A New Instant Payment System Will Allow Banks to Reduce Transaction Fees to P1

A New Instant Payment System Will Allow Banks to Reduce Transaction Fees to P1

Managing our finances has become a lot easier in recent years, especially with the digital revolution upending the banking industry. But while many of these financial institutions have been adopting the latest innovations, most of the rural and thrift banks in the Philippines are left out.

Out of over 400 rural banks in the country, only about 18 are part of the payment network InstaPay. The network—the most popular of its kind nationwide—allows users to transfer their money real-time, but with corresponding fees.

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This lack of access to real-time and digital payments among rural banks is what Higala hopes to address. As it claims, it is the pioneering inclusive instant payment platform in the Philippines. Higala, which means “my good friend” or “my trusted friend” in the Bisaya language, is looking to tap rural banks that are not yet connected with InstaPay by providing cheaper onboarding and transaction charges.

“We’re going to address the issue of on-ramp cost, which is prohibitive for most financial institutions like rural banks to participate in interoperable payment systems,” Vice Catudio, Higala’s president and chief executive officer, said during the launch of the platform in Makati City.

Catudio noted how banks need to invest millions of pesos in technologies just to be able to connect to InstaPay.

“If you’re a rural bank with P50 million in capitalization, why spend that P50 million in tech when you can use it somewhere else?” he said. “It’s very costly.”

Below P1 transaction fee

Right now, banks charge up to P25 for InstaPay transactions. The amount includes the P3 switching fee, as well as the high on-ramp cost, or the equivalent of the amount financial institutions spent to connect to such payment highways.

With Higala, transaction fees are expected to be lowered to P1, with the help of an open-source software called Mojaloop, run by a foundation “dedicated to boosting financial institutions.”

“Under P1 is our goal, and we’re going to hit it. In addition to the under P1 fee, on-ramp is like near zero, so that everyone can participate,” Winston Damarillo, CEO of Talino Venture Studios, which is one of the investors of Higala, said.

“If we do that, we are going to be among the cheapest in the world. Right now, we’re one of the most expensive,” Damarillo added.

Higala, which is backed by the Bangko Sentral ng Pilipinas, is targeting to onboard 15 rural banks, five thrift banks, and 100 financial institutions by the end of 2024. It also hopes to cater to universal and commercial banks down the line.

Currently, there are at least four financial institutions that have agreed to onboard, according to Higala.

Higala vs. InstaPay: What’s the difference?

Unlike InstaPay, Higala will be “invisible” to users. It’s going to be embedded on the platforms of banks and other financial institutions. Higala will serve as the “cheapest path” to pave the way for InstaPay, PESONet, and other payment networks to bring transaction fees down.

“We will lower their cost. It’s up to them how to charge their customers,” said Damarillo.

Higala, officially launched on April 25, is set to be interoperable by May or June.