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. 2 CONTENTS ACRONYMS ................................................................................................................................................................ i EXECUTIVE SUMMARY .......................................................................................................................................... 1 PROGRAM OVERVIEW AND INTRODUCTION ........................................................................................... 3 PROJECT ACHIEVEMENTS .................................................................................................................................... 5 Sub-Purpose 1: Rapid Adoption of e-Payments in Financial Systems .......................................................................... 5 Sub-Purpose 2: Infrastructure for e-Payments Expanded ............................................................................................ 12 Sub-Purpose 3: Enabling Environment for e-Payments Improved .............................................................................. 14 Sub-Purpose 4: Gaps in Broader e-Payment Ecosystem Addressed ......................................................................... 19 Cross Cutting and Supporting Activities ........................................................................................................................ 25 Challenges and Lessons Learned ...................................................................................................................................... 26 INTEGRATION OF CROSSCUTTING ISSUES and USAID FORWARD PRIORITIES .......................... 30 Gender Equality, Female Empowerment, and Disability Action .................................................................................. 30 Policy and Governance Support ........................................................................................................................................ 31 Public Private Partnerships (PPP) ...................................................................................................................................... 31 STAKEHOLDER PARTICIPATION AND INVOLVEMENT ......................................................................... 31 MANAGEMENT AND ADMINISTRATIVE ISSUES ........................................................................................ 32 PMP UPDATE .......................................................................................................................................................... 32 TARGETS AND INDICATORS AS OF YEAR 5 QUARTER 4 ........................................................................ 34 ANNEX 1: Press Coverage and Mentions ......................................................................................................... 43 ANNEX 2: Summary of Results to Date by Key Indicator ............................................................................ 46 ANNEX 3: Institutions with PESONet and/or InstaPay-enabled Products Available on their Internet and/or Mobile Channels ............................................................................................................ 70 ANNEX 4: Institutions Connected to PESONet’s and/or InstaPay’s Clearing Switch Operators (CSO)………………………………………………………………………………………….73 2 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) i i 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 USAID/E-PESO 5th Annual Report (October 2018–September 2019) ii ii 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