In the context of the policy response to the current Covid-19 crisis, a special role is played by Government-to-Person (G2P) payments and international remittances (IRs). The accessibility and reliability of both services is especially crucial at times of crisis such as Covid-19, when immediate response is necessary to support people and businesses in need (Furman 2020). G2P payments permit the timely delivery of state salaries, pensions, and social insurance as well as expanding government cash transfers beyond the current recipients to households in need and informal workers. IRs are vitally important for most developing countries, where they matter even more than foreign direct investment or overseas development aid.
National authorities should make sure that such services continue to be provided as regularly and conveniently as possible, also to provide relief to those many people who cannot afford basic necessities during crises (Midões 2020).
In the Covid-19 context, G2P payments are being used by governments across the world to help vulnerable populations meet their needs. As of early April, at least 70 countries are scaling up their schemes by increasing benefit levels or coverage, or both1, and the World Bank is supporting several developing countries in this regard.
Digitising G2P payments and promoting choice and interoperability is more important now than ever, given governments’ urgency to provide cash assistance quickly, transparently, and responsibly. In addition, this process provides a crucial opportunity to catalyse necessary reforms. Countries with advanced G2P payment ecosystems can push transfers out rapidly and roll out new programs with relative ease. In the midst of the Covid-19 crisis, scaling up G2P payments and the provision of continued access to financial services is proving more difficult. Countries with less developed payment infrastructures, digital financial services regulations, and digital identity (ID) systems have a harder time deploying G2P payments rapidly.
In face of the crisis, immediate and short-term targeted measures can be implemented to enable vulnerable populations to receive assistance in the fastest and safest way possible.
Figure 1 Key considerations for G2P in COVID-19 context
In doing so, countries will face two separate, but related challenges:
1. Expanding the list of eligible beneficiaries. Most countries are trying to provide social assistance not only to the current social program beneficiaries but also to a broader set of individuals and families affected by the crisis, many of which are in the informal sector. Identifying and targeting these individuals will be challenging for countries with ID systems that have low coverage or quality.2
2. Making payments safely and securely in the context of the pandemic. Countries are trying to solve how to get money to people safely, minimising contact and queues, while effectively reaching vulnerable populations. Importantly, changes to systems are required if new beneficiaries are included since the pre-crisis payment processes were not designed to minimise crowding or physical contact.
Scaling up G2P payments in a pandemic should not lead to further exclusion of vulnerable populations, particularly those without access to technology, the elderly, the disabled, and people living in remote areas. The positive externalities of more efficient payments are now much greater.3
What is feasible within a short period of time depends on the starting point in each country. Yet, decisions made in the height of the crisis will have long-term implications on the social protection and financial sectors.
There are two main types of payment mechanisms: account and non-account-based solutions. Account-based solutions, which include bank accounts, general purpose prepaid cards, and mobile money accounts, require onboarding beneficiaries—ideally remotely—and leveraging payment systems to transfer their benefits. These solutions provide the biggest potential benefits to beneficiaries – such as financial inclusion and convenience – and to governments, in the form of cost-savings, leakage reduction, and efficiency gains. After eligibility is verified against the social security register, those who are eligible can either provide an existing account number or are given the option to open a basic account at any of the providers or at any of the empanelled providers.
However, account-based solutions might not be the most feasible option for some countries given their payment ecosystem, financial infrastructure, and regulatory framework. In these cases, a non-account-based solution might be a more realistic option. Non-account-based solutions include limited purpose pre-paid cards, one-time passwords (OTP), vouchers, and cash, and range from being electronic-based to paper-based. But what they all have in common is that opening an account is not required. Although these solutions eliminate the challenge of opening accounts in countries with a less developed financial sector, they require physical delivery of the instrument creating logistical challenges during the pandemic.
Regardless of the payment delivery mechanism chosen, enabling beneficiaries to cash-out easily and safely is very important. Ideally all transactions should be conducted electronically during the pandemic, but the reality is that few payment ecosystems in developing countries are able to support such digitalisation, especially considering that many beneficiaries operate in the informal economy, with lower levels of electronic payments acceptance. Authorities must therefore ensure sufficient access to the existing cash-out points by designating agents and bank infrastructure as ‘essential services’ and should also make an effort to expand the number of cash-out points especially in areas where beneficiaries reside, for example groceries, pharmacies, and postal office agents. Liquidity in cash-out points must also be monitored and addressed by the authorities. Finally, protocols to avoid overcrowding, including spacing out disbursements, and sanitary protocols should be established.4
According to World Bank data released last May, in 2020 remittance flows to low‐income and middle‐income countries are expected to drop by around 20% to $445 billion, from $554 billion in 2019. In this sharp decline, the relative importance of remittance flows as a source of external financing for low‐income and middle‐income countries is expected to rise.5
The contagion effects of Covid-19 have reflected negatively on the IR markets, adversely affecting migrant workers and their families back home. Service sector jobs have been hard hit by the lockdown in some of the largest remittance-sending countries – the US, Switzerland, Germany, France, and Italy – and travel restrictions have constrained many migrant workers from leaving their host countries. At the same time, the forced closure of small businesses in destination countries has led to the closure of agents and branches of remittance service providers. Similar restrictions have been imposed in remittance-receiving countries, further constraining the sending and receiving of IR. While sending IR via digital channels would not typically be affected by the closure of agents, it is being adversely impacted by the loss of migrant jobs.6 Also, the cost of sending IR rises as the volatility in the financial markets and crisis causes foreign exchange margins to increase. Finally, most migrants lack immigration status, unemployment insurance, or health insurance.
Figure 2 International remittances: Policy actions
A number of actions can be taken to support the IR sector. In the near term, national authorities should treat IR as ‘essential services’, mitigate any operational impacts to their functioning, and support the IR industry with appropriate instruments to manage their credit and liquidity risks effectively. In the medium term, they should act to reduce IR prices and respond to the challenges of the migrant communities in host countries by:
- Embracing the new emerging remittance models, which enable originating and disbursing IR through digital means, suitably addressing regulatory and infrastructure barriers.
- Supporting universal financial access in receiving countries and amongst migrant workers in sending countries.
- Enhancing domestic retail payment systems promoting interoperability and fast payment services and enable leveraging these for remittances.
- Enhancing compliance with regulations on anti-money laundering and combat financing for terrorism in receiving countries by strengthening regulatory capacity for enforcing these regulations.
- Supporting development of digital ID solutions.
- Supporting development of comprehensive integrated cross-border payment solutions for medium and small enterprise trade flows, e-commerce, and remittances.
Continuing its pivotal role in reforming IR markets worldwide, the World Bank will keep on monitoring and reporting on the availability of remittance services worldwide and work with stakeholders to improve the transparency and efficiency of the remittances market guided by the CPMI-World Bank collaborative effort.7
Provision of safe and efficient G2P and IR services must be supported by strategic actions involving communication, consumer protection, and payment ecosystem maintenance. Proper communication of all actions throughout the implementation process is critical to avoid implementation setbacks which can create greater health risks. Several countries have already had bad experiences due to flaws in their communication strategy.8
The authorities should devote special attention to protecting users of digital payment services by providing them with assistance tools to deal and resolve issues involving frauds, operational incidents, breaches of data integrity, and disputes with providers.
Finally, maintaining and strengthening the payments ecosystem is critical to successful payment service provision. Connectivity and business continuity must be ensured for transaction, clearing and settlement systems involved, and the payments system must be able to support the higher volume of payments and ideally should provide operational availability in a schedule as extensive as possible.
Authors’ Note: Part II of this column builds on contributions from World Bank Group experts: Jose Antonio Garcia, Ugo Gentilini, Georgina Marin, Peter McConaghy, Jonathan Marskell, Robert Palacios, Doug Randall, Luz Rodriguez, Emil Tesliuc, Veronica Trujillo, Fiorella Risso, Guillermo Galicia, and Mahesh Uttamchandani, and from CGAP experts: Silvia Baur-Yazbeck and Gregory.
CPMI-World Bank (2007), “General principles for international remittance services”, joint report by the Committee on Payment and Settlement Systems and The World Bank, January.
Furman, J (2020), “Protecting people now, helping the economy rebound later”, VoxEU.org, 31 May.
Midões, C (2020), “Millions of Europeans could not endure a two-month income shock without generous, targeted, government policies”, VoxEU.org, 25 May.
World Bank (2020), COVID-19 Crisis Through a Migration Lens, Migration and Development Brief 32, World Bank: Washington DC, April.
1 A third of the 418 social protection programs world-wide responding to Covid-19 are government-funded, non-contributory cash transfer programs.
2 While some will be able to leverage administrative databases (social insurance, social assistance, income tax, auto registry etc.), others are determining to target practically everyone, and some are seeking alternative identification sources (e.g. databases of mobile network operators).
3 For example, enabling customer choice – a system where payments are made to the provider that is most convenient to the beneficiary – and depositing cash transfers into a transactional account that can be linked to a mobile account or a debit card would significantly reduce congestion and the need to travel. In many cases, regulatory changes that would have been recommended before the crisis such as allowing remote or simplified know-your-customer (KYC) for basic accounts could now be fast-tracked.
4 In addition, electronic payments should be promoted to minimise cashing-out and to maintain social distance as much as possible. Fees for beneficiaries to access their benefits should be waived or subsidised as much as possible. Expanding digital payment acceptance points is also key to promoting electronic payment usage. Deploying temporary POS terminals (or QR-code based solutions where available) to essential service merchants could increase use of electronic payments. Merchant CDD for electronic payments acceptance onboarding could also be simplifies to enable a rapid expansion.
5 See World Bank (2020).
6 Even in the best of times, sending and receiving remittances is not straightforward. For many, it requires a ride to the service provider at specific times of the day. During the mobility restrictions of a pandemic, sending cash remittances can become an impossible mission when digital alternatives are lacking, or people are unfamiliar with them. In many countries, agents are closed without any specific provisions recognising them as essential services. Where they have been deemed essential services, this information has not fully percolated to local authorities. Clients often face long queues, due to the lower number of agents and the shorter operating hours. Where sending digitally is an option, other barriers may exist for senders and receivers. For example, account ownership and usage of digital payments is not yet widespread among the biggest receiving countries, which limits options, and most developing economies that rely on remittances do not have a combination of high ownership of transaction accounts and high usage of digital payments.
7 See CPMI-World Bank (2007) The World Bank sponsors and participates in a wide range of global initiatives. Central is its role in supporting countries achieve Social Development Goal 10.c to reduce the transaction costs of migrant remittances to less than 3% and to eliminate remittance corridors with costs higher than 5% by 2030. In 2008, the World Bank began to survey and publish the prices of remittance services worldwide through the Remittance Prices Worldwide (RPW) database. RPW monitors the cost incurred by remittance senders along major remittances corridors and serves as a reference for measuring progress towards global cost reduction objectives. The RPW covers 365 remittance corridors, 48 remittance-sending countries, and 105 remittance-receiving countries.
8 In El Salvador, for example, a website to confirm eligibility with ID number instructed individuals to go to a government office if they didn’t show up as eligible and wanted to contest the decision. This led to overcrowded public offices, followed by their closure which resulting in riots. Timing is also critical. In Thailand, when the government announced an emergency cash-transfer program they didn’t specify how it would be delivered and people rushed to state banks to open accounts (other social programs are only disbursed through state banks). It wasn’t until after crowds gathered that the government clarified that the transfer could be received both in state and commercial bank accounts which could be opened online, as well as a domestic mobile transfer system.