Over the last year, I’ve been focused on government payments – a compelling mashup of traditional bill pay and multi-channel retail requirements against an intriguing backdrop of policy, economic, and political interactions. Although many countries have made solid progress implementing eGovernment initiatives (UN E-Government Survey 2014), the level and sophistication of ePayments implementation lags the private sector. There’s been progress in digitizing disbursements, the direct deposit of social benefits or distribution via prepaid cards, but government collections are surprisingly rudimentary.
Those who know me know I often claim that B2B payments are the biggest, untapped payments opportunity. I was wrong. This one is much, much larger.
eGovernment is not a new phenomenon. The earliest government digitization efforts started within individual agencies with efficiency, reduction of manual processing, and early information age Internet enthusiasm as the drivers. Over time eGovernment solutions gradually evolved from government-centered efforts, still driven by individual agencies, to integrated citizen and business-centered systems. Even today, however, most government digitization efforts address payments as an after thought.
The Holy Grail for government ePayments is integration across multiple agencies because that makes payments infrastructure more efficient for the government and more convenient for citizen and business users. In recent years, countries have started to rationalize payments, synchronizing efforts and enabling economies of scale. These efforts range from developed markets modernizing dated online payment systems (the United Kingdom) to developing markets starting from scratch with ambitious, holistic strategies (Ethiopia).
Yet, integration is not the norm. Most early adopters took a siloed approach to eGovernment and payments. Individual agencies made independent decisions. Thus, there is little consistency within countries (and even within some government agencies) as to payment methods, vendors, and whether or not to pass the payment cost on to consumer and business payors in the form of ‘convenience fees’.
In countries where Internet access is widespread and most consumers are banked, eGovernment payments are commonly made by bank transfer and card payments. Government entities rely on the dominant method of eCommerce payment in their jurisdiction, often relying on commercially available payment gateways. Many developed market municipal, state/province, and national government agencies are still using payment checkout flows and user-interfaces that date back to the early 2000s. These appear dated and unsophisticated from today’s perspective, often lack modern data security best practices, and are woefully under-resourced. The United States government is attempting to address its antiquated technology with a Silicon Valley SWAT team, although thus far payments have not been the focus (they know who to call when the time comes).
Other markets closely follow the local norms for bill payment. For citizens, that often means bringing a bill or invoice to the bank or post office to effect payment, either via a credit bank transfer or cash. It is surprising how many countries depend on cash collections for government payment, often requiring citizens to visit a government office to make payment, or perhaps use a network of bank agents.
For example, despite the phenomenal success of M-Pesa over 90% of collections in Kenya are still cash. In Jordan, the Central Bank has partnered with MadfooatCom and made tremendous progress by connecting most of the Jordanian banks and billers (both government and private). Still, 50% of transactions are cash so now the initiative is focused on connecting post offices and other cash agents.
As these governments know, cash creates opportunities for graft, siphoning precious funds that could be invested in infrastructure, services, and development. Moreover, digitized transactions shift activity from the informal to the formal economy, enabling higher tax collection rates. One Glenbrook client is anticipating increased government revenue of 20% as a result of eliminating cash collections at the ministries, departments and agencies of its national government.
I’m writing from Istanbul where I am attending the World Bank’s Financial Infrastructure Week 2015 and will follow up with a post summarizing the highlights.
Over the coming weeks, Glenbrook will publish a series of Payments Views posts on government payments, including vendor profiles, an exploration of the eGovernment vs. ePayment conundrum, the role of eReceipts, and the significant implications for financial inclusion. In the meantime, please reach out if you’d like to discuss government payments.
This post was written by Glenbrook’s Erin McCune.
