Kaya Founders report: Philippines digital transaction fees remain costly

The adoption of digital payments in the Philippines has hit an all-time high, but transactions remain expensive by global standards, a report released by early-stage venture capital Kaya Founders showed.

At present, Filipinos who use InstaPay are charged P10 to P25 per transaction, while PESONet charges can reach up to P50 per transactions, which compare to India’s UPI and Brazil’s Pix, which charge near-zero fees, or roughly P0 to P0.50 per transaction.

“This reflects how the rails have been built and governed,” The Philippine Fintech Stack report released by Kaya Founders read.

The Bangko Sentral ng Pilipinas (BSP) launched InstaPay in 2018, an electronic fund transfer (EFT) payment system that enables individuals to wire funds across banks in real time.

The report cited InstaPay’s reliance on a relatively high-cost technology service provider, which has also slowed the rollout of cheaper features such as direct debit and bill payments. Less than a fifth of over 500 banks and e-money issuers in the country are also InstaPay participants.

“The stakes for upgrading this infrastructure go beyond costs and transaction volumes. Improving the payments layer directly enhances the efficacy and viability of broader financial products,” the Kaya Founders report said.

PESONet, meanwhile, was launched in 2017, enabling the government, businesses, and individuals to initiate EFTs and recurring payments in financial institutions supervised by the BSP within the same banking day.

“Until the Philippines levels up its payments infrastructure, these ‘network effects’ will remain out of reach, leaving the economy with a foundational layer that is functional, but far from transformative,” the Kaya report read.

The report also found that higher transaction costs have limited usage among Filipinos compared with peers in other emerging markets. The country averages just three transactions per person each month, well below India’s UPI at 14 and Brazil’s Pix at 25.

The report called for enhanced competition and the provision of more efficient clearing infrastructure that supports advanced features such as automated direct debits.

“Digital finance in the Philippines has reached a meaningful scale. The constraint now is not innovation at the app layer, but coordination at the infrastructure layer. Where identity is portable, payments are cheap, and data can move securely, financial inclusion becomes economically sustainable,” Connor Wen, author of the report, said.

The BSP said it is still pushing to remove electronic fund transfer fees, at least for small transactions, as it seeks to maximize the country’s payment system.

“That’s what maximizes what we call network externalities. If you have a phone, and you’re the only one with a phone, the phone is completely useless. If someone else has a phone, you can call that someone else; the value of the phone goes up. That value is maximized when everybody has a phone. It’s the same thing with digital payments,” BSP governor Eli Remolona Jr. said last November.

BSP deputy governor Mamerto Tangonan, in February, said banks have asked for two years as a soft landing for them to adapt to the proposed removal of interbank transfer fees, something that the Monetary Board will still have to decide on. –NB, GMA News