On April 29, 2024, Talino Venture Studios and Chemonics International launched Higala, a startup that will build the Philippines’ first inclusive instant payment system (IIPS). The system will go live this summer and will leverage Mojaloop’s open source instant payment platform for peer-to-peer and merchant payments.

Higala will bridge the gap between traditional banking and the underserved population. With only 18 out of 400 rural banks integrated into InstaPay (the Philippines’ instant electronic fund transfer system), Higala will address the lack of interoperability among financial institutions..

Higala’s President and CEO, Vice Catudio, has spent the last 12 years in the payments industry, primarily as a development consultant advising regulators and the industry on advancing digital payments in the Philippines. After taking the opportunity to lead innovation with Higala, he said he now “gets to implement what I used to ”

He kindly made some time to speak with us about the current trials facing low-income Filipinos, how Higala will help to overcome these challenges, and the advantages that Mojaloop provides.

What are services currently like for the financially underserved in the Philippines?

You have people who need to travel 20 to 30 kilometers just to be able to make payments. They transact primarily using cash, and because they have to travel that great distance, it makes using cash very expensive.

Generally, they don’t have bank accounts and therefore have no access to formal credit. But they need funds to improve their livelihood. To be able to do that, they borrow from informal lenders like friends and relatives, or from loan sharks that typically charge interest rates of 5% every single day.

But because of the pandemic, the adoption of digital payments has accelerated. People have realized that they can use their cell phones to send and receive payments remotely and they’re now exposed to wallets like GCash, which they can use to receive their subsidies and remittances.

However, they still use cash. They take money out of their GCash accounts because most of the merchants do not yet accept digital payments. One key driver for non-adoption of digital payments is the high transaction fees.  We’re looking forward to a scenario where transaction fees are reasonable and more small merchants accept digital payments, so consumers don’t have to withdraw cash just to make payments.

One advantage of using a digital account for payment transactions is that users, consumers and small businesses, are able to develop their banking footprint, allowing financial institutions (FIs) and fintechs to offer other financial products such as credit, insurance, savings, and investments.

Why does InstaPay not include more banks?

There are several reasons why only a few banks are participating in InstaPay, the country’s instant payment rail.

First is the prohibitive cost to invest in technology (digital solutions and IT infrastructure), especially for small rural banks. Rural banks need digital solutions like a core banking system and mobile or online banking service to be able to offer digital payments, including QR code payments to customers. Rural banks also need to set up the IT infrastructure to host the system, build cybersecurity capability around it, and comply with data privacy regulations. They also need to be able to manage and operate the systems in the long term.

Second is the capability of rural banks to obtain an Electronic Payment and Financial Services (EPFS) license from the Bangko Sentral ng Pilipinas (BSP).  Rural banks need to secure an EPFS license to offer electronic payment services and participate in InstaPay and/or PESONet. They need to meet certain prudential criteria to be eligible to apply for an EPFS license, provide documentation of policies and procedures, including compliance with anti-money laundering and terrorist financing (AML-TF) regulations and risk management, documentation of system architecture and IT infrastructure, and demonstration of the rural bank’s capability to operate and market the service to customers.

Large universal and commercial banks can afford sophisticated systems and digital solutions, have the needed IT infrastructure and cybersecurity systems to support their solutions, have the organization to manage its technology and to market and operate the services, and have the capacity to go through the licensing process with BSP, hence are capable to participate in InstaPay and/or PESONet. Bottom line, most rural banks are handicapped from joining interoperable payment rails under the National Retail Payment System (NRPS) framework. 

InstaPay has one of the highest transaction fees for an instant payment system globally. Do you think that’s a driver as well?

Yes. High transaction cost discourages rural banks from participating in InstaPay. Rural banks cater to the rural communities or the underserved population. The underserved market is price sensitive and if rural banks charge high transaction fees it will discourage their customers from using the service.

High transaction fees are one reason why the use of cash is still high among the poor population. In order to attract customers, rural banks end up subsidizing their service, which puts their viability in question. Since rural banks are at the forefront of expanding financial inclusion, they need support not only in reducing onramp barriers to participate in InstaPay but also in reducing transaction costs so they can offer their electronic payment service to their customers at reasonable or affordable prices.

How will Higala serve the entire population, especially financially underserved people?

We position Higala as an enabler to expand InstaPay. It will operate within the NRPS framework, which requires a single clearing switch operator (CSO) per payment stream or automated clearing house (ACH). Higala’s inclusive instant payment system (IIPS) will be offered as a sub-national payment system or affiliate switch, complementing and expanding InstaPay.

, particularly rural banks, not currently participating in the InstaPay ACH. The goal is to expand FI participation in InstaPay and to extend its reach to underserved and unserved populations. This approach involves working closely with Bancnet, the Philippine Payments Management Inc. (PPMI), and the BSP.

To expand FI participation in InstaPay, Higala will bring down the onramp barrier, particularly for “low tech” or “no tech” rural banks, by offering an end-to-end solution to rural banks that will enable them to offer value-added services to their customers.

Higala will also collaborate with technology providers currently servicing rural banks (e.g., core banking solution vendors, mobile/online banking solution providers, etc.) to develop APIs to enable seamless integration with Higala’s platform.  The key is to work with an ecosystem of rural bank digital enablers to accelerate the digital transformation of rural banks and their integration with InstaPay.

Higala will also extend support to rural banks by helping build their capacity to comply with the licensing requirements with the regulator as well as operate and market electronic payment services to their communities. Higala will do the initial work with a few rural banks but will require collaboration with institutions and actors in the financial inclusion space to expand and sustain the effort.

By capacitating and onboarding these rural banks to Higala’s platform, the reach of InstaPay will expand to rural communities. The rural banks will empower their customers — the farmers, households of overseas contract workers, and microentrepreneurs to be part of an interoperable instant payment system and part of the formal economy. Rural banks, being community-based, cater to consumers, farmers as well as micro enterprises in the countryside.

The primary focus will be on rural banks and select thrift banks. Later, Higala can expand this effort to microfinance institutions (MFIs) and cooperatives, if permitted by the BSP to be direct clearing participants in ACHs.

Why did you choose Mojaloop for Higala? How does that aid in digital sovereignty for the Philippines?

Higala’s goal is to operate an open payments platform that would enable traditional financial institutions to move money and connect new market players to offer innovative financial services needed by the market and expand financial inclusion. Higala is using Mojaloop as the core technology for money movement, built services on top of the core technology to enable payment use cases, and developed open APIs to connect rural banks on one hand and new market players such as neo banks, fintechs, and large merchants on the other hand. Mojaloop’s open-source software has allowed Higala to lower its costs and faster time-to-market. With Mojaloop’s technology contributors, which include some of the leading technology companies in the world like Google, Interledger, and Ripple, among others, Higala doesn’t have to reinvent the wheel or invest in expensive R&D. Also, since the technology is open source, on hefty licensing fees to use the technology. That allowed Higala to offer its services to FIs at a very low cost.

As the payment hub operator, Higala can control the data that goes into the platform. Higala is not dependent on third-party scheme providers that would send the data outside of the country and process it according to their rules. Higala can not only protect local transaction data but can also facilitate access, subject to data privacy and bank secrecy regulations, for FIs and new market players to do research and analytics to generate insights to help develop innovative financial products and services.

When do you plan to launch the IIPS and how will that modernize the digital public infrastructure in the Philippines?

Higala will go live third quarter of the year with basic use cases such as person-to-person (P2P) fund transfers and person-to-merchant (P2M) payments using a proxy or alias and QR codes amongst FIs connected to Higala. Before the end of the year, Higala will add the capability to transfer funds to account holders or pay merchants of InstaPay participants. Higala will also offer e-commerce payments, bill payments, QR code merchant payments, and by the end of the year.

Higala will help modernize the digital payment infrastructure with Mojaloop technology. Mojaloop uses state of the art messaging which can facilitate more payment use cases due to its ability to carry more data fields. Customers of FIs connected to the Higala platform will be able to use features of a modern instant payment system such as account proxy or alias for a much-improved customer experience. Higala will have the ability to differentiate payment services and classify merchants to differentiate fees. These capabilities are needed to allow FIs and new market players’ beyond simple P2P and attract more consumers and MSMEs to use electronic payments.

What role will Chemonics International and Talino Venture Studios be playing?

Talino Venture Studios brings to Higala its experience in building inclusive technologies and expertise in venture building. Higala relies on Talino for technology implementation, product development, corporate development, business development, and marketing services during its incubation stage and while building its own organization. With Talino’s support, Higala is able to focus on establishing market acceptance and gaining market traction with a very lean organization allowing Higala the agility to calibrate and/or pivot its business model if needed. Talino is also leading Higala’s fundraising efforts to support the full implementation of its technology roadmap and scaling up.

Chemonics, as a leading sustainable development firm, brings its experience in development work in the areas of economic growth, trade, and financial services. In the Philippines, it brings to Higala its in-depth understanding of the financial services industry landscape, the banking and payments regulations, and the challenges faced by the industry players. As the leading implementing partner of USAID in the Philippines, Chemonics has worked with both the BSP and the payments industry in crafting the NRPS policy framework, setting up the PPMI, and establishing the InstaPay and PESONet ACHs.

Chemonics has also worked with both the BSP, the rural banks, and the leading e-money service provider in promoting the use of e-money in delivering financial services to microenterprises. Chemonics continues to work with the industry to promote the adoption and use of electronic payments and other fintech innovations by small and medium-sized enterprises (SMEs). Through Chemonics, Higala can navigate the industry terrain and the regulatory environment and help identify gaps and opportunities to create value.

Will you or your team be attending any future Mojaloop community meetings?      

Yes, definitely!  When Higala first joined the Community convening in Nairobi in March 2024, we committed to the Mojaloop Foundation that we will not only attend and participate, but we’ll also contribute to advancing Mojaloop technology. We’re looking forward to actively participating in all the Community meetings.

We’ve also been active in many key workstreams to help develop new features and advance Mojaloop.