What are the Government Applications of mobile money?
(picture from Jan Chipchase Aug 2010 trip to Afghanistan)
With mobile money being established in countries across the globe. This also creates an environment where there is an opportunity to change how government payments are done. This opportunity is multi-dimensional including Government to Person payments – for example government salaries, social payments, Person to Government like Utility payments, tax collection. As well as Government to Business and Business to Government.
When we look at payments between people and the government they are normally characterized by a very large number of transactions of relatively small value.
This is a perfect fit for Mobile money. In addition – government use of mobile money will also add to the overall success of the Mobile money ecosystem through creating key use cases, and lower cost of funds into the mobile accounts.
Mobile Money has a special role in helping governments evolve G2P payments to reduce the use of cash, checks and paper based payment methods. Before Mobile money, Government use of electronic payments seem impractical in many places in the world because of low bank adoption and the lack of reach of the physical infrastructure like ATMs, POS terminals and bank branches.
So as the landscape is transformed by mobile money that doesn’t rely on this traditional infrastructure –
Much of the infrastructure being built by MNOs and Banks for mobile money is applicable to government payments from disbursements, collections, business transactions, and intra-government payments.
The challenges are many but the benefits are great. To illustrate, I’d like to focus on a specific recent example of eliminating a traditional cash disbursement method and replacing it with a mobile powered method.
Globe GCASH: A government disbursement case study from the Philippines
Kenya gets all the global attention for mobile money, because nowhere else in the world do we see the scale that has been achieved in Kenya. But from the beginning of mobile money, the Philippines has been the pioneer. As early as 2001, they were rolling out innovative functionality to promote mobile commerce. So it is not surprising that one of the best examples of government application using mobile money can be found there.
There are two leading mobile network operators in the Philippines; Smart and Globe. Both offer mobile money solutions which include complex behind the scenes cooperation between banks and mobile network operators. My discussion was with G-Xchange, Inc. (GXI), the mobile commerce subsidiary of Globe, about a new government disbursement application.
Paolo, who heads up this business, told me their first “experiment” doing disbursements for the government was a few years ago for the Cash for Work Program of the United Nations World Food Program. So they had some experience before they tackled their government disbursement challenge. The national government wanted to improve the Conditional Cash Transfer (CCT) Program (known locally as Pantawid Pamilyang Pilipino Program or 4Ps) that provides cash grants to extremely poor households to improve their health, nutrition and education, particularly of children aged 0-14. It has dual objectives, one is Social Assistance which aims to provide cash assistance to the poor to alleviate their immediate needs (short term poverty alleviation), and second is Social Development which intends to break the intergenerational poverty cycle through investments in human capital. The CCT grants are traditionally distributed through the branch counters of Land Bank of the Philippines, a state-owned bank, or through its cash card. This worked adequately for recipients in urban areas or first class municipalities but was problematic for those in remote rural areas. Majority of the Filipinos also remain unbanked therefore crediting to their account also posed as a problem for the government.
So previously the government had to transport cash by land, and even renting helicopters, to the remote areas. It was hard for the national government to give the cash grants on time. And it would take around a month to know how much had actually been distributed – sometimes longer.
In addition, a recipient receives an average of 2800 Pesos, but in most cases, recipients would have to spend 900 pesos traveling to pick up their cash. It sounds unusual but the Philippines has many out of the way places, in some locations, travelling took 3 days by boat, and some areas were not even visible on the map therefore disbursement and accessibility was a problem for the government.
So when Globe worked with the government to tackle the challenge of improving the rural disbursements, it was too ambitious to expect that all the recipients could have bank accounts, even a mobile phone. The Globe team had already invested in assets in the rural areas that could be leveraged. Since they had rolled out mobile money – they had field agents in the rural areas who were trained and ready to do know your customer (KYC) , cash liquidity management, and cash out. And Globe could already electronically distribute value to all their agents in a secure, transparent way. All the agents needed in the field was their mobile phone – and it could be a regular phone – no data services or smart phone required.
So Globe worked with the national government to design a system where when the disbursements happened, Globe’s GCASH team, along with their agents were mobilized to get all the rural recipients their funds in 3 days or less. Here’s how it worked.
The government would notify ahead of time how much would be needed and where. The agents would travel to the local municipalities. Globe already had cash liquidity methods worked out to ensure enough cash was on hand. Yet this new application would test that system since so many payments were done in such a short period.
Now since these payments went to the poorest of the poor in rural areas, it was unrealistic to require them to adopt mobile money to receive these payments. So most recipients used the Globe GCASH agent as a branchless banker who would distribute the cash to them in their local municipality. The agent would be in a safe municipal building. The recipient would come, the social workers were also there to validate they should receive their money – giving the recipient their one time use verification code. And all the money was distributed quickly.
It was tested in 3 rural areas first with 10,000 recipients. Then rolled out broadly by the end of 2010. Within four months 200,000 recipients received money this way. Now it is reaching 700,000. Talks are underway in using this method to supplement the urban system – which is primarily done via state bank branches. Once that is done, the potential is for majority of the 1.8 Million recipients to use this method.
Benefits include better tracking, on-time faster disbursements, lower government cost, eliminating political strong-arming of recipients by local governments, and lower travel costs for the recipients.
Challenges were there but since they used an existing working mobile money agent application and network – that worked easily. They added government specific reports which were not a significant execution challenge but were very important to the government.
The know your customer process including checking government issued IDs and logging verification codes, tracking in real time – all worked really well. And the people didn’t have to make big changes to use the system. They didn’t have to have a mobile phone, adopt a bank account, use an ATM, etc. Those things are available and will continue to be an option – but it is not a hurdle. Travel cost is now 100 pesos or less. All recipients had ID cards already and they were able to continue to use them with this new approach.
Globe GCASH earns a fee but it is significantly less than old government costs. People love it – it’s faster, there’s less travel and no political pressure.
You can tell I am excited about these real world success stories. The Philippine government disbursement is a great example of how things can improve dramatically for the government and the recipients, and it is a great example of the ecosystem coming together that combines banks, mobile network operators, government, agent networks, even the social workers to deliver an improved service. This is just the beginning. Once the ecosystem is established it will have many uses. Just like the mobile phone or the internet – it started with a few simple use cases – like make a call, or look up a fact – but that was only the beginning.
So I don’t underestimate the difficulty of putting the infrastructure in place in Afghanistan. I have been involved in too many countries, even Kenya, to think this is easy. It is challenging – takes investments, requires change, collaboration between parties not necessarily collaborating today. Each country is different and has its unique challenges.
But it is worth it. The short term benefits, like what we see in Kenya or Philippines are great and the long term potential is even greater.
I am especially enthusiastic today to see who is in this room. To see the many government agencies is especially heartening. The government of Afghanistan has an important role to play. You will be leaders in establishing key infrastructures like ID and interoperability through national payment switches. You also will bring utility and momentum to mobile money through government payments. And it will pay you back by providing more secure, transparent, and efficient government payments.
Thank you for your time.