support, and the policy bases for the system’s rollout.3 E-PESO is also facilitating the technical integration of TSPs’ tax preparation and filing software with e-payment services.

Expand coverage of TSP Certification to Additional Tax Forms

During a workshop aimed at developing a roadmap of policies, systems, and processes geared towards an integrated, end-to-end e-filing and e-payment, BIR identified the expansion of the eTSPCert System to include additional forms as a key strategy. Thus, Phase 2 of the eTSPCert System was initially designed to maximize the system’s utility by expanding its coverage to include more BIR forms. The task’s design, however, was modified in consideration of the following:

3 Revenue Memorandum Circular 98-2018 (Reiteration of the Mandate to use eBIRForms and Availability of Additional Filing and Payment Option Through the Services of Tax Software Providers) and Revenue Memorandum Order 8-2019 (Policies and Guidelines in the Certification of Electronic Tax Return Filing and/or Payment Solutions).

Tax Software Provider Software Name Forms Certified Taxumo Inc www.taxumo.com 2550Q Ten Elleven Manila Inc. JuanTax 2550Q, 2550M, 2551M, 1706 http://www.taxumo.com/

1. The production environment of the eTSPCert System is currently being assessed for fixes, since currently, TSPs can submit tax filings for certified forms in the test environment but are unable to submit forms in the production environment, and

2. BIR will be moving away from submission of filing data via secure file transfer protocol (SFTP) to real time posting (RTP) via application programming interfaces (API). This was initiated in April 2019, with support from the World Bank and the DOF. The project has completed APIs for ten forms being used by large taxpayers and users. The shift to API submission will render submission via TSP tools obsolete. To future-proof the system, APIs need to be developed instead of TSP tools.

Figure 5 shows the comparison between the current SFTP submission process and RTP via API submission:

The envisioned modifications to the mode of submission will impact the original design of the eTSPCert System Phase 2, which will still utilize and develop TSP tools4 that use the SFTP mode.

E-PESO and BIR agreed to scale down the scope of eTSPCert 2 enhancements and ePayments backend processing development. E-PESO will draft terms of reference, issue a request for proposals, and engage the sub-contractor to develop tools and complete backend configuration.

PESONet Marketing Communications Awareness Campaign.

E-PESO completed the PESONet Marketing Communications Awareness Campaign in Year 5, and turned over the digital assets to the payments industry through the Philippine Payments Management Inc. (PPMI) in April 2019. These included the PESONet landing page, the social media accounts @PESONetPH on Facebook and Instagram, and PESONet and InstaPay creatives. The PPMI took over associated costs for hosting the PESONet website and subsequent updates, while the clearing switch operators (CSOs) shouldered the cost of printing posters and standees. BSFIs have since displayed these in their respective branches. Figure 6 shows examples of the PESONet and InstaPay creatives.

4 TSP tools are executable files used to encrypt, validate, compress, and submit filing data to BIR.

Figure 5. SFTP Submission (eBIRForms and 3rd Party TSP) vs. RTP via API Submission

For the duration of the campaign, the stories and corresponding pick-up on different media generated a total media value of PhP 342 million. Please see Table 2 for a summary of PR activities achieved for the entire campaign.

Implement Structured Pilots Adopting Electronic Payments by Private Sector Entities

E-PESO initiated discussions with several private sector entities to explore their willingness to adopt e-payments through initial use cases. Although there have been expressions of interest, the businesses have not formalized these initiatives through an assignment of resources. Stronger interest and commitment are expected after the completion of E-PESO’s Revenue Regulation and Business Process Review (see Sub-task “Conduct Revenue Regulation and Business Process Review,” p. 16), when agreements to address businesses’ barriers e-payments will be finalized.

Planned Activities for Y6

E-PESO will continue to support the digitization of frontline services (e-services) and integration with e-payments to shift transactions from manual/OTC to more efficient, convenient, and cost-effective

Story Print Online Broadcast Media Value (in PhP millions)

Businesses to Benefit from PESONet

4 9 57.4

A Look at E-payments in the Philippines

4 4 6,4

Low-cost Fund Transfers with PESONet

2 17.0

Lazada PH Bullish on the PESONet

2 6 31.4

PESONet now has 60 Financial Institution Participants

3 4 32.2

Others: Special Feature

8 9 151.8

Post Event: Media Forum

9 30 3 46.3

Total 22 63 12 342.5

Table 2: PR Activities Achieved during the PESONet Marketing Awareness Campaign

Figure 6. PESONet and Instapay creative on display at various BSFIs.

e-transactions. It will leverage skills from information technology (IT) students and the expertise of IT companies by running a nationwide hackathon to develop front-end applications. BIR has aimed to launch the project in October 2019 and make the winning applications available in early 2020 (Q2 of Y6).

E-PESO will further assist the DTI eCommerce Office review and refine the output of the focus group discussion on e-payment systems, as well as facilitate discussions with key industry stakeholders like the BSP, PPMI, payment systems like PESONet and InstaPay, card networks like Visa and Mastercard, and mobile payment platforms like GCash and PayMaya. Assistance will also involve the crafting of the 2020-2022 eCommerce Roadmap.

E-PESO will continue helping DSWD to integrate financial inclusion for the social subsidy programs of the Philippine government, particularly the 4Ps. The project will involve transitioning the disbursement of cash grants to transaction accounts, enhancing a financial literacy training program, and designing and implementing a pilot in selected areas. The project will be coordinated with the Interoperable Cash Agent Network Project to support the cash-in/cash-out needs of 4Ps beneficiaries in pilot areas.

E-PESO will work with the DBM, BTr, and Government Servicing Banks (GSB) to implement EFT in BTMS, and to issue appropriate circulars or guidelines on the implementation of technical interface between BTMS and the PESONet service of GSBs. The project will provide technical assistance to BIR on the eTSPCert System Project through pilot implementation with the Home Development Mutual Fund (Pag-IBIG), accreditation of TSPs for mass implementation, and increasing the number of available forms for use by TSPs. E-PESO will continue supporting BIR as one of the pilot government biller institutions under the Interoperable Digital Bills Payment Project.

E-PESO will address the issues discouraging business from e-payments by reviewing and assessing current business processes, practices, and applicable regulations affecting B2B payments (including disbursements and collections); and conducting key informant interviews with BIR, businesses, financial institutions, and other relevant regulators to inform the analysis and assessment. A discussion paper will also be prepared and is expected to contain the following:

o Issues substantiated with evidence (such as but not limited to applicable revenue regulations, business processes);

o Root cause analysis;

o Options to address the issues;

o Feasible recommendations to address these issues, including any potential policy changes, suitable for the Philippine environment;

o Comparative regulations, processes or practices from other jurisdictions.

SUB-PURPOSE 2: INFRASTRUCTURE FOR E-

PAYMENTS EXPANDED

Task 2.2: Strengthen Back-End e-Payment Infrastructure

Support Government Agencies Improve Collection Efficiency through an Interoperable Digital Bills Payment Service

The soft launch of the PESONet-enabled digital bills payment (see Sub-task “Support a GPH Agency with Influence Over a Large Base–Bureau of Internal Revenue,” p. 7) marked the start of interoperable digital bills payment for taxes and other utilities. Under this initiative, the BIR is the pilot “biller,” and tax collection/payment will be the pilot “bill,” while Land Bank and Rizal Commercial Banking Corporation (RCBC) are pilot participating banks processing e-payments/collections. The pilot uses PayGate, the value-added service of the Philippine Clearing House Corporation (PCHC), as the gateway for the ‘request-to-pay’ service. The success of this pilot will allow the BSP to confidently approve expansion of the electronic bills payment service to all interested financial and commercial institutions.

E-PESO drew up a concept note for BSP outlining underlying issues that limit adoption of e-payments for revenue collection, and initiated a series of consultations with BSP that led to a workshop involving BSFIs on government payments in November 2018. Land Bank also presented to E-PESO their initiative to implement an interoperable digital bills payment in close coordination with PPMI. In July 2019, final production testing of the PESONet-enabled digital bills payment service for tax collection was held in Land Bank. E-PESO observed the successful testing along with BSP and BSP’s Payment Systems Oversight Department. Figure 7 shows the transaction flow under this digital payment service.

Support Payments Industry Participants in Establishing Agent Cash In/Cash Out ACH

The BSP’s Circular No. 6495 is a landmark regulation on the operations of e-money issuers (EMIs). It aims to foster the development of an efficient and convenient retail payment and fund transfer system, and to deepen understanding of the potential impact of e-money (or mobile money) as a cost-effective last mile solution to provide access to financial services in unserved and underserved areas. To facilitate distribution of e-money or conversion of physical cash to e-money, as well as the conversion of e-money back to cash, EMIs are allowed to deploy, accredit, and manage agent networks. BSP has registered a total of 44 EMIs, of which 31 are banks, two are non-bank financial institutions, and 11 are EMI-others6. There were 63,195 e-money agents as of end of September 2018.7

The BSP also issued a regulation8 outlining new regulatory guidelines allowing banks to provide services to their clients outside banking premises or through cash agents. Banks can tap third-party entities, such as grocery stores, pharmacies, and other retail outlets, as cash agents disbursing loan proceeds or accepting loan payments; and facilitating online self-service deposits, withdrawals and fund transfers, remittances, and bills payment. Such cash agents can contribute to building up an expansive network of accessible and low-cost touch points that enable countryside customers to conduct banking

5 Issued in 2009.

6 List of BSP supervised Electronic Money Issuers (EMIs), Central Bank of the Philippines, March 26, 2019.

7 Financial Inclusion Dashboard, Central Bank of the Philippines, September 2018.

8 Circular 940 issued in 2017.

Figure 7. Transaction Flow under the PESONet-enabled Digital Bills Payment Service for Tax Collection.

transactions conveniently. There are now three banks that have implemented the cash agent model, with four more banks under pilot implementation stage, and a total of 3,994 cash agents registered.9 In March 2019, E-PESO discussed with BSP a proposal to work with the industry to set-up an interoperable cash-in cash-out (CICO) agent network servicing financial institution clients—banks and EMIs—in areas with no or limited banking infrastructure. E-PESO completed a concept note outlining the current state of financial access points in the Philippines in comparison with its Southeast Asian neighbors; the correlation of access points to level of financial inclusion; and the opportunity to expand financial access points through cash agents as demonstrated by select sub-Saharan countries. The concept note also diagnosed the underlying reasons why cash agents in the country are not scaling up.

E-PESO also presented the concept note to the PPMI, which supported the initiative as key infrastructure to usher in the transition to a cash lite society. In July 2019, E-PESO consulted with PPMI and PPMI-member financial institutions (namely, Land Bank, G-Xchange, Inc., and PayMaya). It was agreed that E-PESO would issue a letter requesting approval or commitment from the decision-makers of Land Bank, GXI, PayMaya, and OmniPay to participate in a start-up group that will conduct an in-depth study on interoperable cash agent networks. E-PESO also agreed to give technical assistance by facilitating the group discussions and providing study resources.

Planned Activities for Y6

E-PESO will continue helping payments industry participants to establish an interoperable cash agent network under the NRPS framework. It will link this initiative to the DSWD, with cash agents as channels for disbursement of social subsidies in areas not served by banks. E-PESO will also work with the payments industry to expand participation in the interoperable digital bills payment service. Land Bank, PCHC and PPMI, have already secured approval from BSP to launch the interoperable digital bills payment service using the PESONet ACH. E-PESO will promote the new payment facility to other government biller institutions like DTI, Pag-IBIG, SSS, Philhealth, and local government units.

SUB-PURPOSE 3: ENABLING ENVIRONMENT FOR

E-PAYMENTS IMPROVED

Updates on the Philippine Payments Management Inc. (PPMI) Members

PPMI has a total of 88 members, or 16 percent of the total BSFIs. The number has grown by 14 from December 2018.

BSP Supervised Financial Institutions Total Number PPMI Member PESONet ACH

Participants InstaPay ACH Participants

Universal / Commercial Banks

46 41 (89%) 40 (98%) 21 (51%)

Thrift Banks 50 23 (46%) 15 (65%) 14 (61%) Rural Banks 430 18 (4%) 4 (22%) 5 (28%) Electronic Money Issuers (EMIs)

14 6 (43%) 2 (33%) 4 (67%)

Total 540 88 (16% of BSFIs)

61 (69% of PPMI members)

44 (50% of

PPMI

members) Table 3: Summary of PPMI members. Source: BSP website as of September 30, 2019

PESONet Volumes and Values

9 Financial Inclusion Dashboard, Central Bank of the Philippines, September 2018.

Since PESONet’s launch in November 2017 and as of September 2019, participating institutions have increased from 33 to 53. In 2017, PESONet volumes were at 330,000 a month with a total value of PhP 54 billion. As of the end September 2019, it had generated more than one million transactions per month with a total value of PhP 118 billion. PESONet volume is already 7.24 percent vs. checks, growing from 2.47 percent since PESONet’s launch.

InstaPay Volumes and Values

Figure 8. PESONet Volumes and Values

Va lu es in

P hP b ill io ns

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(i n th ou sa nd s)

PESONet Volumes and Values

Volumes (in thousands) Values (in PhP billions)

Figure 9. CICS vs PESONet Outward Items (Bi-Monthly Total)

InstaPay was processing almost 3.4 million transactions by end September 2019, with a total value of PhP 24 billion (vs PESONet’s PhP 118 billion). This has grown exponentially from its launch in April 2018 when it had a baseline of 2,000 transactions and a value of PhP 19 million. Participants also increased to 44 as of the end September 2019, compared with 19 participants at launch.

Task 3.1 Ease Constraints to Broad Payment Adoption and Usage

Conduct Revenue Regulation and Business Process Review

E-PESO engaged SGV & Co. (Ernst & Young) to study barriers to e-payments adoption, particularly for supplier payments. In Year 5, the following were completed:

• Conduct key informant interviews and consultation sessions with six large businesses, selected financial institutions, BIR, DOF, BSP, DBM, and BTr as users, to review and assess current business processes and practices affecting B2B payments, including implications to tax regulations, the NRPS, and the payment system in general;

• Present barriers, root cause analysis, and recommendations to various stakeholders, including the financial institutions represented by the PPMI, Bankers Association of the Philippines, members of the PESONet ACH Steering Committee, BIR’s E-Invoicing Committee, and businesses participating in the key informant interviews.

Figure 10. InstaPay Volumes and Values

10,000 20,000 30,000

1,000,000 2,000,000 3,000,000 4,000,000

Ap r-

Ju n-

Au g-

O ct

-1

De c-

Fe b-

Ap r-

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Au g-

Va lu es in

P hP m ill io ns

Vo lu m es

InstaPay Volumes and Values

Volumes Values (in millions)

Regulatory compliance (i.e., requiring hard copies) was deemed to be the root cause hindering e-payment adoption, while the need for convenience, cost-efficiency, and transaction security prevents scaling utilization. It was agreed during the various sessions that addressing these regulatory issues is a top priority. Table 4 shows a summary of root causes.

Figure 11. E-PESO and SGV representatives discuss the objectives of the study on barriers to e-payments adoption.

Regulatory Compliance • Digital payments must be compatible with BIR regulations’ requirement for Official Receipts, Invoices, and Certificates of Withholding Tax in hardcopy.

• Users want verification of hardcopy supporting documents to ensure correctness of information in transactions.

Convenience & Cost-efficiency

• Users want a payment solution allowing for easy tracking and reconciliation, seamlessly integrated into their processes.

• Users want a payment solution that is reasonably-priced, with flexible fees.

Transaction Security

• Users need more confidence in the transaction process, through greater assurance of the transfer of money.

• There must be clear guidance on the treatment of anomalies.

• Users want straightforward legal remedies for unfunded checks to be applied to digital payments.

The following recommendations were presented to stakeholders:

ROOT CAUSES Stakeholder Recommendations Regulatory Compliance

BIR • Update BIR Revenue Regulations No. 5-2014 to allow for retention of only electronic copies of documents (Official Receipts, Invoices, Certificates of Withholding Tax, etc.), eliminating the need for exchange of hard copies.

• Implement interconnected infrastructure for issuance, approval, certification, and retention of electronic supporting documents (e-invoicing).

Business Requirement and Cost-efficiency

BSP • Release ISO 20022 implementation guidelines for information and notifications.

• Release guidance on transaction fees.

Financial Institutions

Update e-payment platforms to consider practical implementation of ISO 20022 guidelines for required information and notifications.

Corporates and Government as Customer

Conduct business process review considering current and future state of electronic payments and e-invoicing.

Transaction Certainty and Accuracy

BSP Release clarification on liabilities in the event of anomalous transactions (system glitches, unauthorized transactions, erroneous input).

Legislative bodies Pass legislation similar to Batas Pambansa No.. 22 giving users of digital payments the same kind of security under the law as users of checks.

Table 5. Recommendations to address root causes

A multi-stakeholder session to include the BIR, DOF, BSP, PPMI, selected financial institutions, and businesses will be convened in December 2019 with the following objectives:

• Common understanding of the recommendations;

• Common understanding and agreement of objectives;

• Discussion on general directions of the different stakeholders;

• Recognition of the stakeholders’ dependencies, and

• Agreement on next steps.

Task 3.2: Assist Financial Regulators in Overseeing e-Payment Growth

Support PPMI in Expanding Membership and Onboarding New Participants

E-PESO provided support to the PPMI in on-boarding new ACH participants by developing content for the PPMI website and other corporate communications materials and a PPMI Prospectus and Starter Kit. E-PESO completed and submitted to the PPMI proposed website content but, to date, PPMI’s website has not been finalized and published. E-PESO likewise completed its draft content for

Table 4. Root causes that hinder e-payment adoption.

the PPMI toolkit (prospectus and starter pack) and presented the same to the PPMI. A focus group discussion to validate the toolkit will be organized for prospective PPMI members, particularly rural banks.

Task 3.4: Assist Financial Regulators and E-Payment Service Providers to Improve Digital Security Measures

Support BSP in Digital Security Policy Review and in Capacity Building

E-PESO submitted its final report to the BSP on the summary and analysis of…