The price of inclusion

Eleven years ago, I stood before an audience at the Microfinance Council of the Philippines Annual Conference and made the case for electronic payments as a driver of inclusive growth.

“Digital” was not yet the ubiquitous word it is today. We were still talking about mobile financial services, e-money, the basic plumbing of a cashless economy.

Around that same period, I sat in on the technical working group under then-BSP Deputy Governor Nestor “Nesting” Espenilla Jr. that eventually gave the Philippines PESONet and InstaPay – rails that, back then, existed only on paper and in ambition.

Those rails are firmly in place now. The question that occupied us a decade ago of “how do we bring Filipinos into the formal financial system?” has been substantially answered. But a harder, more interesting question has taken its place: now that the rails exist, how do we make sure Filipinos actually use them, frequently and affordably enough for digital payments to become a habit rather than an occasional convenience?

That question sits at the center of a research collaboration between RCBC and Innovations for Poverty Action (IPA) Philippines, and the early findings deserve wider attention than a single forum presentation can give them.

When IPA first examined historical transaction data, a clear pattern emerged: average transaction size was rising while transaction frequency was falling. Customers weren’t moving less money. They were consolidating. Fewer, larger transfers instead of the frequent, smaller ones you’d expect from a household managing everyday cash flow.

That pattern raised a question every bank in this country should be asking itself: when we put a price on a digital transaction, are we just charging for a service, or are we actually reshaping how people behave? We decided to find out rather than assume.

The study design was straightforward in principle, yet rigorous in execution. Customers were randomly assigned different InstaPay fees, with everything else held constant, like real customers, real transfers, real money on the line.

The results were unambiguous. When fees fell, usage rose, and rose sharply. DiskarTech users made roughly 100 percent more transactions. Pulz users transacted about 30 percent more. The strongest effects appeared at very low and zero fees, and lower pricing also drew in customers who had previously avoided InstaPay altogether.

Just as telling was what didn’t happen. There was little evidence of broad substitution from other payment channels. Customers weren’t only shifting transactions from one rail to another. The additional volume was new usage, not displaced usage. Lower fees reduced friction, and reduced friction created real, incremental value.

The study’s evidence and insights beg three important lessons everybody in the industry should learn.

First, access and affordability are not the same objective. An account, an app and a QR code get a customer through the door. Affordability determines whether they come back. Our data showed lower fees strengthened retention among DiskarTech users specifically; the segment for whom every peso of friction matters most.

Second, the true cost of a fee is never just the fee. It is the behavior that fee produces. Pricing determines not only whether a customer transacts, but how often, and whether new users are willing to try the rail in the first place.

That makes pricing an inclusion decision as much as a revenue one. To be clear, the lesson isn’t that every fee must fall to zero. It’s that lower fees measurably reduce friction and create consumer value, and institutions owe it to their customers to know that trade-off rather than guess at it.

Pricing is also only one lever. Trust, usability, merchant acceptance and consumer protection still have to do their share of the work. Price alone won’t activate the hardest-to-reach users.

Third, good policy requires good measurement. Part of our work with IPA examines how accurately surveys and self-reported data capture what customers actually do, as distinct from what they say they do. There is a meaningful gap between asking someone how often they transact and observing their actual behavior. Design policy around the former, and you risk building for perception instead of reality.

But there is a dimension of this conversation the industry doesn’t discuss enough: the institutions themselves. Since InstaPay launched in 2017, only about five percent of rural banks have joined the system. Genuine ubiquity in digital payments will not come from convincing more individual Filipinos to transact digitally; it will come from making the rails accessible to the institutions that serve the last mile, the community and rural banks that are often the only formal financial touchpoint a family has.

Every pricing decision a bank makes eventually lands on a customer weighing a practical choice. Do we transact now, wait, combine transfers or decide digital isn’t worth it today? Multiply that decision across millions of Filipinos, and it adds up to the shape of the whole digital payments ecosystem we are collectively building.

BSP sets the policy direction. IPA builds the evidence. It is on financial institutions to test, learn and respond, not once, but continuously, as pricing and product decisions evolve.

More than a decade ago, our job was building the rails. Today, our job is making those rails work better for every Filipino who steps onto them, because scaling inclusive digital payments was never simply about getting more people online.

It is about removing the friction that keeps them from transacting. That is how access becomes adoption, and how adoption becomes a habit. Digital payments will not win on price alone; they will win because they are trusted, secure, reliable and fast. The endgame is simple. Make digital payments so seamless that cash becomes the exception, not the default. That is the true price of inclusion.