TECHNICAL NOTE Tools for Digitizing Government Payments Learnings from FISF FINANCIAL INCLUSION SUPPORT FRAMEWORK MAY 2021 FINANCE, COMPETITIVENESS & INNOVATION GLOBAL PRACTICE TECHNICAL NOTE Tools for Digitizing Government Payments Learnings from FISF FINANCIAL INCLUSION SUPPORT FRAMEWORK MAY 2021 © 2021 International Bank for Reconstruction and Development / The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org DISCLAIMER This work is a product of the staff of The World Bank Group. The World Bank Group refers to the member institutions of the World Bank Group: The World Bank (Interna- tional Bank for Reconstruction and Development); International Finance Corporation (IFC); and Multilateral Investment Guarantee Agency (MIGA), which are separate and distinct legal entities each organized under its respective Articles of Agreement. We encourage use for educational and non-commercial purposes. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Directors or Executive Directors of the respective institutions of the World Bank Group or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. RIGHTS AND PERMISSIONS The material in this work is subject to copyright. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. Since the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. CONTENTS Acknowledgements v List of Acronyms vii 1. INTRODUCTION 1 2. COST OF PAYMENTS SURVEY IN PAKISTAN 3 2.1. Digital payments landscape in Pakistan 4 2.2. Cost of retail payments study for Pakistan 4 3. GOVERNMENT PAYMENTS MAPPING IN CÔTE D’IVOIRE 6 3.1. Digital payments landscape in Côte d’Ivoire 7 3.2. Mapping of government payments in Côte d’Ivoire 7 3.3. Payments landscape mapping in other countries: Indonesia 10 4. IMPLEMENTATION DESIGN AND ROADMAP IN CÔTE D’IVOIRE 12 4.1. Implementation Design 12 4.2. Implementation Roadmap 14 5. IMPLEMENTATION LEARNINGS FROM INDONESIA AND ZAMBIA 19 6. G2P PAYMENTS DURING THE COVID-19 PANDEMIC 22 7. CONCLUSION 24 Glossary of Key Terms 25 References 27 FIGURES Figure 1: Flows Covered by the Work on Government Payments in Côte d’Ivoire 8 Figure 2: Findings from Government Payment Mapping in Côte d’Ivoire 8   iii iv   Tools for Digitizing Government Payments Figure 3: Gaps to Be Addressed in Digitization of Government Payments in Côte d’Ivoire 10 Figure 4: Government’s Perspective in Côte d’Ivoire’s Envisioned G2P Payment System Architecture 13 Figure 5: Citizen’s Perspective in Côte d’Ivoire’s Envisioned G2P Payment System Architecture 14 Figure 6: Payment Service Provider’s Perspective in Côte d’Ivoire’s Envisioned G2P Payment System Architecture 14 Figure 7: Key Design Principles for the Digitization of Government Payments in Côte d’Ivoire 16 Figure 8: Proposed Sequences of Actions in Côte d’Ivoire 17 Figure 9: Proposed Governance Structure to Implement the Digitization Roadmap in Côte d’Ivoire 18 ACKNOWLEDGMENTS This note is a product of the Financial Inclusion, Infrastructure, and Access Unit in the World Bank Group’s Finance, Competitiveness, and Innovation Global Practice. This note was prepared by Imtiaz Ul Haq (Economist),1 Dorothee Delort (Senior Financial Sector Specialist), I Gede Putra Arsana (Senior Financial Sector Specialist), Julian Casal (Senior Financial Sector Specialist), Arpita Sarkar (Financial Sector Consultant), Guillermo Galicia Rabadan (Financial Sector Consultant), and Craig Kilfoil (Consultant). The report also benefitted from peer review by Ahmed Faragallah (Senior Financial Sector Special- ist) and Georgina Marin (Program Officer), who provided valuable comments and inputs. The team thanks Charles Hagner for editorial assistance and Naylor Design, Inc. for design and layout assistance. Mahesh Uttamchandani (Practice Manager), Harish Natarajan (Lead Financial Sector Specialist), and Sheirin Iravantchi (Senior Financial Sector Specialist) provided overall guidance to the team. This report is made possible by the generous support from the Ministry of Foreign Affairs of the Kingdom of the Netherlands and the Bill and Melinda Gates Foundation. The support is provided through the Financial Inclusion Support Framework (FISF) program. NOTE 1. The corresponding author can be contacted at iulhaq@ifc.org.   v LIST OF ACRONYMS B2G business to government CIN Citizen Identity Card FISF Financial Inclusion Support Framework GIM-UEMOA Interbank Electronic Banking Group of the Economic and Monetary Union of West Africa G2B government to business G2P government to person KYC know your customer MNO mobile network operator PSP payment service provider P2G person to government   vii 1 INTRODUCTION Governments are often the largest users of a country’s tion. This is often an extensive exercise that involves a payment systems. They frequently make payments to comprehensive diagnostic, an upgrading of existing infra- and receive payments from individuals and businesses. structure, the creation of new infrastructure, and revision There is considerable variation in these payments across of the related regulatory and policy framework. Such ini- counterparty actors, use cases, and payment mechanisms. tiatives often involve a range of stakeholders, such as var- For instance, payments could be made to low-income ious government agencies, the government treasury, individuals through a mobile-money transfer as part of a payment service providers (PSPs), and telecom providers. social-assistance program. Another possible transaction Hence, digitizing government payments requires a strate- may include receiving license fees from businesses gic approach that involves detailed planning and exten- through electronic credit transfers. sive coordination at various levels. Government payments attract the attention of policy Several tools can facilitate efforts of policy makers on makers due to their central role in a country’s payment this front. For instance, a cost-of-payments survey can ecosystem. Of particular policy interest is the substantial be undertaken when evaluating the need for digitiza- impact that an improvement in government payment tion and the value addition from it. Such a survey can mechanisms can have on government efficiency, public help to uncover the true costs of payments, particularly welfare, and the broader economy. In addition, the gov- retail payments, in the existing setup for various stake- ernment can also utilize its unique role in the payment holders and quantify potential savings from moving to a system to promote financial inclusion by influencing the more efficient system. In case of interest in undertaking choice of the payment medium. Financial inclusion can be digitization, an exercise to map government payments achieved by adopting and using retail payments that can also prove to be valuable, as it helps to understand require the user to own an account at a financial institu- existing payment flows to and from various government tion. Retail payments are those that are made by consum- agencies. It can also capture any previous or ongoing ers and carried out on a day-to-day basis. The payment stand-alone digitization projects. An assessment of the instruments associated with retail payments include cash, existing landscape can allow for the identification of gaps checks, vouchers, cards, and electronic fund transfers, and opportunities as well as guide the eventual design of which can be executed through digital channels such as the envisioned architecture. Finally, an implementation wallets, and internet and mobile banking. roadmap, which outlines the sequence of key steps that need to be undertaken for the proposed technical and Policy makers often seek to realize this potential by functional architecture, is strongly recommended for suc- modernizing government payments through digitiza- cessful digitization of government payments.   1 2   Tools for Digitizing Government Payments This note documents the experience of several coun- tools that are not covered in this note include recipient tries that leveraged these tools under the Financial and merchant surveys, geospatial mapping of recipients Inclusion Support Framework (FISF) program. FISF is a and financial access points, and customer journey map- World Bank Group initiative that aims to accelerate and ping. increase the effectiveness of reforms and other coun- try-led actions to achieve national financial inclusion goals. The rest of the note is structured as follows: Section II In this context, FISF has supported, to varying degrees, covers a survey of retail payment costs conducted in Paki- the digitization of government payments in Côte d’Ivoire, stan. Section III documents the government payment- Indonesia, Mozambique, Vietnam, and Zambia. mapping exercise undertaken in Côte d’Ivoire, while sec- tion IV discusses the resulting roadmap for implementa- However, the choice of tools for digitizing government tion. Section V presents some implementation challenges payments is specific to an individual country’s context. and learnings in digitizing government payments in FISF Therefore, the tools discussed in this note may not be rel- countries (also outlined in box 1). evant or applicable to other countries. Other available BOX 1 Implementation Lessons for Digitizing Government Payments 1. High-level commitment is important: High-level options; and (iii) increasing reach by leveraging commitment is critical to ensure effective coordina- more providers. tion among diverse stakeholders and to provide overall strategic guidance. This can be done in sev- 4. Embedding financial-literacy programs can be eral ways, such as by providing an enabling legal valuable: Beneficiaries typically have low finan- foundation (without being too prescriptive) for the cial-literacy levels that can cause difficulties in digitization of government-to-person payments or implementation. Incorporating financial-literacy incorporating it in a national-level strategy. training around “teachable” moments in govern- ment payment processes can improve effective- 2. Phased implementation can be efficient: A grad- ness, reduce fraud, and encourage financial ual rollout or phased implementation of a wide- inclusion. spread digitization initiative can help to mitigate several issues related to scale as well as limit the 5. Existing infrastructure challenges need to be magnitude of potential downsides should a set- addressed: While the lack of adequate infrastruc- back arise in implementation. A phased imple- ture should not deter digitization, it is important mentation could also serve as an opportunity to to address such constraints in parallel to ensure evaluate the program’s ability to achieve desired last-mile delivery. outcomes and learn from initial implementation drawbacks. 6. Digital payments should be used as a gateway to other financial services: Most beneficiaries 3. Beneficiaries should be allowed choice in deliv- tend to use accounts only to receive transfers of ery: Allowing choice in delivery can improve government payments. Additional efforts, such as implementation by (i) creating convenience, as financial-literacy training and innovation in finan- beneficiaries choose the delivery mode best cial services, need to be undertaken during imple- suited to their specific needs; (ii) encouraging mentation to encourage beneficiaries to use their financial inclusion through the provision of more accounts to meet other financial needs. 2 COST-OF-PAYMENTS SURVEY IN PAKISTAN Retail payments are those that are made by consumers These reasons motivate the need for a detailed study and carried out on a day-to-day basis. Inefficiencies in of the costs related to payments in a country. Such a the retail payment market can result in high costs to an study can be vital in highlighting the inefficiencies among economy. These may be direct monetary costs to various different payment streams, including within government stakeholders, including vulnerable segments of the soci- payments, and consequently underlining the need to shift ety such as low-income households, through high fees to more cost-efficient payment instruments, such as elec- related to the use of a payment instrument. Indirect costs tronic payments. It can therefore serve as a good starting may arise from frictions that develop due to an inefficient point for policy makers interested in exploring the digiti- payment market, resulting in potentially lower trade and zation of government payments. decreased overall economic activity. Additionally, ineffi- cient payment systems can also act as a significant barrier The FISF program supported a study of the cost of to financial inclusion. In the context of government pay- retail payments for Pakistan in 2018. Calculating the ments, inefficiencies would include excessive reliance on cost of retail payments in Pakistan is important for evi- cash or paper-based instruments, leading to less secure, dence-based policy. more expensive transactions. The cost of retail payments study2 measured the cost Despite their significance, the hidden costs of a pay- of different payment methods in use among local con- ment market due to inefficiencies can be hard to quan- sumers by adopting the methodology outlined in the tify. A lack of visibility on this front hides the true cost of World Bank’s Retail Payments: A Practical Guide for an inefficient system and hence can distort policy making Measuring Retail Payment Costs (Lammer, Banka, and in the financial sector and beyond. Greater awareness of Kostova 2016). This methodology addresses the follow- the cost of a payment market can establish the incentives ing dimensions: (i) on the demand side, costs borne by to shift to a more efficient system by building a business payment service users—that is, consumers, businesses, case to do so. A better understanding of the economic and government agencies—in their roles as payers and implications can create a sound basis for wider initiatives, payees; (ii) on the supply side, PSPs and payment infra- such as the digitization of government payments or adop- structure providers; and (iii) the overall economy. It builds tion of a national retail payment strategy. In addition, on and forms an integral part of the World Bank Group’s shedding light on cost variations across the payment mar- Retail Payments Package. The methodology aims to meet ket can also better guide the design and implementation the following criteria: (i) applicability, (ii) comparability; (iii) of such initiatives to ensure maximum impact. efficiency, and (iv) standardization.   3 4   Tools for Digitizing Government Payments DIGITAL PAYMENT LANDSCAPE 2.1.  payments were the most frequent; 79 percent of respon- IN PAKISTAN dents had paid a business for goods or services. Pakistan has struggled with low account ownership Approximately 22 percent of adults reported pay- rates. (Only 21 percent of adults had a transaction ments from or to the government. This varied by gender account in 2017, as per Findex.) Of particular impor- and province. While men made most of the payments to tance is the significant gender gap in account ownership: government (for example, taxes, fines, fees related to var- 35 percent of males but only 7 percent of females own an ious government services), women were the primary account. recipients of payments from the government (for exam- ple, social-assistance transfers, government wages). Social The retail payment ecosystem in Pakistan comprises assistance was the most common type of government different access points and channels, such as real-time payment; 86 percent of such payments were made in online branches (physical branches of banks where cus- cash. This was significantly higher in the provinces of tomers can use real-time online banking services), Sindh and Khyber Pakhtunkhwa. ATMs, points of sale, internet and mobile banking chan- nels, call centers, and e-commerce platforms. In 2017, The survey data also allowed for the estimation of use of digital payments, while increasing, was still low, at costs of different payment instruments used in retail approximately 18 percent of adults. Only about 7 percent payments. The average total cost of conducting a single of adults had a mobile-money account. However, the cash payment in Pakistan is 36.9 Pakistani rupees (PKR).5 COVID-19 pandemic had an important effect on the adop- Paper-based instruments such as paper checks and money tion of digital payments: for the third quarter of 2020, orders are costliest. Other transactions made via pro- e-banking3 payments increased 13 percent in volume and cesses that include intermediaries such as agents and tell- 22 percent in value in comparison to the same quarter of ers are more expensive than methods that use technology 2019. During the third quarter of 2020, the number of to improve payment efficiency. In contrast, direct mobile- mobile banking transactions increased more than 139 per- money payments are the cheapest methods for Pakistanis cent over the same period of 2019; e-commerce mer- to conduct their transactions. In fact, cash transactions are chants increased over 53 percent; and internet and mobile about 70 percent more expensive than transactions via a banking users increased 25 percent and 41 percent, mobile-money wallet (PKR 25.3).6 respectively (State Bank of Pakistan 2020). The analysis highlights significant potential for savings by digitizing government payments, particularly COST OF RETAIL PAYMENTS STUDY 2.2.  social-assistance transfers, as 86 percent of these are FOR PAKISTAN made in cash. The average government-to-person (G2P) payment incurs a high cost of PKR 181.8. If all such pay- The study was based on a nationally representative sur- ments are made using the cheapest instrument, mobile- vey of 3,510 adults (aged 18 and older) across Paki- money wallets, then the average transaction costs are likely stan. The purpose of the survey was to capture details of to go down substantially for consumers. Actual cost sav- payments made and received by local consumers in the ings will fluctuate according to individual circumstances. prior 12 months, as well as details of the corresponding For example, individuals in remote areas who have to payment instruments used in such transactions. Detailed travel extensively to get their social-assistance payments, data on the transaction types and frequency, volumes, or for whom the probability of fraud is high, might be bet- values, and use of various instruments and services by ter off from a conversion to digital instruments. Similarly, individuals was also recorded. women and low-income households are also expected to benefit significantly, as they constitute a bigger portion of The study found that almost all transactions conducted recipients and are more likely to face higher access costs by an average adult in Pakistan (98.9 percent) are cash with cash or paper-based instruments. However, as a word based.4 On average, adults in Pakistan made 229 pay- of caution, in places that do not have advanced payment ments the year before the survey. Person-to-person pay- systems and infrastructure, beneficiaries might face com- ments were the most common payments received by parable or higher costs in the transition to digital payments adults; 11 percent received domestic remittances at least due to limited access to cash-out points, high cash-out once in the last 12 months. There was significant variation fees, and unsuitable financial products. in the type of payments made across genders and prov- inces. On average, adults in Pakistan received 47 pay- The study presented strong evidence to support digiti- ments in the year before the survey. Person-to-business zation of government payments, especially for social- Cost-of-Payments Survey in Pakistan   5 assistance transfers. The study recommended leveraging ital instruments. Nevertheless, those who were familiar the position of the government as the single largest end with digital payment instruments held a largely favorable user of payment services in Pakistan to facilitate migration view of them. This is especially true for young adults, who to more efficient payment instruments. It built a strong were reported to be more confident about using a mobile business case for digitization of government transactions phone for financial transactions. by highlighting significant cost savings as well as identify- ing that vulnerable groups would benefit disproportion- The findings from this survey were leveraged by the ately more from such an initiative. Additional arguments State Bank of Pakistan and are reflected in its newly included being able to influence the choice of instruments launched National Payments Systems Strategy. The for a large number of transactions and individuals, hence strategy recognized the critical role of leveraging large potentially boosting financial inclusion. recurrent payment streams, such as government pay- ments, in modernizing the payments infrastructure in Paki- While such surveys focus primarily on the costs and sav- stan. This motivates the focus of the National Payments ings of payment methods, they may be used addition- System Strategy on accelerating the transition to elec- ally to understand demand-side elements of various tronic payments by all government entities. The case of payment instruments. This is not necessary but can help Pakistan illustrates the benefit of better understanding to save costs related to surveying if a separate demand- costs of existing payment mechanisms and potential sav- side survey is also planned. For instance, in Pakistan, sur- ings of digitizing to create the necessary incentives vey data showed that there was a widespread lack of required for authorities to undertake a transition to digital awareness of formal payment instruments, especially dig- payment instruments. NOTES The study surveyed consumers only. To capture economy-wide payment costs and potential savings from shifting to more efficient 2.  payment instruments, additional surveys of governments institutions and businesses need to be undertaken. These were not planned under FISF due to timeline and budget constraints. The State Bank of Pakistan defines “e-banking” as transactions conducted through real-time online banking, ATMs, points of sale, 3.  internet banking, mobile phone banking, call centers, and e-commerce. The total sample size was 3,510 adults, and the total transactions in the sample were about 968,000. 4.  This includes time costs from access channel (PKR 23.50), time costs from instrument (PKR 0), transportation costs (PKR 2.1), costs from 5.  theft (PKR 0.7), cost due to access channel (PKR 0.7), fees due to instrument (PKR 8.9), holding costs (PKR 1). The average exchange rate for the year 2018 was PKR 121.82 per US$1. 6.  3 GOVERNMENT PAYMENT MAPPING IN CÔTE D’IVOIRE Government transactions often constitute a significant, • G2P payments, to highlight a representative collection if not the largest, portion of a country’s payments. In of relevant salary flows and social programs. Map addition to the scale of payments being made and these “as-is” systems to appreciate how the end-to- received, there is considerable variation in these pay- end processes and payment disbursements are cur- ments across counterparty actors, use cases, and payment rently managed by the government. mechanisms. For instance, payments could be made to • Person-to-government (P2G) payments, to highlight low-income individuals through a mobile-money transfer several high-volume flows. Map these flows “as is” as part of a social-assistance program. Alternatively, gov- and assess the billing and other requirements needed ernments may receive operating license fees from busi- by government entities responsible for collecting nesses through electronic credit transfers. payments. Given the complexity of payment flows in any govern- • Government-to-business (G2B) and business-to-gov- ment, it is valuable to conduct an exercise to map all ernment (B2G) payments with a specific focus on government payments. This sheds light on the volume, micro, small, and medium enterprises. This would value, type, and method of payments being made and include in particular the payment of goods and ser- received across government institutions. Visibility into vices and the collection of taxes, fees, duties, and so payment flows is particularly crucial for the process of dig- on. Map these “as-is” systems and assess how they are itizing government payments, as it offers a detailed currently processed, as well as how payments are col- assessment of the existing landscape, enabling the identi- lected or disbursed. fication of both gaps and opportunities. It can also map • Availability for delivery of digital payments, including ongoing efforts to digitize government processes and points of service connectivity, account usage, payment payments, which may be important to incorporate within switching, and other payment infrastructures in use. a wider digitization effort. • Readiness or requirements for cash-in and cash-out A mapping exercise for government payments was networks to support government payments. undertaken in Côte d’Ivoire under FISF as part of the • Ongoing efforts to digitize government processes and work on the digitization of government payments. The payments. scope of the mapping activity included assessing the landscape of the following: To provide a contrasting experience, this section also touches briefly on the mapping of the digital payment landscape undertaken in Indonesia. 6 Government Payment Mapping in Côte d’Ivoire    7 DIGITAL PAYMENT LANDSCAPE IN CÔTE 3.1.  The former will be covered in this section; the latter will be D’IVOIRE discussed in the next section. Driven by an uptake of mobile-money services pro- The objective of the mapping was to identify steps the vided by mobile network operators (MNOs), financial government could take to move from the “as-is” G2P, inclusion has advanced in Côte d’Ivoire. In 2017, only P2G, G2B, and B2G payment mechanisms toward a about 41 percent of adults in the country owned a trans- future scenario in which government payments are action account, and approximately 15 percent owned one fully automated. The goal was to identify the design prin- at a financial institution. The encouraging growth of ciples, infrastructure, and organizational requirements, mobile-money accounts from about 24 percent in 2014 to technical specifications, and business models to facilitate 34 percent in 2017 underscored the potential for digital the transition to digital government payments. payments in the country, and as of 2019, MNOs had more than 30 million accounts, of which 12 million were active The mapping diagnostic was based on a survey con- accounts.7 ducted with consumers and on interviews with key stakeholders from government and the payment eco- In 2019, the number of adults holding accounts at system. All major payment flows in the government were MNOs (73.47 percent) was significantly higher than covered, including G2P, G2B, and government-to-gov- those with accounts at banks (30.79 percent) and ernment payments for payments made. For payments microfinance institutions (11.72 percent). These enti- received, P2G and B2G flows were covered. Figure 1 ties also have significantly more access points than banks depicts the detailed list of payments flows covered in and microfinance institutions. In 2019, the number of Côte d’Ivoire. MNO access points per 1,000 square kilometers was 566.84, while banks had 5.66 access points and microfi- The mapping report included a broad overview of the nance institutions had 1.25 access points (Central Bank of current state of payments in the country along with the West African States 2020). However, the digital pay- discussions on enabling infrastructure, payment value ment ecosystem still lacks relevant arrangements, as chains, citizens who use financial services, financial ser- there is no national switch or payment arrangement that vice providers, points of service, governance of pay- allows for full interoperability between payment instru- ment systems, and supporting regulation. The mapping ments provided by MNOs; MNOs engage in bilateral also gathered key insights from users of financial services arrangements with other MNOs and financial institutions across different socioeconomic groups, the government, to exchange payments. and the private sector. In mapping the financial interac- tions between the main stakeholders, a number of insights were uncovered. These are summarized in Figure 2 and MAPPING OF GOVERNMENT PAYMENTS 3.2.  discussed by stakeholder categories below. IN CÔTE D’IVOIRE Government: While the government is undertaking sev- In addition to reducing costs and improving efficiency, eral digitization initiatives, they are being undertaken in digitizing government payments is also expected to silos. No central body is responsible for maintaining and advance financial inclusion, especially through social- standardizing the implementation and delivery of these assistance programs. Digitization may also help to boost initiatives. There is a need for interfacing mechanisms and local financial infrastructure by stimulating greater invest- communication between project teams to avoid duplica- ment in the financial sector in the country. To achieve gov- tion and to account for future digitization initiatives and ernment payment digitization in Côte d’Ivoire, the FISF interoperability between systems and processes. It is diffi- team conducted a deep dive into the country’s payment cult for the government to push for a wider, scalable digi- ecosystem, mapped the payment value chains, placed the tization reform without a centralized and coordinated country along a trajectory of payment-ecosystem devel- drive. Even within existing initiatives, there is a lack of end- opment, provided a roadmap and recommendations for to-end digitization of payments. For instance, the flow of the shift, and identified key performance indicators to funds is conducted by moving physical cash and a digital track progress toward Côte d’Ivoire’s stated goals. encrypted file from treasury to the regional counters. A dedicated settlement system needs to be commis- There were two primary outputs: (i) mapping of govern- sioned for the movement and settlement of cash transac- ment payments and payment value chains, and (ii) a tions. The process of intimation of treasury to regional detailed transition roadmap outlining the technical and treasuries as well as treasury to banks for payments is still functional architectures to be built for implementation. done in physical pen-drives with payments information. 8   Tools for Digitizing Government Payments FIGURE 1: Flows Covered by the Work on Government Payments in Côte d’Ivoire Government to Government Domestic intra-governmental payments •  (G2G) Payments Government to Person (G2P) • Social benefits and assistance • Procurement of goods and services and Government to Business • Income tax refunds • Corporate tax refunds (G2B) • Pension and social security • Sales tax/ VAT refunds • Payroll and incentives • Disbursement of loans Person to Government (P2G) • Income, Sales and VAT tax payments and Business to Government • Social security and pension contributions (B2G) Payments • Automotive costs (tolls, fines, tickets) • Fees for government sevices (e.g., company registration) FIGURE 2: Findings from Government Payments Mapping in Côte d’Ivoire Government & Private Sector Citizen Payments Infrastructure • The digitization projects are being • Low Point of Sale (POS) penetra- • Absence of a Digital Mission conducted in silos tion has led to lower acceptance of to seamlessly integrate all  he beneficiary mapping and authentication • T digital payments necessary elements of the process is still manual • Logistic costs and commissions act payments ecosystem  nteroperability between mobile money • I as major barriers to adoption for • Scheme management is not operators does not exist banking services fully automated • Payments in retail sector are cash driven • Lack of financial instruments for • The existing biometric savings and easy access to credit authentication database is not • Low maturity levels and financial leveraged for digital services awareness of the formal financial • High transaction costs instruments between payment service providers This causes delays in the payments and removes incen- regulation to ensure interoperability and access to USSD tives for businesses to cooperate with government proj- codes. The study also found that local banks lag in inno- ects. Lastly, the beneficiary mapping, targeting, and vation and need to adopt efforts to reduce operational authentication process is still manual. This results in leak- and transactions costs while improving services, including ages of funds, loss of faith in government schemes among services in remote areas. citizens, and negligence of intended beneficiaries, impacting the economy. Citizens: A number of barriers limit widespread accep- tance of digital payments among consumers. Low maturity Private sector: Digitization of payments involving pri- levels and a lack of awareness of formal financial instru- vate-sector entities was also studied. Major employers ments have led citizens to be overly reliant on cash as an have bank accounts for their full-time employees in which instrument. Poor access to formal financial services com- they credit salary payments every month. These bank pounds the problem. There are few access points for digi- accounts are typically opened for employees at the time tal payment instruments. The average distance that citizens of job onboarding. For retailers, acceptance of mobile must travel to access financial accounts is approximately 10 money by consumers is needed for it to be realized as kilometers. In contrast, 71 percent of individuals live within a purchasing instrument. The lack of interoperability five kilometers of a mobile-money store (InterMedia 2018). between mobile-money operators is a limitation on this The logistical and operational costs of accessing financial front. Interoperability would accelerate the digitization accounts add to existing commissions, acting as disin- of payments and financial inclusion. There needs to be centives to citizens’ use of electronic money instruments. Government Payment Mapping in Côte d’Ivoire   9 Furthermore, there are few well-designed financial instru- strongly integrated by transferring detailed knowledge ments for savings and credit for most consumers. of the new system and processes that would be lever- aged and followed. The concerned line ministries The mapping exercise also shed light on the existing would also need to be trained on the new systems and payment infrastructure in the country. It found that Côte processes laid out by the envisioned transformation d’Ivoire has all the necessary elements to implement a dig- requirements. Standardization is critical across pro- ital payment architecture, such as a national ID, a regional cesses, IT systems, security, data storage, encryption card switch, an electronic funds transfer system, an inter- and other variables. In order to build a robust ecosys- bank settlement system, and relevant financial service pro- tem for digital payments, adherence to global stan- viders. The challenge lies in building interconnectivity dards is required. between these elements to provide seamless digital pay- ii. Need for interoperable network: Lack of interopera- ments. In addition to the necessary infrastructure, alterna- bility between mobile financial service providers is a tive delivery channels, such as merchants, gas stations, and significant contributor to silos of financial accounts and schools, need to be assessed to increase the reach and the inability to show value to customers. Interoperabil- distribution of government benefits. A robust and config- ity between mobile financial service providers, and urable scheme-management platform for government between banks and mobile financial service providers beneficiary schemes will also help the government to cap- is an essential part of a digital payment architecture for ture beneficiary data, ensure benefit delivery, and manage Côte d’Ivoire. Mobile-money operators are reluctant to and track funds effectively. This includes developing a share their customer base with each other as well as mapper database, which is a consolidated map of benefi- banks, but a common interoperable ecosystem would ciary bank account details, eligible schemes, and mobile be imperative to provide for a variety of financial numbers (for notification). Lastly, it was found that the Cit- instruments and expand reach to citizens. For this to izen Identity Card (CIN) is currently employed for limited materialize, access to USSD codes needs to be pro- use cases. This should be leveraged to become an authen- vided to all service providers. At the moment, the tication enabler for all digital initiatives in the country. USSD codes are proprietary, and few mobile-money operators have market power. Access to USSD is lim- The key findings from the mapping exercise allowed ited by withheld access, heavy charges, or poor qual- the identification of critical gaps that will need to be ity. Furthermore, it is recommended that the agent addressed for digitization of government payments. network have a central agent gateway—to provide an These are outlined below for Côte d’Ivoire. interoperable platform for bank and MNO agents’ i. Need for building a digital ecosystem: Various transactions—for standardization of service delivery. e-governance projects are being implemented in silos. Agents selected for providing citizens with digital A centralized digital drive by the government is financial services and other e-governance services required to connect these programs. To promote should have a common interface to process transac- financial inclusion within a country, incentives for the tions that is integrated with the National Office of adoption of digital payments and percolation of sup- Identification for authentication mechanisms. porting factors (such as electronic services, products, iii. Need for a resilient technology system: The Inter- devices, and job opportunities) are needed. The need bank Electronic Banking Group of the Economic and for more focused regulatory oversight aimed at build- Monetary Union of West Africa (GIM-UEMOA) offers a ing a digital ecosystem would require the government regional switch for eight countries in West Africa that institutions and central bank, the Central Bank of West has the capability to integrate with MNOs for financial African States, to undertake structural and policy-level transactions. The possibility of utilizing this to expedite changes in the existing system, including a review of the construction of the envisaged digital payment the existing regulatory and legal guidelines as well as architecture’s interoperability can be explored. How- the governing framework. There is also a need for ever, GIM-UEMOA would need to build capacity for automating existing government processes on pay- interoperability between banks and MNOs. The will ables and receivables. The treasury department, and capability of GIM-UEMOA to facilitate biometri- Direction Générale du Trésor et de la Comptabilité cally authenticated transactions would need to be Publique, is responsible for approving and disbursing assessed. Once a transaction is authenticated using the funds to citizens and business entities on behalf of central agent gateway and National Office of Identifica- government departments. The potential lack of knowl- tion, it could potentially be transmitted to GIM-UEMOA edge of new standardized systems and processes for routing based on the identity of the destination PSP. could be a gap. Therefore, the treasury needs to be 10   Tools for Digitizing Government Payments iv. Need for stronger security and compliance mea- to expand financial services’ availability through differ- sures: The payment systems need to be provisioned ent points of service that already exist, such as post to track payments and ensure nonrepudiation. It is offices, schools, gas stations, and train stations. Post important to have appropriate measures in place to offices, with their vast network of branches, were found reduce nonrepudiation.8 Regulations and the legal to have a distinct advantage in serving as a financial framework also need to be aligned to protect the access point. identity of the citizens when using the CIN. The CIN Need for enabling use of the CIN as a unique iden- vii. can be used to aggregate individual data, making tifier: All identification, mapping, and authentication it possible to profile an individual completely. Fur- processes are currently performed manually. Policies thermore, complying with industry best practices on and regulations should be introduced to encourage security is advisable to incorporate future innovations the use of the CIN as a unique identifier in govern- and integrate global systems with the digital payment ment payments, especially for beneficiary mapping, ecosystem. On a similar note, data formats for trans- targeting, and the authentication process for social- action-processing standards should also be aligned assistance payments. Further, a mapping database with global best practices (for example, ISO-20022, connecting beneficiaries with their bank account ISO-8583). details, eligible schemes, and mobile number (for v. Need for a uniform digital experience for citizens: notification) is missing. Encouraging widespread adoption, usage, and growth of digital payment services is a challenge. Omni- channel deployment or acceptability gives the citizens PAYMENT LANDSCAPE MAPPING IN 3.3.  a uniform, personalized, frictionless, and continuous OTHER COUNTRIES: INDONESIA experience regardless of the financial instrument, A payment landscape mapping was also conducted in delivery channel, format, geography, or device. Indonesia, but in a more targeted manner than in Côte vi. Need to leverage existing infrastructure: Mobile d’Ivoire. In 2016, the Government of Indonesia decided money has greater acceptance and usage in rural to deliver social-assistance benefits through electronic areas of Côte d’Ivoire, especially those where there means as part of its committed initiatives under its finan- are no bank branches or ATMs. Alternative delivery cial inclusion strategy. The decision marked an important channels can be leveraged to bring acceptance and shift away from in-kind benefits and cash transfers. As a increase the reach of digital payments in remote result, between 2016 and 2017, about 1.2 million benefi- unbanked areas as well as urban areas. There is scope ciaries were piloted into the digital payment mechanism. FIGURE 3: Gaps to Be Addressed in Digitization of Government Payments in Côte d’Ivoire Need and focus of Need for an Need for stronger Need to build Need for uniform Need to building a digital interoperable security and a resilient digital experience leverage available ecosystem network compliance measures technology system for citizens infrastructure • A centralized • Interoperability • Measures need to • GIM-UEMOA to • There is no • Alternative digital drive from between Mobile be taken to reduce be assessed for omni-channel delivery channels the government is Financial Services non-repudiation facilitating experience for to be leveraged required (MFS) providers as well biometric citizens • Messaging standards • Need for as between banks and authenticated • Need for more need to be aligned • The financial regulations MFS providers is transactions focused regulatory with global best institutions need enabling the use imperative oversight practices. E.g., to innovate with of CIN for being a • Access to USSD codes ISO-20022, targeted products unique identifier • Need for automat- need to be provided ISO-8583 and business ing government to all service providers models processes • Agent networks • Achieving • Standardization should have a central consistency across measures are agent gateway for outlets for required for shared standardization of acceptability of services like service delivery and digital payments biometrics interoperability Government Payment Mapping in Côte d’Ivoire   11 Before implementing the program at a nationwide level, the benefits from five social-assistance programs that a G2P payment landscape-mapping exercise was con- already used digital payments to varying degrees. The ducted to analyze the early implementation of this policy responses to the survey and comparisons of responses across various social-assistance programs in Indonesia. across the five programs provided the main basis for the The objective of this mapping exercise was to provide survey’s conclusions. policy suggestions for improving the delivery of social-as- sistance programs to beneficiaries, including during the In 2017, a presidential regulation on digitizing social transition to broader digital delivery. assistance was issued to provide a legal basis for the shift to digital payments. The full shift for the cash-trans- The landscape survey involved a survey of both house- fer program was completed in 2018, while the in-kind- hold recipients of social assistance and certain financial only programs were fully transitioned to digital by the end service providers (bank agents) that helped to deliver of 2019. such assistance. The survey included questions related to NOTES An account is considered active when it had at least one transaction during a period of 90 days. 7.  Nonrepudiation is the assurance that someone cannot deny making a payment or receiving a payment. 8.  4 IMPLEMENTATION DESIGN AND ROADMAP IN CÔTE D’IVOIRE The key findings from the government payment map- Government ping exercise in Côte d’Ivoire were used to identify i. Better service to citizens: The government’s main critical guidelines for the design of the digitization pro- objective is to serve the citizens in a more effective and cess for local government payments, such as benefit efficient manner. Citizen interactions with government payments. These guidelines laid down a foundation for departments and systems should be streamlined and the envisioned digital payment system by devising and transparent to bring down transaction costs. A ser- detailing the architecture. These were subsequently used vice-oriented architecture will ensure the smooth roll- to outline a detailed implementation roadmap that breaks out of new services and enable different stakeholders down the key elements in the envisioned architecture. The to integrate and introduce new offerings seamlessly roadmap outlines the sequence of key steps that the gov- without major changes to the core processing sys- ernment needs to take in collaboration and in coordina- tems. This would ensure that maximum value is deliv- tion with key stakeholders to digitize its payments. It also ered while providing uniform access and a uniform includes recommendations to the authorities in Côte interaction experience to rural and urban populations. d’Ivoire for technical standards, business models, infra- structure requirements, and other specifications to ensure ii. Fast: With the advent of the payment infrastructure effective implementation. implemented by the Central Bank of West African States, payment-processing timelines have been reduced drastically. It is very important to note that 4.1. IMPLEMENTATION DESIGN the envisaged architecture is aligned with the pay- ment systems and infrastructure and enables transac- To design an effective and efficient architecture for dig- tion reporting and reconciliation in nearly real time. ital government payments, it is important first to iden- iii. Leveraging technology: Paper-based transactions tify the requirements of each stakeholder that the are time consuming, unreliable, and inefficient and architecture needs to fulfill. These are then paired with hence should be replaced with digital systems and existing and planned payment infrastructure to ensure a technology-enabled infrastructure elements. The model that works for all. In doing so, it is important to architecture should enable digital platforms and tech- base the architecture on global standards and best prac- nology for more seamless delivery of all the payments tices. associated with all value chains. The following requirements for the future architecture iv. Driving interoperability: While mobile penetration were identified for each main stakeholder in Côte and mobile-money usage in Côte d’Ivoire are among d’Ivoire: the best in the region, banking services and access- point penetration lag behind significantly. Interopera- 12 Implementation Design and Roadmap in Côte d’Ivoire   13 bility is a critical component of the digital payment iii. Empowering: Access alone is insufficient, and ser- architecture, as multiple systems from the govern- vices will need to be designed to empower citizens to ment, National Office of Identification, customer ser- improve their well-being. This is especially important vice centers, and PSPs would interact and exchange for vulnerable segments of the population. information with each other. Interoperability can iv. Choice of access: Citizens should not be limited to exploit the benefits of banking services through a certain service providers, products, and channels. wider mobile infrastructure and hence should be a Instead, choice of access will help to accommodate a core part of the proposed payment architecture. wide range of citizens’ needs. It is important that alter- v. Secure: Providing a robust and secure payment sys- native options are economically viable and conve- tem will make citizens confident enough to conduct nient for usage. digital financial transactions and lead to wider adop- v. Reliable and secure: It is important to ensure that the tion. A proper monitoring, tracking, and tracing new solution has high security standards to instill mechanism to avert the theft of financial information comfort and safety. Appropriate safeguards, includ- and deny hackers access to PSP accounts should be ing strong encryption, will need to be included to put into place. plug the loopholes in transaction and digital payment vi. Forward-looking policies: The architecture should standards. reduce barriers for new services and providers. This vi. Future-ready: Given the emergence of innovative use will create a level playing field and improve competi- cases, such as contactless payments, the new archi- tion to drive citizen-centric service offerings. For tecture should ensure that the payment infrastructure example, the availability of USSD codes for all service elements and architecture can accommodate future providers will boost the last-mile connectivity of finan- innovations. cial services. Payment Service Providers Citizens i. Viable: The architecture should support a business i. Citizen-centric: The digital payment architecture model that allows capturing value and incorporates should be aligned with the needs of the citizens so commercial incentives. The project’s economic via- they can conduct transactions with ease and conve- bility will motivate private-sector financial service pro- nience. A user-friendly mechanism would encourage viders to adopt and engage with the proposed widespread adoption. architecture. ii. Inclusive: The architecture should also enable the ii. Transparent: The policy drivers, implementation inclusive participation of all sections of the popula- actions, and approaches used at all levels of the archi- tion, including marginalized sections such as women, tecture should build confidence. At any point in time, the elderly, and rural communities. Such segments if the customers or policy makers need to retrieve may have different needs, so services may need to be some information about any architecture element or customized accordingly. FIGURE 4: Government’s Perspective in Côte d’Ivoire’s Envisioned G2P Payment System Architecture 1 2 3 4 5 6 Better Service Leveraging Driving Forward to Citizens Fast Technology Interoperability Secure Looking Policies Simplifying Enabling Enabling digital Utilizing existing Enable greater Remove barriers interactions, transaction, platforms and infrastructure to robustness to bring in new reducing costs, reporting and technology for the fullest and through services, and increasing reconciliation on seamless provide choice enhanced products and value. All citizens near real time delivery of of access to the security providers to should have basis payments customer by improve uniform access promoting competition interoperability 14   Tools for Digitizing Government Payments FIGURE 5: Citizen’s Perspective in Côte d’Ivoire’s Envisioned G2P Payment System Architecture 1 2 3 4 5 6 Citizen Choice of Reliable and Forward- Centric Inclusive Empowering Access Secure Looking Enabling transfer Access to benefits Driving better Offering a choice High security Flexibility to of the correct for marginalized access to of access to standards with leverage the entitlement to the sections irrespec- information for citizens in terms confidentiality, architecture for correct beneficiary tive of whether in the citizen, of service privacy and other payments through conve- rural or urban irrespective of provider, safety of the in the future as nient means areas socio-economic product and citizen and his well as upcom- status transaction money ing channels and channels form factors FIGURE 6: Payment Service Provider’s Perspective in Côte d’Ivoire’s Envisioned G2P Payment System Architecture 1 2 3 4 Open and Viable Transparent Competitive Secure Support a business Build confidence in Enabling reuse and High security standards model that allows policy drivers, extensibility to leverage to ensure data privacy capturing value and implementation existing capabilities and confidentiality from leverage fit-for-pur- actions, approach used, and ensure minimum both a citizen and pose commercial fees and costs from an transition hassle for service provider construct individual level to stakeholders perspective macro levels the payment value chain supported by it, it should be The above requirements were distilled into six key done in a transparent manner. Furthermore, all fees principles for the design of the architecture. The objec- and costs for citizens and participants should be put tive was to establish a citizen-centric and robust architec- forward clearly and accessible at all times. ture that can be scaled up across the country while utilizing existing citizen authentication data and digital value iii. Open and competitive: The architecture should be chains. The six key design principles for Côte d’Ivoire are open and competitive so as to create a level playing outlined in Figure 7. field. This means that the solution should enable and encourage reuse and extensibility, leveraging existing capabilities where possible to ensure minimum transi- 4.2. IMPLEMENTATION ROADMAP tion hurdles for stakeholders. iv. Secure: The architecture should have high security The above principles guided the design of the archi- standards to ensure data privacy and confidentiality tecture proposed for the digitization of government from the perspective of both the citizen and service payments in Côte d’Ivoire. The roadmap focuses on provider. This is a requirement that is common to all meeting operational objectives for the implementation stakeholders in the digitization process. For this rea- of the architecture within a specified timeframe and con- son, adherence to industry and global security stan- nects the architecture design to implementation. It out- dards is a key criterion for building and implementing lines the sequence of key implementation steps that the the operational and technological platforms used by government needs to take to digitize its payments. the providers. For Côte d’Ivoire, the roadmap divided the steps into three implementation phases that were to be under- taken sequentially. Implementation Design and Roadmap in Côte d’Ivoire   15 BOX 2 Implementation Design for Digitizing Government Payments in Mozambique FISF also provided support to the Government of government-wide IT services was needed. CEDSIF Mozambique in digitizing government payments by (Centro de Desenvolvimento de Sistemas de Infor- conducting a landscape assessment and developing mação de Finanças), the center for the development a roadmap, which is being implemented by a sepa- of financial information systems in Mozambique, was rate World Bank Group project. determined to be the most appropriate home for the digitization project. The landscape assessment found that most gov- ernment payments in Mozambique, especially for A “multi-service provider (MSP) with choice” social safety-net programs, are cash based. While approach was adopted to allow multiple private- use of digital transfers has been increasing, govern- sector PSPs to offer their services to government ment financial-management and information systems recipients, where recipients are given a choice of can make payments only to bank accounts, not to which PSP they wish to be paid through. It is the mobile wallets. This means that, even for use cases first to introduce beneficiary choice in Mozambique with high digital payments (such as salaries to civil ser- and a substantial departure from previous practice, vants), recipients may be considerably distant from a which relied on the procurement of one service pro- bank branch or ATM and hence may incur significant vider to deliver cash to recipients. The MSP model costs to access such payments. utilized both regulated private-sector banks and mobile-money operators, with the latter expected to In designing the implementation, several chal- be the dominant choice of recipients due to the lenges specific to Mozambique had to be consid- higher number of cash-out agents nationally. ered. First, most social-protection beneficiaries lack adequate proof of identity. This is a major obstacle to Transaction fees are determined by each PSP and financial inclusion, particularly among lower-income charged to the recipient, not the government. groups. Second, the compliance approach to supervi- However, the government may elect to credit each sion was conservative. Despite flexibility in the legisla- beneficiary with a withdrawal-fee rebate to subsidize tion, banks are unwilling to use risk-based know your any withdrawal cost at a flat rate irrespective of PSP. customer (KYC) without central bank guidance or This can encourage competitiveness among PSPs, as clear regulations. Third, agent banking—particularly savings from selecting a cheaper PSP are captured in remote areas—is relatively costly and unattractive solely by the recipient. This not only empowers recip- to banks. This is due to (1) the absence of basic infra- ients but also creates demand-side pressure on PSPs structure (roads, electricity, and so forth); (2) challeng- to increase efficiency and reduce costs. ing liquidity management, particularly in areas where there are no bank branches; (3) compliance policies Implementation of the digitization project was on- requiring paper documentation; and (4) low agent going as of June 2020, and a Project Implementa- earnings, making the business unattractive to many tion Unit has been established under the Ministry potential agents, even as a supplementary source of of Finance to oversee the process. The majority of income. Fourth, full interoperability among banks and the technical work has been completed; the IT sys- mobile-money operators does not exist yet, reducing tem has been developed and integrated with the the utility and efficiency of the retail payment system. INAS (National Social Assistance Institute) social-wel- fare program, Vodacom M-Pesa, Movitel M-Mola, The implementation design was tailored to the and PayCode. A pilot is scheduled to test the sys- local context while drawing on lessons from the tem, which includes a financial-literacy program. On experience of other countries. The approach sought the regulatory front, the Bank of Mozambique has to digitize government payments at the sectoral level agreed to waive strict KYC requirements in favor of a across ministries. To achieve this, a government ser- risk-based approach to allow for the pilot to proceed. vice division with a core competency in providing 16   Tools for Digitizing Government Payments FIGURE 7: Key Design Principles for the Digitization of Government Payments in Côte d’Ivoire Service Oriented Architecture Interoperability Service based approach Software and hardware to Easy integration with systems conform to defined standards promoting interoperability Extensive use of APIs 1 2 Security and Compliance Robust and Scalable TECHNOLOGY Uninterrupted business No performance overheads 6 DESIGN 3 operations Scalability to facilitate Architecture for change PRINCIPLES high transaction volumes Enhanced Citizen Experience 5 4 Resilience Omni-channel and innovative Uninterrupted business bundling operations Ability to sense and respond to citizen needs Scalability to facilitate high Superior user interface and experience transaction volumes The first phase would see the building blocks of Côte models for various service providers as well as bringing d’Ivoire’s digital payment architecture being conceptu- in newer and innovative facilities, such as a bill-payment alized and developed to form a foundation on which system, peer-to-peer lending, transaction-based lend- the envisaged payment-digitization application stack ing, and other digital financial services. The develop- can be built. This would involve leveraging the existing ment of a full stack would require extensive collaboration infrastructure to create a functional digital payment archi- of financial service providers, government institutions, tecture. Additionally, this phase would include policy, and new players from the technology and telecom regulatory, and other functional interventions as required. sector. The initial phase would seek to digitize the government’s existing benefit-management processes and create an While the recommendations discussed in this section interoperable digital framework for delivering payments are specific to Côte d’Ivoire, several elements might be to the beneficiary citizens. considered in other implementation roadmaps. The second phase would see the capabilities built in A roadmap should shed light on the details around the first phase being leveraged for other financial ser- the technical standards, business models, infrastruc- vices, such as a Unified Payments Interface. Specifically, ture requirements, legal and regulatory framework, this would focus on deepening interoperability, which is and other specifications to ensure effective implemen- planned to be introduced in the first phase, between a tation. These should be based on the findings of earlier growing number of increasingly diverse participating diagnostics and determined when finalizing the imple- market players in the finance and payment landscape to mentation design. The roadmap needs to be constructed deliver enhanced choices and payment products. The to account for specific recommendations along these focus at this stage would be on increasing citizens’ choice lines, given budget, capacity, and time constraints. of payment providers and products by enabling rapid participation of market players and alternative payment- For the success and viability of the project, it is import- delivery channels. ant that the roadmap outlines a transparent gover- nance structure to implement the digitization process. The final phase would seek innovation in payments The structure should clearly identify responsible stake- based on Côte d’Ivoire’s digital payment application holders and outline the accountability mechanism at all stack and increased outreach of digital payments levels. For this, it is essential that progress is quantified and services to citizens. This will involve the creation and measured. This can be done by identifying relevant of a self-sustaining payment infrastructure and business key performance indicators to track progress at initiation. Implementation Design and Roadmap in Côte d’Ivoire   17 FIGURE 8: Proposed Sequences of Actions in Côte d’Ivoire Key elements of the Payment Architecture stack (Phase-1) CIN-as-a- The CIN will serve as the unique identifier-based service to enable digital authentication service for citizens. Mapper The mapper platform will facilitate benefit transfers from the government to citizens. Scheme The scheme management platform will serve as the centralized configurable system to Management manage government scheme and citizen entitlements. Platform The payment service provider integrator will enable seamless data interchange between PSP Integrator multiple payment service providers. CIN-Payments CIN-Payments will be leveraging CIN and citizen biometrics for financial transactions. Key elements of the Payment Architecture stack (Phase-2) Unified Payments UPI will provide last mile payment options based on a unique identifier. Interface (UPI) Virtual Payments VPA is the unique financial address for the citizens to send and receive money. Address QR Code based QR code enabled scan and pay enabled feature can be used for person to merchant Payments transactions. Key elements of the Payment Architecture stack (Phase-3) Citizen Credit This system will enable accessing citizen credit history for calculating a credit scorecard. The Rating scorecard can drive easy access of credit and risk free lending in the country Citizen A digital locker for each citizen to store, retrieve and access his vital information and Digi-Locker documents such as birth certificate, driving license, voter card, CIN, etc. Unified Bill A central bill payment platform for ease and convenience of both the supply (citizens) as well Payments as demand side (utility service companies). The aggregate volume and type of transactions System (telecom, DTH, water, gas, insurance premiums, EMIs, etc.) can drive low transaction costs. Citizen to citizen lending to be made convenient by having instant terms and conditions as P2P Lending well as auto-generated from the P2P lending system. Transaction based lending would be used by financial institutions for lending money to Transaction merchants for their capex and opex. The basis of risk assessment would be the number of Based Lending transactions and value of these transactions for the merchant. 18   Tools for Digitizing Government Payments The progress against established performance indicators The implementation design for Côte d’Ivoire also cov- should be reported regularly to the highest level in the ered other aspects, such as data storage and informa- governance structure. In order for governance to be effec- tion management. In order to have seamless operations tive, it is also important to ensure that the structure has of digital payments and services within the country, it is adequate staffing and dedicated resources. imperative to have a robust high-availability data center. The issuer PSP is responsible for maintaining citizens’ Figure 9 depicts the proposed governance structure financial account information and for facilitating integra- for digitization in Côte d’Ivoire. The Government of tion across different actors in the ecosystem to provide Côte d’Ivoire will act as a central body and have oversight citizens with a seamless digital experience. of the project. This top-level governance would consist of the Cabinet Secretariat to make key decisions and give strategic direction to the overall program. FIGURE 9: Proposed Governance Structure to Implement the Digitization Roadmap in Côte d’Ivoire Government of Cote d’Ivoire Cabinet Secretariat Regulatory Review Committee Government Departments Governance Team BCEAO ARTCI DGI, Douanes, MENET and Tresor Consultative Committee Steering Committee BCEAO Representatives TBD Ministry of Economy & Finance, Ministry of Digital SICA- STAR- WIPO- Economy, Ministry of Budget, Ministry of Interior UEMOA UEMOA UEMOA Execution Team Supervisory/ Monitoring Committee Project Committee 5 IMPLEMENTATION LEARNINGS FROM INDONESIA AND ZAMBIA Implementation Learnings from Indonesia and the next phase of digitization as envisioned by the govern- Zambia ment, as it did not allow multiple choice in payment deliv- ery. Third, existing regulation mandated banks to return FISF has directly supported implementation of initia- the social payment if no financial transaction was con- tives to digitize government payments in Indonesia ducted by the beneficiary within 30 days of receipt. As a and Zambia. Multiple challenges encountered in both result, beneficiaries viewed the receiving bank account as countries while doing so have led to several implementa- a distribution channel and were reluctant to use it for other tion learnings that are documented in this section. financial purposes, such as savings. This limited the impact of digitization on financial inclusion. Fourth, poor financial In Indonesia, FISF supported G2P digitization by con- infrastructure in some parts of the country, especially rural ducting a payment landscape assessment, undertaking and remote areas, led to distribution issues. Lastly, low capacity building, and providing inputs to facilitate financial literacy among beneficiaries meant many would implementation. These efforts supported the digitization share sensitive financial information such as their PIN, leav- of the two biggest social-assistance programs in the coun- ing them vulnerable to fraud. try, the Family Hope Program (PKH) and Non-Cash Food Assistance (BPNT). The former is a conditional social-assis- Efforts are ongoing to expand and modernize digital tance program distributed to poor and vulnerable families government payments for social-assistance programs or individuals to reduce poverty and improve living stan- in Indonesia post-FISF. The approach focuses on four key dards through better education, health, and social welfare. elements: (1) a “multi-service provider with choice” model The latter evolved from an in-kind distribution of rice to the that allows recipients to choose the account in which they poorest households to non-cash social assistance to buy receive benefits; (2) expanding the choice of instruments several types of food items in participating outlets. Each beyond the existing “Combo” card (a sort of debit card program had crossed 10 million beneficiaries by 2018. for G2P payments); (3) revising incentives for PSPs to encourage market entry, improve service, and lower costs; Several implementation challenges were documented and (4) establishing new infrastructure, especially to allow in Indonesia. First, a lack of centralization of the social-as- interoperability, electronic KYC, and mapping of benefi- sistance programs meant that the two programs used dif- ciaries’ national ID to their transaction accounts. ferent databases, making it difficult to integrate digitization. They also used different unique identifiers. Leveraging the In Zambia, FISF supported the implementation of a national ID for beneficiary mapping would have simplified small-scale pilot for the digitization of government integration across programs. Second, there were an exces- payments for the Girls Empowerment and Women sive number of regulations related to G2P payments— Livelihood Project. The program targets vulnerable girls involving multiple government authorities—that had to be and women to support education, livelihood, and unified under a legal umbrella to support the initiative. women empowerment. Prior to the pilot launch, several However, the new legal foundation was not appropriate for steps were taken to facilitate the operation, including   19 20   Tools for Digitizing Government Payments approval from the central bank to relax KYC require- demonstrate that women’s circumstances and nego- ments for beneficiaries by allowing participating pay- tiating power influence their financial decision-making ment providers to accept photo ID cards issued by the power and their ability to choose a specific provider Ministry of Community Development in lieu of the (FSD Zambia 2021). Choice also creates a market- national ID, the distribution of mobile phones to benefi- place where women can reward better service (Chen ciaries, and the training of beneficiaries. By the end of and May 2021). Engaging more PSPs leverages more 2017, nearly 13,000 beneficiaries had been paid two of the existing financial infrastructure in the country installments under the pilot program. An additional and expands reach. Providing more options may also 62,000 beneficiaries were expected to be reached by encourage greater use of financial services. Further- 2020 as the initiative expanded beyond the pilot. more, in several cases, such a market-based approach that opens up participation to interested providers can The experience of digitizing government payments in help avoid lengthy or failed government procurement Indonesia and Zambia provided several insights into to deliver payments. In Zambia, the Ministry of Com- implementation, which are distilled into the following munity Development tried for several years to procure six lessons: a single provider to deliver social-grant payments but without success. The market-based approach devel- i. High-level commitment is important: Digitizing gov- oped under the pilot program allows beneficiaries ernment payments is typically an extensive exercise to select their payment providers. The PSPs were involving multiple stakeholders, projects, and aspects. engaged regularly through monthly meetings of the High-level commitment is critical to ensure effective Payment Working Group chaired by the Ministry. The coordination among different elements and provide Payment Working Group was provided with key infor- overall strategic guidance. This can be done in several mation about beneficiary target groups, including pay- ways, such as by providing a legal foundation for G2P ment volumes, location, and timing, which enabled digitization or incorporating it in a national-level strat- PSPs to grasp the economic viability of serving the egy. Both of these were undertaken in Indonesia; a target segment. presidential regulation on digitization was issued, and it was included as a priority action in the National iv. Embedding financial-literacy programs can be valu- Financial Inclusion Strategy. Furthermore, a nation- able: Beneficiaries of government assistance pro- al-level control team was established to lead the digi- grams are usually poor and vulnerable segments of tization efforts. These measures demonstrated strong the population, with low levels of financial literacy. This commitment at the highest level and provided strate- can cause significant difficulties in G2P digitization, so gic guidance for implementation. it can be valuable to incorporate financial-literacy pro- grams when implementing such efforts. This is espe- ii. Phased implementation can be efficient: A gradual cially important for choice-based design, as more rollout or phased implementation of a widespread options can cause greater confusion among beneficia- digitization initiative can help to mitigate several ries. Receiving government payments creates a issues related to scale and limit the magnitude of “teachable” moment that can be leveraged for effec- potential downside effects, should a setback arise in tive financial-awareness training (Kaiser and Menkhoff implementation. A conservative approach on this 2017). Hence, these should be embedded to enable front can also allow space for time-consuming requi- beneficiaries to understand the available PSP choices, sites to fall into place, such as the revision of regula- how to use their accounts and PINs, how to cash out, tions or the expansion of financial infrastructure. Such and how beneficiaries can use receiving accounts to an approach was adopted in Indonesia, where the meet other financial needs and also their basic con- complex regulatory and institutional environment sumer rights. demanded a more cautious approach. A pilot phase for the Family Hope Program and Non-Cash Food v. Existing infrastructure challenges need to be Assistance program proved to be valuable for identi- addressed: Though Zambia has mobile phone pene- fying issues associated with integrating both pro- tration of 80 percent, several issues with network cov- grams and resolving them before a full launch. erage and electricity make it difficult to deliver grants in remote areas. Addressing these issues would sig- iii. Beneficiaries should be allowed choice in deliv- nificantly help in reaching the last mile. While the lack ery: Allowing beneficiaries to choose the payment of adequate infrastructure should not deter digiti- provider, instrument, and channel for receiving gov- zation, it is important to address such constraints in ernment payments can lead to better results, as ben- parallel. Indonesia was able to rely on state-owned eficiaries can make decisions based on their specific banks, given their vast network across the country. needs. In particular, recent findings from Zambia Implementation Learnings from Indonesia and Zambia   21 However, many remote areas still remained unserved vii. Implementing financial consumer protection mea- by financial providers, highlighting the importance of sures: Effective financial consumer protection frame- building infrastructure where gaps currently exist. works can help instill trust in the formal financial system. Without basic protective measures, consum- vi. Digital payments should be used as a gateway to ers may find it difficult or costly to obtain sufficient other financial services: Most beneficiaries tend to information, and even those who are financially liter- use PSPs and accounts to receive cash transfers, not ate may not adequately understand the financial for other financial services, such as savings. One of products they use or consider using. Some of the the objectives of digitizing government payments is to basic consumer protection measures recommended boost financial inclusion. This will require additional by the FISF country-support program in Zambia efforts, such as financial-literacy training (see above) included issuing internal complains-handling require- and encouraging providers to provide innovative ments for providers, deploying adequate supervisory financial solutions for beneficiaries. This was done in tools to monitor compliance of providers with con- Zambia, where an MNO was incentivized to create a sumer protection requirements, and establishing new mobile wallet project for beneficiaries to be able independent alternate dispute-resolution mecha- to retain or save their money, rather than simply cash- nisms, such as a financial ombudsman. ing out. It is also important not to have restrictive rules on digital payments that may discourage financial It is important to note that implementation experi- inclusion, as was done in Indonesia, where the gov- ences and learnings are highly dependent on the local ernment mandated banks to return social payments if context. Hence, the above lessons may not translate no financial transaction was conducted by the benefi- directly to other countries and regions. Nevertheless, they ciary within 30 days of receipt. This resulted in benefi- provide valuable insights for policy makers interested in ciaries viewing the receiving bank account solely as a digitizing government payments and may be useful if tai- distribution channel and discouraged further use. lored to the local context. 6 G2P PAYMENTS DURING THE COVID-19 PANDEMIC The economic turmoil caused by the COVID 19 pan- In some countries, governments favored beneficiaries’ demic required governments across the world to choice of provider, which required them to set up digi- deliver economic support quickly to millions of fami- tal channels to capture choice and implement the nec- lies uncovered by existing social safety nets. The need essary measures and procedures to disburse funds to to distribute social-protection payments rapidly while the PSP selected by the beneficiary. For example, in preserving social-distancing measures forced govern- Brazil, the emergency program was implemented through ments and humanitarian agencies to leverage account- a digital social-savings account created for the program based and non-account-based digital payments to and offered by the state bank Caixa that included free fea- deliver economic aid. tures such as transfers and ATM withdrawals, but the gov- ernment allowed beneficiaries to choose an account from The implementation process was challenging, as a any other bank to receive the aid. The beneficiary, while large proportion of the population targeted by the applying for the aid through a website created for this pur- emergency programs was unbanked and most avail- pose, could select the provider. In Jordan, the govern- able digital payment mechanisms required the user to ment delivered social-assistance payments through a set have an account. Also, many social-protection agencies of impaneled PSPs, but beneficiaries were able to choose have not digitized their existing social-assistance pay- between the different providers. In contrast, in Colombia, ments; hence, internal systems and processes had to be beneficiaries were assigned to a specific PSP to avoid implemented or modified in order to disburse funds to overcrowding of access points. accounts. Furthermore, in many countries, the digital pay- ment ecosystem is underdeveloped; many providers are However, in some contexts, there was either no real still building the capacity required to offer efficient and choice or an inability to exercise choice, particularly in convenient digital payments. To address the different remote and rural areas without internet connectivity challenges, many governments and humanitarian agen- and where the presence of PSPs is limited. In those cies delivered social-protection payments through a set of cases, most authorities followed a multilayered approach impaneled PSPs that offer payment services that fit the in which they provided different options catered to the needs of beneficiaries and social-protection agencies or needs of each segment of the population targeted by that were willing to tailor such products and services to emergency aid programs and digitized payments for most provide an enhanced experience for beneficiaries while beneficiaries, while beneficiaries located in communities fulfilling the budgetary constraints and transparency without connectivity received social-assistance payments requirements of authorities. through traditional means. 22 G2P Payments during the COVID-19 Pandemic   23 The impanelment of PSPs required authorities to con- services; such services were a relevant concern in econ- duct the mapping exercise similar to the one described omies where acceptance of digital payments is still low in section III of this note. For the design of emergency and cash is required when paying for basic products programs, authorities examined the features, functional- and services. In this regard, authorities and providers ities, and costs of payment services to identify suitable worked to increase the cash-out points available to bene- options for the delivery of emergency aid. ficiaries and agents in particular, which are in general a more capillary network that reaches communities typically In countries such as Jordan and Colombia where digiti- underserved by financial institutions. However, agents’ zation of G2P payments was incomplete but the key availability was a pressing issue related to the distribution enablers were already implemented, authorities identi- of emergency aid, as many agents closed out of fear of fied existing gaps or deficiencies in the payment eco- contagion or due to reduced economic activity. Further- system, created an implementation plan that included more, agents that remained open faced liquidity issues, as coordination mechanisms with all the relevant stake- cash income from sales was reduced while cash-out holders, and set emergency regulatory measures to requests increased. alleviate existing pain points. The emergency measures implemented by authorities included increasing transac- To help alleviate distribution and liquidity issues, tion limits of payment instruments, exchanging informa- authorities staggered the distribution of payments and tion with financial institutions to facilitate identification of provided PSPs with information about the location of beneficiaries with existing accounts, and creating regula- beneficiaries to allow for liquidity planning. In other tory provisions for massive onboarding of beneficiaries. cases, PSPs enabled beneficiaries with Unique Code– based payments9 to withdraw cash from other cash-out In some countries, the design and implementation-plan- networks, such as the ATM network, without using a phys- ning process also considered the type of mobile ical payment instrument (Gentilini et al. 2020). devices used by beneficiaries, considering that the type of device can limit the functionalities of the digital Another relevant component of the design and imple- payment instrument. In some regions, mainly in Africa mentation of emergency programs was the communi- and Latin America, authorities impaneled a set of provid- cation strategy. As mentioned above, many beneficiaries ers capable of offering their services through feature were unbanked and vulnerable population, with low levels phones and smartphones. of financial literacy. To overcome any potential issue aris- ing from the use of digital payments, authorities deployed Other key aspects that required detailed planning and large communication and education campaigns through close collaboration between PSPs and authorities social media and direct contact with beneficiaries, includ- related to the capacity of providers to offer cash-out ing SMS messages. NOTE Unique Code–based payments are payment mechanisms that enable recipients to use a unique code sent by their agent’s program 9.  administrator for every disbursement cycle to access funds. These funds are typically held in the aggregate at designated financial institutions, and the code merely entitles the recipient to a pre-allocated amount. The code can be communicated in various ways, including but not limited to a one-time password sent by SMS, and in some cases can also be generated by the recipient by accessing a particular system or app. Some providers now allow recipients to direct the pre-allocated funds to an account of their choice instead of withdrawing the funds. Typically, the recipient uses the traditional access points (that is, ATMs, points of sale) to access the funds. 7 CONCLUSION Digitizing government payments can have a significant 2018, each program was serving electronic payments to impact on government efficiency, public welfare, and more than 10 million beneficiaries. This initiative had a the broader economy. It can also serve as an important substantial impact on financial inclusion in the country, as initiative to promote adoption of formal financial ser- approximately 86 percent of beneficiaries opened their vices, especially digital services. Digitizing government first bank account through the program. However, increas- payments is often an extensive exercise involving a range ing usage of financial services among beneficiaries of stakeholders. Coordination across different groups of remains a challenge, as less than 17 percent use their stakeholders is essential to the success of these initiatives. accounts for other financial transactions. Several tools can facilitate such initiatives. This note To encourage the use of financial services, policy mak- discusses the use of three such tools under FISF—a cost- ers may need to undertake additional steps, such as of-payments survey, government payment mapping, embedding financial-literacy training in implementa- and an implementation roadmap—but the choice of tool tion, encouraging providers to serve excluded seg- will ultimately depend on the individual country’s needs ments and implementing financial consumer protection and context. measures. Such efforts, along with digitizing large-vol- ume payment streams, can help to increase demand for Utilizing such tools can ensure more effective digitiza- digital payments and achieve stronger commercial viabil- tion. For instance, a government payment-mapping exer- ity for providers, including for low-cost payment solutions. cise was undertaken in Indonesia under FISF. This provided This will collectively build an ecosystem for digital pay- valuable insights for optimizing the digitization of the two ments and ultimately promote efficiency, inclusion, gover- biggest social-assistance programs in the country. By nance, and economic activity in the country. 24 GLOSSARY OF KEY TERMS Access point: Point that is necessary to initiate a financial Financial literacy: The possession of knowledge and transaction. Access points can include branch offices, understanding of financial matters. The term, used mainly ATMs, agents, terminals at the point of sale, or users’ per- in connection with personal-finance matters, often entails sonal devices (for access via the internet or other telecom- knowing the proper way to make decisions pertaining to munication networks). areas such as real estate, insurance, investing, saving, tax planning, and retirement. It also involves intimate knowl- Agent: A contractual relationship in which one party, the edge of such financial concepts as compound interest, agent, acts on behalf of another party, the principal. financial planning, the mechanics of a credit card, advan- tageous savings methods, consumer rights, time value of Agent banking: Business arrangements of banks and money, and so on. non-bank financial service providers using local entities (that is, “agents”), such as small shops, to provide basic Government-to-business (G2B) payments: Payments payment and banking services on their behalf. This made by the government to businesses, normally in asso- arrangement is also referred to as banking through busi- ciation with procurement of goods and services, the ness correspondents. expenses of public-sector officers, tax refunds, and so forth. Business-to-government (B2G) payments: Payments made by businesses to the government, normally in con- Government-to-person (G2P) payments: Payments nection with taxes, duties, or for goods or services pro- made by the government to individuals. The most com- vided by the government. mon are payments of salaries and pensions for public-sec- tor employees, disbursements of subsidies, and similar Consumer: Any natural person who is acting for purposes cash-transfer programs. that are outside his or her trade, business, craft, or profes- sion, as well as a micro, small, or medium enterprise. Mobile financial services: Financial services initiated and transmitted by an access device that is connected to a Financial inclusion: Access to and usage of a range of mobile communication network using voice technology, appropriate financial products delivered in a responsible text messaging, or near field communication. An access and sustainable manner to underserved individuals and device may be a tablet computer. Operations that are ini- micro, small, or medium enterprises. tiated and authorized via the internet through the use of a mobile device (for example, credit transfers or direct deb- its) are considered to be internet services, not mobile financial services.   25 26   Tools for Digitizing Government Payments Payment instrument: Any instrument enabling the holder Person-to-government (P2G) payments: Payments or user to transfer funds. made by individuals to the government, normally in con- nection with taxes, duties, or for goods and services pro- Payment service provider (PSP): An entity that provides vided by the government. payment services, including remittances. PSPs include banks and other deposit-taking institutions, as well as spe- Point of sale: Refers to the use of payment cards at a cialized entities such as money-transfer operators and retail location (point of sale). The payment information is e-money issuers. captured either by paper vouchers or by electronic ter- minals, which in some cases are designed also to trans- Payment system: All payment-related activities, pro- mit the information. Where this is so, the arrangement cesses, mechanisms, infrastructure, institutions, and users may be referred to as “electronic funds transfer at the in a country or a broader region (for example, a common point of sale.” economic area). REFERENCES Central Bank of the West African States. 2020. Annual Report on Digital Financial Services in the West African Economic and Monetary Union. https://www.bceao.int/sites/default/files/2020-11/Rapport%20annuel%20sur%20 les%20services%20financiers%20num%C3%A9riques%20dans%20l%27UEMOA%20-%202019.pdf. Central Bank of the West African States. 2020. Evolution of Financial Inclusion Indicators in the West African Economic and Monetary Union. https://www.bceao.int/sites/default/files/2020-09/Evolution%20des%20indicateurs%20 d%27inclusion%20financie%CC%80re%20dans%20l%27UEMOA%20au%20titre%20de%20l%27anne%C- C%81e%202019.pdf. Chen, Greg, and Maria May. 2021. “Let Her Choose: Supercharging G2P for Women.” CGAP Blog, January 26, 2021. https://www.cgap.org/blog/let-her-choose-supercharging-g2p-women. FSD (Financial Sector Deepening) Zambia. 2021. Social Norms and Financial Decision-Making in Zambia: Technical Brief. https://www.fsdzambia.org/publication/social-norms-and-financial-decision-making-in-zambia-technical-brief/. Gentilini, Ugo, Mohamed Bubaker Alsafi Almenfi, Pamela Dale, Robert J. Palacios, Harish Natarajan, Guillermo Alfonso Galicia Rabadan, Yuko Okamura, John D. Blomquist, Miglena Abels, Gustavo C. Demarco, and Indhira Vanessa Santos. 2020. Social Protection and Jobs Responses to COVID-19: A Real-Time Review of Country Measures (September 18, 2020) (Vol. 2): Global Database on Social Protection and Jobs Responses to COVID-19 (English). COVID-19 Living Paper. Washington, DC: World Bank Group. https://documents.worldbank.org/en/publication/ documents-reports/documentdetail/330791600474275156/global-database-on-social-protection-and-jobs- responses-to-covid-19. InterMedia. 2018. Pakistan Wave 5 Report: Fifth Annual FII Tracker Survey. http://finclusion.org/uploads/file/pakistan- wave-5-report_final.pdf. Kaiser, T., and L. Menkhoff. 2017. “Does Financial Education Impact Financial Literacy and Financial Behavior, and If So, When?” World Bank Group Policy Research Working Paper 8161. http://documents.worldbank.org/curated/ en/144551502300810101/Does-financial-education-impact-financial-literacy-and-financial-behav- ior-and-if-so-when. Lammer, Thomas, Holti Banka, and Gergana Lyudmilova Kostova. 2016. Retail Payments: A Practical Guide for Measuring Retail Payment Costs (English). Washington, DC: World Bank Group. http://documents.worldbank.org/ curated/en/255851482286959215/Retail-payments-a-practical-guide-for-measuring-retail-payment-costs. State Bank of Pakistan. 2019. National Payment Systems Strategy. Karachi: State Bank of Pakistan. http://www.sbp.org. pk/PS/NPSS.htm. State Bank of Pakistan. 2020. Payment Systems Quarterly. Karachi: State Bank of Pakistan. https://www.sbp.org.pk/ psd/pdf/PS-Review-Q1FY21.pdf.   27 Annex C: Financial Capability   29