Regulating Mobile Banking: The Philippines Perspective
Presentation by: Mr. Rogelio A. Encinas, Manager II/Head Microfinance Examination Group Bangko Sentral ng Pilipinas Manila, Philippines
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Outline of Presentation
Background Information on Electronic Banking Mobile Phone Banking: Features and Enabling Factors Regulatory Environment for Mobile Phone Banking and Key Regulations Sanctions Positive Results
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Electronic Banking in the Philippines
Provision of retail and small value banking products through electronic channels ATMs made a debut in the Philippines in the 1980s and have become a common customer delivery channel Telephone and Internet banking have followed but is not as widely used
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Mobile Phone Banking: Enabling Factors
43% of Filipinos (36 million) use mobile phones Estimate that 90% of rural bank clients have access to mobile phones About 500 million short message service (SMS) or “texts” are sent per day “Bottom of the pyramid customers are more willing to adopt new technologies…moving from wireless from nothing is easier than moving to wireless from efficient and ubiquitous landlines”
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Mobile Phone Banking: Enabling Factors
Mobile phone industry in the Philippines serves all income groups especially low income groups due to some industry characteristics:
– Calling party pays – Pre paid services sensitive to cash flow and purchasing power of low income market – Text messaging at low cost (Php .50 to 1.00) – Market for low cost used handsets (Php 500)
Leading telecommunication companies launched the electronic money concept/ platform which allows users to make purchases, pay and receive payments, receive remittances
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Smart Money/G-Cash
Smart money
– Allows users to make purchases, pay and receive domestic payments and to receive remittances by loading or transferring money from a bank account into a mobile phone or reloading a pre-paid card electronically
G-Cash
– Uses Cash-in and Cash-out Centers via mobile phone – Cash-in and Cash-out Outlets accredited to convert actual money to electronic money
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“Text A Payment”
Rural Bankers Association of the Philippines – Microenterprise Access to Banking Services (MABS) entered into a joint project with Globe Telecom thru the Text A Payment Project (TAP). Allows micro loan clients to pay loan amortization using G-Cash platform thru SMS or texting Lowers transaction costs and increase productivity of clients
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“Text A Payment”
Attuned to needs of microfinance cleints:
– – – – Loan amortizations are very small Large network of G-Cash Outlets Very economical Results in savings of 6-8 hours that could be used for productive work
Expanded productes: Text A Deposit, Text A Remittance, Text A Sweldo, Text A Withdrawal, Text A Credit and Text A Bill Payment
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The Case for Mobile Phone Banking
Internet Banking Mobile Phone Banking
- Has the potential of reaching the poor and unserved market
ATMs
- As of December 2006 there are 6,867 ATMs nationwide but only 73 are rural bank ATMs - Concentration in urban centers
- A recent ADB funded survey of microfinance clients in “frontier” areas said that although 54% have access to internet, only 17% use such services. - Where communication/ internet services are not an issue, computer/ literacy is still an issue
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Regulatory Environment
Basle Committee on Banking Supervision has recognized the important role of regulators to manage the risks associated with electronic banking while not hampering useful innovation and experimentation Regulatory framework governing e-banking continues to focus on: – Underlying soundness of the banking institution – Adequate risk management surrounding ebanking activity
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Electronic Banking in the Philippines
Electronic Commerce Act of 2000 (Republic Act 8792) laid basic legal and regulatory framework for electronic commerce in general which includes aspects of electronic banking General Banking Law of 2000 (Republic Act 8791) mandated the BSP to regulate electronic banking activities
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Regulatory Environment
Issuance of Circulars 240 and 269 Series of 2000 Provides the basic and general rules and regulations for electronic banking services in the banking sector
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Key Components
Submission to BSP of application to offer electronic banking services
– Adequate risk management process – Manual of security policy and procedures – Testing prior to implementation – Adoption of continuity planning process
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Key Components
Pre-screening by Technical Working Group on Electronic Banking
– Minimum capital requirement and net worth to risk assets ratio – Satisfactory solvency, liquidity and profitability – CAMELS of “3” – No uncorrected major findings
Submission of documentary requirements
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Key Components
Documentary requirements:
– Discussion on banking services to be offered – Description of bank’s electronic banking system and capabilities – List of software and hardware – Description of security policies and procedures – Contingency and disaster recovery plan – Copy of contract with communications carrier – Copy of maintenance agreements
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Key Components
Standard conditions for approval
– Appropriate top-level risk management oversight – Adequate security controls – Education of customers – Procedures for regular review of security arrangements – Electronic banking service not to be used for money laundering
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Regulatory Environment
BSP built up its capacity to respond to the needs of the electronic banking environment through the Creation of a Core Information Technology Supervisory Group (CITSG) within BSP as the central group to address electronic banking issues (i.e. Mobile phone banking)
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Regulatory Environment
Product Approval Process: “Text a Payment”
– Proposal for banks used as Cash In/ Cash Out Outlets allowed BSP to evaluate the product (linkage with banks awards BSP some “de facto” regulatory authority) – Key areas were reviewed:
KYC Anti Money Laundering Requirements Risk Management Integrity Security and Confidentiality
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Regulatory Environment
(cont’d)
– Measures approved:
Pert transaction cap of PhP 10,000, PhP 40,000/ day and PhP 100,000/ month For Text-a-Deposit, the transaction can only be to a bank (confidentiality of deposits) Process Flow was devised for more expeditious product approvals in the future
– Banks interested in providing approved service can apply through their respective banking associations – Associations will accredit member banks after complying with requirements and training – Association will submit to BSP the list of accredited banks
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Regulatory Environment
BSP issued Circulars 511 (Technology Risk Management) and 542 Series 2006 (Consumer Protection for E-Banking)
– Risk Management focus on operational, compliance, reputation and strategic risks associated with tech-related products – Consumer Protection focus on Board Oversight and Internal Controls on security, authentication, customer origination/verification, monitoring and reporting, disclosure and complaint resolution
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Guidelines on Technology Risk Management
Ensures that banks have the knowledge and skills necessary to understand and effectively manage technology-related risks Contain two main parts:
– Outline of primary risk related to use of technology – Description of risk management process to manage the risks
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Consumer Protection for Electronic Banking
Governs the implementation of e-banking activities of bank to comply with requirements to:
– Safeguard customer information – Prevention of money laundering and terrorist financing – Reduction of fraud and theft of sensitive customer information – Promotion of legal enforceability of bank’s electronic agreements and transactions
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Sanctions
Monetary penalties and/or suspension of electronic banking activities or both, shall be imposed on erring banks and/or its officers for failure to:
– Seek prior BSP approval – Submit within prescribed deadline required information/documents
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Some Positive Results…
– Resulted in increase of electronic banking (and ATMs) for the banking system: For example, as of 2005 there were no rural banks with electronic banking services. As of December 2006, there are already 36 rural banks with electronic banking services out of the 80 banks with electronic banking services. – Most of these e-banking functions of the 36 rural banks are related to mobile phone banking
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Thank you. www.bsp.gov.ph
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