Governments can fight corruption by joining the digital payment revolution
Tackling corruption is high on government agendas. Such a pervasive problem demands new solutions, especially in light of the latest Corruption Perceptions Index, which shows that the majority of countries have made little or no progress in the fight against corruption since 2012. The ranking, which uses a scale of zero to 100, where zero is highly corrupt, found that more than two-thirds of countries score below 50, with an average score of 43.
A significant impediment to progress is the problem of cash. Every year, hundreds of billions of dollars of government payments and transfers are made in physical cash. These include government salaries, health payments, pensions and financial support for families in need. Such payments are often difficult to trace, insecure and inefficient. The anonymity of cash makes it vulnerable to skimming off the top, and to “ghost” recipients who don’t exist. This is not a minor issue. It causes more than $110 billion in losses every year in emerging economies.
Thankfully, increasing connectivity and technological innovation allow governments to deliver payments through secure, transparent and convenient digital channels. The money either reaches the intended recipient in full, or goes back to state coffers. The following governments are all leveraging digital financial technologies, illustrating the power of this shift.
India: The government saved almost $9 billion in less than four years, in social protection payments through electronic Direct Benefits Transfers.
Tanzania: The digitization of entrance fee payments to the country’s National Parks reduced leakages by 40%, resulting in more income for the government.
Rwanda: The digitization of bus fares led to a 140% increase in revenue due to reduction in leakages.
Argentina: The government decreased payment leakages following its shift to electronic payment cards. Those admitting to paying bribes to local officials fell from 3.6% to 0.3%.
France: As part of efforts to curb tax fraud, the country recently adopted an order to authorize the use of tax revenue data, alongside other information, to perform advanced analytics on a trial basis.
Governments aren’t the only ones benefiting from digitized payments. When the shift to digital is managed responsibly and responsively, it can make citizens’ lives better. Access to a bank account or other digital finance portal can unlock unprecedented economic opportunities, particularly for women who are twice as likely to be excluded from the formal financial system. Having an account can make saving more convenient and secure. It can also lower the costs of accessing services that are critical to financial security and growth, such as insurance and credit products.
The digitization of payments is a necessary stepping stone in hauling anti-corruption systems into the 21st century. By leveraging payment data and advanced analytics, governments could save up to $1 trillion worldwide. Smart use of payment data is the new frontier of auditing. It helps identify suspicious patterns, fraud and non-compliance in revenue collection and payment disbursement, which can allow governments to cut leakages.
Digital payments are not a panacea. But as economies and governments look for new ways to modernize and tackle corruption, leaders must look beyond cash. The citizens they serve are increasingly adopting digital financial tools in their everyday lives. Governments cannot afford to continue to pay the cost of cash. By shifting their payments from cash to digital, they can save trillions of dollars, resulting in better government for all.