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The role of telecoms infrastructure in payment services and settlement

_________________________________________ Reducing the cost of retail payments and

remittances through new technology

in the Philippines

Presented by Eve Avila, Central Bank of the Philippines

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Outline

Remote banking started itUse of POS - a new databaseThe telcos’ business model

• Payment for air time load• Creating an e-wallet account• Is telco a low - cost alternative to payments?

Telco as an infrastructure service provider

Conclusion

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Payment system – banking model

face-to-face banking

•24 by 7 access•use of plastic card•dispense cash•pay bills

remote banking

1980

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Modes of access to account

POS 1986

Merchant’s At home

Telephone 1988 PC 1997

Mobile 2003 Internet 1999

ICT convergence

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ATM, networked

ATM NETWORK

more wallets for the customer 1990

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ATM network as payment portal

PCPOS 2002

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Cost to pay using bank account

Transaction Cost (Php)

Check payment (listed for comparison only)

3.30

Over-the-counter inter-branch deposit 50

ATM networkInter-bank withdrawalInter-bank transferBalance inquiryBills payment

102510

ATM network payment portalPOS purchasesBills payment

00

Internet bankingInter-bank transferBills payment

Mobile banking (using SMS)

1000

2.50

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Cost to pay using bank account

Transaction Cost (Php)

Check payment (listed for comparison only)

3.30

Over-the-counter inter-branch deposit 50

ATM networkInter-bank withdrawalInter-bank transferBalance inquiryBills payment

102510

ATM network payment portalPOS purchasesBills payment

00

Internet bankingInter-bank transferBills payment

Mobile banking (using SMS)

1000

2.50

Central bank said: PUBLISH YOUR CHARGES

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Source of non-cash (electronic) payments

•Bank’s database•Credit card company’s database

Channels and instruments•ATM card •POS card •Phone voice, data•Computer data

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• It’s electronic• Works on supplier-owned POS or device reader• Uses paper or plastic card

Suppliers have their database too…

POS

Suppliers

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The telco as supplier of air time

Sell air time Voice and data services•Voice – P7.50 per minute•Text - P1 per send

Payment instrument:Prepaid card orElectronic air time load

Data services use short messagingor the SMS telecoms protocolSMS traffic – > 1 billion a day

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TELCO

RetailersSub-Dealers

PREPAID

CARD

USERSEarnings by commission (3-5% per level).

Volume discounts may also be given.

Distribution Networkof prepaid cell cards

Major Dealers

Non-TraditionalDealers

Business Centers

Sub-Agents

Physical prepaid card: user loads

Virtual: agent uses a special SIM to load

ABOUT 1 MILLION

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Payments system – telco model

To pass a load – Type Amount PIN Send to mobile number Sender pays P1.00

This is the basic syntax of the SMS. The prefixadded to the mobile number determines thetype of transaction.

Credit transfer!

Prepaid - settled when value is loaded

Load passed as subsequent sale or gift or used

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Great innovation

It is a continuous buying and selling of air time.

No air time? User-1 TXT telco to ask-a-load from User-2. Free TXT.Telco TXT User-2 amount and cell no. of USER-1User-2 TXT telco AMT and PIN User pays P1.00 SendUser-1 gets load

Debit transfer!

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Mobile phone market

Philippine population 85 MnNo. of families of 5 17 MnMobile phone users 40 Mncreating mobile commerce

Many mobile phone users are consumers who do not

have bank accounts or credit card accounts (e.g., children and students of all ages, ambulant

and market vendors, small and medium enterprises, low income families)

e-wallet for mobile commerce

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A new market segment

Open an e-wallet account to pay for –

• Small purchases• Transfer funds• Pay bills• Domestic remittance• International remittance• Get cash• Inquire balance

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Step 1Go to any of the following:• Telco’s Business Centers• Loading Stations• Remittance Partners

Step 2Fill out pertinent forms. You may be asked to present an ID

Step 3Pay the money to be loaded to the e-wallet account

Step 4You will receive a confirmation message when money has been loaded to your account

Pass-a-load model applied to e-wallet• Over-the-Counter

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• Debit TransferStep 1 Indicate your name and cell phone

number on the form the merchant will give.

Step 2 The merchant will initiate the payment transaction using its service unit.

Step 3 You will receive an SMS request from the merchant to deduct the transaction amount from your wallet.

Step 4 Reply with YES (MPIN) (ref. no.) to confirm the purchase or NO (MPIN) (ref. no.) to reject the purchase

Pay for purchases

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Pay for purchases

• Credit TransferStep 1

TEXT to 270:<Store Code> space <amount>

Step 2

You will receive an SMS from the telco confirming your payment, including the merchant’s name, the transaction amount and the reference number. Your e-Wallet balance will also be indicated.

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Merchant or receiver collects Cash

• Settlement

Step 1

Beneficiary will get an SMS confirming receipt of money in his e-wallet.

Step 2

Beneficiary may encash through the following channels

•Telco’s Business Centers•Authorized Outlets•ATM (for e-wallet with a card)

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Modes of access to payment accountwith bank, credit card or telco

POS

Merchant’s At home

telephone PC

ATMMobile phone - SMS

Telcos’ database

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Payment and remittance services: banks and MTOs vs. telcos

Bank Telco

Open accountAMLA account openingMin. value per transactionMax. value per transactionMax. value per dayMaintaining balance

P100Yes

P100P10,000P50,000

P100

0YesP1

P50,000P50,000

0

Domestic remittanceOTC/ATMMTO

P25 to P150P39 and up

P1 to P2.50 or1-5%/P10 or 1%

International remittance P300 to P750 P15

Mobile banking P2.50

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Regulator’s regulations • Electronic banking activities registered with the

central bank• Review of mobile banking products includes

telco as service provider• Banks engaging in electronic banking covered

by rules on risk management, customer protection, security and confidentiality, integrity of processes

• Agreement for an onsite review of operations of telcos’

• Transaction caps• Submission of semestral reports• Virtual account opening requires ID presentation

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Countryside banking using telcos

Commercial banks• branches • ATMS 6,867• Mobile banking

Rural and thrift banks• branches• ATMS • Mobile banking

•99% of rural bank customers have mobile phones

•Mobile phones have high penetration also in rural areas

•Telcos’ products promote m-commerce

•Micro-finance gaining ground in the rural areas

•Access to banking services could sustain momentum of economic activity and alleviate poverty

TEXT-A-DEPOSIT, TEXT-A-PAYMENT

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Widen access to payment services using telcos’ infrastructure

Commercial banks• branches • ATMS 6,867• Mobile banking

Rural and thrift banks• branches• ATMS • Mobile banking

Universal & Commercial

Banks

Thrift Banks

Rural & Cooperativ

eBanks

Total number 4,313 1,322 2,075

ATMs 6,178 616 73

Total banks 7,710

Total ATMs 6,867

Telcos cash outlets

9,000

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Number of Number of poor poor

familiesfamiliesNumber of Number of thrift and thrift and

rural banksrural banks

Population 85MMobile phone users 40MFixed line subscribers

6.5M90% of RB customers have cpSMS per day 1BSlide borrowed from P. Roman

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ConclusionIt is common to decry the great digital divide evidenced by the low computer

and internet penetration of less developedcountries.

The new adaptive technology developed by the Philippines may yet be the great equalizer. Standing in the shoulders of giants, namely the IT and wireless technologies developed by rich countries, the Philippines saw an advanced adaptation of the SMS that is truly suited to its culture. Many otheremerging markets may find this killer application quite useful to their own requirements. In SMS: thank u

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The use of the materials, findings, interpretations, and conclusions expressed in this presentation are entirely those of the presenter. They do not necessarily represent the view of the Bangko Sentral ng Pilipinas . Comments regarding this presentation may be sent to eavila@bsp.gov.ph

in SMS: thank u