Does digitizing government payments increase access to and use of financial services?

The COVID-19 pandemic has triggered the biggest global economic crisis in over a century. Many households facing sudden income losses and health expenditures were ill-prepared to withstand shocks of this magnitude and duration. Women, in particular, were affected as they were more likely to be employed in sectors subject to confinement and social distancing measures, and were often needed to increase their family responsibilities. Digital government payments โ€“ to accounts, cards and phones โ€“ have provided critical financial support to those in need while following public health safety advice.

When the economic crisis caused by COVID-19 caused many people to seek help from the government, countries with digital public infrastructure such as broadband connectivity, identification and payment systems, as well as data-sharing infrastructure, were able to reach more of their poorest residents. in a targeted and transparent manner. A recent article on the role of digital systems in the first year of the COVID-19 pandemic shows that among 85 countries, those that were able to take advantage of digital databases and trusted data sharing averaged about half of their population. Digital government payments have provided a lifeline to millions of people, some of whom may have also benefited from a pathway to financial inclusion.

Leveraging digital infrastructure offers a range of benefits for governments and beneficiaries. For governments, sending payments directly to financial institution accounts (including mobile money accounts) not only allows them to reach more people quickly and securely, but it also reduces leakage and corruption that may result from the distribution of money. For recipients, government payments can create a pathway to financial inclusion and economic empowerment, especially for underserved groups such as women and youth. Global data from Findex reveals that 865 million account holders in developing countries (18% of adults), including 423 million women, opened their first account at a financial institution for the purpose of receiving money from government.

People receive money from the government for a variety of reasons: transfer payments for education or medical expenses, unemployment benefits or subsidy payments, as well as public sector pensions and salaries. Of those who received government transfers (excluding pensions and salaries) in developing economies, 64% received a digital payment and 15% in cash. The remaining 20% โ€‹โ€‹of government transfer recipients received their payment neither digitally nor in cash, likely through a voucher or one-time access code; payments in kind are also possible.

Increase in the use of digital payments among recipients of government transfers

Accessing an account and receiving payments are necessary steps towards financial inclusion. Continued use of financial services is equally important. Again, the data shows that among recipients of government transfers, about seven in ten who received their payment in an account also made a digital payment, an increase from only about half of recipients in 2017. These payments included Internet use. pay bills or buy something (49%) or use an account to make purchases in-store (54%). Beyond digital payments, 34% of these recipients of digital government transfers also saved in a formal financial institution or mobile money account. The increased use of accounts by recipients of government transfers indicates great progress towards closing the gap between access to and use of formal financial services.

Figure 1. Adults in developing countries who receive a government transfer to an account

While we’ve come a long way in recent years, there’s still a big opportunity to further digitize government payments to help bring some of the 1.4 billion adults who remain unbanked into the formal financial system. The G2Px initiative is one of several World Bank Group initiatives, in partnership with the Bill & Melinda Gates Foundation and Norad, to help governments radically improve public payments. To close the gap, governments will need to complement the digitization of payments with programs that build digital and financial literacy. The aim would be to adopt policy and design choices that put the recipients of these payments at the centre, while establishing a strong consumer protection framework. A multi-pronged approach will be essential to ensure that everyone, including women, people with disabilities and other marginalized groups, can access and use their accounts or make digital payments with confidence.

Among the unbanked, we know that at least 61 million adults in developing economies receive government cash transfers, including 35 million women. Digitizing government transfers can play an important role in these people’s journey to financial inclusion.

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