“But Is It Scalable?” Some Good News on Digital Payments for Large Government Programs

One of the most promising innovations in the digital payments space has been on the delivery of government benefits through electronic payments systems in developing countries. Now, an impact evaluation of digitization of government payments in India by Karthik Muralidharan (UCSD), Paul Niehaus (UCSD) and Sandip Sukhtankar (Dartmouth) finds encouraging results.

In one of the largest randomized impact evaluations to date – covering 19 million people – Muralidharan and colleagues study the recent rollout of the “Smartcards” project in the state of Andhra Pradesh in India.  The Smartcards project introduced biometrically-authenticated electronic benefit transfers into two large Indian social welfare programs:  the well-known National Rural Employment Guarantee Scheme (NREGS) and the Social Security Pensions (SSP).  The research team worked with the government to implement a randomization of the order in which districts received the program, allowing for a rigorous evaluation of program impacts half way through the implementation.


They find that Smartcard-enabled payments not only reduced the costs of delivering benefits, as in Jenny Aker et al’s study of NGO-implemented cash payments in Niger, but they also measurably improved other program outcomes.  Notably, employment program beneficiaries received more money in total, as the switch to electronic payments reduced “leakage” or theft.  Smartcards reduced corruption in the pension program too: beneficiaries reported fewer demands for bribes by program officials in return for their payments.

The improvements reported here are not trivial—the average household in the study received 23 percent more through the employment program after the institution of electronic and biometrically-authenticated payments.  This reflects a reduction of over 12 percentage points in the “leakage” of program funds. 

Improved outcomes went along with a better user experience, according to opinion data the authors collected.  An overwhelming majority—84 percent of employment program recipients and 91 percent of pension beneficiaries—said they preferred the new system to the old system.  As these good reviews suggest, the benefits of digitization appear to be broad-based throughout the income distribution: poor and vulnerable segments of the population studied benefitted as much as the more well-to-do.

Finally, the program appears to be cost-saving.  Beneficiaries not only saved time in the collection of payments, and received payments sooner, but the reduction in leakage pays for the cost of implementing the program nine times over.

This evaluation suggests exciting possibilities for digital platforms to increase transparency and improve outcomes in public distribution programs, at least in the short run.  Unfortunately, the staged program rollout allows for a short-term evaluation but not a longer-term evaluation of impacts – which may be important, for example, if corrupt officials just need time to learn how to game the new system.  At the same time, there are potential long-term benefits also not fully explored: the biometrically-authenticated Smartcards, once created and delivered by the government, can be used to facilitate financial access more broadly, allowing households to take out loans, send money, or open savings accounts.

There is a small but growing list of studies (the previously mentioned Jenny Aker et alXavier Gine and colleaguesJack and Suri) that show the promise of digital infrastructure in improving service delivery among private and non-profit service providers. The government intervention studied in this paper - in an Indian state the size of many countries - takes it to scale.

Photo:  Discussion among group of employment program recipients in Andhra Pradesh, India. Credit: APMGNREGA Facebook page