Yes, only Bank of the Philippine Islands (BPI). made the transfer free of charge. That means no more paying P10 for InstaPay transfers from your bank account to another bank or e-wallet.
Good news for BPI customers, indeed. But the more interesting question is what this does to everyone else in the banking industry.
Under BPI president and chief executive officer TG Limcaoco’s reading of the Bangko Sentral ng Pilipinas’ (BSP) new rules, banks that still charge transfer fees may now be stuck with two unfavorable options. They keep single bank, or “to us,” transfers free and charge only around P1.50 for transfers to other banks and e-wallets, or “off-us” transfers. Or they keep charging something like P10 for inter-bank transfers and explain why same-bank transfers shouldn’t be free anymore.
Good luck selling the second option to customers.
This issue is based on BSP Circular No. 1238, which puts a a new fee system for electronic money transfers. Simply put, BSP does not want one type of transfer to subsidize another.
Banks have long defended transfer fees by citing the cost of processing digital transactions. Not long ago, Limcaoco himself was explaining that transfers cost around P22 each to process, factoring in technology, network security, customer service, and other systems needed to make digital transfers work.
But the math has changed. Banks will bear most of those infrastructure costs however, whether the customer is sending money within the same bank or to another. BPI still has to maintain its software, transaction security and handle customer concerns whether the transfer is BPI to BPI or BPI to another bank.
“There is a cost to work with us and there is a cost to leave us,” Limcaoco said during a media roundtable on Wednesday, July 1. “The cost is your technology, your network security, your customer service. All three are for your customer regardless of whether you work with us or without us.”
“So when you think about what the BSP has done with Circular 1238, it basically said you can’t have one sector subsidizing another. They’re basically saying you have to justify your fees to us and our absence,” he added.
Or as the BSP put it in a recent press release: “Transfers within the same bank or e-wallet are often free of charge. Therefore any price difference should reflect the fees paid to the network switch operator.”
The latter – the fees paid to the network switch operator – means what banks pay to have bank transfers between banks processed. According to Limcaoco, that’s about P1.50 for InstaPay.
A small number, but it is what makes the whole thing difficult. If one bank transfer is free, then why should a transfer to another bank cost P10, P15, or more? If the only real difference is P1.50, then the fee gap suddenly seems hard to defend.
For BPI, charging P1.50 was not worth annoying customers.
“We, we said, why will we charge P1.50 where? You just need a client. But P1.50, will it make a big difference to us now? No,” Limcaoco said.
“We think this is good for financial inclusion,” he added. “If banks are willing to give us free, why not give P1.50 too?”
So does the former president of the Bankers Association of the Philippines think this is forcing the hands of other banks?
“They have to follow the BSP circle. And the BSP circle says your difference can only be the internet fee. So you can go P0 and P1.50, or go P13.50 and P15, or P8.50 and P10,” he said.
“That’s my opinion. I don’t know if other banks will agree, but I think the BSP is very clear that the difference must be the exchange fee. And we’ll see where that goes,” he added.
To be clear, BPI doesn’t do this just out of generosity. Limcaoco is betting that free transfers can bring something more valuable than fee income – customer activity.
“We think this generates more customers, more activity, our ability to understand what the customer does,” Limcaoco said. “And so, we can see if a customer stays with us, we can see what kind of services we can offer them, whether it’s loans, credit cards, insurance, or deposits. That’s huge.”
Wait, what about GCash?
There’s also a GCash angle here, and it’s a little tricky.
Limcaoco said many Filipinos now consider GCash as their default wallet because of its popularity. Some customers transfer large amounts from their bank account to GCash, then use GCash to send payments from there. With free transfers, BPI hopes customers will have less reason to leave the banking ecosystem in the first place.
“One of the things is that people have wallets. My wallet is BPI. So all the money comes from BPI. But some people, their wallet, because of the spread of GCash, their wallet is GCash,” Limcaoco said.
“With P15 (transfer fee), they send a large amount to GCash and then disperse from GCash. Hopefully, if it’s free now, people disperse from their BPI,” he added.
That’s interesting because GCash is not a distant cousin of the extended Ayala family. Mynt’s parent company was founded as a partnership involving Globe Telecom, Ayala Corp, and Ant Financial, which is now the Ant Group, while BPI is also part of the Ayala group.
Let’s not forget, Mynt is also gearing up for what could be the Philippines’ a large initial public release.
But family ties do not erase competition. If BPI wants customers to start making more payments within the BPI app, that could lose GCash’s chance of being the first wallet open to Filipinos. For GCash, that could mean more pressure to prove it’s more than just a payment app.
There is a small internal BPI question as well. Where does this leave VYBE, its e-wallet? BPI says authorized VYBE users already enjoyed free inter-bank transfers as a benefit, but if BPI’s core app now offers the same zero-fee transfer experience, VYBE will need a more compelling reason to be an alternative payment method.
As for other big banks, they are likely still digging into the BSP circle and watching how the BPI measure works. And as they weigh the impact of free transfers on their bottom line, banks are left to consider whether the fees are worth more dead than alive. – Rappler.com
