Governments doling out aid dollars through mobile apps is a net positive. It streamlines the process, reduces corruption, and it gives the very poor an on-ramp into the larger financial system. But though the future of mobile aid looks bright, it's critical that we aren't blinded to five critical realities that could hamper - or hasten- progress, argues Global Assets Project Director Jamie Zimmerman. This post originally appeared in the Financial Access Initiative Blog of New York University.
What’s next? The opportunity to make government-to-person payments a major vehicle of financial inclusion.
Mobile money and electronic payments have leaped to the fore of many financial access conversations. Take the launch of the Better Than Cash Alliance (BTCA) and the recently released latest Bill & Melinda Gates Foundation (BMGF) strategy as prime examples. Some (Tim Ogden of FAI, Jesse Fripp of SBI and I for instance), have suggested tingeing the optimism over payments with caution, citing several hurdles that we must still overcome, and questions we must answer, before payments can become a financial access success story.
Don’t get me wrong, I am a believer: since 2009, I have argued that technological advances in payment systems will and should change the face of financial inclusion and asset building for the poor. And I believe nowhere is this truer than in a very specific, hard-to-reach population: the aid-receiving poor. Armando Barrientos and David Hulme of the Brooks World Poverty Institute and the authors of the acclaimed “Just Give Money to the Poor” have estimated that some 500 million individuals are affected by Government-to-Person payments (G2P).
Recently released new data aggregated by the Global Savings and Social Protection (GSSP) Initiative (part of the Global Assets Project at the New America Foundation which I direct) indicates the digitization of G2P payments -- which we track across 105 social protection payment programs and 56 developing countries -- is expanding rapidly. A 2009 CGAP study estimated that only 25% of G2P payments occurred in a “financially-inclusive way” (meaning delivery into a bank account or similar); our initial data put that number in 2012 upwards of 60%. As more data become available, we anticipate this percentage will only go up.
What’s more, our data reveal that among that 60% of payments, there are no less than seven different financially-inclusive. The chart above, adapted from our recently released paper on the topic, shows that while the majority of such programs pay into bank accounts at varying levels of functionality, others are experimenting with mobile phones and cash cards. We also anticipate that programs will continue experiment with a variety of innovative payment methods.
Given the huge number and variety of G2P transactions, we indeed face a real opportunity to leverage these payments for financial inclusion and asset building among the unbanked. There are many ways G2P payments could become high leverage vehicles to promote money management, savings and financial inclusion in general.
Maximizing the opportunity presented by G2P (or any other -2P) payment systems will require looking beyond building the technical infrastructure to the dynamics that shape G2P functioning overall, including (but not limited to) these 5 P’s: