Digital Person-to-Government Payments
Despite their significant reach and value globally – estimated at USD 7.7 trillion – P2G payments have received less attention, and their digitization been relatively less of a priority, than other payment flows. Recent research shows the value proposition of P2G digitization is both clear and compelling for governments (greater efficiencies), businesses (improved business lines) and unbanked low-income consumers (increased financial access).
Digital P2G initiatives are still in their infancy. At the aggregate level, only 16% of low- and lower-middle-income countries received tax payments predominantly in electronic form, and only 6% received payments for utilities or other types of services predominantly in electronic form as of 2012. While P2G is not a magic bullet for financial inclusion, digital P2G initiatives may still be able to drive long-term adoption of digital payments among the un- and underbanked if: (i) they are anchored to a highly relevant use case, (ii) major investments are made in driving consumer awareness, (iii) the full business process is digitized, (iv) the product experience is optimized, and (v) the digital payments ecosystem is addressed in parallel.
An examination of over 60 digital P2G initiatives revealed four critical determinants that ensure their long-term success. In no specific order of priority, these are:
- Strong levels of buy-in from within the government and across business partners.
- Reliable infrastructure, including reliable connectivity throughout the payment process, strong back-end systems, and an inclusive and consumer-friendly payments ecosystem.
- An enabling policy environment, which includes regulations that allow government agencies to accept digital payments, issue and accept digital receipts, and offer consumer protections among others.
- Indications of consumer-readiness.
Given where most emerging countries are today, and the challenges associated with developing successful initiatives, digitizing P2G will likely be a long-term investment. However, ultimately we believe the potential of P2G payments offers governments another compelling reason to invest in developing their payments ecosystem overall. If this is done well—and sequenced suitably to a country’s specific context and needs—P2G payment digitization can make a valuable contribution to driving greater consumer adoption of digital payments, account usage, and ultimately, other financial services.
CGAP has been involved with P2G by partnering with Karandaaz in conducting a global landscaping study on P2G and by conducting workshop with a few countries on P2G strategies and providing advice on implementation.
- Karandaaz (in collaboration with CGAP): Global Landscaping Study on Digitising P2G Payments
- CGAP Blog series: Digitizing Person-to-Government Payments: Global Landscape in 2016
Contact: Stefan Staschen