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Payment principals: public sector leaders map out financial innovation agenda

Global Government Fintech Lab 2024 panel session five: Siobhan Benita (moderator), Alessandro Moricca, Lee Edmonds and Sudhanshu Prasad | Credit: Deirdre Brennan for Global Government Fintech

GLOBAL GOVERNMENT FINTECH LAB 2024: PANEL SESSION FIVE

Representatives from Italy, the UK and India discussed how the public sector is putting innovative technology to use to help government payments (and more), writes Ian Hall

Three major countries – all members of the G20 – were represented in the fifth panel discussion of the Global Government Fintech Lab 2024, which explored ‘Public sector financial innovation through payments technology’.

The session, moderated by former UK civil servant Siobhan Benita, looked at innovation in payment platforms, barriers to the successful rollout of payments technology and also related topics such as digital ID.

The chief executive of Italy’s state-owned PagoPA, Alessandro Moricca, was the session’s first speaker, setting out the objectives of his organisation (whose name would translate into English as ‘I pay Public Administration’), as well as its achievements and challenges during its relatively short existence. 

He was followed by Lee Edmonds, head of payments services – financial services at the UK’s Crown Commercial Service (CCS), who presented key considerations and examples of payments innovation-related initiatives.

Sudhanshu Prasad, chief general manager at the Reserve Bank of India (RBI), completed the running-order, focusing on the multifarious public sector-driven digital payments initiatives to have launched in India in recent years.

RELATED ARTICLE Ireland hosts public sector fintech pioneers in Dublin for third ‘Lab’ – an on-the-day event summary of Global Government Fintech Lab 2024

Italy: building from payments base

Alessandro Moricca (second from left) speaking at Global Government Fintech Lab 2024

Moricca began by explaining the objectives of PagoPA as a state-owned company, which “operates autonomously” as a technical partner and adviser to public institutions with the objective of self-sustainability.

PagoPA, which is now in its fifth full year of operation, is best known as a payments platform titled pagoPA (through which “all money transactions to Italian public bodies” flow) but the organisation has a broader remit to enable digital public services.

“Our mission is to design and build digital infrastructures and advanced technological solutions aimed at promoting the widespread diffusion of simple, user-centric digital citizen services, starting with digital payments,” he explained. The aim is ultimately to “build a digital and interconnected public administration ecosystem covering all the strategic functions of the state-citizen relationship.”

PagoPA is also responsible for services including ‘IO’, a public services app; SEND, a ‘digital notification service’ designed to enable easier access to documents; and Italy’s National Digital Data Platform (Piattaforma Digitale Nazionale Dati – PDND), which is designed to enable interoperability of public administrations’ information systems and databases.

“All our platforms produce efficiency, innovation and value for all players in the ecosystem,” Moricca said.

RELATED ARTICLE Payments plus: Alessandro Moricca on ‘creating a digital ecosystem’ in Italy – an interview (28 February 2024) with the session’s opening panellist

Tackling ‘big inefficiencies’

Moricca then returned his focus to payments innovation, explaining how – before the pagoPA platform – the Italian tax collection system was “very complex” and “highly fragmented”.

The ‘PA’ (public administration) comprises 23,000 entities, including, for example, about 9,000 schools and about 8,000 municipalities, with 70 per cent of the latter having fewer than 5,000 inhabitants and typically lacking “digital and IT competences”. But regardless, all 23,000 entities (of whatever size) had different technologies, systems, procedures and payment preferences. “Each of them had, for example, an agreement with one bank, and the citizen had to go to this bank to pay without the possibility of choice, and everything was absolutely analogue,” he said. “This, of course, was generating big inefficiencies, many types of costs, waste of resources and poor quality of government services.”

Fast-forward to today and things are, he says, simpler and more efficient: the pagoPA platform enables public administrations and 410 payment service providers (PSPs) to operate on the basis of a single framework agreement that defines communication standards (without need to conclude multiple agreements); and bills are produced “with the same clear and standard information regardless of the type of payment or the entity that is asking for the payment.”

Integration between the payment platform and the IO platform (“used as the mobile front-end”) means that people can pay for public services directly from smart-phones.

‘Accelerated’ payments and ‘HR savings’

Moricca wrapped up his opening remarks by highlighting tangible “big benefits” created by PagoPA.

He started with ‘accelerated’ payments. “We have evidence from the bigger municipalities that 50 per cent of payments for traffic fines, for example, are paid on the same day [that] the citizen has received the notice; and also the time of receiving the notice has been accelerated from three months to a couple of days,” he said.

This partly relates to ‘HR savings’, especially in the bigger municipalities, he said, pointing out that public servants can now spend more time doing “more valuable activities” than chasing debtors.

Then, there is greater sustainability. “Of course, we are saving a lot of paper,” he said. “But it’s not only a saving on the public administration side, but also on the citizen side: saving time, saving fuel, not having to go to a specific place to pay, and so on.”

Summing up, he described PagoPA as “offering a uniform user experience across all touchpoints in a multi-channel perspective, allowing the freedom of choice to pay, where and how people want, even in physical touchpoints (such as tobacco shops, for example) helping to break down the digital divide that has historically characterised our country.”

During the year to date, an average of 12.5 million people each month have made payments through PagoPA’s platforms to the approximately 18,000 entities to have “already joined our platforms”. Further priorities include working on digitalisation of bank guarantees, with objectives including helping to address fraud across the public administration.

UK: CCS’s ‘quantifiable value’

Lee Edmonds (standing) at Global Government Fintech Lab 2024

The UK’s Edmonds began by describing the remit of the CCS – an executive agency of the Cabinet Office – as a ‘self-funding’ public-sector procurement organisation that creates ‘umbrella contracts’ and ‘digital marketplaces’ that enable public-sector organisations to “leverage best value from private-sector partners.”

About 20,000 entities currently use CCS and, during 2022/2023, about £31 billion was spent through its commercial agreements (about two-thirds by central government and one-third by the wider public sector). “Critically, we delivered £3.8 billion in commercial benefits,” he said. “Essentially, that’s a quantifiable measure of the value that we’ve added to the public sector in that year through them utilising services through Crown Commercial Services.”

Edmonds’ own focus within payments services (“everything that is ‘non-core banking’”) is on developing “products, solutions, services, market intelligence [and] routes to market that the public sector can use, working with payment providers.”

Ahead of describing some of the payments innovation-related initiatives involving CCS, he pointed out that, in the public sector, innovation “can’t be looked at in isolation” and that it must be viewed in the broader context of “value creation”.

To illustrate, he showed a presentation slide showing a circular diagram with eight ‘key considerations when looking at innovative technology’: ‘value’ was shown at the centre (the other seven were: ‘coverage’, ‘quality’, ‘innovation’, ‘social value’, ‘inclusion’, ‘cost efficiency’ and ‘choice’).

RELATED ARTICLE UK public sector open banking aspirant supplier tally edges upwards – our news story (20 February 2024) on the CCS’s ‘Open Banking Dynamic Purchasing System’

Examples of UK innovation

Edmonds moved on to highlight four examples of innovation (emphasising that his examples were “innovation in a sense of not necessarily the products [themselves], but the way in which we execute the products [being] innovative within the UK public sector”): CCS’s ‘open banking marketplace’, ‘digital purchasing cards’, ‘pre-paid and vouchers’ and ‘fuel payments’.

His first example (which has been well covered by Global Government Fintech) is a nascent ‘Open Banking Dynamic Purchasing System (DPS) to facilitate the use of open banking across the UK public sector. “Essentially [it] is a digital marketplace that allows any public-sector organisation to access pre-qualified organisations [suppliers] that can deliver payment initiation, account information or confirmation of payee services,” he explained. “They’re the three fundamental products and services that are accessible.”

He mentioned that HM Revenue & Customs (HMRC) is currently using the DPS as it re-tenders a contract for the provision of open banking services to the department.

“Some obvious benefits from open banking [are] reduced costs, reduced back-office reconciliation as a result of account-to-account payments, enhanced fraud prevention and informed decisions,” he said. But he acknowledged that “open banking isn’t for everyone”, including, for example, (by definition) the unbanked.

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Inclusivity and ‘social value’ important

This led Edmonds onto innovation with pre-paid cards and vouchers. Here CCS also has a framework (‘marketplace’) that enables public-sector buyers to procure services through providers with solutions that “ensure that regards of whether or not an individual has a bank account, we can get money into the hands of vulnerable people”; and the provision of ‘closed-loop’ vouchers “for use at supermarkets… so driving behaviour to use funds in a specific way.”

“Those vouchers are issued physically, but if individuals have digital capability, they’re issued by a QR [Quick Response] code or digital vouchers. So, building on existing convention and technology in the gift-card market, for example,” he explained.

There are also ‘open loop’ pre-paid cards, which, he said, enable local authorities “to get money out to citizens who don’t want to be paid into a bank account”. One example would be children in care who are given funds and “don’t want to stand out from the crowd because somebody’s having to buy clothes for them.”

This shows, he said, CCS looking to “creat[e] inclusive action and activity within the social-care sector through payments, products and services”; and is illustrative of its “responsibilities to think about how we do not create a broader digital divide [and] how we can utilise existing digital and physical solutions to get money into the hands of vulnerable people.”

This returned Edmonds’ focus to ‘social value’, which has a legal basis in the UK via the Public Services (Social Value) Act. “We work with suppliers to look at ways in which they can create a financially inclusive environment,” he explained, giving an example of large financial institutions working with CCS to provide financial education to schoolchildren.

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Fuelling new innovation

Edmonds concluded his opening remarks by mentioning how public-sector organisations pay for fuel.  

“At the moment, we’ve got a standardised product, which is a fuel card. About 5,000 organisations in the public sector use fuel cards – ambulance services, police, fire services, for example,” he explained. “But, actually, as we move to electric vehicles and alternative fuels, the standardised infrastructure that supports those payments is no longer in place.”

“One of the things that we’re working on at the moment, which will be really innovative, is how are we going to pay for that? We can’t go back to a situation where we have invoices, ‘pay-and-reclaim’ – people footing bills and claiming back expenses. So what are we going to do in this space? We’re doing a lot of outreach, working across different industries and different sectors to understand the current horizon. What is the public and private sector view of how this problem is going to be solved? And, again, looking at really innovative solutions beyond the mainstream that you’re usually dealing with,” he said.

He concluded his opening remarks by summarising CCS’s ‘challenge’ in three words: ‘normalisation’, ‘imagination’ and ‘prioritisation’.

“If these services – these fantastic innovations – aren’t normalised through broader use in the external markets, they will never take off in the public sector,” he explained. “We [public sector] aren’t necessarily the best at imagining the best way to use these products and services,” he continued. “We need assistance from our private-sector partners to think through the lens of public-sector organisations about how we can best use products and services in the right way.”

Finally, prioritisation – a return to his overarching point about ‘value creation’. “Saving a few quid on transaction processing costs doesn’t shift any dials,” he reflected. “So, what is the broader value proposition that these technologies offer that are going to make public-sector organisations sit up and work together collaboratively to enable working together to deliver solutions?”.

India’s DPI developments

Sudhanshu Prasad (right) speaking at Global Government Fintech Lab 2024

Prasad kicked off by illustrating seven (theoretical) benefits of using technology to transform government payments: improving efficiency; speed and cost effectiveness; transparency and ‘corruption-free’; financial inclusion; ‘safe and secure’; for ‘targeted and timely’ interventions; and female empowerment.

He then mapped out the ‘digital public infrastructure’ (DPI) that has been developed in India – “basically, an ecosystem built in the public interest with the goal for addressing societal challenges, and which leverages competitive private innovation” – across three ‘rails’: digital identity, payments and data-sharing.

The first rail (or foundational infrastructure) is the country’s well-established and well-known digital ID system, Aadhaar. This involves the assignment of a 12-digit unique identity number to citizens, based on biometrics. Specifically, this is 10 fingerprints, two iris (eye) ‘prints’ and a facial photograph.

The second rail – the focus of Prasad’s remarks – includes initiatives such as Unified Payments Interface (UPI), the instant payment system overseen by the National Payments Corporation of India (NPCI) that has become synonymous with digital payments in the country; as well as ‘government to citizen’ payment channels NACH, APBS, AEPS and e-Rupi (all explained in the next section of this article); and ‘citizen to government’ payment channels such as UPI itself. UPI’s numbers are very large, processing more than 13.44 billion transactions in March 2024 (about 5,000 per second). “UPI is seen as a digital public good in India because of the convenience, safety and security it offers,” Prasad explained. “With the click of it button, you can initiate a payment transfer, and it will happen.”

The third rail – data-sharing – focuses on ‘account aggregation’: in essence, government efforts to create a “data-sharing system based on consent given by individuals”. This helps citizens to access a broader range of banking services, as well as helping financial services companies, including fintech companies, to “expand their pool of customers,” Prasad said.

RELATED ARTICLE India opens up payments and digital ID ‘global repository’ – a news story (19 July 2022) on India’s government making its payments and digital ID technology available to all countries worldwide via open application programming interfaces (APIs) under an initiative named ‘India Stack’

NACH, APBS, AEPS and more

Prasad then focused on some of the digital payment mechanisms used by government and state authorities.

First is the National Automated Clearing House (NACH), a centralised e-payments service to facilitate end-to-end processing of interbank high-volume transactions that are repetitive and periodic. Government (as well as banks and corporates) can use NACH to make disbursements and also to receive payments, such as bill payments.

Second is Aadhaar Payment Bridge System (APBS), described as a “unique” payment system that uses Aadhaar numbers as the “central key” for digitally channelling government payments under India’s ‘Direct Benefits Transfer’ programme into the ‘Aadhaar Enabled Bank Accounts’ (AEBA) of intended beneficiaries. “In India whenever a customer opens a bank account, he is asked to link his Aadhaar number with his bank account [and] APBS actually uses the Aadhaar number to transfer various types of payments from the government,” Prasad explained.

Next is the Aadhaar-Enabled Payment System (AEPS), described as a payment system that “enables the customer, especially in rural areas and semi-urban areas, to use his Aadhaar number to access his Aadhaar-Enabled Bank Account and carry out various financial and non-financial services.”

Fourth, he mentioned the e-Rupi (whose name owes to India’s currency, the rupee) – a pre-paid digital voucher that is “primarily presently used by government and its departments for person-specific or purpose-specific payments”. Launched during the Covid-19 pandemic, “rural customers or not well-to-do customers were given these vouchers to get them themselves vaccinated using the pre-paid amount, which [was] on the voucher,” Prasad explained.

RELATED ARTICLE India launches e-Rupi for ‘leak-proof’ digital welfare payments – a news story (2 August 2021) on the e-Rupi’s launch

Tackling ‘digital divide’

Prasad concluded his presentation by focusing on barriers to innovation in government payments.

He listed factors including the preference among many people of sticking with cash (combined with a lack of trust in digital payments); ‘limited’ digital literacy; the ‘digital divide’; gaps in digital payment infrastructure; and concern over fraud, data breaches and related ‘safety issues’.

“These barriers especially [exist] in India, because – for adoption in government payments, or for any other [digital] payments for that matter – people are very comfortable in using cash,” he said, adding that India had a low rate of reported fraudulent transactions compared other jurisdictions.

The authorities were, he said, trying to address the digital divide through “various other use-cases” while gaps in digital payment infrastructure are being addressed through a ‘Payment Infrastructure Development Fund’ (launched in 2020, this incentivises the deployment of payment infrastructure with a focus on “rural and semi-urban” areas).

He also touched on the latest payment innovations. These include the piloting of a central bank digital currency (CBDC), where attempts are underway to “build on” programmability and offline capability. “Programmability will enable the government and other individuals also to make person-specific or purpose-specific payments,” he said. “And offline capability will help them to enable financial inclusion in areas where there are issues in internet connectivity or there is poor or no connectivity.”

Digital directions

Siobhan Benita, Alessandro Morrica, Lee Edmonds and Sudhanshu Prasad at Global Government Fintech Lab 2024

A short Q&A saw Moricca asked whether PagoPA faced any difficulties in overcoming potential lack of trust in government-operated digital systems. He responded that challenges were less related to citizen behaviour and more achieving broader penetration across Italy’s public administration – in his words, “competences to run and to be integrated with the system.”

Edmonds was asked whether there was an ultimate ambition for all payments ‘out’ from the UK government to be digital (for reasons of efficiency), while acknowledging that people cannot be excluded. “Yes, absolutely,” he responded. “I think there is a desire to be innovative, but it’s all about value as opposed to the cost efficiency that we naturally associate with innovation. So, not just about leaving people behind, but it’s the quality of service. And, actually, is innovation about choice? Is it about cost efficiency? Is it about inclusion, accessibility? It should be about them all. It’s about understanding the outcomes that we’re looking to achieve, and actually what is the right thing to deliver the best outcome for the citizen in those circumstances.”

Moricca was then asked whether PagoPA operated via digital ID-style codes. Moricca responded that its platforms (including beyond payments) work via a ‘13-digit fiscal code’, unique to each user.

India’s Aadhaar works in a different way. “When we allow any payment systems to use Aadhaar as an identifier, they put an Aadhaar number, so if customer is using an Aadhaar number to access his Aadhaar-enabled bank account, he will put [use] his thumb [print], that goes to the institution which manages the Aadhaar number, it authenticates that transaction with the biometrics of the customer and gives a success sign, and the transaction goes through,” Prasad explained.

Edmonds was asked whether he would favour a UK digital ID system. Emphasising that he was answering in a personal capacity, he responded that he would see the positives in “an identifier” that enables enable access and inclusion – securely.

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Initiatives diversity and scale

Overall the session illustrated the diversity of payments modernisation initiatives being pursued by public authorities in the three nations.

It also showed the sheer scale of such programmes, particularly in India, in terms of the volumes of transactions passing through.

By also taking in topics ranging from digital ID to open banking and CBDC, the session also managed to illustrate the breadth of topic areas beyond pure ‘payments’ that are relevant to public sector professionals with an interest in the potential of financial technology.

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We expect to upload a session video recording here shortly.