Debates abound about what the easiest form of technology is for poor people to use as a channel for accessing financial services. Do they have an easier time with smart cards, magstripe cards, or mobile phones? What interface is easiest on the mobile device? Do they prefer to use ATMs or agents? Do they have a hard time with their PINs?
These questions are all the more relevant when talking about electronic payments to government-to-person (G2P) beneficiaries. By definition, social cash transfers - such as workfare programs and conditional or unconditional transfer programs - target the very poorest and most vulnerable in a society for whom their interaction with new technologies is often more limited.
Photo Credit: Quicksand
It was surprising to learn then that for G2P recipients in the Indian state of Andhra Pradesh, technology- whether a smart card or mobile phone -was rarely a barrier to use for recipients. In new research, we looked at the groundbreaking electronic benefit transfer system that has been in place in Andhra Pradesh since 2006 from the perspectives of the banks, agent management companies, agents and recipients.
Recipients did not seem to have much preference for one technology over another, but this is largely because transactions are always mediated by an agent. Whether a smart card, mobile phone or some other device, the recipients tend to hand it over, including their PINs, to the agent to carry out the transaction on their behalf. As a result, recipients are passive users of technology without enough direct interaction with the technology to have a preference either way.
This is a missed opportunity in many ways. First, there is a lost potential to empower these poor women through access to a new payment system and through access to new technologies like mobile phones. Second, since the agents are largely focused on making the payout to recipients as quickly as possible to move onto the next person, recipients only use this channel to receive government funds – no one explores potential linkages with other financial services, such as savings accounts. Finally, and most importantly, the link to financial inclusion that all of us are hoping for is lost. Several aspects of the end recipient experience are compromised because of poor information access. Recipients don’t seem to know that there are bank accounts linked to their payment, what services they can avail through the accounts, what their account balances are, or how to access any of this information.
However, the overall electronic benefit transfer program in Andhra Pradesh has been a big success. Our research showed that e-payments increase payment convenience by reducing the distance traveled by recipients by over half. Recipients report a high level of trust in the system.
The experience from Andhra Pradesh corroborates other G2P recipient research we’ve been doing since 2009. Recipients value the convenience of e-payments, but are not yet taking advantage of the financial services that accompany them. With the increasing integration of the Aadhaar Unique ID system in India, the potential to connect these recipients to the formal financial system is even greater. Later this week, we’ll look at some of the insights related to the business case for the G2P agents.
Sarah Rotman is a Financial Sector Specialist at CGAP and manages the workstream on government-to-person payments.
My congratulations on such a 360 degree study of Andhra model as much depends in India on what this state achieves in financial inclusion including self help groups. Andhra also started paying banks and used India Post earlier than other states. Few lessons are evident:
1. Bank agent system is not viable unless subsidised by government.
2. Bank agent system is prone to frauds the way the smart cards are handled.
3. Corporate BCs with established systems will be needed.
4. Bank account has gone into background and is used as a conduit only.
Once MFIS are allowed to open accounts, banks may withdraw from the scene.q
5 G2P emerges as a separate channel with special features like immediacy of payments and emptying the account with full disbursements.
6. Connectivity issues remain a big hurdle and thus alternate offline model shall continue to be required for long times to come.
7 unique identity usage did show savings in amounts due to eliminating bogus beneficiaries, but not to the extent normally believed to be.
8. Cash management by agents remains a major bottleneck with no solutions insight.
9. India Post if fully funded its costs, can serve G2P well due to its credibility and reach and within its premises- over 200,000 units.
10. Andhra has large numbers of poor and hence these B2P are quite successful. Can this model be taken to other states shall remain to be seen?
Such a study for urban areas shall also be useful.
Thank you, you have given a great summary of the main findings of this research. As you note, I hope the experiences from AP can be used to further financial inclusion for the very poor throughout India.
Hi Sarah, is there a complete report. I have seen the summary and the presentation. Wanted to know about the detailed report and when it will be made available. Also how to procure the copy. Pl let me know
Hi there, here is a link to the complete report. It is in the form of a powerpoint presentation:
Thanks for your interest!
Hi Mamata, we have detailed powerpoint reports from each of the three pieces of research if you are interested in more details. Please send me your email and I will send you the additional information.
In the given geographical heterogeneity and diversity in demography in rural poor community in India , there are many barriers for technology in the supply side as listed by Y.P.Issar . On similar vein there are hurdles for tech intrusion in the demand side also. To look at more insights on the barriers in the latter, a prudent researcher need to portray the profile of recipient more distinctly as common person (G2P), the poor(G2Poor) the very poorest and vulnerable ( as quoted in the post) (G2 Very poor) in the research study report . This data would reveal the extent of tech divide created by the technology in a given area .
Ironically these barriers are ignorantly assumed and ultimately technology helps widening the inequality among the rural people. This observation need not be necessarily construed as against the technology but it has immense limitation to financial domain in the given multifaceted profile and skewed infra development in India