News in Brief

Organising for Change in the Philippines

Bangko Sentral ng Pilipinas (BSP) has reorganised to combine its cash department and its payment department.

In the case of the Philippines the goal is to accelerate a move to a ‘cash-lite’ society, but it represents a pragmatic approach to co-ordinating payment activity and, perhaps, addressing some of the friction and barriers that working in different silos can create. BSP wants the ecosystems of physical money and digital payments to be managed in one place to enable ‘sustained and inclusive economic growth’, according to its Governor, Benjamin Diokno.

The cash department is responsible for printing banknotes, manages currency retirement, mints coins, manages securities documents, refines gold, prints the national ID cards and services bank deposits and withdrawals in the greater Manila area, along with anti-counterfeiting operations.

The payments department licences and supervises payment system operations and administers digital personal equity retirement accounts. It is managing the digital payment transformation of the Philippines.

The new Deputy Governor, Mamerto Tangona, comes from six years managing the E-PESO project to move the Philippines from cash to digital payments, and advised the BSP on its National Retail Payment System, including InstaPay and PESONet. His vision is of cash and digital payments co-existing but with a clear movement to being a cash-lite society.

It will be interesting to see how this combination works and how it allows payments to develop in the Philippines.

EPI Assesses RFI Responses

The European Payments Initiative (EPI) consists of 31 major Eurozone banks, along with the acquirers Worldline and Nets. The EPI has formed a JV to create a European payment system to rival Visa and Mastercard, offering cards to consumers and merchants along with a digital wallet and P2P payments.

The aim is that this will be operational in 2022. To achieve that, it put out a Request for Information (RFI) for a technical partner to work with them to build the central infrastructure required that closed on 1 March.

The EPI Interim Company was set up in July 2020 in Brussels and will now evaluate the RFI responses, with the financial aspects of the set up and running of the infrastructure seen as critical to get right. Based on the assessment, potential participants will be invited to respond to a Request for Proposals later in 2021.

Cashless Store Trial Ends in Australia

In June 2020 14 Woolworth convenience stores (Metros) in the central business districts of Melbourne, Sydney and Brisbane started a nine month cashless trial to speed up grocery shopping for time-pressed inner-city customers. The stores had been selected because cash payments represented less than 10% of their takings.

The reaction from shoppers was strong, with many complaining the move excluded people and that they wanted to be able to pay with legal tender, cash. The National Seniors Australia association said it was a form of ageism.

All the shops have now reverted to accepting cash. A Woolworth’s spokesperson said: ‘while almost all Metro customers choose to pay with cards, cash remains incredibly important to those who don’t for a whole range of reasons we didn’t fully appreciate. Based on feedback from our customers, we can see we’ve moved ahead of current community expectations on cash.’

Bank of Ireland to Cut Branches

The Bank of Ireland, which operates on both sides of the Irish border, says 70% of its customers are digitally active. As a result, it believes it has reached the stage where it makes sense to reduce its branch network from 257 to 169, generating €26 million savings each year.

Over the next three years the bank wants to cut its costs by €1.5 billion, reducing its headcount by 1,400.

Cash at Inflexion Point?

The Federal Reserve Bank of Atlanta working paper 2021-11, ‘How People Pay Each Other: Data, Theory, and Calibrations’, uses US Survey of Payment Choice data from 2015 to 2019 to look at how people like to pay.

One of the key goals of the authors was to establish a baseline understanding of payments in order to assess whether the pandemic has caused a transitory or permanent change in P2P payments behaviour. The study involved extensive modelling and empirical analysis.

For person to person (P2P) payments, the answer is unequivocally that people prefer to pay with cash. The report found that the most significant factors in determining the payment method was the transaction value and the age and education of the payer.

In 2019 approximately two-thirds of P2P transactions were settled with cash. The study found that if the transaction value increased from $10 to $50, the probability of using cash fell 20%. The likelihood of paying using a cheque or electronic technology instead went up 11% and 8% respectively. The empirical analysis showed that, on average, an increase in the transaction value from $2 to $22 implied a −29% change in the probability of using cash, 17%, cheques and 12% electronic payment.

The age of the payer and the use of cheques were directly related. The probability of paying by cheque increased 2% for each additional decade and the use of electronic technology decreased by 2%. Similarly, those with a bachelor’s degree were 4% more likely to pay electronically and vice versa for those with a high school diploma. The empirical analysis gave an even bigger change, those with a bachelor’s degree being 18% less likely to use cash while having a symmetric increase in the probability that they use electronic technologies.

The empirical results were consistent with the survey results that said payers followed what the report called a ‘cash burns’ policy, where they always prefer cash if they have enough on hand and default to electronic technologies if they do not.

Although cash was preferred for low-value P2P transactions and as the value increased electronic technology was increasingly used, 93% of people ranked electronic technologies second, suggesting to the authors that P2P payment could be at an inflexion point.