Can government-to-person (G2P) payments be a gateway to financial inclusion? We have been asking this question for some time, yet still do not have a conclusive answer: while theory (and hope) give us reasons to be optimistic, practice and behavior on the ground perhaps suggests otherwise.
CGAP’s latest Focus Note Electronic G2P Payments: Evidence from Four Lower-Income Countries explores the electronic payment systems of four G2P social cash transfer programs - Ti Manman Cheri (TMC) in Haiti, Cash for Assets (CFA) in Kenya, the 4Ps in the Philippines, and Social Assistance Grants for Empowerment (SAGE) in Uganda - and the experiences of the stakeholders involved – the programs, the payment service providers, and the recipients. (Full case studies were also written on each country.)
In the case of the recipients, we wanted to understand, among other things, whether using e-payment methods, such as bank account-linked debit cards and mobile money, for collecting social cash transfers spurred recipients’ use of the e-payment methods for activities beyond receiving their money from the government.
None of the recipient research suggested that use of electronic methods for receiving G2P payments have influenced them to become general e-payment users. We did not come across recipients who were initiating their own electronic payments, receiving from other senders, or using the accounts linked to the e-payment method to save or transact.
Photo Credit: Francis Minien
Why haven’t recipients shifted to broader e-payment or account use?
Several common themes emerged from recipients’ current experiences with the electronic G2P payments, as well as with financial services more broadly. Such themes highlight why recipients of electronic G2P payments may not be ready to shift to broader e-payment and account use. For example:
- Few recipients in the programs already use other formal financial services. As such, recipients were typically not familiar with electronic payment methods and linked formal accounts. Plus, they found their informal savings and borrowing methods convenient, familiar, and lowest cost/highest return. An exception to this lack of familiarity with electronic payments was in Kenya: some recipients had M-PESA accounts and were comfortable using their PINs for M-PESA. However, they did not like using the Equity Bank debit card and had trouble remembering their PINs and entering them in a POS device.
- Recipients in three of the four programs complained about incurring extra costs to withdraw their payments. These extra costs most often related to agents asking for a commission (which the programs already pay), or agents not having sufficient cash, forcing recipients to return a second or even third time to withdraw the remainder of their payment. These return trips cost the recipients, since the programs only pay for the first withdrawal fee after every payment.
- Recipients in each program ranked the G2P payment from “most reliable” to “least reliable” income source. SAGE recipients in Uganda typically ranked it as “most reliable,” TMC recipients in Haiti typically ranked it as “least reliable,” and the 4Ps and CFA recipients in the Philippines and Kenya typically ranked it somewhere in between. However, the reliability of the payment method, while it might have made recipients more comfortable using the electronic payment method for their G2P payments, did not affect recipients’ broader use of electronic payments.
What does this mean for G2P’s link to broader financial inclusion?
The research highlights some of the obstacles that prevent recipients from fully embracing electronic G2P payments, let alone any further activities with these electronic payment methods. Here are two of the lessons (out of five) offered in the Focus Note that address reducing common frustrations plaguing recipients’ electronic G2P payment experiences.
- Ensure a value proposition for all stakeholders. In some cases, recipients seemed to be overlooked, given the convenience, lower costs, and transparency that the programs experienced by using electronic payments. However, recipients’ negative experiences with the payment method – which may include poor network connectivity, opportunistic agents, or unreliable payments – can affect their likelihood of adopting electronic payments and accounts for other needs. While the programs might be the primary parties responsible for overseeing overall quality assurance of the payment processes, the payment service providers also have a role to play in the recipient experience. If the agents are the “face” of the payment service provider, for example, a recipient’s negative experience service has the potential to reflect poorly on the entire institution.
- Create sufficient communications channels with recipients. By creating clear communication channels that explain to recipients the amounts of their payments, how to use the e-payment method, and where they should report problems or ask questions, the programs can help develop recipients’ understanding of the e-payment method and its benefits. We saw once again, in Uganda and the Philippines, that recipients reported fewer problems (than in the other programs) with incurring extra costs because they were well advised about the costs they would incur and where to go if they had a problem.
While these two lessons are likely to improve recipients’ experiences with receiving electronic G2P payments, these lessons alone do not suggest that G2P payments will lead recipients to adopt electronic payment methods and accounts for “personal” use. Indeed, factors like cost of service and distance to transaction point are bound to arise as barriers to adoption, as they are for any other unbanked customer. However, they are very likely necessary preconditions for spurring uptake and usage beyond G2P payments and, as such, deserve more attention by programs that want to prompt financial inclusion via G2P.