As financial activity around the world becomes increasingly digital through the use of cashless applications and digital wallets, governments on both ends of the economic spectrum are leveraging new technologies to improve their service delivery and financial transparency.
The transformation of the financial services sector has allowed both consumers and businesses to further leverage new technologies that give them more democratized access to crucial financial services and payment options.
Digitization of the finance sector has opened money markets to individuals in rural and less-advanced economies. Following the pandemic which shattered economic activity, and only further increased the need for digital and contactless payment systems, research by PriceWaterhouseCooper (PwC) estimates that global cashless volumes are set to increase by 80% between 2020 and 2025.
In the last decade, more than 1.2 billion previously unbanked adults have gained access to critical financial services, decreasing the overall global unbanked population by 35% according to data from The World Bank.
The growing global demand for digital banking services has meant that fintech companies and startups are now connecting their expertise, services, and knowledge to more traditional financial systems to ultimately revolutionize the way governments provide financial aid to people in less-advantaged and under-represented communities.
Digital Payments in the Post-Pandemic Era
Following the pandemic, governments realized that the need and implementation of appropriate digital infrastructure are required to help reach people and communities in extremely rural and less-advantaged areas.
Access to the appropriate infrastructure ensured that governments could provide safe, transparent, faster, and more reliable cashless payments to communities.
Government payments were among the most vital financial sources for many unemployed individuals at the height of the pandemic. More than this, payments from the government is an essential practice that sees billions of dollars each year being distributed to residents in the form of wages, pension, social welfare, and social protection programs.
Research shows that on average, developing countries spend nearly 1.5% of Gross Domestic Product (GDP) on social welfare and stimulus programs each year.
Aside from outstanding circumstances, such as that of the pandemic, taking into account the high number of individuals that require vital financial support from government aid programs, particularly due to the skewed distribution of cash and increased risk of fraud; digital technologies can help minimize leakage, exposure, and fraud risks even further.
Financial inclusion in itself is not the sole cure for the problems experienced by economically challenged families around the world. Yet, these transformations provide a more dynamic approach that can see broader access to payments, transactions, and financial activity from governments to more economically disadvantaged individuals and communities.
Leveraging Digital Systems for G2P Payments
Over the last decade, fintech platforms have helped revolutionize how ordinary people access and transact.
The rise of these platforms meant that more people can have access to critical financial services, broadening access to appropriate monetary systems and foreign investment markets.
One reason why fintech is the future of finance is its ability to offer customers more accessible and user-friendly financial services. With the rise of mobile banking and digital payments, fintech has made it easier for individuals and small businesses
— Crusader Henry (@CrusaderHenry) April 21, 2023
On the back of this, the collaboration between fintech platforms and the bulging growth of eCommerce has made it commonplace for adults and younger consumers to leverage technologies that give them the ability to access their money more appropriately and utilize digital payment options online or in person.
For governments these digital advances meant that Government-to-Person (G2P) payments can reduce the risk of exposure, while at the same time channelling financial welfare towards more economically disadvantaged individuals and communities.
Digital infrastructure has enabled governments, and businesses for that matter to leverage digital databases and data-sharing. A research paper found that 85 countries utilized digital systems during the first year of the pandemic, whereby digital government payments provided a lifeline for citizens. This has since only further broadened the path of financial inclusion for millions of people.
Data by Global Findex indicates that 865 million account owners in developing nations, including more than 420 million women, managed to open their first financial institution account during the pandemic for the sole reason to receive payments from the government.
This only further highlighted not only the importance of digital infrastructure but the ongoing usage of digital financial services in the broader economy.
The number of government recipients that received digital transfers rose from 50% in 2017 to roughly 70% by the time of the pandemic in 2020. These recipients were among the growing number of individuals that utilized the Internet to pay bills, buy goods online, or set up an account to make in-store purchases.
From this point of view, it’s clear that digital systems and infrastructures enabled governments to support less economically advantaged communities, but in the same breath, it helped open new opportunities for financial inclusion and further transform the financial services sector.
However, the goal is to adopt progressive economic policies, both on a national and global level, that put recipients of digital G2P payments at the center of the framework. This would ensure that marginalized groups, women, and people with disabilities can have increased access to their accounts, finances, and foreign money markets.
The Focus Areas of Fintech in G2P
Ongoing development and changes in national policy have ensured that individuals and communities now have equal opportunity access to financial services, helping further increase the needs and utilization of digital payment infrastructures.
By providing improved access to reliable, affordable, and transparent digital systems, fintech platforms, in collaboration with governments, can improve the interoperability of digital payments and digital finance.
With both these ends meeting at a crossroads, there’s an opportunity for fintech to provide improved services and capabilities, not only for G2P payments but for both recipients and governments.
Promoting financial inclusion and empowerment
Right off the backbone, fintech platforms have already helped increase the scope of financial inclusion and economic empowerment for not only economically disadvantaged communities but more so for marginalized groups and people with disabilities.
Ongoing development could ensure that more people in these communities can become empowered by financial tools and services. With digital accounts, mobile money wallets, and credit, the possibility for individuals to participate in the changing digital economy can enhance their financial well-being and long-term financial prosperity.
Creating a dialogue for regulation
Another facet through which fintech companies and platforms can help create more open and democratized access to financial services is through the establishment of regulatory frameworks and policies. The importance of bipartisan agreements can ensure that traditional financial service providers and fintechs can compete on a level playing field, while further developing the consumer financial ecosystem.
Governments that establish a platform through which the dialogue of risk management and regulation can be accelerated, only further fuel the need for fair competition and institutional innovation. Bringing in new regulatory frameworks could help decrease costs for both consumers and businesses, develop systems that can lower financial barriers, and advance native financial ecosystems.
Provide uninterrupted access
Combining their efforts, fintech companies and government entities can create easily accessible, trusted, and low-cost digital financial services for consumers.
This is not only important in the scope of G2P payments, but in the border digital economy that is rapidly developing, and casting a further economic divide between individuals from developed and developing nations.
However, these digital systems would require further investment from government stakeholders, to set up and manage appropriate infrastructure. Moreso, the biggest challenge would be to provide public funding for these systems but this could enlarge the scope of foreign direct investment in these types of services.
Establish secure and transparent G2P payment systems
In some cases, it’s common for individual data and information to become accessible to bad actors and malicious players due to the heightened risk of cyber threats.
With the involvement of private sector players, companies can develop effective identification systems that ensure the protection and safeguarding of private information and consumer data protection.
On top of this, it would help securely manage the transaction of G2P payments and contribute to the need for progressive and improved regulation by governments. With more efficient systems that provide safer and more affordable digital financial services, individuals will only benefit from these advances in the short and near term.
Promote the use of digital above traditional
Collaboration between fintech companies, traditional banks, and governments can help promote the need for more digital infrastructure, functionality, security, and above all, financial and economic inclusion.
The gradual shift from traditional systems to more digital ecosystems ensures that individuals can utilize not only their digital wallets to pay for goods on the internet but can leverage these tools in the greater economy.
Accessibility to accounts and other financial services
Aside from G2P payments and transactions, fintech platforms provide better opportunities for individuals to access foreign money markets and investment opportunities.
These platforms already give individuals a more thorough understanding of how their money can be used as different investment vehicles, but at the same time, they can be considered a doorway to improved financial education and literacy.
The Bottom Line
While the argument of digital finance services and systems has become more prevalent in recent years, the opportunity for governments, both in the developing and developed world, shows that fintech platforms provide valuable and profound solutions that empower individuals to become active players within the digital economy.
Although systems are continuously changing and companies bring innovations to the foreground, those governments that do take action and provide financial support for these activities are not only helping increase the level playing field that helps spark innovation, but it’s helping open more opportunities for financial inclusion.
