The cost of going cashless

Notes on the beat

MANILA, Philippines — For years, sending money online came with a familiar tradeoff: convenience at a cost.

A P15 or P25 transfer fee may look small on paper, but for ordinary Filipinos making small-value transactions, that fee could be enough to keep cash as the default. For small merchants, sari-sari stores and informal sellers, the cost of digital payments could also be one more reason to stay outside the formal financial system.

That is why the recent wave of banks waiving digital transfer fees is more than just a marketing move. It is the latest step in a long effort by the Bangko Sentral ng Pilipinas (BSP) to make digital payments cheaper, more useful and harder to ignore.

At a recent press chat, BSP Deputy Governor Mamerto Tangonan described the country’s payments journey as one that did not happen overnight.

The BSP began laying the foundations in 2015 with the National Retail Payment System, the framework that allowed payment players to talk to one another.

Before that, payment channels operated like separate islands. A customer using one provider could not easily send money to another customer using a different provider.

That changed with the rollout of PESONet in 2017 and InstaPay in 2018, followed by QR Ph in 2019. The BSP also upgraded its settlement system to PhilPaSSplus in 2021, giving payment systems a stronger backbone. Paleng-QR Ph followed in 2022, helping public markets, tricycle drivers and small vendors accept digital payments.

By 2024, digital retail payments climbed to 57.4 percent of total retail payments, from only one percent in 2013. But for the BSP, that was not enough. Growth had started to slow.

Tangonan noted that the digital payments share, after years of steep increases, recorded single-digit growth for the first time in 2024. The BSP still wants digital payments to account for 60 to 70 percent of retail transactions by 2028.

“If we don’t do anything, and we see another year of single-digit growth in 2025 and again in 2026, we will not achieve our vision,” he said.

This is where fees come in.

Lower transaction charges, according to the BSP, are key to a “pay anyone, anywhere, anytime system.”

The logic is simple: the more people and businesses are connected to the system, the more valuable that system becomes.

BSP Governor Eli Remolona Jr. earlier compared this to a telephone network. A phone is not very useful if there is only one person you can call. It becomes more valuable when many people are connected. Payments work the same way.

Tangonan used another analogy: a payment system is like the plumbing of the financial system. If there are bottlenecks in one part of the network, the whole system suffers.

“Everyone benefits when there’s a free flow of transactions in the payment network. Remember, we’re one network,” he said.

This thinking explains why the BSP has been pressing banks and e-wallets to rethink transfer fees.

Tangonan said discussions on lowering fees had started years ago.

One early attempt was to push for free payments to micro-merchants, since the BSP wanted digital payments to become available in more everyday settings, from taho vendors and sari-sari stores to wet markets, vulcanizing shops and barber shops.

The BSP and the industry initially explored thresholds, such as free transactions for P1,000 or P500. But this created another problem: customers simply split payments into smaller amounts to avoid fees.

The BSP later explored giving the public a number of free transactions per week. That also drew pushback from the industry. When the idea moved closer to zero fees, the pushback became stronger.

“So we had to think of a policy on how to lower it,” Tangonan said.

That policy came in the form of Circular 1238, which set a pricing mechanism for person-to-person electronic fund transfers. The circular does not simply order all banks and e-wallets to make transfers free. Instead, it requires fees to be reasonable, market-based and supported by actual costs.

More importantly, it says fees for transfers to another bank or e-wallet should not be materially higher than transfers within the same institution, except for the switching cost directly tied to processing the transaction.

Tangonan said some bank CEOs have already told him that they are seeing a surge in transactions and customer onboarding following the fee waivers.

“I hope so,” he said when asked if lower fees could help the country reach its digital payments target earlier than 2028. “Initially, there was a jump, but it could be a major market reaction to the series of waivers.”

“The key thing here is, can it be sustained?” he added.

The sustainability question is important because transfer fees have been part of the revenue mix of banks and e-wallets. If these fees go down or disappear, financial institutions will have to find value elsewhere.

Data from the BSP showed that earnings of universal and commercial banks grew by 4.1 percent to P381.18 billion in 2025 from P366.02 billion in 2024.

During the period, non-interest income increased by 10.4 percent to P231.18 billion from 209.47 billion. Of the total, fees and commissions income went up by 9.7 percent to P161.58 billion from P147.23 billion.

Everyone has to evolve

This is where Tangonan’s broader message becomes clear: payment providers need to evolve.

He said the market could benefit from better savings products, credit, insurance protection and affordable investments. Payments data, for instance, can help financial institutions assess a borrower’s capacity to pay. E-wallets and digital platforms can also serve as gateways to savings, loans, insurance and investment products through partnerships with licensed providers.

“Everyone has to evolve. Everyone,” Tangonan said.

The message to financial institutions is: evolve, or risk being left behind as consumers gain more choices.

Free-flowing money gives the public more power. If one bank offers poor rates or costly services, customers can more easily move their money elsewhere. Digital onboarding has made it easier to open accounts without visiting a branch.

For the BSP, lower fees are not the end of the story. They are meant to remove one barrier to digital payments adoption, alongside other long-standing obstacles such as lack of identification, poor internet access and lack of trust.

The national ID system is helping address documentation gaps. AFASA, or the Anti-Financial Account Scamming Act, is meant to strengthen trust by addressing fraud and scams. Internet access is outside the BSP’s mandate, but other government agencies are working on connectivity.

The fee issue, however, is something the BSP can directly influence through payment rules.

The hope is that cheaper transfers will bring in more users, more merchants and more transactions. As transaction volumes rise, the average cost of running the system can go down, making it easier for providers to keep fees low.

That virtuous cycle is what the BSP wants to unlock.

The challenge now is whether banks and e-wallets will treat lower transfer fees as a temporary concession, or as the start of a deeper shift in how they compete.