Digitization of government-to-person (G2P) payments should be a financial inclusion “quick win,” but often it’s not. In fact, negative experiences with digital social payment programs actually sometimes have the adverse effect of steering low-income customers away from formal financial services. But they don’t have to.
Around five common risks that recipients of digital social payment programs experience: network or service unreliability, insufficient liquidity, complex user interfaces and payment processes, poor recourse mechanisms, and fraud. These risks can adversely affect first-time users’ trust in formal financial services and their perception of the value of using them.
Complex interfaces and perception of fraud
Usually volunteers on any government program are relying on the assistance of agents to access their mobile wallets, including revealing their personal identification numbers (PINs), since they have low literacy and limited experience with the payment service and mobile application. Now they are demanding an end to the electronic method of payment required by the government as they fear being defrauded by the agents. As agents are entering the PINs on behalf of the customers, they could obtain access to the customer’s wallet and an opportunity to misuse that information for personal gain. This concern has also arisen in other digital social payment programs.
Often in rural areas the beneficiaries are using the banking services for the very first time. In order to avail their digital cash, the beneficiaries often have to travel to faraway places in order to access ATMs. This not only takes a lot of time but also means increased expense which most of the beneficiaries can ill afford to spare. But the most troubling thing is once they reach the ATM or bank offices they can’t get access to cash due to liquidity crisis.
These two examples show us once more why financial inclusion will require more than opening accounts for currently excluded consumers. A cross-sectoral effort is required to incentivize merchants and suppliers to shift to electronic payments and transactions. This is especially important in markets where liquidity is hard to manage, and therefore a shift to more digital payments across the ecosystem would reduce the pressure on the cash market.