Government Toolkit: Context & Awareness

Why are governments shifting to digital payments?

Increasing evidence suggests the following reasons are driving the shift

Reason Finding Example
Cost saving Moving from cash and check to digital payments significantly reduces cost to governments. In Mexico, a 2013 BTCA case study estimated that the Mexican government had saved $1.3 billion, or 3.3% p.a.
Transparency Digital payments improve traceability which reduces leakage of government payments to fraudulent or incorrect recipients. See further Digitizing improves transparency and promotes formalization. In India, a recent study found that making social security payments digitally results in a 47% reduction in the incidence of bribe demands compared with cash payments.
Speed and security Digital payments can be instantaneous, reducing the time the payee must wait to receive. Reducing the use of cash also improves security for recipients. In the US, a recent study has found that moving from cash and check to electronic benefit payments is associated with a 10% reduction of the crime rate.
Financial inclusion Digital government payments can be the first entry point additonal developmental reasons. such as reducing poverty for unbanked people, supporting the usage of new services for additional reasons In Mexico, a recent study has found that accounts opened to receive social transfers led to increased frequency of receiving remittances also through formal channels.
Economic development More digital payments leads to an increase in GDP of between 0.3% (developed) and 0.8% (emerging). A 2013 Moody’s cross country study of 56 countries over five years reported this finding.

Want to read more on the benefits of digitizing?

BTCA together with the World Bank and Bill & Melinda Gates Foundation brought out a 2014 report called The Opportunities of Digitizing Payments. In this report, the authors argue that digitizing payments will contribute significantly to reaching broader policy objectives and call for a renewed focus on governments to digitize their payments and receipts including social transfers.