G2P payments & Mobile Money: Opportunity or Red Herring?

Social protection schemes, in particular government-to-person (G2P) payments and other social transfers, can be an attractive business opportunity for mobile money providers in developing markets [1]. They often represent significant payments volumes, prospective new customers, and an additional source of revenue. For the social protection community, mobile money has the potential to lower delivery costs, yield operational efficiencies, and enhance development impact. G2P payment delivery via mobile money appears to be a win-win scenario. Yet the reality is that this line of business is incredibly challenging and requires fully committed partnerships to make it work.

Three pioneers from diverse geographies have shared insights with MMU on their experiences thus far with G2P payment delivery: United Bank Limited (UBL) in Pakistan, Banco Davivienda in Colombia, and Airtel in Malawi. UBL has been delivering a large portion of the Benazir Income Support Program (BISP) through its Omni platform since 2011, reaching nearly 1.3M families. UBL is also partnered with the government and a range of NGOs for flood relief subsidies and cash for work programs. Davivienda began delivering social transfers, including Más Familias en Acción, through its DaviPlata mobile money service for close to 1M families this year. While on a smaller scale, Airtel in Malawi is currently distributing subsidies through Airtel Money for Save the Children and the World Food Program (WFP), reaching 23,000 families.

  • Customer Registration & Account Issuance: Two pioneers have found that intended social payment beneficiaries, primarily low-income women in rural areas, often times don’t own a basic mobile handset. Providers have taken various approaches to overcome this challenge. Airtel Money in Malawi worked with donors to acquire handsets for the 23,000 recipients. UBL started down that path, but decided it was more cost-effective in their case to issue smart cards during account registration instead. Davivienda has not encountered this challenge to same extent in the Colombian context, though it did invest considerable resources in account registration drives, as did UBL and Airtel. Each scheme relies on their government and NGO partners to identify and convene beneficiaries for the registration process. Davivienda, for instance, registered 70,000 beneficiaries in one day in a mass registration drive, and a total of 920,000 beneficiaries over a two-month period.

The pioneers have found that tiered KYC requirements and flexibility in terms of identity documentation have helped to ease the customer registration procedure. The regulator in Pakistan allows for simplified KYC processes for BISP beneficiaries. Similarly, Colombian regulation enables remote, paper-less account opening for low-value accounts. In Malawi, an NGO-issued ID card specific to program beneficiaries is accepted for KYC purposes.

  • Distribution & Liquidity Management:  G2P payments are inherently lumpy and infrequent, usually distributed on a monthly or bi-monthly basis. This exacerbates the liquidity management burden on agents as it results in sizeable spikes of demand for cash, often in rural areas. As banks, UBL and Davivienda have alleviated the liquidity burden on agents by tapping into their ATM network for payment distribution. In fact, a large proportion of BISP payments delivered by UBL’s Omni platform are cashed-out at an ATM. However, UBL reports their agent network is adequately incentivized to handle the demands for cash for BISP and does so effectively when informed of the payment calendar. Larger flood relief payments, on the other hand, are best handled by UBL’s ATM network.  Davivienda reports that bill payment activity and deposits at agents have helped to lessen the withdrawal liquidity pressure. Moreover, Davivienda employs a system whereby families are assigned to a distribution outlet and date in order to smooth liquidity needs. The recipient is informed by Davivienda via SMS.

In a somewhat similar manner, Airtel Money in Malawi relies on their banking partners to provide additional liquidity points to agents during predetermined dates in the distribution period. While this approach is working, it is undoubtedly resource-intensive. The monthly disbursement involves physical representation from key partners: the agent/bank partner (the liquidity supplier), the NGO, and an Airtel customer service representative in case of any trouble. PIN resets, in particular, were cited as a key challenge in G2P payment delivery across markets.

  • Product usage: The salient trend in G2P payment-linked accounts is that they are “dump & pull”—beneficiaries withdraw 100% of funds as quickly as they are able to.[2] The pioneers confirm this trend holds based on their experiences. This contributes to the liquidity challenge discussed above and limits recurrent usage of the account, thereby hindering the development of a digital financial ecosystem.  It would make business sense for mobile money providers to encourage greater account usage amongst beneficiaries, yet they may not necessarily have the support from their partners. Many social protection program administrators are of the opinion that subsidies and humanitarian aid must be immediately liquid, in some cases requesting prompt withdrawals. The focus of the service provider then becomes how to ensure the distribution network can handle this, rather than how to encourage customers to keep and use funds digitally through targeted marketing.  Greater account usage would be most welcome by financial inclusion stakeholders.
  • Business Case: G2P payments can be an important source of revenue for mobile money providers. Airtel Malawi distributed a total of $3.5 million USD for its NGO partners. This contributed to 60-70% of their business as of March 2013. For UBL, G2P payments started off as being a key business driver (60% of revenues in 2011), but has now dropped to 20-30% of revenues as account activity levels are growing. For Davivienda, G2P payments beneficiaries comprise roughly half of all customers registered on DaviPlata. As banks, the revenue model for UBL and Davivienda can include float income, though all three pioneers may negotiate service fees as a percentage of the ticket size of the disbursement depending on the program. It is too soon to report on the overall profitability of this business line.
  • Timing for introducing G2P payments: UBL seized the G2P payment delivery opportunity even before the commercial launch of Omni. They had to build the agent network from scratch in order to fulfill their G2P payment commitments. They in fact have more rural than urban agents today, reflecting their deliberate approach to effectively deliver G2P payments from the start. Davivienda began offering G2P payments via DaviPlata nearly two years after launch, though the timing in their case was influenced by the government’s open bidding process. Many would argue G2P payments should be phased in only after a mobile money operation has reached a critical mass of agents and transaction-levels. There are too few proof points to make the case one way or another, and one must acknowledge the complexities involved with securing contracts for social transfers.

There’s no sugar coating this. G2P payment delivery will be a challenge across markets for years to come, even in a place like Kenya where M-PESA has reached the majority of adults and agents are nearly ubiquitous. The Red Cross recently piloted the delivery of humanitarian relief payments via mobile money in semi-rural villages in Kenya and came across many of the same challenges highlighted here. That said, we commend the pioneers for embracing partnerships with governments and donors. As one insightful pioneer shared, their imperfect and costly system is still better than the alternative of handing out cash envelopes and being subject to high degrees of fraud and leakage.

We invite you to share your experiences with the delivery of G2P payments through mobile money so we can begin to document best practices and lessen the teething pains along the way. You can send us your stories at [email protected].

[1] Hereafter we refer to social transfers generically as “G2P payments”, although we recognize that many social transfers are in fact funded by donors and NGOs. We also recognize that G2P payments can more broadly include pensions and civil servant salaries.
[2] This phenomenon has been documented by CGAP and Bankable Frontier Associates