Right on the money: translating the disbursements learnings of yesterday to the government to person payments of tomorrow
Transforming the way money reaches citizens is a fundamental task for governments as they get to grips with the future of public services. At a Mastercard webinar, experts discussed why timely payments to the right people matter so much – with a focus on financial inclusion
With the ever-increasing importance of government to person (G2P) payments comes the need to ensure every transaction is quick, safe, traceable and fully transparent: the more efficient and targeted a payment, the less open to fraud and misuse that transaction is, and the less the person owed it has cause to worry.
At a Mastercard webinar, public and private sector experts covered G2P architecture and tackling siloed systems, enabling electronic payments among underserved populations, and the importance of data in improving disbursement programmes.
Minita Varghese, who is programme officer for the G2Px Initiative at the World Bank, kicked off the discussion. Varghese has spent the past few years working on a combination of policy and research on digital payments and financial inclusion across countries including Bangladesh, Ethiopia, Rwanda, and Liberia.
To underscore the transformative nature of digital payments, she highlighted research showing that during the COVID-19 pandemic, countries with digital databases got payments to more than three times the number of beneficiaries than countries without.
Yet even governments that are well on their way to achieving digital transformation are held back by siloed platforms. As Varghese explained, siloed systems cause “errors, duplicates, and having multiple recipients receiving payments from multiple programmes”. This can cause “leakages [and] challenges with sharing data or migrating data, all of which can be quite suboptimal”. One way to counteract this is to have multiple G2P programmes or payment streams make use of shared infrastructure, such as an ID system or a central treasury. Turkey, for example, has an integrated social registry used by most social protection programmes in the country, linked to 28 databases and an ID system.
Turning to financial inclusion, Varghese shared findings from FINDEX (a global data collection source focused on financial inclusion), which showed that 865 million people opened their first account to receive money from the government, over half of whom were women. The benefits of directing digital payments to women are well-documented, Varghese pointed out, and include increased mobility, and improved diet and nutrition in children.
She touched on one problematic principle of modern G2P architecture known as the ‘clawback clause’, which is often used in social assistance programmes to ensure what Varghese called “finality of payment”. The clause means that if funds are not withdrawn within a certain timeframe, they go back to the programme.
“This aspect of clawback clauses goes against the goal of financial inclusion because now recipients are expected to cash out and it discourages them from using those accounts,” Varghese said, adding that it’s important that design principles embed the right of the recipient to choose a payment service provider.
She gave the example of a social assistance programme in Zambia, which gave beneficiaries the choice of six payments service providers. Varghese said the majority chose the provider situated closest to home and that, as a result, payments were made faster and more directly. Not only that, Varghese said, but “beneficiaries ended up using their accounts for more than just cashing out”, which, in turn, lowered transaction fees and reduced the overall cost of the programme.
Wrapping up, Varghese stressed that different countries would have their own ideal G2P design principles, based on their own “challenges and enabling conditions”.
Lessons from Hurricane Katrina
Next to speak was Walt Henderson, who worked formerly in EFT (electronic funds transfer) strategy at the US Department of the Treasury.
He spoke about the devastation left in the wake of Hurricane Katrina, which hit the Gulf Coast of the United States in August 2005, causing significant damage to the city of New Orleans, Louisiana. Federal benefit payments needed to be made to those affected by the hurricane, of which there were almost one million – but there was a problem.
“At this point in time, just over two thirds of the payments were paid electronically. Almost half of [SSI Supplemental Security payments] payments, [which go to] many of the unbanked… and the most vulnerable… were still paid by paper check. There were reports of benefit recipients not heeding the warnings to evacuate for fear of missing mail delivery of the payments on the first of the month.”
Fortunately, the Social Security Administration, the US Treasury and the US Postal Service acted to reposition checks for distribution and issue emergency and replacement checks to those who were affected.
However, the underlying problem had been that treasury and other federal agencies had taken what Henderson described as a “soft approach to encouraging the use of direct deposit for federal benefit payments”, which left two key elements unaddressed. The first was the importance of direct deposit or electronic payments. And the second was the need for an account that allowed for electronic payment for the underserved population who were reliant on checks and cash.
Fast forward 15 years and US Congress was passing legislation to address the economic impact of the pandemic. This included provisions for direct payment of “economic impact payments” earmarked for more than 163 million Americans to the tune of US$390bn.
“All federal benefit recipients, including Social Security recipients, were eligible for these relief payments. Making payment was as easy as using the existing direct deposit information to automatically deliver their relief payment to the same account in the same manner that they received their monthly payment,” Henderson said.
Direct Express card holders used this credential to load payments, while taxpayers who had already filed a tax return had the payment delivered to the same account, and in the same way. A dedicated website enabled recipients needing to update or provide direct deposit information to receive their release relief payment a way to do so.
The federal government had learned its lesson from 2005, Henderson said. And yet, 15% of the aid released during COVID was still paid by paper check and was for many, he pointed out, too slow to arrive.
“The payments length and landscape is constantly evolving and citizens are best served when their government takes advantage of the latest technology and trends,” he said.
Trust welfare beneficiaries
Simon Willis, vice president for the public sector division of Mastercard, manages strategic government partnerships globally as well as related innovation projects. He explained that the pandemic revealed several interesting new trends in payments, including a growing appetite among jurisdictions to make targeted support payments and a range of new possibilities around the uses of those payments.
“Some jurisdictions – Northern Ireland and Jersey – used [targeted support payments] to geographically limit payment uses so that it would benefit the local economies that they were putting the money into. That was a key political concern,” Willis said.
Willis raised an often-heated area of debate around the use of government disbursements, explaining that by analysing anonymised and aggregated data on the use of payment cards from one of Mastercard’s programmes based in Los Angeles, the company found that people generally spent money on necessities: a finding that runs counter to critics’ arguments that welfare beneficiaries indulge in wasteful spending.
“Very little of the money went astray because the need was so pressing, which I think is a very powerful piece of information only made possible by having a fully digitalised system in place to get to that full kind of flexible, real-time intelligence about what’s happening in a disbursement system,” Willis said.
He said he hoped there would be substantial political advantages to being able to show the “primary and secondary economic effects, microeconomic effects of the disbursement interventions”. With this, governments can edge closer towards evidence-based policymaking, and away from “policy-based evidence-making”.
Voice and choice
Last to speak was Aniket Doegar, CEO and co-founder of HESPL (Haqdarshak Empowerment Solutions Private Limited), an India-based social impact organisation focused on easing access to welfare.
Doegar said that most countries in the global south have yet to catch up with OECD countries when it comes to social security.
“Low-income families face challenges with access: access in terms of literacy, in terms of identity, and access in terms of last mile service.”
There are three main things HESPL is trying to achieve: to enable document access for citizens, small businesses, farmers, and women; create a social security score for recipients; and develop community agents who can champion these solutions to a vast population of potential beneficiaries.
HESPL, had, Doegar said “gotten on the bandwagon” of producing payments cards – “we really believe there is a need for social security cards” – and called it Yojana.
Yojana is a QR-code based credential that Doegar said can be used digitally, though he stressed that demand for physical cards in India remains high. Through the QR code, citizens can access all their social security benefits through a dashboard. In its physical form, Yojana is a prepaid card which citizens can use to get all their financial inclusion benefits.
Bringing the webinar to a close, the panellists agreed that data analytics and prediction tools would be essential to improving payments going forward. Technologies that can help governments foresee natural disasters, for instance, can both mitigate the damage they cause, and prime the mechanisms for disbursing aid in advance.
And Willis made a last point about trust. Trust in governments, he reminded the audience, “has been going down more or less everywhere for three or four decades now”. If this is to be reversed, governments are going to have to avoid “intrusive, big brother-type behaviours”, no matter the temptation to implement powerful new tools.
Rebuilding that trust, he said, starts with things as simple as “allow[ing] citizens to use the channels and tools they want”. In other words, governments that give citizens both voice and choice in disbursements will see their efforts pay off.
The webinar – titled ‘Better targeting, better delivery: how to revolutionize government to person payments’ – took place on 28 September 2023 and was hosted by Mastercard with support from Global Government Forum. You can watch the webinar in full here.
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