January 28, 2013
What's Next: Five Factors – Beyond Mobile Money – that will make Financially-Inclusive G2P a RealityBy Jamie Zimmerman
What’s next? Jamie Zimmerman says it's the opportunity to make government-to-person payments a major vehicle of financial inclusion.
Mobile money and electronic payments have leaped to the fore of many financial access conversations. Take the launch of the Better Than Cash Alliance (BTCA) and the recently released latest Bill & Melinda Gates Foundation (BMGF) strategy as prime examples. Some (Tim Ogden of FAI, Jesse Fripp of SBI and I for instance), have suggested tingeing the optimism over payments with caution, citing several hurdles that we must still overcome, and questions we must answer, before payments can become a financial access success story.
Don’t get me wrong, I am a believer: since 2009, I have argued that technological advances in payment systems will and should change the face of financial inclusion and asset building for the poor. And I believe nowhere is this truer than in a very specific, hard-to-reach population: the aid-receiving poor. Armando Barrientos and David Hulme of the Brooks World Poverty Institute and the authors of the acclaimed “Just Give Money to the Poor” have estimated that some 500 million individuals are affected by Government-to-Person payments (G2P).
Recently released new data aggregated by the Global Savings and Social Protection (GSSP) Initiative (part of the Global Assets Project at the New America Foundation which I direct) indicates the digitization of G2P payments -- which we track across 105 social protection payment programs and 56 developing countries -- is expanding rapidly. A 2009 CGAP study estimated that only 25% of G2P payments occurred in a “financially-inclusive way” (meaning delivery into a bank account or similar); our initial data put that number in 2012 upwards of 60%. As more data become available, we anticipate this percentage will only go up.
What’s more, our data reveal that among that 60% of payments, there are no less than seven different financially-inclusive. The chart below, adapted from our recently released paper on the topic, shows that while the majority of such programs pay into bank accounts at varying levels of functionality, others are experimenting with mobile phones and cash cards. We also anticipate that programs will continue experiment with a variety of innovative payment methods.
Given the huge number and variety of G2P transactions, we indeed face a real opportunity to leverage these payments for financial inclusion and asset building among the unbanked. There are many ways G2P payments could become high leverage vehicles to promote money management, savings and financial inclusion in general.
Maximizing the opportunity presented by G2P (or any other -2P) payment systems will require looking beyond building the technical infrastructure to the dynamics that shape G2P functioning overall, including (but not limited to) these 5 P’s:
- Policy: How can digital delivery enhance the ultimate policy objectives of a cash transfer scheme? How do or should the possibilities of digital delivery influence policy objectives of social protection, relief and other aid-delivery systems?
- Politics: social protection systems and any changes to them are inherently political. See the attempts to push G2P through UID/Aadhar and banks in India as an example. What political opportunities or barriers must be seized or overcome to create the will necessary for effective system change, resource reallocations, and long-term political support?
- Practitioners: How do, will or could service providers (commercial and social alike) best interact with these new systems and the individuals now a part of it? What is their influence on its effective functioning?
- Products: Currently, the vast majority of payments are into highly limited bank accounts (withdrawal or deposit restrictions or other features that limit interaction with the account or financial institution; see chart above). What product features, including branding and marketing, will meet (or create) demand, and still be attractive to financial institutions?
- People: Finally and most importantly, what are the critical needs and demands of the aid-receiving poor, in all their varieties and contexts, for financial services and asset building opportunities? Our limited understanding of the target populations has resulted in limited success of current digital delivery systems. In Colombia, for instance, where the government heavily invested in creating a G2P system that would bank the unbanked, upwards of 90% of beneficiaries do not use their accounts for savings purposes.
Creating new or changing current systems without a keen understanding of these 5 P’s, we risk not providing the right service, not taking advantage of opportunities to innovate, and at worst, launching an extremely vulnerable population into a new system that harms them, either economically or socially.
What makes this a truly exciting opportunity for the field is that the movement to G2P electronic payments is just starting. Focusing on these five critical factors, thinking creatively and experimenting with solutions in tandem with efforts to build and improve the rails, can lead to getting policies, programs, products and systems right the first time around.
Jamie M. Zimmerman is Director of the Global Assets Program at the New America Foundation, a Washington DC-based think tank. She launched the Global Savings and Social Protection Initiative in 2011, which recently published “From Protection to Investment: Understanding the Global Shift toward Financially Inclusive Social Protection Payment Systems”