Published 13 December 2021, The Daily Tribune

Digital payments have gained wide recognition and usage in the country. In fact, it was reported that electronic money transactions processed by banks and financial technology providers increased by almost 61 percent to P2.39 trillion in 2020 from P1.49 trillion in 2019 as the shift to digital payments from cash transactions rocketed amid the pandemic.

Consumers’ growing preference for digital or electronic money over traditional cash has certainly been impelled by the convenience brought about by the use of e-money. A number of emerging electronic money issuers (EMI) offer user-friendly application features, which allow their users to pay various merchants, transfer funds to the electronic wallet of another user, and cash-in from their bank accounts, among others, without leaving the comforts of their home.

EMI are regulated by the Bangko Sentral ng Pilipinas (BSP). The Manual of Regulations for Banks (MoRB) classifies EMI into EMI-banks, non-bank financial institutions supervised by the Bangko Sentral, and non-bank institutions registered with the Bangko Sentral as a monetary transfer agent or “EMI-Others.” As of end of October 2021, the BSP has granted a total of 35 non-bank EMI licenses and 29 EMI-bank licenses.

The application for grant of authority to operate as an EMI constitutes a three-stage process:

Stage 1 refers to the assessment of BSP of applicant’s eligibility to apply as an EMI. The presentation of EMI applicant’s business model before the BSP is crucial in this stage of application.

Stage 2, on the other hand, basically refers to the application for issuance of Letter of No Objection to register with the Securities and Exchange Commission (SEC) the EMI applicant’s Articles of Incorporation and/or By-Laws indicating its purpose to operate as Money Service Business operator.

Meanwhile, the third and last stage refers to the application for grant of license/authority to operate as EMI and offer Advanced Electronic Payment and Financial Services (EPFS). EPFS refer to products and services offered by BSP-supervised financial institutions to enable customers to receive payments or initiate financial transactions and other related services through an electronic device such as a computer, mobile phone, Automated Teller Machine (ATM), and other devices. In particular, EPFS allow customers to electronically access information on their transaction accounts, move or receive funds from one account to another, or avail of credit, investments, trust, or other banking products and/or services (e.g., online or mobile loan application, electronic placement of funds in certain investment outlets, etc.). Hence, it is during this stage that the EMI applicant is required to submit to the BSP a detailed information of its IT set-up, including the description of all the functionalities and features of the front-end and back-end system.

Pertinently, the BSP allows EMI to enter into an outsourcing arrangement with Electronic Money Network Service Services Provider (EMNSP) to develop a front-end and back-end system for the EMI/EMI applicant, provided that such outsourcing complies with the guidelines set forth under Appendix 98 of the MoRB. Nonetheless, said guidelines expressly holds the EMI responsible to its customers, notwithstanding any contractual agreement between an EMI and an EMNSP on the sharing of responsibility, without prejudice to further recourse, if any, by the EMI to the EMNSP.

Considering its utility, it can be reasonably concluded that the number of digital payments and other e-money transactions would continue to grow along with the evolving technology, even after the pandemic. This promising potential future of digital payments and e-money has induced a significant number of entities, such as financial technology startups, to apply for their own EMI license. This notwithstanding, the BSP has recently announced an imposition of two-year moratorium on the issuance of “EMI-Others” licenses to non-bank institutions starting 16 December 2021. According to BSP Memorandum M-2021-064, such ban was “in line with BSP’s efforts to ensure that its resources are managed and mobilized judiciously in a manner that promotes financial stability and inclusive growth, and advances the development of innovative e-money solutions that offer strong value propositions.”

The aforementioned moratorium does not, however, totally preclude the entry of interested new non-bank EMI applicants with proposals involving new business models as well as unserved, targeted niches, and new technologies who could request for exception on the two-year ban under the “Test-and-Learn or Regulatory Sandbox” framework of the BSP.

In view of the foregoing, interested non-bank EMI applicants are highly encouraged to submit their complete application for EMI license on or before 15 December 2021 or as may thereafter extended by the BSP.

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