One of the most important roles of governments is to provide benefits payments for their most vulnerable citizens. A recent Global Government Forum webinar with knowledge partner Visa looked at how technology can make payments systems more inclusive and accessible.
The expert panellists noted that while digitalisation offers many benefits for both governments and recipients, it must be implemented thoughtfully and with inclusion and choice in mind.
Antonio Manzi, national director of transfers and data analysis in Uruguay’s Ministry of Social Development, described how Uruguay upgraded its payments system due to the pandemic.
Previously, support for vulnerable people was available through a hybrid model of cash which recipients could spend as they wished and, for the most vulnerable people, prepaid debit cards which could be used for necessities such as food and cleaning, with some limits on how the money could be spent.
“During the pandemic, we had to focus on a new challenge, which was incorporating new populations that were not included in these programmes,” said Manzi. This included, for example, households without children and those working in the informal economy who lost their jobs. The government also needed a contact-free solution due to Covid restrictions.
The country introduced digital wallet payments, allowing residents to apply using their government ID. Eligible people received a link to their phone to download a digital wallet to receive a monthly payment.
“That was a very good example of responding very quickly,” said Manzi. “We reached about 320,000 people at the peak time – [around] 10% of the population.” Around 5 million coupons for food and other necessities were also transferred.
The digital payment system delivered many benefits. “It’s safer for people, it’s quicker to receive the money, you make sure that that cash is kept within the formal sector,” said Manzi. Further, having an up-to-date phone number made it easier to provide updates and information directly to benefit recipients.
However, as the pandemic subsided so did use of the app and many people reverted to the old methods of cash and prepaid cards – even when offered incentives such as a VAT waiver on purchases made through the app.
Some people are concerned about potential technical issues with digital payments, apps and phones and prefer the certainty of a cash transfer. Others fear less flexibility with how they can spend the funds.
“Unfortunately, we have not been very successful in trying to get beneficiaries to leave the cash and switch to the mobile app,” Manzi said. He added that the government learned a lot and envisions eventually centralising all subsidies such as those related to food, energy and water through the digital wallet.
“That’s our goal and hopefully we can make the changes necessary for that to happen,” he said.
Part of addressing concerns includes clear communication and making it easy for residents to get in touch and resolve any issues quickly.
“I think that needs to be really taken into account to provide a really good service, and for people to feel that they’re being accompanied in this process,” said Manzi.
Reducing barriers
Mark Palmer, vice president, Europe, Visa Government Solutions, said the priority for governments should be “reducing the barriers to receiving payments and really simplifying the experience”, calling this “the most important aspect of successful disbursements to the vulnerable”.
He highlighted challenges with traditional payment methods like cheques, vouchers and bank transfers, such as uncertainty, delays, inconvenience for the user, and the cost to administer.
Palmer said that digitising disbursements addresses many of these issues while making “better use of public resources by improving efficiency and policy alignment” and helping agencies address fraud and error.
However, he also stressed that it is important to offer choice and accessibility for all through cash and other disbursement options so that “there’s no one who’s left behind” – whether that is the unbanked, asylum seekers or other groups.
Digital solutions include prepaid cards and virtual cards via mobile phones. These offer the option to set limits on how funds can be used while also providing governments with data on spending categories to help shape policy to meet recipients’ needs.
For example, a legal guardianship programme in the Netherlands uses debit cards managed via a platform to help individuals incapable of managing their finances independently.
Other solutions enable instant, secure payments to be made internationally, such as for humanitarian aid, or to send pensions and other disbursements to overseas recipients. Open banking is also increasingly being integrated into solutions for quick eligibility checks.
Palmer outlined three critical success factors for a well-designed digital disbursement solution, starting with digital identity for eligibility assessment.
Another is the provision of mobile information to increase awareness and boost participation from target groups, and third is scalable payments infrastructure that “delivers reach, impact, convenience and, of course, reliability”.
Early digital mover
In Latvia, 87% of government disbursements are already digital and a big driver for this was European regulations, said Dina Buse, deputy director of the Financial Market Policy Department and head of the Credit Institution and Payment Services Policy Division in Latvia’s Ministry of Finance. Key pieces of legislation include the Retail Payment Strategy and the Payment Accounts Directive, which gives EU residents the right to a basic payment account regardless of their living or financial situation.
“So, we are building on these building blocks,” said Buse. Latvia was one of the first countries to implement instant payments which transfer funds to recipients’ accounts within 10 seconds. They also use payment links via mobile phones to send and request payments.
The government is expanding its use of digital payments further, facilitating state benefit payments to individuals and enterprises through infrastructure managed by the State Revenue Service. Additionally, the State Revenue Service uses advanced technology for processing personal tax refunds and managing corporate income tax.
Latvia is also experimenting with technologies such as blockchain and, potentially, crypto assets.
“We are in this initial phase but we are advancing progressively towards this direction,” said Buse.
“This journey is very long; it’s very intensive,” she added, but noted that the advantages would be felt by people and businesses through accessibility and faster, easier payments.
Mitigating risks
Cathal Long, senior research fellow in development and public finance at the Overseas Development Institute, agreed with other speakers that the COVID response had shown how governments could use digital payments to respond to a crisis at speed and scale.
“But what we also learned was that these responses could have been better targeted,” he said.
Since the pandemic, a global agenda has emerged around ‘digital public infrastructure’, with examples in the payments space including India’s Unified Payments Interface (UPI) and Pix in Brazil.
“This is exciting from a public finance perspective because it offers the potential for greater efficiency, not only in terms of making payments more responsive, but also using the data to make them more targeted,” said Long.
It also creates incentives for individuals to move from the informal to formal economy, which in the longer term can lead to more revenue for governments, but Long cautioned against tying the discussion too tightly to these areas as the messaging could backfire.
“Ultimately, people are more willing to pay taxes when they receive quality public services,” he said.
He highlighted broader benefits of digital payments too: “Receiving a payment from government is often the first step towards financial inclusion in lower income countries, and this can be really important in allowing vulnerable groups to start receiving other sources of income that they might have had trouble accessing otherwise.”
Further, digital payments could reduce the costs associated with remittances related to development finance.
However, Long also pinpointed areas that give “some pause for concern”.
“These capabilities are not necessarily neutral,” he explained. “And there are some concerns emerging that governments are using them or will use them to provide short-run benefits for political reasons, at the cost of producing public goods that are more important for long-term growth.”
Another issue is that some groups can be excluded, such as those without digital devices, skills or easy access to the internet. Vulnerable groups are also most likely to not appear in national databases for a digital ID or in other social registries.
Finally, Long highlighted the need for a holistic approach: “One of the most important lessons from successful benefit schemes that responded well to the pressures of Covid was that governments should fund multi-disciplinary teams that bring policy and operational expertise together by focusing on the needs of actual users, rather than funding technology projects in different silos across government.”
It was clear from the panellists that while technology is enhancing government disbursement systems, it is people who are at the centre – and who these systems must be designed around.
