January 17, 2018

Postal ePayments in Developing Countries

Postal, eCommerce

Electronic Postal Payment platforms are crucial for economic growth in today’s digital society. However, while payments enable the flow of money, the way we choose to pay, and the location from where we pay, is changing. 

In recent years, technical advancements, new business models, and an upsurge in mobile devices has enabled epayment platforms to gain widespread acceptance, especially in developed countries. 

For governments, epayment platforms offer significant benefits: reduced overheads, greater accountability, and more vibrant markets.

Likewise, for citizens, epayments provide immediate access to government and commercial services, while also opening up new business opportunities.

Nonetheless, a digital divide still exists between developed and developing countries in terms of adoption.

Background

Many developing countries are predominantly cash and check-based economies.

To bridge this divide, epayment systems are required to increase social inclusion, reduce transaction costs, and accelerate cross-border commerce.

In addition, as many citizens in remote regions are unable to access banking facilities, or may not have a bank account, postal epayments can provide direct access to critical services, business opportunities, potentially leading to greater autonomy and financial independence.

With this in mind, how can we accelerate postal epayments in developing and under-developed countries and help postal operators deliver electronic money transfer services to complement their existing business model but also, in the long term, replace the traditional postal money order?

Market Size and Potential

In today’s increasingly digitized economy, mobile phones are fast becoming the default channel to deliver financial services.

Governments can capitalize on this trend by modernizing offline paper-based activities so that citizens can avail of public services online, for example, access to pensions, social welfare, while also performing transaction-based activities on their phones.

Furthermore, in regions where financial inclusion is limited, postal payments offer a lower-cost, more scalable alternative to the traditional bank network.

Gallup’s survey of 11 countries in sub-Saharan Africa found that more than 80% of adults use cash for bill payments or remittances. In parts of Kenya, 90% of retail transactions are cash based.

McKinsey highlight that given the lack of digital-payment penetration, consumers, banks, and governments in sub-Saharan Africa are still bearing the high cost of cash payments—costs associated with manual acceptance, record keeping, counting, storage, security, and transportation.

According to the World Bank, roughly two-thirds of the adults in Africa remain unbanked and card penetration is low.

Road to Emerging Market's Growth Paved With ePayments

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A Visa-commissioned study on the impact of electronic payments on economies found that in emerging markets between 2011 and 2015 a 1% increase in card usage produced a $29 billion increase in consumption and GDP.

In emerging markets, a 1% increase in card usage produced a

$29 billion increase in private consumption.

Overall, a 1% increase in card usage in every country produced:

  • About a $104 billion, or 0.06%, increase in consumption between 2011 and 2015. This accounts for a 0.04% increase in GDP between 2011 and 2015.
  • For developed countries, a 1% increase in card usage produced about a $75 billion, or a 0.07%, increase in consumption between 2011 and 2015. This accounts for a 0.04% increase in GDP between 2011 and 2015.
  • For emerging markets, a 1% increase in card usage produced about a $29 billion, or a 0.03% increase in consumption between 2011 and 2015. This accounts for a 0.02% increase in GDP between 2011 and 2015

The World Economic Forum highlights that by improving access to electronic payments and financial services, governments can help more people contribute to sustained economic growth, and improve their lives. To achieve this, it suggests forming public-private partnerships, an open playing field, and the ability to scale investments.

Benefits and Opportunities

Research from the World Bank finds that mobile banking systems significantly improve the economies of emerging and developing nations, while also addressing broad economic growth and individual financial empowerment.

According to Dr Leora Klapper, the lead economist at the World Bank Development Research Group, "Digital financial services lower the cost and increase the security of sending, paying and receiving money. The resulting increase in financial inclusion is also vital to women’s empowerment."

Mexico, for example, now saves an estimated €10 billion each year after electronically distributing many government payrolls, pensions and social benefits, according to a study by The Better Than Cash Alliance, a UN-based 60-member strong partnership of governments, companies, and international organizations.

In Nigeria, former President Goodluck Jonathan successfully launched a government identity card pilot program ‘eID’ with electronic payments functionality to 13 million Nigerians. While in Ghana, epayments translate into direct benefits to people, particularly women. Data forecasts that if the government investment continues, savings could reach nearly $60 million each year, resulting in more than $230 million by 2020.

“The future really is digitization and how we can leverage on it for the benefit of our citizens. This is why digitizing initiatives such as our flagship conditional cash transfer program Livelihood Empowerment Against Poverty (LEAP) is a key milestone,” said Hon. Ken Ofori-Atta, Minister for Finance of the Republic of Ghana, adding. “Yet with great potential for cost savings and opportunities to increase transparency and accountability, we cannot afford not to.”

By digitizing government fees and fines, of which 97% are currently paid in cash, Ghana stands to gain enormous cost savings by adopting digital payments and mandating government agencies to use a central payment system.

Opportunities

For developing countries, implementing epayment systems is essential to move to a market-based economy and exploit the enormous potential of domestic and cross-border e-commerce.

In addition to cost controls and transparency, postal epayments offer the following gains: 

  • Revenues – governments gain additional revenues from taxation related to digital payments. Postal operators generate more revenues by attracting new customers, strengthening ties with existing customers, while also reducing physical infrastructure costs.
  • Economic Growth – as postal operators are highly trusted, consumers are likely to transact online using the postal platform.
  • Consumer Confidence – consumers benefit from costs savings, choice, and convenience; for example, the ability to send payments from their phones instead of having to travel to distant branches, and possibly pay higher transaction fees.
  • Social Exclusion – tackle social exclusion by offering unbanked and underbanked individuals access to financial services, which, by extension, stimulates the economy.
  • Fraud and Corruption – reduce fraud by tracking payments, taxes, and cash flows, while improvements in audit procedures increase accountability and reduce corruption.
  • Leverage Data – unlike cash, electronic payments generate data. As this helps develop a person’s credit history, service providers can use this data to assess their reliability and allocate a credit rating. For unbanked customers, migrants, and others without regular access to banking facilities, this provides access to loans and online services, while also reducing their dependency on high interest payday loans from unauthorized lenders.

Postal Payment Roadmap

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At Escher, we believe that the path from cash to digital payments is a team effort.

To accelerate the transition, we see government agencies, postal operators, and international organizations collaborating with the shared vision to deliver an open, accessible, digital payment-based economy.

From our experience, the breadth of inter-related activities required to deliver this platform relies on multiple government agencies and stakeholders working in tandem towards this common aim.

In developed countries, public-private partnerships are successfully helping societies shift from inefficient cash-based systems to more flexible digital platforms that deliver greater transparency, increased accountability, and promote social inclusion.

As a total solutions provider to the postal industry for three decades, Escher understands the benefits and challenges of digital transformation, and the complexities of coordinating this transition.

To achieve this transformation, Escher recommends that government, posts and stakeholders:

  • Define a strategic roadmap for borderless digital payment architectures
  • Develop implementation toolkits to deploy multi-lingual, cross-border payment solutions
  • Prepare transition plans that identify barriers and develop pathways from cash to digital economies
  • Explore collaborative open platforms that can integrate partners with a diverse range of skill-sets, such as, payment processing, accountancy, escrow, mobility, track and trace, identity management, big data, cloud services and more
  • Identify the goals and specific requirements of prospective payment platforms based on business goals and desired customer experience
  • Manage costs by understanding how the platform will deliver the required business functionality
  • Compare platform functionality to business needs and priorities, integration efforts, and customization requirements.

Summary

To reduce the digital divide between developed and developing countries, postal epayment platforms are required to stimulate growth, exploit ecommerce, and empower individuals, especially the unbanked, migrants, and those living in remote regions.

The business case for epayment platforms is sound: greater efficiency, increased revenues, and accelerated market growth.

For developing countries, secure, inexpensive postal epayments will provide major cost savings, stimulate business, and improve the quality of citizens’ day-to-day lives.

 

Sources

McKinsey

Visa