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October 16, 2016

Digitising payments


October 16, 2016

The relationship between people and government is a ubiquitous one. Be it health, education, travel or security – in every aspect of our lives we the people interact with our government in one way or another. For a country like Pakistan, this interaction is often characterised by bad governance and a lack of service delivery. From speeches of opposition politicians to the prime time analysis on TV, it is very rare to hear stories about good governance.  

But this relationship between people and government is also a transactional one. At the one end is the government providing services while at the other are the citizens giving taxes and fees. This second leg of this transaction – where the people pay the government – is known as P2G (People to Government) payments. This too is suffering from the same lack of efficiency that often characterises service delivery.   

Think about making payments to the government and what usually comes to mind are long lines outside government offices and banks. Whether its examination fees or fees at a government hospital, the effort required to make the payment is often a bit too much, costly in terms of time as well as energy. But given the resource scarcity which is typical of a third world government such as Pakistan, increasing infrastructure and personnel to address this issue is not a financially viable option.

Mobile payment technologies are ideally suited to address such inefficiencies as they streamline and thus expedite P2G transactions. In the case of Pakistan, the traditional hundi/hawala transactions are increasingly getting replaced by over-the-counter mobile money transactions. Latest numbers from the State Bank of Pakistan suggest that mobile money is a popular option among those Pakistanis who are doing domestic remittance transfers.

However, the adoption of mobile wallets (registered mobile money accounts) has not picked up yet. It is wallet registration that is essential to reap the full benefits of mobile money accounts, the most promising of which is the extension of formal financial services to those who have been devoid of them. Besides mobile money, other options such as digital cards etc can also be used to digitise P2G payments.      

A recent report, titled ‘Global landscape study on digitising P2P payments’ by Karandaaz Pakistan highlights successful cases from around the world to highlight the opportunities as well as challenges that exist in digitising P2G transactions. The report analysed nine different interventions from seven different countries. Apart from analysing specific projects, the report also includes opinions of 86 subject experts and 90 existing and potential customers of mobile money. The following are some interesting findings, conclusions and recommendations from the report.

Digitisation of P2G payments is beneficial to governments in that it makes service delivery more cost effective, as was seen to be the case in Rwanda where digitisation of bus fees on public transport is allowing the government to cut down on the costs for ticketing staff. Another benefit is a rise in revenue as well as a fall in revenue leakages. This was seen in the case of the Tanzanian Revenue Authority’s use of mobile money for tax payments.

Digitisation also results in faster processing of fees, thereby increasing the efficiency of government operations. This was seen in the Ivory Coast, where the digitisation of school fee payment resulted in the fees being collected over a shorter period of time.

And the benefits are not limited to the government as digitisation also favours the people. One obvious benefit is that it saves time. This was seen in the case of motor vehicle licensing in Tanzania, where before digitisation the payment of annual licence fees took close to half a day or a full day. However, post digitisation the time cost dropped to less than an hour. It also saves the effort involved in getting to a payment point, which could be substantial transportation costs for people living at a distance from collection points.        

But a shift to digitisation is not without its challenges, which the report also highlights. One major challenge is to get official approvals which, according to the report, can take months or years. Another challenge lies in popular procurement policies adopted by governments, where the cheapest bid gets selected. This results in an IT infrastructure that is below par and often results in technical problems during operation.

The report also highlights challenges faced by consumers in adopting digital P2G transactions. In many instances people already rely on fixers to get things done, thus avoiding the costs associated with non-digital transaction. Many were found to have developed personal relationships with officials, and this allowed them to get some relief when it came to deadlines. Another barrier seems to be the lack of internet infrastructure, and in many countries this put certain geographically segregated sub-populations at a disadvantage when it came to digitisation.   

In terms of recommendations, the report highlights some key areas for policy makers and regulators. These include upgrades to government back-end systems, investments in connectivity, improved national payments infrastructure, clear policies around consumer privacy, security and recourse mechanisms, enabling policies for digital payments, and the integration of digital payments, including P2G, into national plans.

The digitization of P2G transaction in Pakistan is an attainable goal that can have far reaching benefits for the economy. For the government it could result in cost effectiveness and efficiency, while for the people it would mean convenience and time saving. Also, for the mobile money industry it will bring about the much-needed interest in mobile wallets which besides benefiting the mobile money industry could also raise the level of financial inclusion in Pakistan.

‘Syrian airstrikes’, by Paresh Nath. Courtesy:

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