G2P - Government to Person Payments 2012

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Transcript of G2P - Government to Person Payments 2012

  • 1. G2P Payments March 2012

2. What are G2P payments?Worldwide, 170 million low income individuals receivesome form of regular payment from their governmentsGovernment-to-Person Social Safety Net(G2P) Payments (SSN) Programs Employee PaymentsSocial Transfers Noncash Support(wages, pensions)To better off Conditional FoodemployeesTransfers To low-incomeUnconditionalPrice Subsidies 170 millionemployeesTransfersWorkfare Fee Waivers Note: Data is from 2009 3. Financial access and the 170 million55% of adults worldwide2.5 billion peoplesurvivewithout formal financialservices.No formalThey rely instead on: access Family membersFormal Friends and neighbors access Savings clubs Employers Moneylenders and savings collectors 4. The Case for Financial Inclusion 5. Financial inclusion requires scale and presenceTraditional banks havescale, but lack presence.Microfinance institutionshave presence, but lackscale. 6. Branchless models for scale and presenceChannel Costs$250k Traditional branch$50k In-store branch$10k ATM$2k Agent with POS terminal$400 Agent with mobile1.7 billion people worldwide have a mobile phone but no bank account. $0k No agent (cashless) 7. Can G2P be leveraged for financial inclusion? FOR GOVERNMENT: Is building inclusive financial services intosocial transfer programs affordable for the social program? COST FOR RECIPIENTS: Will poor recipients use financial services if theyare available to them? USE FOR PROVIDERS: Can financial institutions offer financiallyinclusive services to G2P payment recipients on a profitable basis? BUSINESS CASE 8. Evolving G2P Delivery Methods 9. Linking G2P to the Personal Payment Eco-System 10. Evidence from four middle-income countries Various unconditional transfers reach 9 million recipients (30% of the South Africas Socialpopulation) Security Agency Various payments methods: prepaid smart cards and magnetic stripecards linked to an account CCT program started in 1997 reaching 6 million households Mexicos (20% of population)Oportunidades Bansefi has various payment mechanisms, including cash, magstripecards linked to accounts, smart cardsColombias Familias en CCT program reaches 2.4 million families (11% of population) 1.8 million interest-bearing savings accounts opened by Banco Agrario Accion CCT program reaches 12.9 million families (30% of population) Brazils Bolsa Familia 2 million recipients receive grants into a simplified current accountaccessible via magnetic stripe card 11. Changes over time towards electronic payments11 12. Case 1: South Africa Social Security AgencyStrong financial inclusion push under Financial Sector Charter (2003) Old Age GrantsAgency strategy to promote bank South Africa payments to reduce cost and leakageBeneficiaries choose whether to be paid in cash or into a bank accounto 37% paid electronically intogeneral or special bank accountso Payments made by three mainpayment contractors usingspecial purpose cards atdedicated pay-points with ATM/POS and biometric authentication 13. Case 2: Familias en Accin in ColombiaPayment system evolved over time:o 2006: Cash distributed from statebank Banco Agrario branchesFamilias en Accion,o 2007: Prepaid cards that could beColombiaused at ATMs of private bankso 2008: Mix of optionscash, bankbranches, and prepaid cardso 2008: Banco Agrario won tenderto pay grants via savingsaccountsDevelopment of banking correspondents was linked to the roll- out of CCT pay pointso Subsidies offered for bankcorrespondents in some areasStrong roll out: from 8% in 2009 to 86% of recipients in 2010 1.8 millionsavings accounts opened 14. Case 3: Oportunidades in MexicoCCT program started in 1997 reaches 5 million households (18% of pop)Oportunidades,Payments made primarily throughMexico Bansefi and Telegrafos/TelecommBansefi has experimented with distribution:o Cash through Bansefi brancheso Cash through dedicated mobile unitso Direct deposit with debit card access and no withdrawal requiremento Diconsa stores as correspondents using POS terminalso Credit unions affiliated with the Bansefi-sponsored [email protected] Red de la Gente payment network equipped with Bansefi terminals 15. Building Incentives to Save into G2P ProductDesign Next generation of savings Example: Jvenes con Oportunidades in Mexicoproducts specially designed Jvenes con Oportunidades was added in2003 as an additional benefit for participatingfor use with cash transferfamilies.programs Program consists of savings accounts for Personal Capitalization Oportunidades youth to incentivize continuededucationAccounts (PCAs) e.g. in Peru Account is opened in a childs last year of Child and Youth Savings Secondaria (middle school) and points areaccounts e.g. in Mexico deposited in the account for each year of highschool the student completes Lotteries being used as an Points are converted into cash (approx. $336)incentive to promote savingswhich the youth can withdraw or leave in theBansefi savings accounte.g. in Colombia Student can use the account as a personalsavings account, making and withdrawingdeposits; but the cash payout is not availableuntil graduation More than 330,000 youth have opened thesesavings accountsSource: Zimmerman & Moury, 2009; http://www.oportunidades.gob.mx/jovenes/preguntas_frecuentes.html 16. Colombia: Promoting savings behaviorBanco Agrario and the government saw that usage of the savings accounts would not happen automaticallyExperimenting with incentives to promote savings behavior among beneficiarieso Lottery held at the local levelo Approx one in everythousand people has a zeroadded to their savingsbalanceCombined with financial education to measure uptakeControl group created so that effectiveness can be measured 17. Linking with micro-insuranceStrong theoretical argument in Example: 4Ps program in Philippines favor of insurance:o Could be cheaper and bettersuited to beneficiary needs Recent pilot links 12,000 20,000o Life, health, disability andbeneficiaries of the 4Ps CCT programweather insurance being with micro-insurance associationdiscussed Currently only life and pensionRising on the agenda:products offeredo One pilot in the Philippines Plans to scale up over the next yearo New strategy for Africa being Other products being considereddeveloped by WB including weather index andIssues still to be resolved: agricultural loans with built in weathero Who pays? insurance covero What should be covered?o Opt in, opt out, or mandatoryenrollment? 18. Linking G2P with creditFew examples around the worldExample: FINO in IndiaGovernments may be wary of promoting credit FINO is developing a proposal toOne product being designed bytest a credit product in India FINO (in conjunction with CGAP) Credit line would be extended to in India FINO agentsLinking with transactional savings FINO agents would makedecisions on who to lend to andset interest rates Agents would bear credit risk 19. Mexico: How hard should governments push? Is Grandma ready for this? Mexico Kills Cash-based pensions and welfare by 2012 All government agencies required to make all disbursements electronically byDecember 2012 Initial drivers were efficiency and transparency; but widened to embrace concernsfor financial inclusion Oportunidades CCT: In 2010 85% of 5.8m recipient households received theirdisbursements in cash; moving to payout from bank accounts via agents Incentives: fiscal subsidy for rollout of POS country wide (FIMPE) 2005-2008Source: Fletcher School/BFA case study 2011 20. Government CostsBRAZIL COLOMBIA MEXICOSOUTH AFRICAAverage grant per recipient $71.0 $55.1 $118.3 $144.7Average cost per payment$0.84 $6.24$2.52$3.30As % of average grant 1.2%11.3%2.1% 2.3%Cash payment$0.88 $5.20* $2.35 N/ALimited purpose payment $0.88 $6.24 N/A $4.46Mainstream financial account$0.60 N/A$2.84$2.03 or $0.10Rate used in conversion:1 USD= (15 August 2011)1.62 BRL1784.5 COP 12.4 MXN 7.2 ZAR * Under previous contract; included for comparison only since current contract has no cash payment as defined. Sources: Country Reports 21. Key takeaways on costs per countryEVIDENCE FROM RESEARCH:Brazil:o MDS pays Caixa 31% less ($0.60 vs. $0.88) for a recipient with a mainstreamCaixa Facil account than for a limited purpose Social Card. South Africa:o Bulk electronic transfers into an account of the recipients choice cost 10c.o If SASSA receives reports for reconciliation, benchmark is $2.03Colombia:o Banco Agrario, in partnership with private logistics company Assenda, was thesole bidder on the governments electronic G2P tendero Government pays high fees of $8.90 per bi-monthly payment; negotiated downto $6.24 (cash payment fee was $5.20).o High price reflected the short 2 year term of the initial contract and the banksneed to upgrade its system, issue millions of debit cards, capture biometricinformation and build a new merchant network through Assenda.KEY LESSONS:Cost of payments is lower in countries with existing infrastructure (i.e. agents, ATMs)The details of the tendering process have a huge bearing on cost 22. Research on the Recipient Experience BRAZILCOLOMBIA MEXICOSOUTH AFRICAQualitative 7 focus groups8 focus groups10 focus groupsDatatotaling 49 people; totaling 74 peopletotaling 100 people in(specific to12 in-depth interviewsand 5 in-depth3 urban and 5 ruralthis project) in 4 different settings interviews in 4 communitiesin one state (RJ) municipalities whichare part of PPCAQualitativeIADB: 16 focus South African financialData groups of 10 peoplediaries and diaries each, plus 18 in-refresh data (2009) depth interviews (2010)Qualitative IADB surveyGAFIS (2011):data (other)performed by nationwide survey ofCEDE in 6 cities 830 Oportunidades(2010);recipients whoBdO (2010):received payment viaBaseline for PPCADiconsa stores 23. Before and After: The Recipient ExperienceBRAZILCOLOMBIAMEXICO SOUTH AFRICATime spent< 30 mins walking; Urban: 5-10 mins< 30 mins walking Pick-up at a bank ortraveling tosome travel many hrs Rural: 1-2 hoursretailer: 5 mins-2hrscollect or overnight Payment provider: 30 mins-2 hrs walkingWaiting time ATM: 0-10 minsNo waiting 30 mins to 2 hrs Bank: 5 mins-2 hrs Agent or branch: Cash and agentsHours 5 mins-2 hrs take longest Specific payment providers: Several hrs Supermarket: 5 minsCost to theNoneBank: Depends on bank None None chosen by beneficiary.recipient use Supermarket: No fee,service to often required to spendwithdraw gov 20% in storepaymentSpecific payment providers: NoneOther financial Saving in the houseSaving in the house Saving in the house Saving in the house Saving with a trusted Installment creditSavings clubsservices used Installment creditCredit from shopspersonSACCOsFuneral plans andInformal borrowing Credit from local ROSCAsburial societiesLottery prizes shops Informal borrowing 24. Customer Usage ConclusionsEVIDENCE FROM RESEARCH: Recipients welcome convenience of electronic payments over cash. Few recipients automatically use new bank account to save or for much else beyond withdrawing benefits. Customers may open accounts just to receive their G2P payments (i.e. 51% of South African recipients opt to receive their payments via accounts). Causes of low customer use beyond withdrawal may be:o Beneficiaries dont know about account functionso Beneficiaries may fear losing their entitlement if they leave a balanceo Beneficiaries perceive that unpredictable fees reduce account balances.Free balance enquiries may be important to build trust.o The accounts may be poorly designed or inconvenientHOW TO ADJUST OUR THINKING: It will take time for entrenched behavior patterns to change; and it will requireclear, consistent communication. Early expectations about rapid and automatic take up of financial services,especially savings, need to be recalibrated. Main benefit to recipients from inclusive accounts may come from their function as a gateway to the formal financial sector. 25. Business Case for Providers 26. Business Case for ProvidersIllustrative Financial Model: informed from 4 country experiences Average balance needs to be $246 to makeREVENUEaccount profitable without government fees. Typical balancesAverage balance $246 = $10-$15 are $10-$15.Interest recognized 5%Transaction feesRareFIXED COSTSOpening cost$10Monthly maintenance $0.75Dormancy rate 20-40%VARIABLE COSTSTransaction pattern 1 withdrawal; 2 balance inquiriesUnitary cost of each transaction$0.25-$3 27. Provider Proposition The business case for providing bank accounts to social transfer recipientsdepends on receiving a regular fee from government. If this fee is highenough, the business case can be attractive. Without this fee, the business case for offering low balance savingsaccounts is challenging for banks. Governments need to continue payingfees and not assume that banks can get sufficient revenue from interest onthe float or from cross-selling for several years. In time, a combination of increasing balances, more customer-initiatedpayment transactions and cross-selling of other services may support astronger business case at the level of the client level. An efficient widespread agent distribution network is a key factor inreducing the cost of opening accounts and servicing client transactions. 28. Branchless models are key to making electronic G2Pwork for recipients what theExisting Model beneficiary has, what the agent has Target Model SPPSPP Post OfficeBank Post Office Post OfficeBranchBranch AgentAgent ATM?BeneficiariesBeneficiaries (Payments delivered by post office)(Payments collected from agents) 29. Advancing financial access for the worlds poor www.cgap.org www.microfinancegateway.org