> Posted by Jamie M. Zimmerman, Senior Associate, Bankable Frontier Associates
There is abundant enthusiasm for the promise of shifting social benefit payments from “cash transfers” to “e-payments for the poor.” E-payments are heralded as having great potential for advancing the effectiveness of social transfers via increased efficiency, more transparency, reduced leakage, and faster payments to recipients than antiquated cash-based options. Perhaps most significantly, electronic social transfers to the poor offer a gateway to financial inclusion for the poor. Indeed, as cash transfer social protection (G2P) and aid (D2P) programs proliferate globally, digitizing those transfers may offer the missing link to the bottom billion, the world’s poorest, most vulnerable, and most excluded populations.
However, while theory and some evidence strongly suggest that e-payments are a high leverage tool to reach the poor, new research recently released by CGAP, on behalf of the Better Than Cash Alliance, on the experiences of electronic G2P programs in low-infrastructure and low-income settings reveals that e-payments can also pose a series of risks to recipients. These risks include: loss due to agent or staff misconduct; lack of transparency and disclosure of terms and fees; lack of adequate or effective avenues for recourse and redress, and; data privacy and protection challenges.
For example, a core component of the new research – detailed in case studies written on programs in Haiti, Kenya, the Philippines, and Uganda and summarized in the CGAP Focus Note Electronic G2P Payments: Evidence from Four Lower-Income Countries – explored the recipient experience in interacting with electronic payments platforms to receive their cash transfers. It is important to keep in mind that the vast majority of recipients had no prior experience with digital financial services, and, in some cases, formal financial services at all. Here are some common quotes from recipient focus groups and interviews:
“I don’t understand the fees the agent charges me when I pick up my grant.”
“I don’t know who to call when I don’t receive my full payment.”
“I don’t want to complain because they will take away my stipend.”
“I don’t need to know my PIN. The agent puts it in for me.”
“He says I have to pick up the rest of the payment tomorrow. But next time I have to pay a fee.”
Our research did not reveal how common these challenges are in practice across the four programs. And to be sure, in some cases these quotes indicate the potential for risk more than they reveal staunch evidence of the incidence of consumer loss or risk in practice.
Regardless, the experiences of the poor in these programs certainly raises several critical and so far unasked questions.
First, as we leverage digital financial services for G2P payments, how do we ensure that recipients are adequately protected from any potential risks related to the use of those services? Our research revealed that demand-side assessments, to the extent they were performed, did not thoroughly consider whether there were specific consumer risks related to the payment system design.
Second, are G2P and D2P recipients, by their very nature, more vulnerable to consumer risks related to digital payment products and delivery models? If so, how does that change the way we assess and mitigate risks, and protect the recipients when designing and implementing social protection schemes?
Third, who is responsible for mitigating risks of electronic social payment products and delivery channels? These schemes are often dynamic and complex, with many actors in the “value chain.” Consistently across the four case studies highlighted here, confusion on roles and responsibilities caused challenges for the program and payment service providers, which then trickled down to the recipients in the form of confusion and lack of confidence that their problems would be resolved when something goes wrong.
The Focus Note offers some initial ideas for improving implementation and communication systems in e-G2P for the poor, including: more thorough recipient risk assessment and mitigation planning up front; better channels for recipient communication, recourse and redress, and; clarity around roles and responsibilities between the social protection program and the payment service provider. But it exposes more questions than answers, and finding solutions is indeed mission critical. If those who have the most to gain from “better, cheaper, faster, and more convenient” digital financial services are more vulnerable to potential risks associated with them, then the occurrence of these challenges may have a sobering, unintended consequence: they may lose or fail to develop trust or confidence in the new system they now have to navigate, and the products, services, and providers they now have access to.
If we envision using e-G2P as a financial inclusion gateway for the poor, then we need to make sure recipients are able to start off on the right foot when they step over that threshold.
Jamie M. Zimmerman is a senior associate at Bankable Frontier Associates and co-author of the focus note and related case studies for the recent research on electronic G2P payments in low-income settings. She is also a senior policy consultant at CGAP, contributing to the newly-launched Responsible Digital Finance Initiative. She can be reached on twitter at @jamiemzimmerman.
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