Yes, Bank of the Philippine Islands (BPI) just made transfers free. That means no more paying P10 for InstaPay transfers from your bank account to another bank or e-wallet.

Great news for BPI customers, sure. But the more interesting question is what this does to everyone else in the banking industry.

Under BPI president and chief executive officer TG Limcaoco’s reading of the Bangko Sentral ng Pilipinas’ (BSP) new rules, banks that still charge transfer fees may now be stuck with two awkward choices. Either they keep same-bank, or “on-us,” transfers free and charge only around P1.50 for transfers to other banks and e-wallets, or “off-us” transfers. Or they keep charging something like P10 for interbank transfers and explain why same-bank transfers should no longer be free.

Good luck selling that second option to customers.

The issue comes from BSP Circular No. 1238, which sets a new framework for electronic fund transfer fees. Put simply, the BSP does not want one type of transfer subsidizing the other.

Banks have long defended transfer fees by pointing to the cost of processing digital transactions. Not too long ago, Limcaoco himself was explaining that transfers cost around P22 each to process, factoring in the technology, cybersecurity, customer service, and other systems needed to make digital transfers work.

But the calculus has changed. Banks are going to carry many of those infrastructure costs anyway, whether a customer sends money within the same bank or to another. BPI still has to maintain its app, secure transactions, and handle customer concerns whether the transfer is BPI to BPI or BPI to another bank.

“There is a cost to making an on-us and there is a cost to making an off-us,” Limcaoco said during a media roundtable on Wednesday, July 1. “The costs are your technology, your cybersecurity, your customer service. All those three are for your customer regardless of whether doing an on-us or an off-us.”

“So when you think about what the BSP has done with Circular 1238, it basically said you cannot have one sector subsidize the other. They’re basically saying you have to justify your on-us and your off-us fees,” he added.

Or as the BSP put it in a recent press release: “Transfers within one bank or e-wallet are often free. So any difference in pricing should mainly reflect fees paid to the network switch operator.”

That last bit – fees paid to network switch operator – means what banks pay to get the interbank transfer processed. According to Limcaoco, that’s about P1.50 for InstaPay.

A small number, but it’s what makes the whole thing so tricky. If same-bank transfers are free, then why should a transfer to another bank cost P10, P15, or more? If the only real difference is P1.50, then the fee gap suddenly looks harder to defend.

For BPI, charging P1.50 was apparently not worth annoying customers over.

“Kami, we said, why would we charge P1.50 pa? You’re just needling the customer. But P1.50, will it make a big difference for us now? No,” Limcaoco said.

“We think this is great for financial inclusion,” he added. “If banks are willing to give on-us for free, why wouldn’t you give the P1.50 also?”

So does the former Bankers Association of the Philippines president think this forces other banks’ hands?

“They have to follow the BSP circular. And the BSP circular says your difference can only be a network fee. So you either go P0 and P1.50, or you go P13.50 and P15, or P8.50 and P10,” he said.

“That’s my view. I don’t know if the other banks would agree, but I think the BSP is very clear that the difference has to be the switch fee. And we’ll see where that goes,” he added.

To be clear, BPI is not doing this just out of generosity. Limcaoco is betting that free transfers can bring in something more valuable than fee income – customer activity.

“We think this just generates a lot more customers, a lot more activity, our ability to understand what the customer does,” Limcaoco said. “And therefore, we can see if a customer stays with us, we can see what kind of services we can give them, whether it’s loans, credit cards, insurance, or deposits. That’s a big one.”

Wait, what about GCash?

There is also a GCash angle here, and it’s a little awkward.

Limcaoco said many Filipinos now treat GCash as their default wallet because of how pervasive it has become. Some customers move a large amount from their bank account to GCash, then use GCash to send payments from there. With free transfers, BPI hopes customers will have less reason to leave the bank’s ecosystem first.

“One of the things is people have a wallet. My wallet is BPI. So all the money comes out of BPI. But some people, their wallet, because of the pervasiveness of GCash, their wallet is GCash,” Limcaoco said.

“At a P15 [transfer fee], they send a huge amount to GCash and then disperse from GCash. Hopefully, if it’s free now, people just disperse from their BPI,” he added.

That’s interesting because GCash isn’t exactly a distant cousin to the broader Ayala family. Its parent company Mynt was founded as a partnership involving Globe Telecom, Ayala Corp, and Ant Financial, now Ant Group, while BPI is also part of the Ayala group.

Let’s not forget, Mynt is also gearing up for what could be the Philippines’ largest initial public offering.

But family ties don’t erase competition. If BPI wants customers to start more payments inside the BPI app, that could chip away at GCash’s position of being the first wallet Filipinos open. For GCash, that might mean more pressure to prove it’s more than just a payments app.

There is a smaller in-house question for BPI too. Where does this leave VYBE, its own e-wallet? BPI says verified VYBE users already enjoyed free interbank transfers as a benefit, but if the main BPI app now offers the same zero-fee transfer experience, VYBE will need a clearer reason to exist beyond being another payments channel.

As for the rest of the big banks, they’re likely still digesting the BSP circular and watching how BPI’s move plays out. And as they weigh the impact of free transfers on their bottom line, banks are left to consider whether those fees are worth more dead than alive. – Rappler.com