President Rodrigo Duterte signed into law on October 30 Republic Act No. 11127, or “The National Payment Systems Act”. The new law provides guidelines for the regulation and supervision of payment systems in the country.
Payment systems are defined in the law as “the set of payment instruments, processes, procedures and participants that ensure the transfer of funds.”
“The state recognizes that payment systems are crucial parts of the financial infrastructure of the country and it is essential that they function safely and efficiently for the stability and effectiveness of the monetary and financial systems,” reads the law.
At present, 99% of payments in the Philippines remain cash-based. Only 1% are processed through electronic systems. As well, e-commerce makes up only 1% of total commerce in the Philippines. Comparatively, other ASEAN member states generate 4-5% in e-commerce transactions.
The Bangko Sentral ng Pilipinas (BSP) has been tasked to promote the “safe, secured, efficient and reliable operation of payment systems in order to control systemic risk and provide an environment conducive to the sustainable growth of the economy.”
System risks happen when one participant in a payment system fails to meet their obligations. This in turn would ripple through the system and cause other participants or financial institutions to fail to meet their own obligations in turn. Avoiding these through the new law would protect retailers, enhance buyer experience, boost confidence in the Philippine financial sector, control systemic risk, and advance cashless payment capabilities in the country.
The BSP has been tasked to accredit a payment system management body, to be composed of operators or participants to foster self-regulation. The central bank will also begin requiring operators of payment systems to secure its prior authority.
The operator of a payment system is defined by the law as any person who provides clearing or settlement services in a payment system, or defines, prescribes, designs, controls or maintains, the operational framework for the system.
Further, the BSP will draft and issue a set of rules and regulations for payment system operation to properly govern standard operation and adequacy of resources; qualifications of directors or officers; measures that ensure confidentiality and compliance; and mechanism which protects rights of the end-users. Operators of payment systems will be required to submit operational reports to the BSP and pay annual fees.
It shall also coordinate with other regulators and government agencies with mandates involving payment systems, particularly the Securities and Exchange Commission (SEC). These inter-agency coordination efforts are “to facilitate the orderly discharge of payment obligations”.
“The BSP shall likewise coordinate with the overseers of payment system of other countries to facilitate safe, efficient and reliable cross-border payment transactions,” reads the new law.
The BSP will also be granted the authority to own and operate its own payment systems, “as may be deemed necessary by the Monetary Board”.
Violating the provisions of the new law comes with steep fines ranging from P200,000 to P2 million, and penalty imprisonment of up to 10 years.