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LEARNING SERIES >> How to scale up digital wages in line with the UN Principles for Responsible Digital Payments

Lessons from Bangladesh, Jordan, and Senegal

An estimated two-thirds of garment workers in Jordan still receive their monthly wages in cash. In Bangladesh, 750 hours of production time every month are lost by garment factories to the counting and disbursement of cash wages. Meanwhile, less than 20 percent of wages in Senegal’s corporate sector were paid digitally at the end of 2018 – indicating a massive opportunity to identify the untapped economic potential for both companies and workers. Digitizing half of employee payments could add US$84 million (FCFA45 billion) to the Senegalese economy every year.

Increasingly, governments, companies, and workers are recognizing that distributing wages digitally is a win-win solution. It improves efficiency and increases transparency and security for companies. When implemented responsibly, it enables workers to have a better control over their wages. Of workers surveyed in Senegal, 82 percent recognized that they felt more secure with digital wages, thanks to not having to travel with their wages on payday. Over half (57 percent) of workers also confirmed they had better access to financial services following the digitization of their wages.

The following three UN Principles for Responsible Digital Payments bring important lessons and recommendations to companies and governments wanting to scale up digital wages and drive change.

1. Principle 5: Design for individuals – end user-centered products and value-added solutions

The garment sector in Jordan employs over 76,000 workers, 73 percent of whom are women. In our recent report, published in collaboration with Better Work, the International Labour Organization (ILO), and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), we found that migrants make up 75 percent of the workforce, and 62 percent of these remit at least two-thirds of their wages back home. Our survey also highlighted that these remittances are organized after worker cash-out their wages on or around pay day. To trigger adoption, workers’ different user journeys – and the different financial habits of women and men workers – must be taken into account in the design of digital wage payment solutions. Developing an international digital remittance product could drive the adoption of digital payments among migrant workers. The Central Bank of Jordan continues to ensure all regulatory and supporting supervisory mechanisms are developed, allowing Payment Service Providers (PSPs) to design required products to meet the needs of workers.

Language considerations will affect the capacity to scale up when designing wage digitization products. In the same study in Jordan, we found that only 9 percent of the migrant workers surveyed spoke Arabic, and 4 percent English. Less than 0.5 percent of migrants could read or write in one of these languages. To promote the adoption of digital wages at scale, e-wallet, banking applications, ATM instructions, and mobile/bank agents need to provide options in other languages. For example, some of the digital financial service providers have recently developed multilingual mobile money apps.

2. Principle 7: Provide user choice through interoperability – for ease of transactions

Governments can play an important role in supporting companies and employees to adopt digital wage solutions, by promoting interoperable digital payment solutions, and expanding the acceptance of digital payments by merchants and small enterprises. Timed appropriately – along with an increase in cash-out points, better liquidity, and more widespread acceptance – a shift to digital wages can lead to a stronger uptake of digital payment services by workers, offering them more secure wage payment and greater financial inclusion.

In Senegal, the 343 businesses surveyed across 19 sectors confirmed that collaborating with the local digital financial ecosystem is important. This is done by anticipating workers’ liquidity needs at cash-out points on payday and engaging key stakeholders so that workers can pay for their utilities, food, and other expenses digitally, promoting wider acceptance.

In our report on digitizing wages responsibly in Jordan, we included a recommendation to create conditions for a more robust e-wallet market. Despite important advancements in digital finance, all the surveyed workers who received their wages digitally cashed them out in response to anticipated difficulty accessing their cash. Ensuring that digital financial service providers have enough cashpoints (ATM, bank branches, and mobile money agents) and sufficient liquidity will help to build workers’ trust and adoption.

Similarly, if workers were certain that they could use their e-wallets widely, at no additional cost, many would consider them better than cash, and use them more for day-to-day purchases. This would reduce costs and the pressure on workers to cash-out on paydays.

3. Principle 3: Prioritize women

97% of women’s wages in emerging economies are paid in cash

In emerging economies, women are more likely to have informal jobs. These jobs often pay wages in cash. In Senegal, almost all workers (96 percent) have informal jobs, 45 percent of whom are women. Their wages are typically three times lower than those of men, and paid universally in cash (97 percent of their wages, compared with 91 percent of men’s wages). Digital wage payments, when made responsibly, can give women workers more control over their earnings and increase their access to other financial services.

While contracted employees benefit from pensions and health insurance, informal employees do not receive any form of social protection. This is in spite of health issues being cited as one of the top three causes for employment loss and absenteeism. Responsible wage digitization could bridge this gap. In the case of Senegal, digital wage payments could be connected to the Senegalese universal health coverage digital infrastructure, and informal workers could be enrolled directly in the national universal health scheme, which is subsidized, with a yearly fee below US$1. This would be a major quick win as it would provide informal workers with immediate access to basic social protection with cheaper, local health services throughout Senegal, which is especially important for women.

82% of workers were receiving their wages digitally at the peak of the pandemic

During the COVID-19 lockdown in 2020, 1.92 million new e-wallets were created following a move by the Government of Bangladesh to provide a stimulus package of Tk. 5,000 crore (around $600 million) to maintain employment and pay workers’ salaries in export-orientated sectors, particularly in the ready-made garment sector. As a result, at the peak of the pandemic 82 percent of workers were receiving their wages digitally, leading to a growth of 22 percent in mobile money accounts owned by women. However, the rate of increase dipped after the initiative ended in August 2020, due in part to a lack of incentive to continue paying digitally.

Government benefit programs targeting women have been digitized in Bangladesh, especially in the all-important ready-made garments sector. Women also account for a significant portion of the growing number of social commerce entrepreneurs, where digital payments play an instrumental role. However, the rate of increase dipped after the initiative ended in August 2020, as many factories only transitioned to digital payment to become eligible for the stimulus package.

The transition to responsible digital wages often comes with challenges at the levels of companies, workers, regulators, and the financial ecosystem. To address this issue and to accelerate the transition, the International Labour Organization (ILO) established the ILO’s Global Centre on Digital Wages for Decent Work, with participation from the Better Than Cash Alliance. The Global Centre promotes better coordination between public and private stakeholders in digitization, strategies and interventions, and it shares knowledge and tools to scale up responsible digital wages.

Companies are responsible for the design of their products and the transparency in which they communicate, and are able to create partnerships to empower women’s otherwise unequal access to connectivity, identity, and financial capability. When delivered successfully, the ripple effects reach far and wide – benefitting workers as well as companies. The UN Principles for Responsible Digital Payments advocate responsible practices in the digitization of payments, and offer actionable insights for companies seeking to seize the opportunity.