What’s Holding Back InstaPay? Overcoming Barriers to Digital Payments in the PH

InstaPay is a real-time electronic fund transfer system launched in 2018 by the Bangko Sentral ng Pilipinas (BSP) under the National Retail Payment System (NRPS). Designed to enable small transactions and promote financial inclusion, it connects over 70 banks, e-wallets, and financial institutions.

In this article, I’ll provide an overview of InstaPay, its integration with QR Ph, and propose ways to increase digital payment adoption in the Philippines.

What Is InstaPay?

InstaPay is an electronic fund transfer (EFT) system that supports transactions up to ₱50,000 per transaction. It operates 24/7, catering to high-volume, low-value payments for personal remittances, utility bills, and merchant payments. Key features include:

1. Real-Time Transfers: Transactions are completed within seconds.
2. 24/7 Availability: Fund transfers can be made any time, including weekends and holidays.
3. Interoperability: InstaPay connects over 70 banks, non-bank financial institutions, and e-wallets.

InstaPay is commonly used today via QR Ph, which is a standard using QR codes to facilitate payments. Due to this standardization, it is very easy to send and receive money to people using any bank or e-wallet-- there is no need for a single app or the potential for errors from entering account details.

How InstaPay Works

InstaPay transactions involve multiple entities and a tightly coordinated process:

1. Transaction Initiation: A customer starts the transaction using their financial institution’s mobile app, online banking platform, or an e-wallet.
2. Validation: The Originating Financial Institution (OFI) validates the transaction, checking account balances, transaction limits, and recipient details.
3. Clearing via BancNet: BancNet serves as the Clearing Switch Operator (CSO) for InstaPay. In other words, it acts like a digital middleman, ensuring payment instructions get routed correctly between banks.
4. Settlement via PhilPaSS Plus: Transactions are settled in real time through BSP’s PhilPaSS Plus, which ensures the movement of funds between the OFI’s and RFI’s accounts at the BSP.
5. Credit to the Recipient: The RFI credits the recipient’s account and sends a confirmation notification, completing the transaction.

This entire process generally happens within a few seconds, making it convenient for real-time transactions such as retail payments.

QR Ph: Expanding InstaPay’s Reach

QR Ph is the Philippines’ standardized QR code system that integrates with InstaPay to simplify payments. It allows users to make payments or transfers by scanning QR codes, eliminating the need for manual input of account details.

The standard currently focuses on two use cases:

1. Person-to-Person QR (P2PQR): Facilitates informal transactions between individuals, such as splitting bills or sending allowances.
2. Person-to-Merchant QR (P2MQR): Used for paying businesses. Merchants display QR codes linked to their bank or e-wallet accounts, and customers use their mobile apps to pay instantly.

QR Ph leverages InstaPay’s infrastructure to ensure both P2PQR and P2MQR transactions are processed securely and in real time.

Why do Filipinos still prefer cash?

The ideal world is one where everyone uses digital payments. The cost of handling cash is high, and accounting is more difficult when having to think about where cash is physically stored. Although digital payments are being adopted by more Filipinos, cash remains king-- according to a report from the BSP, 47.2% of transactions were still done in cash in 2023. Here are my primary theories as to why this is the case:

• Transaction fees. Cash is free to use. However, many OFIs charge fees (₱8–₱25) to the sender for using QR Ph. For transaction values below ₱1,000, this doesn't really make sense.
• Ease of use. Although InstaPay settlement is instant, creating and sending a transaction is not. A typical in-store payment flow requires several steps: opening up a "super app" on a potentially old phone, entering a PIN, scanning the recipient's QR code, entering the amount, entering another PIN, confirming the transaction, then allowing the cashier to take a picture of the confirmation screen on their phone. In contrast, with cash, one just needs to hand over the money and the cashier can immediately give the customer their change.
• Slow internet. Outside of the cities (and even within the cities at times), cell signal is not always reliable. Since the sender of a transaction must be connected to the internet, this can make payments unreliable.
• Lack of awareness. Many Filipinos are still not aware of the benefits of digital payments and QR Ph. People understand GCash, but QR Ph is relatively new and people don't necessarily associate it with their banks.

For these reasons, if a business does not take card, I personally have a tendency to use cash if I have it available.

Increasing adoption of digital payments in the Philippines

I believe that all of these issues can be addressed with improved technology and clearer UX. For example:

• Transaction fees can be reduced to ₱0 for small transactions if transactions are either routed outside of Bancnet or if the OFI decides to omit fees for lower value transactions. The server costs of handling payments are quite low, so if the e-wallet or bank can make money from other sources, they can afford to offer free transactions.¹
• Apps can be improved by reducing the number of screens one must go to in order to complete a transaction. Apps can be optimized in order to make user interactions instant. Furthermore, receiving QR codes can be generated dynamically via payment terminals to avoid manual input of confirmation screens and transaction amounts.²
• Since a typical business has internet connectivity via WiFi or Ethernet, it is more common for the sender to have poor signal. If only the receiving party needs to be connected to the internet, then the sender can be offline with a properly designed app and communication protocol.³
• Education can be improved by making it clearer that QR Ph is just a way to pay from one's bank or e-wallet.⁴

Although the adoption of digital payments is already increasing rapidly, addressing these issues will make it easier for more people to adopt digital payments. For those who already prefer digital payments, making payments easier will increase conversion rates and transaction volume for businesses.

I am looking forward to seeing these issues addressed over the next few years as companies continue to innovate and improve payment systems in the Philippines.

Conclusion

InstaPay is a transformative innovation in the Philippines’ payment ecosystem. By enabling fast, secure, and interoperable fund transfers, it supports the BSP’s goal of a cash-light society. Its integration with QR Ph and reliance on BancNet for clearing and PhilPaSS Plus for settlement underscore its robust and scalable infrastructure.

It is clear that the groundwork exists for a fully digital payment system in the Philippines. The next steps are to make it easier to use, cheaper, and more widely adopted.

Footnotes

1. In general, the OFI generally pays transaction fees to BancNet for clearing services. These fees are often passed on to the party initiating the transfer, typically ranging from ₱8 to ₱25 per transaction. The BSP provides a transparent pricing list of all InstaPay and Pesonet member institutions on their website. ↩

2. The QR Ph standard allows for specifying the amount of a transaction. However, most businesses use static QR codes for receiving payments, which requires the customer to manually input the amount. A well-designed payment terminal or application could be used to generate dynamic QR codes to avoid this issue and automate reconciling payments with one's POS or bank. ↩

3. One potentially useful protocol in this system is InstaPay's Request-to-Pay (RTP), soft-launched in December 2023. This service allows for a business to send a payment request to a customer's bank or e-wallet, reducing the amount of requests the sender must make to a server. Coupled with some sort of P2P network, this could prevent the sender from needing to be online. ↩

4. Virtually all banks support QR Ph payments via their mobile apps. Most people don't even know that they can use their bank instead of GCash to perform payments. However, since GCash transfers are free for the sender, I believe this is unlikely to change. ↩