Regulating Mobile Banking: The Philippines Perspective

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Regulating Mobile BankingThe 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 technologiesmoving 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
ATMs

• 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

- Has the potential of reaching the poor and
un-served market

• As of December 2006 there are 6,867 ATMs
  nationwide but only 73 are rural bank ATMs
• Concentration in urban centers

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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 e-banking
  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 banks 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

• (contd)
• 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 banks
  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