Innovation in Person to Government Payments in the Philippines
Smart Hub Inc., a unit of Smart Communications Inc. (Smart), has developed an epayment innovation in the person to government (G2P) space, called BayadLoad (bayad meaning payment in Tagalog). BayadLoad was initially structured to address the needs of 1.8 million employers and 2.5 million domestic service workers to comply with the new “Kasambahay Law”, which compels informal domestic workers and their employers to subscribe and pay for government social benefits, including the Social Security System (SSS), Philippine Health Insurance Corp (PhilHealth). and Home Development Mutual Fund also known as Pag-IBIG Fund.
Bayadload can also be used by over 10 million self-employed individuals who are making voluntary contributions to these funds for social protection. The Kasambahay Law is a landmark piece of labor and social legislation that gives domestic service workers the same security benefits given to those in the formal sector.
BayadLoad is an e-money platform that allows mobile phone subscribers of Smart, Talk 'N Text and Sun Cellular -- be it the kasambahay or the employer -- to pay selected government welfare premiums without being charged an SMS fee. As of the end of 2012, Smart, Talk ‘N Text and Sun have a combined subscriber base of more than 69 million Filipinos.
BayadLoad is also a separate wallet linked to a mobile phone but unlike airtime load, it can be used exclusively for micro and low-value government payments. It also has no expiration date and cannot be withdrawn in cash, but can only be redeemed for payment in a closed loop arrangement to an identified payee, in this case, SSS, Pag-IBIG, and PhilHealth. The service was approved by the Bangko Sentral ng Pilipinas on June 6, coupled with an electronic money issuer license granted to Smart Hub, Inc.
Initial users must register their SSS, PhilHealth and Pag-IBIG accounts via mobile phone to use the service, using their Smart, Talk 'N Text or Sun number. They then buy load from any air time retailer and can make their social payment using load. However, the money must be directed to a specific “wallet” used exclusively for government payments and not for SMS, voice or data. The funds are processed by the Land Bank of the Philippines, the government’s official depository bank, and SMS notifications are sent immediately for successful transactions. The Land Bank handles all reconciliation processes and credits all payments in near real-time via end-of-day settlement with the respective government departments.
The payer is charged a convenience fee of 12% of the transaction which is a cost recovery mechanism for Smart as real value of airtime load is less than its nominal value due to trade discounts. With the fully elective service just beginning to roll out in early July, uptake of the service remains to be demonstrated.
What is the innovation here? One step back, three steps forward?
The Philippines is well known as a pioneer in mobile money around the world. But ten years after rollout, neither of the big services has more than 5% of subscribers actively using mobile money. Reasons for the lack of traction abound, ranging from high competition from ubiquitous and pre-existing cash Over the Counter (OTC) payment options, to complex mobile menus, lack of client trust in technology, lack of effective agent networks, etc. By using the prepaid airtime as a currency moved across wallets, SMART can effectively address many of the issues faced by mobile money, for example using all the airtime agents as cash-in points (1 million), as opposed to only certified mobile money agents (10,000).This is also a good opportunity for Smart to introduce an alternative delivery channel that is very familiar and regularly used by the target market.
The innovation here is the link to social welfare payments – in particular for informal workers (overwhelmingly unbanked) paying into the government to support their own future benefits (P2G transfers). While many innovations in branchless banking have come to light around government transfers to the poor, this one facilitates the reverse. Use of airtime for mobile payments may give many low-income people the opportunity to pay into government programs which provide health, pension and maternity leave benefits, workman’s compensation and housing support services, providing a degree of future security.
So why “one step back”? Some would argue that this tool is a step away from (and possibly diverting attention from) real financial inclusion, wherein the poor and unbanked are provided with a secure instrument as a store of financial value, so they can save, gain a financial identity and access a wide range of services. It smacks of a return to “the old days” when air time was used as an inefficient substitute for cash. However, as low levels of banking penetration (only 20-30%) and mobile money uptake demonstrate, poor Filipinos are still not being effectively served after a long and intensive government campaign around inclusion. In the arena of financial inclusion and social protection, the possibility of leveraging mobile technology and air time distribution networks to link the poor to the digital highway may be a critical step toward a tipping point for inclusion.
A big next step for the service is the newly announced SMART partnership with the BayadCenter (dominant OTC bill pay service in the Philippines with over 3,000 branches) allowing users to make more than 165 different payments, including basic utilities across the Philippines and transportation services. This could be a tipping point of utility for the service, but tentative uptake thus far indicates a strong need for marketing and customer education.
Future uses of the service could also trend toward ecommerce, following in the footsteps of Coda Payments, which provides a service to load airtime and then use that value to pay merchants, especially online. Coda operates a payment-grade transaction-processing switch that integrates into mobile operators’ billing platforms and which merchants can access through a straightforward API. Mobile operators like PT. AXIS Telecom in Indonesia are using Coda’s service to allow subscribers to purchase a range of digital content on the web, from e-books to game credits, using air time.
The service could be transformative, but we note that the facility is still limited to Smart subscribers. What about maids and drivers and construction workers who use Globe, the other dominant MNO? The government, banks and MNOs should work towards offering BayadLoad across all subscribers, regardless of network, and build an easy glide path for new users to covert to real financial instruments – accounts or wallets - once the time is right. Then the promises of transformation and innovation may actually ring true.