g2p - government to person payments 2012
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TRANSCRIPT
March 2012
G2P Payments
Government-to-Person (G2P) Payments
Social Safety Net (SSN) Programs
Employee Payments(wages, pensions)
Social Transfers Noncash Support
Workfare
UnconditionalTransfers
ConditionalTransfers
Food
Price Subsidies
Fee Waivers
To better off employees
To low-income employees
170
mill
ion
What are G2P payments?
Worldwide, 170 million low income individuals receive some form of regular payment from their governments
Note: Data is from 2009
Financial access and the 170 million
55% of adults worldwide— 2.5 billion people—survive without formal financial services.
They rely instead on: Family members Friends and neighbors Savings clubs Employers Moneylenders and savings collectors
No formalaccess
Formalaccess
The Case for Financial Inclusion
Financial inclusion requires scale and presence
Traditional banks have scale, but lack presence.
Microfinance institutions have presence, but lack scale.
Channel Costs
$250k Traditional branch
$50k In-store branch
$10k ATM
$2k Agent with POS terminal
$400 Agent with mobile
$0k No agent (cashless)
1.7 billion people worldwide have a mobile phone but no bank account.
Branchless models for scale and presence
FOR GOVERNMENT: Is building inclusive financial services into social transfer programs affordable for the social program?
• COST
FOR RECIPIENTS: Will poor recipients use financial services if they are available to them?
• USE
FOR PROVIDERS: Can financial institutions offer financially inclusive services to G2P payment recipients on a profitable basis?
• BUSINESS CASE
Can G2P be leveraged for financial inclusion?
Evolving G2P Delivery Methods
Linking G2P to the Personal Payment Eco-System
Evidence from four middle-income countries
• Various unconditional transfers reach 9 million recipients (30% of the population)
• Various payments methods: prepaid smart cards and magnetic stripe cards linked to an account
South Africa’s Social Security Agency
• CCT program started in 1997 reaching 6 million households (20% of population)
• Bansefi has various payment mechanisms, including cash, magstripe cards linked to accounts, smart cards
• CCT program reaches 2.4 million families (11% of population)• 1.8 million interest-bearing savings accounts opened by Banco Agrario
• CCT program reaches 12.9 million families (30% of population)• 2 million recipients receive grants into a simplified current account
accessible via magnetic stripe card
Mexico’s
Oportunidades
Colombia’s Familias en Accion
Brazil’s Bolsa Familia
Changes over time towards electronic payments
11
Strong financial inclusion push under Financial Sector Charter (2003)
Agency strategy to promote bank payments to reduce cost and leakage
Beneficiaries choose whether to be paid in cash or into a bank account
o 37% paid electronically into general or special bank accounts
oPayments made by three main payment contractors using special purpose cards at dedicated pay-points with ATM/ POS and biometric authentication
Case 1: South Africa Social Security Agency
Old Age GrantsSouth Africa
Payment system evolved over time:o 2006: Cash distributed from state
bank Banco Agrario brancheso 2007: Prepaid cards that could be
used at ATMs of private bankso 2008: Mix of options—cash, bank
branches, and prepaid cardso 2008: Banco Agrario won tender to pay grants via savings
accountsDevelopment of banking
correspondents was linked to the roll-out of CCT pay points
oSubsidies offered for bank correspondents in some areas
Strong roll out: from 8% in 2009 to 86% of recipients in 2010 – 1.8 million
savings accounts opened
Case 2: Familias en Acción in Colombia
Familias en Accion, Colombia
CCT program started in 1997 reaches 5 million households (18% of pop)
Payments made primarily through Bansefi and Telegrafos/Telecomm
Bansefi has experimented with distribution:
oCash through Bansefi branchesoCash through dedicated mobile
unitsoDirect deposit with debit card
access and no withdrawal requirement
oDiconsa stores as correspondents using POS terminals
oCredit unions affiliated with the Bansefi-sponsored L@ Red de la Gente payment network equipped with Bansefi terminals
Case 3: Oportunidades in Mexico
Oportunidades, Mexico
Building Incentives to Save into G2P Product Design
Next generation of savings products specially designed for use with cash transfer programs
Personal Capitalization Accounts (PCAs) e.g. in Peru
Child and Youth Savings accounts e.g. in Mexico
“Lotteries” being used as an incentive to promote savings e.g. in Colombia
Example: Jóvenes con Oportunidades in Mexico
• Jóvenes con Oportunidades was added in 2003 as an additional benefit for participating families.
• Program consists of savings accounts for Oportunidades youth to incentivize continued education
• Account is opened in a child’s last year of Secondaria (middle school) and “points” are deposited in the account for each year of high school the student completes
• Points are converted into cash (approx. $336) which the youth can withdraw or leave in the Bansefi savings account
• Student can use the account as a personal savings account, making and withdrawing deposits; but the cash payout is not available until graduation
• More than 330,000 youth have opened these savings accounts
Source: Zimmerman & Moury, 2009; http://www.oportunidades.gob.mx/jovenes/preguntas_frecuentes.html
Colombia: Promoting savings behavior
Banco Agrario and the government saw that usage of the savings accounts would not happen automatically
Experimenting with incentives to promote savings behavior among beneficiaries
o Lottery held at the local leveloApprox one in every thousand
people has a “zero added” to their savings balance
Combined with financial education to measure uptake
Control group created so that effectiveness can be measured
Linking with micro-insurance
Strong theoretical argument in favor of insurance:oCould be cheaper and better
suited to beneficiary needso Life, health, disability and
weather insurance being discussed
Rising on the agenda:oOne pilot in the PhilippinesoNew strategy for Africa being
developed by WBIssues still to be resolved:
oWho pays?oWhat should be covered?oOpt in, opt out, or mandatory
enrollment?
Example: 4Ps program in Philippines
Recent pilot links 12,000 – 20,000 beneficiaries of the 4Ps CCT program with micro-insurance association
Currently only life and pension products offered
Plans to scale up over the next year Other products being considered
including weather index and agricultural loans with built in weather insurance cover
Linking G2P with credit
Few examples around the world Governments may be wary of
promoting credit One product being designed by
FINO (in conjunction with CGAP) in India
Linking with transactional savings
Example: FINO in India
FINO is developing a proposal to test a credit product in India
Credit line would be extended to FINO agents
FINO agents would make decisions on who to lend to and set interest rates
Agents would bear credit risk
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 by December 2012
• Initial drivers were efficiency and transparency; but widened to embrace concerns for financial inclusion
• Oportunidades CCT: In 2010 85% of 5.8m recipient households received their disbursements in cash; moving to payout from bank accounts via agents
• Incentives: fiscal subsidy for rollout of POS country wide (FIMPE) 2005-2008
Source: Fletcher School/BFA case study 2011
BRAZIL COLOMBIA MEXICO SOUTH AFRICA
Average grant per recipient
$71.0 $55.1 $118.3 $144.7
Average cost per payment $0.84 $6.24 $2.52 $3.30
As % of average grant 1.2% 11.3% 2.1% 2.3%
Cash payment $0.88 $5.20* $2.35 N/A
Limited purpose payment $0.88 $6.24 N/A $4.46
Mainstream financial account
$0.60 N/A $2.84 $2.03 or $0.10
Rate used in conversion:
1 USD= (15 August 2011)
1.62 BRL 1784.5 COP 12.4 MXN 7.2 ZAR
Government Costs
* Under previous contract; included for comparison only since current contract has no cash payment as defined.
Sources: Country Reports
Key takeaways on costs per country
EVIDENCE FROM RESEARCH: Brazil: o MDS pays Caixa 31% less ($0.60 vs. $0.88) for a recipient with a mainstream
Caixa Facil account than for a limited purpose Social Card. South Africa: o Bulk electronic transfers into an account of the recipient’s choice cost 10c.o If SASSA receives reports for reconciliation, benchmark is $2.03
Colombia:o Banco Agrario, in partnership with private logistics company Assenda, was the
sole bidder on the government’s electronic G2P tenderoGovernment pays high fees of $8.90 per bi-monthly payment; negotiated down
to $6.24 (cash payment fee was $5.20). o High price reflected the short 2 year term of the initial contract and the bank’s
need to upgrade its system, issue millions of debit cards, capture biometric information 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
Research on the Recipient Experience
COLOMBIA SOUTH AFRICAMEXICOBRAZIL
QualitativeData(specific to this project)
7 focus groups totaling 49 people;12 in-depth interviews in 4 different settings in one state (RJ)
8 focus groups totaling 74 people and 5 in-depth interviews in 4 municipalities which are part of PPCA
10 focus groups totaling 100 people in 3 urban and 5 rural communities
QualitativeData
IADB survey performed by CEDE in 6 cities (2010);BdO (2010): Baseline for PPCA
IADB: 16 focus groups of 10 people each, plus 18 in-depth interviews (2010)
GAFIS (2011): nationwide survey of 830 Oportunidades recipients who received payment via Diconsa stores
Qualitative data (other)
South African financial diaries and diaries refresh data (2009)
Before and After: The Recipient Experience
COLOMBIA SOUTH AFRICAMEXICOBRAZIL
Time spent traveling to collect
< 30 mins walking; some travel many hrs or overnight
Urban: 5-10 minsRural: 1-2 hours
< 30 mins walking Pick-up at a bank or retailer: 5 mins-2hrsPayment provider:30 mins-2 hrs walking
Waiting time ATM: 0-10 minsAgent or branch: 5 mins-2 hrs
No waiting 30 mins to 2 hrsCash and agents take longest
Bank: 5 mins-2 hrsHoursSpecific paymentproviders: Several hrsSupermarket: 5 mins
Cost to the recipient useservice to withdraw gov payment
Bank: Depends on bank chosen by beneficiary.Supermarket: No fee, often required to spend20% in storeSpecific paymentproviders: None
None None None
Other financial services used
Saving in the houseInstallment creditCredit from shopsInformal borrowingLottery prizes
Saving in the houseSaving with a trustedpersonCredit from localshops
Saving in the houseInstallment creditSACCOsROSCAs
Saving in the houseSavings clubsFuneral plans andburial societiesInformal borrowing
EVIDENCE 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 don’t 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 inconvenient
HOW TO ADJUST OUR THINKING: It will take time for entrenched behavior patterns to change; and it will require clear,
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.
Customer Usage Conclusions
Business Case for Providers
Illustrative Financial Model: informed from 4 country experiences
REVENUE
Average balance
Interest recognized 5%
Transaction fees Rare
FIXED COSTS
Opening cost $10
Monthly maintenance $0.75
Dormancy rate 20-40%
VARIABLE COSTS
Transaction pattern 1 withdrawal; 2 balance inquiries
Unitary cost of each transaction $0.25-$3
$246 = $10-$15
Business Case for Providers
Average balance needs to be $246 to make account profitable without government fees. Typical balances are $10-$15.
The business case for providing bank accounts to social transfer recipients depends on receiving a regular fee from government. If this fee is high enough, the business case can be attractive.
Without this fee, the business case for offering low balance savings
accounts is challenging for banks. Governments need to continue paying fees and not assume that banks can get sufficient revenue from interest on the float or from cross-selling for several years.
In time, a combination of increasing balances, more customer-initiated payment transactions and cross-selling of other services may support a stronger business case at the level of the client level.
An efficient widespread agent distribution network is a key factor in reducing the cost of opening accounts and servicing client transactions.
Provider Proposition
Branchless models are key to making electronic G2P work for recipients
” – what the beneficiary has, what the agent has
SPP
Post Office Branch
Existing Model
Post Office Bank
Target Model
(Payments delivered by post office) (Payments collected from agents)
Post Office Branch
Beneficiaries
SPP
Agent Agent ATM?
Beneficiaries
Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org