Governments have been encouraged to ‘lead by example’ to ensure that most societies’ shift from cash towards digital payments – a trend accelerated by the Covid-19 pandemic – takes place in a ‘responsible’ manner.
Better Than Cash Alliance, which is a United Nations (UN)-housed partnership of governments, the private sector and international organisations, recommends in a report that governments consider embedding in legislation the responsible digitalisation of governmental payments.
The New York City-headquartered alliance, has released nine ‘UN Principles for Responsible Digital Payments’ which, it states, demonstrate that ‘governments alone exert leverage over vital areas’. The principles include treating users fairly, prioritisation of women and providing user choice through interoperability.
‘Digital payments are no longer niche or novel – they are more efficient, swifter and safer than cash’ the alliance states. It cites examples of India’s government reaching more than 160 million low-income citizens ‘in a matter of hours’ during Covid-19 and Colombia’s government ‘reaching three million households during the pandemic’s peak through strong fintech and private-sector collaboration by designing responsibly for low connectivity and no-handset users’.
‘Aside from the sheer scale of the proposition – which encompasses national G2P (government-to-person), G2B (government-to-business) and P2G (person-to-government) payments – this sets a powerful and modernising precedent,’ the alliance, which has 77 members, states as it proposes that governments embed in legislation the responsible digitalisation of their payments.
‘Furious growth breeding risk’
The principles, which are outlined in detail in a 115-page report, advocate for responsible practices in the digitisation of payments, as opposed to providing a technical analysis of what each principle means in practice.
The alliance has published shorter documents aimed at governments, as well as companies and international organisations, summarising what it believes they should do.
In the four-page document aimed at governments, the alliance states that the ‘transformative power of digital payments will be invaluable in rebuilding economies from the wreckage of the Covid-19 pandemic’. But it warns that ‘their implementation is not simple, and there are challenges old and new’, with ‘furious growth [in digital payments] breeding risk’. If implemented poorly, digital payments’ potential will be wasted, it warns.
India’s Covid-19 relief measures are presented as an example here. ‘Domestic migrants faced disproportionate challenges to access because of the limited interoperability of enrollment systems, biometric mismatches (causing transaction failure) and an insufficiently developed cash-out ecosystem,’ it states.
The nine principles are: to treat users fairly; ensure funds are protected and accessible; prioritise women; safeguard client data; design for individuals; be transparent, particularly on pricing; provide user choice through interoperability; make recourse quick clear and responsive; and champion value chain accountability.
In respect of the first principle – which the alliance describes as the foundational principle – it states that many users are being treated unfairly. ‘This must alter,’ it states, ‘because the next billion users of digital payments will encompass the currently underserved. Inequality persists between the treatment of affluent and underserved users. To attract sceptical users and build trust, fairness must be systemic.’
In respect of the protection of funds, the alliance points out that digital payments’ speed of growth is exerting pressure on systems, supply chains and software. ‘Under this onslaught fault lines have widened. Digital payments need to work every time. All users rightly expect their funds to be safe and readily available. Today, too often, this is not the case,’ the alliance states.
On the topic of gender equality, the alliance says that service design, artificial intelligence (AI) algorithms, organisational structures and incentives must be ‘re-imagined’ to ensure women’s equality because, at present, ‘half the world suffers from systemic biases that hinder adoption of digital payments.’
Preparing for the ‘next leap forward’
Turning to the importance of user-centred design, the alliance states that providers ‘typically design for the savvy user, neglecting the diversity of need among the underserved.’
‘Consequently, financial inclusion is no longer simply an issue of access,’ the alliance explains. ‘It is a question of delivering relevant, quality product choices to individual adopters. Advancements in data analytics are helping to shape a future where user experiences are personalised irrespective of wallet depth. As digital payments proliferate, user-centric design is a critical determinant of success.’
In respect of transparency, particularly on pricing, the alliance states that ‘customers often find terminology surrounding digital finance opaque and confusing’. In respect of providing user choice through interoperability, it states that silos ‘stop digital payments from achieving more convenience, affordability and utility than cash’.
‘Progress towards a more interconnected network of digital payments solutions has been steady – it needs to accelerate,’ the alliance urges. ‘The next leap forward hinges upon how swiftly governments, companies, international development organisations and providers explore the benefits of ecosystems founded upon open infrastructure. Policy mechanisms, standards and incentives can unlock interoperability.’
‘Innovations bring change and risk’
The report – which is a response to the UN Secretary General’s Roadmap for Digital Co-operation, presented just under a year-and-a-half ago – ultimately seeks to help to contribute to the attainment of the UN’s 17 Sustainable Development Goals (SDGs). The SDGs were agreed in 2015 by the UN General Assembly, with the aim of achieving them by 2030.
‘If the SDGs are to be met, financial inclusivity is essential,’ the alliance’s report states. ‘The next billion adopters will be slow to trust and cautious – for good reason. A missing transaction for the underserved or semi-literate is exponentially more damaging. It takes overwhelming trust to convince a new user to gamble their family’s livelihood on intangibles and software.’
The publication also arrives five years after the alliance published responsible digital payments guidelines, setting out how digital payments might better serve users. It says the intervening period has witnessed ‘seismic shifts’ in the digital payments landscape.
‘Governments increasingly rely upon [the digital economy] for government-to-person payments (G2P) – especially to the underserved and vulnerable,’ the alliance explains. ‘The fintech industry itself is innovating at speed. AI, machine learning and big data platforms are remaking the industry at a terrific pace. These innovations bring change and risk. Worldwide, more than 80 governments have launched digital transfer programmes. Those benefitting from a prior investment in digitisation outperform the rest.’