Governments are often the largest users of their country’s payment systems.Governments can promote financial inclusion by influencing how recipients receive their payments—such as requiring that payments be made into an account or a pre-paid card. Modernizing government payments and collections through digitization can help policy makers achieve these goals.
The economic turmoil caused by the COVID-19 pandemic has required governments across the world to distribute social-protection payments rapidly, while preserving social distancing. In the wake of these challenges, many governments adopted short-term digitization measures, such as providing social-protection payments through a set of selected payment service providers. The pandemic has reinforced the need for long-term, account-based and non-account-based digital payment mechanisms to effectively deliver government payments.
The right tools for digitization
Digitizing government payments requires a strategic approach that involves detailed planning and extensive coordination at various levels. Successful interventions require accurately diagnosing barriers to digitization, improving infrastructure, and revising regulatory and policy frameworks. Such initiatives involve a range of stakeholders, such as government agencies, including the Treasury, payment service providers, and telecom providers.
The World Bank’s technical note Tools for Digitizing Government Payments: Learnings from FISF discusses some available tools for digitizing government payments. The note leverages learnings from various approaches taken under the Financial Inclusion Support Framework (FISF) program, particularly in Cote d’Ivoire, Indonesia, Mozambique, Pakistan, and Zambia.
There are several available tools for digitizing government payments. For instance, a cost-of-payments survey can help uncover the true costs of payments, particularly retail payments. Mapping government payments and customer journeys can also be valuable for understanding existing payment flows. Such assessments can help policy makers identify gaps and opportunities. And finally, an implementation roadmap, which outlines the sequence of key steps to be taken, can go a long way in successful digitization of government payments.
After identifying the key tools for digitization, comes implementation, which can be challenging. Some of the key implementation lessons from FISF countries include:
- High-level commitment and effective coordination among diverse stakeholders is key to providing overall strategic guidance;
- A gradual, phased rollout of a widespread digitization initiative can help overcome setbacks and provide opportunities to learn from and fix initial implementation drawbacks;
- Beneficiaries should be allowed to choose payment delivery modes most suited to them to foster convenience, and promote financial inclusion through the provision of more payment options and more service providers;
- Embedding financial-literacy programs by incorporating training around “teachable” moments in government payment processes can improve effectiveness, reduce fraud, and encourage financial inclusion;
- While the lack of adequate infrastructure should not deter digitization, infrastructure challenges should be addressed in parallel to ensure widespread accessibility;
- Digital payments can be a gateway to other financial services, if financial-literacy training is available to encourage beneficiaries to use their accounts for more than government payments.
Policy makers should also encourage providers to serve excluded groups and implement financial consumer protection measures.
Ultimately, the choice of tools for digitizing government payments should be tailored to an individual country’s context. If done right,
For more insights, watch the recording of the FISF Learning Series session on digitizing government payments that took place on May 27, 2021.