A woman stands in the sun for five hours, her baby strapped to her back. There’s no water or shade. The baby’s head lolls, as it becomes increasingly dehydrated. This woman has no choice but to stand in the queue in front of a “bank on wheels,” waiting to test a new “financially inclusive” e-payment modality. Elsewhere, a man is unable to collect his benefit because he must work that day in the field. As he missed payday, he must wait two months in order to return to the fixed pay point. When he finally does, he discovers that the accumulated benefit, which he was counting on, has been “swept” from his account. Contrary to the very principles underlying financial inclusion, in South Africa, grant beneficiaries are warned by the South African Social Security Agency (Sassa) that “social grants that have not been claimed for more than three consecutive months will lapse.”
These are just three examples of how badly designed payments mechanisms for social protection programs harm the very beneficiaries that the programs are meant to help.
Social protection programs (SPP), which provide cash transfers such as social pensions or child benefits, are coordinated by governments and donors. However, the payments are often outsourced to third-party payment service providers (PSPs), such as banks and MNOs. It’s these mechanisms which are often not designed with the inherent rights of the beneficiary in mind. In many cases, basic consumer protection principles, data protection rights and even the beneficiaries’ right to basic information aren’t being observed. Look a little closer and the violations become more subtle, but no less serious: excessive fees charged by agents, unauthorized and unlawful deductions, cross-selling of micro-insurance products to beneficiaries that no one asked for or really needed, dangerous levels of indebtedness, nowhere to complain to and little chance of a satisfactory resolution of the dispute.
Without a human rights-based approach to the delivery of SPPs, the vulnerable will be left behind.
SPPs are one of the key means of bringing formal financial services to the unbanked. “Banking the unbanked” is a term that has been bandied around for years. Making use of G2P programs to meet financial inclusion objectives has been a popular refrain as well. But at what cost? Why are PSPs not held to account when delivering payment services to SPP beneficiaries? Do codes of banking practice, consumer protection laws and principles enshrined in directives such as the Payment Services Directive II (PSD II) not apply to SPP beneficiaries? Are there two sets of rules depending on whether you are a high net worth bank customer or a SPP beneficiary living in poverty? This Financial Inclusion Week, as we consider how financial inclusion can better promote equity, we argue that without a human rights-based approach being applied to the delivery of SPPs, the vulnerable will always be left behind.
Payment Standards Are Needed.
Is there a link between human rights law and financial or payment services legislation and regulation? At first glance, probably not, but “banking the unbanked” and meeting the financial inclusion targets at any cost isn’t only irresponsible, it’s reprehensible. Accountability is needed, but who’s responsible and what mechanisms can and should be used?
The manner in which PSPs provide payment services is now heavily regulated in the European Union, and member states are required to transpose the PSD II into domestic law. Unfortunately, within many developing country contexts, the legal and regulatory framework governing the provision of payment services doesn’t exist and consumer protection frameworks are of general application. Where codes of banking practice exist, these, given their non-enforceable status, are often ignored.
In many developing countries, the legal and regulatory framework governing the provision of payment services doesn’t exist.
PSPs contracted by governments or development partners to provide payment services to the program always do so in terms of the contractual provisions contained in a commercial contract or service-level agreement, in line with key performance areas which are set and in compliance with a detailed scope of work. However, in the absence of a robust legal and regulatory framework, the drafters of commercial contracts with PSPs are often at a loss as to how these contracts should be drafted, and the scope and content of the service level agreement, key performance area and scope of work. Recognizing this limitation, Development Pathways is working towards developing a set of payment standards, which we hope will inform international best practice in the social protection world. These payment standards are the first step towards merging human rights law with financial and payment services legislation and regulation and establishing a new paradigm where PSPs are held to account.
What About the Human Rights-Based Approach Applied to PSPs?
Dignity and autonomy, equality and non-discrimination, inclusion of vulnerable groups, and a gender perspective aren’t first and foremost on the minds of PSPs operating in a “value and volume world.” However, it’s important to remember that the rationale for applying a human rights-based approach is enshrined in international law. Furthermore, the United Nations Guiding Principles on Business and Human Rights (UNGPs), which were endorsed by the Human Rights Council in June 2011, provide clarity on the expectations of the international community regarding the human rights responsibilities of corporations. With the Guiding Principles, the UN Human Rights Council defined the corporate responsibility to respect human rights. Therefore, PSPs must conduct due diligence to ensure that they identify, prevent, mitigate and account for how they address their adverse human rights impacts.
PSPs must conduct due diligence to ensure that they identify, prevent, mitigate and account for how they address their adverse human rights impacts.
There is also a separate obligation of the governments implementing the social protection programs to ensure that PSPs comply with human rights standards. As the primary duty bearer, states are legally obligated to protect their citizens from third parties (which include PSPs) from violating human rights. It also has a responsibility to implement policies, standards and legislation to ensure that human rights can be realized. In addition, the UNGPs recognize that the closer a business enterprise is to the state, the stronger the state’s policy rationale becomes in ensuring that the enterprise respects human rights. This is especially the case if the state has contracted a business enterprise to provide services, such as the payment delivery of a SPP, and if taxpayers money is being used to fund the program.
With the rationale for a human rights-based approach established, what are the principles that should inform each phase of the payments process? The illustration below demonstrates some ways in which key human rights principles can be incorporated into the design of the payments mechanism. By ensuring that these standards are measurable and quantifiable, the payments standards can then inform the KPAs of a Commercial Contract/Service Level Agreement with a PSP. And better yet, they could even form part of international best practice and be enshrined in domestic laws around the world.
