The other name of G2P payment is Government social protection payments. In simple terms, the Government-to-Person Payments system is defined as a system used by the Government authorities to make the payment to the people for the welfare of the society. The best examples of this system are pensions, social benefits, and unemployment benefits that are dedicated to the welfare of common people.
This system is run in the whole world but the process is different from region to region. In most developed nations, it is done digitally whereas some developing nations still practice traditional methods that include cash and cheque. The main reason behind this scenario is the lack of proper digital payment infrastructure.
The digital process is superior to that of the cash method and this compels many nations to adopt it. It is not only beneficial to the creditor but also for the Government.
The electronic or digital G2P payment can include transfer to prepaid or stored value cards that act as virtual accounts. It can also be directly deposited into the bank account. The receipt can also access the amount through an automated teller machine (ATM), banking, or mobile money agents.
Significance of G2P Payments to National Payment System:
- For promoting financial inclusion G2P is a very crucial tool.
- It also provides a significant improvement in cost saving at all the different levels of the national economy.
- In the county’s retail payment infrastructure also there is a huge role in government payments.
- The Government payment projects establish cooperation and coordination between the financial service provider and government authorities. Ultimately, there is efficient delivery of the payments to the large population.
Benefits of Digital Government-to-Person Payment:
There are many potential merits involved in the digital G2P payment. For both parties i.e. sender and receiver, it offers many benefits like the efficiency of making the payment by cutting down the cost of disbursing.
While increasing the speed it also introduces transparency. The associated crime is also reduced to a limit because it enhances security. It also contributes to women’s economic empowerment by increasing the privacy of payment. Also, it increases the control over the funds received. The advantages of digital G2P payment can divide into two parts.
Perk to the receivers:
Reduced delay and uncertainty in the payment:
Cash is mainly difficult to manage and transport during the long distance in the G2P payment. Certain factors like road infrastructure and bad weather also contribute to the delay in the money delivery.
In addition to that, there are various uncertainties in the traditional method. The digital Government-to-Person Payments solution cuts down the uncertainties and enhances reliability.
Reduce the cost for recipients:
In general, it is quite difficult for common people to receive cash from the Government. They even travel a long distance to receive the payment because of the banks and office location.
This has been improved with the incorporation of digital G2P payment that provides cash to the consumer without travelling much.
Flexible payment modalities:
The digital G2P solution provides the flexibility of Government-to-Person Payments modalities. The timing of the payment can be easily adjusted and it is more flexible than that of a traditional one.
Perk to the Government
With the help of G2P payment, the authorities can make real-time decisions based on incoming data. The authorities can identify the eligible recipient with a strong digital ID. The individual’s information can be linked to all the departments so authorities can get a clear picture of the individual.
Reduced the leakages and improve transparency:
One of the main advantages of the Government-to-Person Payments system is increasing transparency so that eligible people receive wages and social transfer. This was not possible in the cash payment because there is transactional anonymity.
There are two ways in which digital G2P payment systems improve traceability. The recipient gets the digital record of the amount. In this way, the number of potential leakage points is reduced by limiting the number of people.
Secondly, there is a requirement for stricter identification documentation in digital payment in comparison to cash payment.
Challenges in Digitizing payment:
Despite advantages, there are certain challenges in this system. Some of them are making upfront investments in the payment systems infrastructure and ensuring that recipients are working on digital payment well.
If an electronic payment system does not work properly it could lead to many adverse effects.
Legal and regulatory environment:
There is a need for space to form an innovative payment product to provide digital payment solutions. It also means there is a requirement of the regulatory environment that recognizes the non-bank financial player’s contribution. The regulators have to define the role of agent and financial service clearly.
Political powers might be a big obstruction in the digitalization of G2P payment. It is because bureaucrats and politicians get a good amount of benefit from money transfer schemes.
The physical payment infrastructure:
There is a need for a good amount of investment to establish a physical infrastructure that offers a reliable digital payment experience. This scenario is not applicable in the developed countries but developing countries have to face a struggle for expanding the digital payment service to every part of the country.
Some of the serious issues include lack of electric supply, IT infrastructure, lack of cell towers. All these issues are making it difficult to smoothly run the digitized G2P payment program.
Digital G2P will be the future for many countries. While focusing on its benefits the government of many regions are adopting it. For now, it’s in the developing stage but in the coming time, it may be replaced completely with cash. Many nations are looking for the best Government to person payments solution. This will make the process simple, fast and efficient. The innovation in technology is helping in expanding the reach of electronic payment infrastructure. At present we can hope it will cover the large amount of globe that includes every region.