P2G: Payments to Government

Death and taxes are unavoidable. While technology can’t prevent death or eliminate taxes, it is enabling simpler, quicker interactions with government services. Considering that every individual makes (or receives) payments from governments, developments in this area have widespread impact.

Lumped into the category of P2G (person to government), it doesn’t have the cachet as some other fintech areas such as P2P. However, it is a huge opportunity valued at $8 trillion. If you’re into real fintech business, without the hype and all the me-too startups, P2G is definitely something to investigate.

Governments have immense payment requirements, so improvements in payment technology will have substantial impact. Digital payments not only lowers transaction costs, but also offer the opportunity to reduce payment fraud. For example, in one study, over the last five years, the Office of Personnel Management has made more than $601 million in payments to dead federal retirees. Proper identity verification can help identify these types of payment frauds.

eIDV for Governments

Integrating eIDV (electronic identity verification) methods can help governments check identities and addresses of payee’s and ensure that their information matches against multiple reliable and independent data sources. Then running the payee’s names against other databases, governments can then ensure the payee is entitled to the funds and the funds are being sent to the correct address.

An added benefit for governments is the ability to better understand and serve citizens. With better tracking and analytics, governments can optimize the performance of programs, deliver better results and quickly get money into the hands of those that need it.

For citizens, faster money allows them to get on with their lives and be that much more productive. Consider the problem of the unbanked, who previously had to wait for payments via mail and then go through a complicated process just to get their funds. That’s time they aren’t working, helping their children, educating themselves or otherwise improving their lives. Time is money.

Providing people with a convenient and easy way to pay for government services and fees online is a win-win for both government and its citizens. No longer do people have to take time off of work or during the weekend to stand in long lines simply to pay a government fee or service. Considering that there are over 280 billion annual non-cash payments worldwide already, consumers are increasingly expecting the convenience of paying digitally. If the government’s purpose is to serve the people, then implementing digital payments is a good move.

Keep in mind, there’s not a one-size-fits-all solution. Even in countries where smart phones are in widespread use, there are many that haven’t adopted and those citizens must be taken into account. In developing countries, app solutions aren’t going to cut it and solutions need to focus on SMS. The technology is just one criteria to consider; citizen habits, the overall payments environment, the nature of the bureaucracy and other factors are crucial considerations.

Fintech Opportunity

For financial service providers, or other fintechs interested in getting into the space, it’s not going to be a quick cash-grab. First of all, we’re talking about dealing with bureaucracies, who are notoriously slow in adopting new practices. There’s systematic inertia that goes along with any desired change. There’s also fear of new technology and fear of the unknown, which generally entails numerous studies and other hedging techniques.

The other major issue is scale. When we are talking about an entire citizenry, no startup will have the track record, or trust, to deliver right out of the gate. Either, startups will need to partner with major players or prove themselves on test cases and demonstrate that they do have the chops to scale up.

If though, P2G players have a long-term strategy and are willing to put in the time to develop government relationships, customize the technology for local needs and build up over time, the rewards are massive. Not only will they have stable streams of long-term revenue, they will have financial relationships with a huge percentage of the populace. P2G is a vital market that is flying under the radar; now is the time to develop strategies that will pay off for decades.