So Where Are We in the Link Between G2P and Financial Services?
Over the last couple months, we’ve run a series profiling different government payments programs that have innovated on their payment mechanisms and in some cases linked payments to financial services. We looked at the case of UBL in Pakistan making payments to flood victims. We profiled GCASH using GCASH REMIT to make payments on behalf of LandBank to rural beneficiaries of the 4Ps program in the Philippines. We featured Colombia’s Familias en Accion program that has contributed to the build out of banking correspondents in the country and is testing interesting ways to incentivize savings. We discussed the HSN Programme in Kenya and how Equity Bank is making payments to a very rural area in northern Kenya via smart cards and agents. Finally, we looked at the new G2P program in Fiji offering payments to beneficiaries through accounts offered by Westpac. Of course, we could have profiled many more schemes in countries like India, Mexico, South Africa, Dominican Republic, and others.
These examples are diverse as much as they are similar. Some of them are still in a pilot phase (such as GCCASH), while others are at a national scale (such as Familias en Accion). Some of them are using card-based solutions (such as the HSN Programme and Familias en Accion), while others are experimenting with mobile phones (such as GCASH). Some of them are distributing a payment based on certain conditionalities (such as the 4Ps program in the Philippines and Familias en Accion), while others are distributing unconditional cash transfers (such as in Fiji and the HSN Programme). What are some observations and lessons we can gather from these examples and from others around the world?
- The link to financial inclusion is one that can often get forgotten in the quest for payment efficiency. Social protection programs rightly have the objective of making payments in a timely, efficient and cost-effective manner. While they often appreciate the link that financial services can offer to the beneficiaries, when push comes to shove, this will get sidelined if it becomes too complicated or costly to implement. Therefore we see that while the schemes in Pakistan and the Philippines have done an excellent job getting payments (and in Pakistan emergency payments no less) to poor beneficiaries, there is not yet a link to financial services. While this may be an added feature in the future, these examples should encourage all of us with a specific interest in financial inclusion to be deliberate and clear in our interaction with G2P partners about our real goals.
- There may be differences among countries in whether G2P payments help build up the branchless banking infrastructure or whether G2P payments are facilitated by the branchless banking infrastructure already in place. Our case studies show that both cases are possible. For example, the only reason why the 4Ps program approached GXI to make payments in remote areas of the Philippines through GCASH REMIT was because GXI had already established the GCASH service and had established agents in the region. However, in Colombia the spread of banking correspondents was directly linked to Banco Agrario making payments to Familias en Accion beneficiaries. Similarly, UBL in Pakistan built out its payment capacity to reach flood victims and has since built on that infrastructure to serve customers of its “Omni” branchless banking service. But which model is more prevalent? When looking at the feasibility of a financially-inclusive G2P program in a certain country, the first thing I look for is already existing branchless banking services. In the absence of this, the road is going to be that much longer and harder.
- In none of the schemes that we looked at were payments being delivered to the mobile phones of the beneficiaries. It is highly likely that beneficiaries who qualify for these schemes due to their low incomes will not have their own phones and the cost of providing a phone to each beneficiary may be prohibitively high. Most schemes have opted to issue beneficiaries with a simple magnetic swipe card or even just an identification card. Mobile phones, where they are being used (as is the case in the Philippines with GCASH), are in the hands of the agents allowing for real-time confirmation of the amount being paid to specific beneficiaries. This still represents a real step forward for programs that have until now relied on paper-based processes and manual reconciliation that can take months to complete.
So where are we in the link between G2P and financial services? I’d say still at the very beginning. There are a few large scale programs that have made the link, but are now struggling to increase usage among beneficiaries and make the business case work for the banks and the payment providers. There are several pilots that have started over the last 1-2 years that are still working out the kinks in their basic implementation. But the potential is still huge, and more research and new experiences around the world are needed to shed more light on this complex space.
- Sarah Rotman