Perspectives 2020-2021 Public Sector

Citi Perspectives for the Public Sector 20 21 Why payments and receivables are important Payments and receivables are a crucial way in which governments interact with corporations, small and medium-sized enterprises and citizens. Changes in technology, payment solutions and business and consumer payment behavior mean that digitization of government payments and receivables should be a priority as governments seek to advance their digitization agenda. 1. Instant payments offer a new way to engage Having gained traction more than a decade ago in countries such as the UK, instant payments have now spread to 55 markets worldwide: 85% of the world (as measured by GDP) either has instant payments or will implement programs within the next 12 months. The applications for instant payments in the public sector are numerous. In the UK, for example, taxpayers no longer need to worry about planning their income tax payments days in advance of the official payment deadline. Instead, they can simply make an online payment at any point until midnight on the day the payment is due. Similarly, local government charges or fines can be paid instantly, even by those without a credit card. All governments are focused on the need to further enhance their ability to collect and pay in real time on a 24/7 basis to replace cash, check and card in order to lower costs and improve convenience. Crucially, introducing digital payments gives significant additional choice to payers. Instant payments are just one option among many – digital wallets such as Ali Pay, Apple Pay and Google Pay can also be made available, giving citizens the flexibility to pay by their preferred method. 2. Digitizing payments can underpin broader process improvements The visa process for many countries is lengthy and complicated. To apply for a US visa, for example, in many countries applicants must first fill out forms before visiting a bank branch to pay by cash or check; the payment is then sent to the Department of State, after which an appointment is made. By digitizing the end-to-end process, it can be significantly accelerated, improving convenience and lowering costs. For instance, the application form can be filled out online and the applicant then seamlessly taken to a portal where they make a frictionless payment before an appointment is automatically scheduled. Parking fine payments are another potential use case for digital payments that would help to drive broader process improvements. A digital payment could prompt the automatic delivery of a code that enables the payer to unlock a parking boot placed on a car wheel. This would avoid the need to go to the car pound to collect the car or search for a parking officer to remove the boot. 3. Digital payments overcome cross-border challenges Cross-border payments and collections can be expensive and challenging for governments to manage. For example, New Zealand provides loans to its citizens to study abroad. Frequently, students continue to reside in the country where they studied (while others emigrate from New Zealand after college). When they want to begin repaying their loans, these students must make cross-border payments, incurring high payment and FX costs; FX conversions and fees also make it difficult to send required exact amounts. This is inconvenient for the payer, who has to pay retail FX rates, and causes reconciliation challenges for the public authority entity collecting the payment. New solutions enable individuals resident in other countries to pay in their preferred currency while ensuring government agencies receive exactly the amount invoiced or requested in their functional currency, eliminating reconciliation problems. They also allow public authorities to make cost effective payments – for tax refunds, for example – to local bank accounts of citizens resident overseas. 4. COVID-19 has elevated the importance of eliminating paper Tax collection in many countries involves the use of lengthy paper-based forms as well as payment by check or cash, either to a designated bank or directly to a public authority. In the past, efforts to digitize tax forms and payments have largely been driven by the need to improve convenience, efficiency and transparency. However, in the wake of COVID-19, efforts to eliminate paper – and minimize physical contact – have been given a new impetus. Social distancing and other restrictions mean that handling of cash and paperwork is potentially risky. Digitization is a big job – but help is available The economic, social and governance gains available from digitization are significant. But implementation can be challenging for governments and public sector entities. Necessarily, it involves potential upheaval and process change, as well as possibly redeployment of employees and investment requirements. Digitization also creates new risks, such as cyber threats, that need to be effectively managed. Moreover, to deliver genuine benefits, digitization must be approached in the right way. Many governments have learned from painful experience that digitization requires focused attention and leadership. A single person should be appointed (and empowered) to take ownership of government digitization to ensure it is applied uniformly across departments and agencies rather than via a scattershot approach, where entities make independent uncoordinated decisions. More generally, governments need to take a holistic approach to digitization. India is one of the best examples of the benefits of adopting such a policy. The country’s Aadhaar digital ID scheme, which uses biometrics and has 1.2 billion users, provides a common platform that has been integrated with government financial and social inclusion programs and the UPI instant real-time payment system developed by the National Payments Corporation of India. It is also important that governments lead by example, both in how they implement digitization and in adopting new solutions as they become available. The UK rapidly adopted instant payments for income tax payments, for example, encouraging familiarity and trust. Fortunately, governments and the public sector do not have to face the challenges associated with digital technologies alone. They should seek support from a bank that has the global footprint to connect them to multiple networks – both geographically and in terms of products, including cards, wires, ACH, instant payments and digital wallets. The use of a consistent offering that leverages a single point of entry can increase efficiency, improve visibility and lower costs. Governments should aim to partner with a bank that can offer support and advice, helping to review end-to- end processes in order to realize the potential gains from digitization. Public Sector Digitization: Payments and Receivables Take Center Stage