Philippine banks likely to see higher volumes after waiving transfer fees

BANKS’ MOVE to waive fees for retail fund transfers to comply with new rules from the Bangko Sentral ng Pilipinas (BSP) could slightly dent their revenues but still end up boosting profits on the back of higher transaction volumes and better customer retention. 

BSP Circular 1238, which took effect on July 4, requires financial institutions like banks, e-wallets, and other payment service providers to adopt reasonable, fair, and market-based pricing for digital person-to-person fund transfers.

Most universal, commercial, thrift, and digital banks have already scrapped their InstaPay and PESONet fees, while several e-wallets opted to lower their applicable inter-institution charges.

Waiving these fees makes traditional banks more visible as payment conduits amid growing competition from digital banks and financial technology firms, First Metro Investment Corp. Head of Research Cristina S. Ulang said in a Viber message.

“It actually helps bank profitability as it improves banks’ relevance, market profile, customer retention, client relationship and overall business,” she said.

Ms. Ulang said the move is very timely as it helps ease transaction costs amid heightened inflation pressures and is also in line with the BSP and the government’s financial inclusion goals.

“Fee waivers are a modest headwind to bank profitability, particularly for institutions more reliant on transaction fees, but they could be positive for financial inclusion, digital adoption, and long-term customer acquisition,” Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas likewise said in a Viber message. 

Citing internal data, COL Financial Group, Inc. Chief Equity Strategist April Lynn C. Lee-Tan said in a Viber message that the move towards zero-fee retail transfers could shave off about 1% from big banks’ revenues, while the profit hit could be from 1% to 3%.

The latest BSP data showed that the Philippine banking system’s combined net profit went up by 2.87% to P104.82 billion in the first quarter from P101.9 billion.

The industry’s fee and commissions income rose by 6.8% year on year to P47.62 billion in the first quarter from P44.59 billion in the same period. This accounted for the bulk of its non-interest income.

F. Yap Securities, Inc. also said in a July 12 market note that the fee waiver poses only a “negligible” threat to listed banks’ earnings, with “resilient” net interest margins to support their profits. “Expect competition in digital banking, but this headline is largely deposit-accretive for banks,” it said.

“The impact on profitability will likely be limited for universal and commercial banks, as transfer fees account for only a small portion of total revenues relative to lending, treasury, cards, and other fee-generating businesses,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in a Viber message.

“For these banks, the potential gain from deeper customer engagement and higher transaction volumes could partly offset foregone fee income.”

BSP Deputy Governor Mamerto E. Tangonan earlier said banks’ digital transaction volume has increased by up to 50% following their transfer fee waivers.

SMALLER BANKS
Meanwhile, the move could bite for smaller banks like thrift and rural lenders, in particular those with less diversified sources of revenue, Mr. Asuncion said.

“That said, the effect will vary depending on how much they relied on transaction-based fees and how successful they are in leveraging free transfers to attract and retain customers,” he said.

As for digital banks, Mr. Asuncion said some could lose their competitive advantage as most of them already offered free transfers even before the BSP directive as part of their customer acquisition strategy.

“With traditional banks now matching this feature, differentiation may increasingly depend on deposit rates, user experience, rewards, and product offerings.”

Mr. Asuncion added that with less friction for inter-institution transfers, this may increase deposit mobility, which would heighten competition for these funds.

“However, I do not expect a significant shift of deposits from digital banks back to traditional banks solely because transfers have become free,” he said. “Depositors will continue to be guided primarily by interest rates, convenience, platform quality, and trust in the institution.”

“I don’t think funds will shift from digital to traditional banks just because of free InstaPay. There are many other reasons for opening digital bank accounts, such as convenience, ease of opening, higher deposit rates, and easier access to credit,” Ms. Lee-Tan likewise said.

With the new BSP rules somehow leveling the playing field, financial institutions may turn their focus towards building and monetizing their relationship with their customers, Mr. Asuncion added.

“In that sense, the bigger story may not be the loss of transfer fee income, but the heightened competition for deposits, wallet share, and long-term customer engagement.”

The BSP wants digital payments to account for 60%-70% of the total volume of retail payments by 2028 in line with the Philippine Development Plan.

In 2024, digital payments made up 57.4% of the country’s total monthly retail transaction volume (from 52.8% in 2023) and 59% of the combined value (from 55.3% in 2023), according to BSP’s latest Status of Digital Payments in the Philippines report. — Aaron Michael C. Sy