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Great Potential for Co-ops in e-Payments

Jing Gusto, consultant of World Council of Credit Unions, presented before the NATCCO Coop Leaders’ Congress in Iloilo City last April the results of a study that shows the readiness of co-ops and their members for e-payments.  
I think it is also important for us to see what is happening in our institutions and in our network. There is much happening in our economy, and it concerns the private sector, our government, and in our cooperatives.  
So let me introduce to you the Level One Project (L1P).  It is implemented by the World Council of Credit Unions (WOCCU) based in Wisconsin, USA and supported by the Bill & Melinda Gates Foundation (BMGF).  The Objective of the L1P is to promote inter-operable digital payments among cooperatives in the Philippines and Indonesia.  The ultimate aim is to reach and serve co-op members and extend reach to serve the unbanked and the poor worldwide.
WOCCU hopes to achieve this by designing and testing a digital financial service infrastructure that is low-cost, robust, inter-operable and delivers payments in real time.
There is apparently a recognition that an e-payment system is important and should be scaled up as many organizations are involved.  Other partners are NATCCO & Philippine Federation of Credit Cooperatives (PFCCO).  Also involved are PaySys Global LLC as research contractor, and ModusBox for the development of the system.
But there is resistance to the “scaling” of e-payments.  There is a challenge in the transitioning from cash-based to electronic transactions.  While some of you are shopping online and using GCash , the sad story is still that a lot of people – including our members – who are still transacting using cash.
The problem with doing that is it limits the opportunities for people to grow their business.  They are missing out on the security and convenience.  Our co-ops are also missing out on the millions of potential new members.  
Then again, BMGF wants to establish a national digital financial service system enabled by open source and standard-based mechanisms governed by the players themselves.  It’s important that the players are the ones governing .
Who are the players?  You are the potential members of this open loop payment system.  When you talk about “open loop” – you have Kaya Payment System (KPP) already.  But can you transact with co-ops that are not members of Kaya?  Why not?  Because the systems are still closed loops.  Up to this point, for instance, you cannot pay your electric bill with KPP.
Imagine if your KPP can cover all your transactions!  That’s the vision.
In an “open loop”, whether you are using Kaya, GCash, Smart Money, or any other wallet or account – whether in a bank or a cooperative, you should be able to perform all transactions.
First phase is Developing the Business Case for the co-op led inter-operable payment system.  This involves a study, survey and consultations.  I handled the focus group discussions in the Philippines and Indonesia.  
Second phase is Identifying Regulatory and Technical Requirements, which involves regulatory and technical matters.
Third Phase is Demonstrating the Value of the System through a live demonstration; and finally,
Fourth Phase is Designing the Implementation Phase for the shared system to be rolled out in the Philippines and Indonesia.
On Phase One, the survey gives a profile of the readiness of the co-ops in adopting e-payments.  Of the 220 respondents, 40% are from NATCCO and other respondents were from MASS-SPECC (Mindanao), VICTO (Visayas) and PFCCO (nationwide).
How ready are Philippine co-ops?  These are the findings:
About 40 percent do not use any core application system, nor have an operations manual.  Note that using Excel doesn’t mean your co-op is automated.  Loan applications, account opening, data filing and retrieval should be done with minimal or no human intervention.
Of the co-ops that use core application systems, many use offline versions.  Fortunately, for co-ops that lack systems, Kaya enables these co-ops to provide a store of digital wallet.
Sixty percent have no in-house IT staff.  35 percent have 1 to 5 IT staff.  Only 5 percent do have robust IT teams of 6 to 30 personnel.
As a result, only a few leverage digital channels and nearly 90% do not issue cards or enable access to accounts via ATMs.
Now that we know the capabilities of co-ops, let’s now look at the profile, needs and preferences of individual co-op members.  
Most co-op members are micro-entrepreneurs, salaried workers, farmers, remittance senders or beneficiaries, functionally literate android phone users, and 66% were women.
Their transactions are thru checks, cash, pay bills and insurance, and avail of co-op financial services.  Further, their payments were mostly for grocery items, transportation, school, and cellphone load.
Payments are largely in cash, as other payment players (like GCash and SMART Money) are starting to gain a foothold.  Significantly, KPP is already being used by some members for bills payment.
Are co-op members ready for e-payments and do they want it?  Concerns raised by members are that bank transactions feature long lines, payment centers are more convenient but expensive.  Thus concerns about e-payments are: speed and reliability, affordability, and security.
Concerns of those who already use KPP are internet connectivity and speed, lack of billers that can be paid, activation is quite complicated, and there is no physical receipt as proof of transaction.
Some co-op members also do not have internet nor android phones.  
The L1P study concluded: There is great potential for e-payment acceptance since Filipinos own mobile phones, and members are interested in digital offerings.   If only co-ops will provide digital services that are affordable, fast and safe, and if they leverage digital channels on seamless e-transactions, members will adopt e-payments.  But co-ops will have to adopt Kaya Payment Platform, automate their systems, and improve their IT departments.
Anatoly "Jing" Gusto is a Market Research Consultant for the World Council of Credit Unions (WOCCU) in its new  initiative, in partnership with the Bill & Melinda Gates Foundation, to deploy inter-operable payments platforms connecting credit unions.  He has more than 15 years’ experience in financial inclusion, digital financial services and policy formulation. At Rizal MicroBank, a subsidiary of Rizal Commercial Banking Corporation, he led in defining the bank’s strategy for emerging markets, strategic partnerships, marketing, digital financial services, agri-value chain and financial inclusion.  At Bankable Frontier Associates, he helped diagnose the Philippines’ electronic payment readiness for the Bangko Sentral ng Pilipinas. In two USAID-funded projects, he headed initiatives for the expansion of electronic payment usage in target cities/municipalities and streamlined mobile phone banking applications for rural banks.

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