The Promise of Digitising P2G Payments
The recently launched Global Landscape Study on Digitizing P2G Payments estimates global person-to-government (P2G) payment flows at USD 7.7 trillion.1 As the name suggests P2G payments essentially include mandatory payments (taxes, bill payments and fines), payments for government services (fees for passport, visa), and co-payments for social benefits (pensions).
The report argues for an increased focus on P2G payment flows given their substantial size, as evidenced by the following:
- The overall size of payment flows approximates, on average, 50 percent of annual government expenditures in low- and lower-middle-income countries,
- Comparability to other payments flows such as global remittances and government-to-person (G2P) payments, and
- The wide reach of P2G payments, in that more than any other payments flows, these are likely to be of relevance to most (if not all) adult citizens at all income levels, including the financially excluded.
Benefits for governments, businesses and consumers have been written about often and are summarized in Exhibit 1 for the convenience of the reader. The significant amount of these flows, together with the benefits of digitization provide a compelling case for governments to prioritize the digitisation of P2G payment flows.
Exhibit 1: Value proposition from digitising P2G payments
Source: Global Landscape Study on Digitizing P2G Payments (p. 24)
What makes the Global Landscape Study an especially valuable contribution to this conversation is the cross-country evidence on the actualization of these benefits as an increasing number of governments and private sector partners join hands to craft a variety of P2G digitization solutions. Some examples captured in the report are summarized below:
Benefits to the government:
- Water Utility Payments – Tanzania: In Tanzania, mobile based water utility payments have allowed for enhanced collection and increased contribution to revenues per customer by 13.4 percent per year. Studies also indicate that the water utility company is better able to tailor its services to a client’s ability-to-pay: initial assessment of the data collected show that water bill payment amounts via mobile tend to be smaller than the amounts paid at water utility offices.
- Tax Payment – Tanzania: Within one year of digitizing income and property tax payments by the Tanzania Revenue Authority (TRA), 15 percent of the tax base was making payments via mobile money. The initiative resulted in lower tax avoidance, in that some payers had no history of paying taxes.
Benefit to Consumers
- School Fee Payment – Ghana: A mobile-based payment solution allows parents to pay their child’s school fee from a mobile money wallet or through local mobile money agents. Using this, parents have been able to save considerable amounts of time and money spent on travelling. Also, parents feel much more secure as they can now pay through a trusted regulatory, rather than entrusting a child with cash.
- Electricity Bill Payments – Rwanda, the Philippines, and Tanzania: Following the digitization of electricity bill payments in Rwanda, the Philippines and Tanzania, customers no longer need to wait for multiple days for the resumption of their service in case of a missed payment. As soon as a missed payment is made, the electricity service is instantaneously restored, leading to greater customer satisfaction.
Benefits to Businesses
- Transport Payments – Rwanda: Although not strictly a P2G initiative as the service is offered via a public-private partnership model, the Tap&Go scheme provides a valuable example of improved monthly revenue collection (from USD 6,500 to USD 15,600) for the bus operator via a pre-paid card. An added benefit of the Tap&Go scheme has been the identification of bus routes that were contributing to major leakages.
- Water Payments – Tanzania: Estimates of the profit margin for an MNO in Tanzania range between USD 0.2-0.4 per transaction for water bill payments, indicating the potential of P2G payment flows becoming a viable source of revenue.
The report showcases numerous examples of successful P2G digitization initiatives from developing countries, including nine in-depth case studies from seven countries, but also acknowledges that P2G digitization initiatives are in their infancy and there is no single road map as much is dependent on country context in terms of infrastructure, regulatory environment, customer readiness, and stakeholder buy-in. What the report does provide is a useful checklist for policy makers to systematically determine a country’s readiness for digitizing P2G payments and ascertain next steps within its own national context.
In line with the study’s finding that less than 20 percent of low- and lower-middle-income countries receive tax payments primarily in digital form, compared to more than 80 percent of high-income countries, Pakistan’s P2G payment landscape also presents a largely untapped opportunity. Although two services falling within the digital P2G domain have already been digitized in partnership with two MNOs—the e-challan for traffic fines, and passport fee collection—both require significant upscaling. The Global Landscape Study is therefore especially well-timed to serve as a valuable reference document for policymakers and practitioners, illuminating the path to a systematic digitization process.