Regulations and Innovations: Lyka-BSP Interaction and Its Implications on Digital Finance

Over the past week, the social media application Lyka has garnered a lot of attention after the Bangko Sentral ng Pilipinas (BSP) ordered it to halt its operations. According to the regulator, Lyka is considered an “Operator of Payment System” (OPS) and it should necessarily register with the BSP to continue to perform its functions.

“The Bangko Sentral ng Pilipinas (BSP) has issued an order to an Operator of Payment System (OPS) to suspend its operation as an OPS and has invited said entity to register with the BSP as provided under Republic Act No. 11127 or The National Payment Systems Act (NPSA),” said the regulator.

This recent move falls under BSP’s Circular 1049, which states that OPS that are found to be operating without registration shall be directed to comply with registration requirements. If they fail to comply, they may be ordered to stop operations until immediate action is taken to register with the BSP.

The social media platform allows users to earn Lyka Gift cards in Electronic Mode (GEMS) from their posts which can then be used for transactions of goods and services in its partner stores. Lyka’s business model “revolves around a Digital Point System” where it “rewards users” for various actions done on the application such as liking and sharing posts.

Since the invitation of the BSP, Lyka has expressed its willingness to register and has been in constant communication with the necessary entities to go through the proper application process. As of July 21, the platform has been granted an OPS Provisional Certificate of Registration allowing it to fulfill its obligations with its partners while handling the requirements for its registration.

Lyka is the brainchild of Ryan Baird who, in July 2018, aimed to “unlock the potential of human creativity by giving billions of entrepreneurs the opportunity to live off their passions.” The app was first launched in Southeast Asia in 2019 under Hong Kong-based Things I Like Company Ltd., but it has only been gaining popularity in the country over the past few months.

Prior to its interaction with the BSP, Lyka also became controversial when it was just starting to gain traction. This is primarily due to concerns around privacy and security. In February 2021, the non-government organization Computer Professionals Union (CPU) highlighted specific sections of the app’s privacy policy that shouldn’t be overlooked.

The most notable among them are the types of data that the platform collects from its users which include names, addresses, and contact details, as well as IDs and bank details. It also failed to establish grounds for data transparency.

“All these data, when collated together, form a very clear picture of someone’s identity and allows unscrupulous users to use these data for nefarious means,” explained CPU.

“Users will not have visibility over how data will be handled, enabling Lyka and its partners to do whatever they please with the data they amassed. One example of companies selling personal data for profit is Facebook’s numerous data-sharing deals done in order to gain an advantage and profit share,” the group said in a previous post.

Former Department of Information and Communications Technology Assistant Secretary and founder of CyberGuardians Inc. Allan Cabanlong echoed similar sentiments. He said that selling data to advertisers is one thing, but apps that acquire a user’s personal information and public preference may be used for “financial gain or for political gain.”

“It’s the era of social media. Data is the oil of the industry now,” affirmed Cabanlong.

This is why Lyka’s OPS registration is crucial because it will ensure that it functions safely, efficiently, and reliably by itself, consistent with the central bank’s objectives of consumer protection and financial stability, according to BSP Governor Benjamin Diokno.

Moreover, Lyka GEMS technically fall under digital currencies given how the app operates with one GEM being equivalent to ₱1. Likewise, its quick rise in popularity makes the promise of electronic cash becoming more common significantly brighter. This is especially true with the surge in demand for contactless transactions within the context of the global pandemic.

Soon enough, consumers will be able to enjoy uninterrupted digital interactions to purchase everything from groceries and supplies to big-ticket items like cars. What makes this recent development interesting, however, is BSP’s attempt to regulate a platform that fosters digital currency and how this will deepen the relationship between regulations and continued innovations.

Coupled with the BSP’s shift to accommodate more digital-only banks as well as the PSE’s plans to host cryptocurrency trading, it appears the country is slowly but surely becoming more in-tune with the world’s accelerated digitalization. How these recent instances will pave the way for the future of digital currency and fintech in the Philippines is intriguing, to say the least.

References: ABS CBN, Tatler Philippines, BusinessWorld, PhilStar, GMA News, Rappler