Across the world, the economic stimulus response to COVID-19 far outsize those to the 2008 financial crisis – 33 percent of Gross Domestic Product (GDP) versus 3.5 percent of GDP in Germany – and the U.S. Federal Reserve’s balance sheet grew as much in six months as over the prior 12 years.
The pandemic has created a multi-speed global recovery that favours high-income consumers over low and has created a significant job divide for minorities, women and younger workers. Among the 38 countries in the Organisation for Economic Co-operation and Development, employment is down 6.3% for women and 5.2% for men overall; 24 countries have seen a bigger decline in employment for females. Meanwhile, rising prices for housing and stocks have exacerbated income disparities.
Facing battered public finances and increasing citizen expectations, governments are being required to deliver more with less, and so control and efficiency in spending is essential to balance the need for urgent action with accountability, transparency and integrity.
Timely and Targeted Disbursements
As the response to the social and economic impact of COVID-19 continues, government-to-person (G2P) payments have never been more important – many governments have been undertaking direct financial transfers to households and small businesses as well, outside of traditional social protection mechanisms.
However, during the course of this response, there have been clear differences in the abilities of governments to push out transfers at speed, in a targeted way and for the intended use.
Countries with advanced G2P payment ecosystems are much more strongly placed now, and in the future. For example, Thailand was able to send funds directly to bank accounts using its fully interoperable PromptPay system – and was able to sift out fraudulent claims from the outset and reach genuine claimants. And Mastercard and a local Russian bank partnered to deploy the MoneySend solution for tax refunds to the existing payment cards of over 200,000 self-employed workers in matter of days, removing any need for cash handouts for recipients.
Another way to ensure maximum reach and appropriate usage of stimulus funds has been the use of prepaid cards for the unbanked and underbanked, and commercial cards to help small businesses that required immediate assistance. In Jersey, 105,000 cards for every adult and child citizen were distributed and pre-loaded with £100. The funds could be spent at points of sale with merchants on the island, over the phone and online with locally registered businesses. The scheme reported having a £10 million multiplier effect on the local economy, benefiting over 2,000 businesses. Similar initiatives are now being explored elsewhere around the United Kingdom.
In Brazil, prepaid technology was used in a different way. There were serious concerns about child poverty because of the pandemic. Many children who were reliant on receiving meals at school during term-time were likely to go hungry during the holidays, with families struggling even more due to loss of income. To ensure funds were not misspent and went directly to address food poverty, the local government of the State of Minas Gerais issued prepaid cards locked for purchase of food – ensuring almost 150,000 families were able to feed themselves.
Unemployment has also been a major challenge around the world. To address this, the Indonesian Government created a fund to provide training incentives and issue financial assistance to five million job seekers, allowing them to upskill themselves during the pandemic.
One of the largest banks in Indonesia included a Mastercard debit product as part of their disbursement products for this government aid – ensuring this financial support package would be used as intended.
These are just a snapshot of some of emergency interventions that have been made. But these systems are not only crisis responses – in fact those who have embraced them before the pandemic hit have been more able to respond swiftly. In the UK, over 200 local authorities use prepaid cards to issue a variety of welfare benefits every day, which were also utilized as part of the pandemic response – putting funds onto existing cards and issuing new ones. Central government had an important role to play in this shift, as by providing a ‘payments procurement framework’ – a list of approved suppliers – they speeded up the time it takes and reduced the cost of contracting for all government agencies.
Utilizing digital systems to allocate resource has another benefit for governments – the data it generates. Strong data capabilities are key to navigating the significant shifts in consumer behavior and the current market volatility being experienced, to enabling the enhancement of operational efficiency, and to responding to urgent challenges by tracking and analyzing information in real time. In London, the city authorities are using data gleaned from the Mastercard Recovery Insights platform to complement other insights to respond to the crisis, target future investments and understand the emerging needs of businesses and communities across the city.
It is essential that all data-driven activity to support these efforts by governments and the private sector leaves citizens in control of their personal data and confident in their privacy and security, otherwise it could have severe long-term implications around the ability to leverage data in an effective way. Just as with businesses, governments need to build accountability and integrity into their data practices, making a commitment to accuracy, quality and innovation and actively working to minimize bias, alongside transparency in how consumer data is being used.
Running alongside this, is a one-in-a-generation shift in towards digital payments by citizens and businesses. In 2020, consumers and businesses turned online with urgency, and Mastercard research estimates that globally up to 30% of the peak in the COVID-related shift to e-commerce will stick around permanently – in the United States this is equivalent to a two-year acceleration in the shift to e-commerce.
Similarly, nearly two-thirds of small businesses are actively trying to steer customers away from cash and checks, and with a third of small businesses facing cash flow issues, there has been a significant shift to electronic payments for sending and receiving payments, with the primary drivers cited as speed, security and transparency.
Now is the time for governments to embrace digital technologies in the same way, helping to reduce frictions and improve services. The 2020 Spring Update to the Edelman Trust Barometer showed that amid the COVID-19 pandemic, government trust surged 11 points to an all-time high of 65 percent, making it the most trusted institution for the first time in the 20 years of the study.
This presents a unique opportunity that should not be wasted – and public-private partnerships are essential to supporting decision-making and spending allocations in a fast-changing world.
There is no better – or more important time – for governments to adopt digital technologies through innovation strategies which leverage pioneering efforts by the private sector, in areas such as data analytics and electronic payments.
For even more insights on this topic, sign up to attend Rebuild, reset, recover: what role for digital technology? webinar on 19 January 2021. Register for this free webinar by clicking here.