Home Payments Overcoming obstacles: governments simplify payments with fintech

Overcoming obstacles: governments simplify payments with fintech

Global Government Fintech Lab 2022 panel session four: Evelyn Liivamägi, Michal Tuláček and Siobhan Benita (moderator)


The Global Government Fintech Lab 2022’s fourth session examined how fintech can help government payments, Daniel Tost reports

Government authorities are increasingly exploring the use of fintech solutions to improve the delivery and efficiency of payments. While doing so, the public sector is both procuring the services of fintech companies as well developing innovate solutions itself.

The Global Government Fintech Lab’s fourth panel session – ‘How can fintech help government payments?’ – focused on the opportunities and barriers to state authorities’ adoption of new technologies, with a focus on incoming payments (for example, tax).

The session featured Evelyn Liivamägi, deputy secretary-general for financial and tax policy at the Ministry of Finance in the Lab’s host nation, Estonia; and Dr Michal Tuláček, head of the general tax legislation unit in the Czech Republic’s Finance Ministry.

As illustrated by the keynote speech delivered by Estonia’s finance minister Keit Pentus-Rosimannus earlier during the day, the Lab’s host nation’s state apparatus has a proud history of adopting digital solutions. Meanwhile the Czech government has recently kicked off a project aimed at ‘unlocking the potential’ of fintech.

The discussion, moderated by former UK civil servant Siobhan Benita, saw the panellists address the principal question followed by a Q&A that included discussion of the challenges fintech companies can face when it comes to public sector procurement processes.

Estonia simplifies tax via ‘fintech mindset’

Evelyn Liivamägi

Liivamägi opened with two examples of how Estonia is striving to simplify tax payments, firstly describing the development of business bank accounts that make tax payments automatically.

“We launched these services and solution together with a traditional bank, which was possible because this bank considers itself a technology company as much as a bank – they have a fintech mindset and with that fintech mindset innovation can be possible even together with traditional banks,” she said.

When developing the ‘business account’ model, the authorities introduced a new taxation law, because “emerging business models – such as platform-based businesses – didn’t fit into the old rules”, Liivamägi explained, adding that those working in these innovative sectors “expected” new and simple rules. “If taxpaying is simple and not burdensome, voluntary tax compliance is much higher,” she added.

After opening such a business account, and money from business activities is transferred in, co-operation between tax authorities and the bank begins, as Liivamägi put it. Specifically, the bank reserves the amount of tax liability and transfers it to the Estonian Tax and Customs Board when it is due. “Tax liabilities are met, there is no need to file a tax return, there is no tax debt and there is no need for accounting,” she said.

There is currently only one bank offering this service but Liivamägi said it was becoming increasingly popular each month.

From one click to no clicks?

Estonia’s government has also implemented a system that allows small businesses to pay their business taxes alongside their salary payments, Liivamägi told the Lab audience.

As with the business account, the state wants to make paying taxes and filing tax returns simple, she said, explaining that the specific aim here is to “get data directly from the source so that taxpayers don’t have to file separate documents.”

And the place where every company’s accountant goes every month is its electronic bank account. “So, together with the bank, we launched a service that exchanges information between the bank and the tax authority at the same time the company pays out salaries. You [business] pay out a salary, pay taxes and file tax returns all at the same time.”

The goal is reducing the number of websites people need to visit. “As a user you are only operating in an e-bank environment and you don’t have to visit an e-tax board. Although the e-tax board is very simple and comfortable, people still don’t want to deal with the tax board,” she said.

There is a desire for yet further simplification, meaning that authorities are discussing how to eliminate the ‘one click’ necessary to file an annual income tax return.

“Estonians expect everything to happen for them [in the background]. They don’t even want to do that one click anymore,” she said.

RELATED ARTICLE Estonia to develop first fintech strategy – a report on Keit Pentus-Rosimannus’s address to the Global Government Fintech Lab

Czech ambitions greater than available solutions

Michal Tuláček

Tuláček kicked off his opening remarks by declaring that there was haziness around the definition of ‘fintech’ and what it encapsulates in a government context.

“In the Czech Republic we have a lot of plans on what to introduce, but not that many available solutions,” he said. There are also practical obstacles: for example, despite ambitions for a new IT system related to taxes, the financial administration is currently “sort of vendor-locked with our supplier,” he said.

Focusing on tax payments, Tuláček nonetheless described digital momentum. “Nowadays you can electronically file information about all taxes. We have something which is similar to internet banking: you can log in, you can file a tax return, you can see all the information about the communications with the tax office and you can see your financial balance on your personal tax account,” he said.

Tuláček mentioned attempts to make payments to government easier by introducing the possibility of paying taxes via QR (‘Quick Response’) codes: squares of black and white blocks that are scanned by smartphones. “It’s not a hi-tech cutting-edge technology, but it still really helps people,” he said.

A further technology-driven development – the use of which accelerated during the Covid-19 pandemic – is the ability to log into a tax administration website with a person’s bank ID, Tuláček said. “Almost everybody who has a bank account can log in and access not only taxes but all kinds of systems,” he said.

Concluding his opening comments, Tuláček said that throughout the Lab’s discussions he had heard about many solutions that would be “nice to achieve” and his colleagues were also aiming for some of them. “But I’m afraid we will not see them for many years, because in the public sector it’s problematic to introduce something by just testing it first. This is a big difference between us and the private sector,” he said.

RELATED ARTICLE ‘Czech Republic seeks to unlock potential of fintech  our news story (23 May 2022) on the Czech government instigating a European Union (EU)-backed project focused on encouraging fintech and the use of data in financial services

Procurement rules and fintech

During the session’s Q&A, discussion moved on procedural obstacles that government bodies can find in the way of procuring innovative technology – for example, fintech-based solutions, particularly those developed by fledging companies as opposed to established financial services players.

“If the government buys something and there are public procurements, there are certain requirements companies have to meet such as turnover [size] and years in operation,” acknowledged Liivamägi. The government, she said, requires “trustworthy” partners, so there is a need to have been in operation for a couple of years and newer fintech companies might not yet meet that requirement. “From the state’s point of view, if you are dealing with someone and you let them into your accounting system, you want to be sure that nothing is messed up, that taxes are paid and accounted for correctly,” she added.

Since representatives from companies that work with governments were in the audience, they were asked about public authorities’ efforts to bring in innovative solutions.

Valentina Ion, Microsoft’s business strategy director, said that evolving procurement criteria would “enlarge the portfolio of vendors eligible to work for governments”, citing the UK where a requirement has been introduced for central government to evaluate ‘social value’ during procurements (this is set out in the UK‘s Procurement Policy Note 06/20; this is applied to all procurements since 1 January 2020).

State authorities ultimately have to balance “efficiencies that will come with a [certain] platform choice” and “risk mitigation and vendor dependency”, Ion said. So long as interoperability, a platform’s ‘openness’ and “connecting a wider portfolio of IT partners” are a government’s main criteria, governments should be “safe”, she added.

Jerome Bryssinck, director of government solutions at Quantexa, said he could “feel the pain” of public organisations being locked into long-term supplier contracts, lamenting “very long procurement processes” that leave authorities “stuck for five to ten years with no innovation and very high costs”. “That’s really something that needs to be avoided for everyone in the future,” he said.

On payments innovation specifically, he described digital transactions as providing governments with “the Holy Grail of data”, which can prove invaluable in his own company’s sweetspot of fraud detection and risk management.

‘You need money and time’

Overall, the session gave a flavour of the range of ways in which governments are considering and using technology to improve payment processes – the overriding theme being the ambition of simplification for authorities and taxpayers alike.

Despite implementation obstacles – for example, ‘legacy’ IT issues – it is clear that governments’ direction of travel is in favour of digital solutions.

More broadly the sense was similar to other Lab sessions in that participants agreed on the importance of political leadership to drive significant interest and investment. This helps to move fintech solutions to the centre stage of delivery.

“You need money and you need time,” said Liivamägi. “But if the will from the government is there, they can find the money and they can give you time to develop new systems. Then you can create innovative solutions on the government’s side.”

Tuláček said that he was “always surprised” about what people can achieve in a “closed system” such as the public sector. “I’m always imagining what they could achieve if they could try new things in an open environment, and I hope we will get there – that there will be money, motivation and the technical possibility,” he said.


Watch the session, which was held on 1 June 2022, in full (43min 45sec) =>

Source: Global Government Forum YouTube page

The session also featured Global Government Fintech editor Ian Hall raising the example how the UK’s HMRC is pioneering the use of a fintech company to enable the department to receive tax payments via open banking (between 21min-26min).


=>>> ‘Open banking for tax payments: government case study’ <<<=


=>>> Global Government Fintech’s dedicated ‘Payments’ section <<<=