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Iain McMath DL Conference 2013
1. The Future of Digital Payments
and Government Services
Iain McMath
Chief Executive, Sodexo
Advisory Board Member, Emerging
Payments Exchange
2. The policy context
Government • Government needs to adapt its services to meet citizen
Digital
expectation (not the other way around)
Strategy
• Shifting central government transactional services from offline to
(Nov 2012)
digital channels projected to deliver £1.8 billion in annual savings
17 Departmental
Digital Strategies
• Sets how each department will implement the Government
Digital Strategy
• Each department to identify three exemplar services for
immediate redesign
Digital by Default Service
Standard
• Requires that services handling over 100,000
transactions per year be redesigned in compliance
with the Digital by Default Service Standard by
March 2015
3. What are digital payments?
o Proven, secure and low cost component of
today’s digital ecosystem
o Integrates with existing reporting, accounting and
reconciliation systems
o Digital payment accounts do not have cheque
books, cannot go overdrawn, and do not require
a branch network
o They help increase efficiencies, track payments
and reduce the time it takes to make/receive
payments
4. The scale of the challenge
17 Departments delivering 714 services with 1.41 billion
transactions per year
For transactional services over
750,000 per year
HMRC - 934m transactions at a
cost of £553m (88.6% digital
take-up)
Home Office - 118m
transactions at a cost of £1.3 bn
(4.04% digital take-up)
DWP - 107m transactions at a
cost of £4 bn (6.98% digital
take-up)
5. Don’t just look at the largest
transactions
Many lower profile transactions could yield significant savings
if digitalised
Examples of services with over 1
million transactions per year
Fishing Rod Licence payments –
1.28 million transactions
CRB checks – 4 million
transactions
Vehicle licences – 2.1 million
transactions
6. Payments to citizens
2013 independent report by think tank DEMOS referenced “the quiet
spread of pre-paid cards” as one of the great untold stories of public policy
Benefits of pre-paid
cards
Reduction in paperwork/admin cost associated
with managing and monitoring direct payments
Enhances financial inclusion and supports the
“personal budgets” agenda
Offers flexibility and convenience for the user
whilst increasing accountability and control over
how funds are being spent
Limits exposure and scope for fraudulent
spending
7. Normal payment cycle
Request
(HMG)
End of
Transaction
Authorisation
(HMG)
3–7
days
Payment received
By Beneficiary
Instruction to
Department
(HMG)
Transfer instruction
to Bank
Payment issued
(by Bank)
7–
8. PRE-PAID CARD CYCLE
Reusable,
personalised,
secure payment
instrument issued
Amount showing
on card, which
can be reported
Card used at ATM
(Beneficiary)
Card used at
Retailer
(Bricks and Clicks)
(Beneficiary)
0.5 to 2
days
Management
information reported to
HMG (amount, date,
time, location of where
used)
8–
Card used at
Housing Association
(Beneficiary)
Reconciliation of
payments (service
provider)
The Government Digital Strategy published in November 2012 was designed to address the Government’s previous commitment in the Civic Service Reform Plan (published in June 2012) to make public services digital by default. The 17 Departmental Digital Strategies (note: still awaiting DCLG Digital Strategy) set out the steps that each department will be taken in support of the wider Government Digital Strategy. Action 5 of the Government Digital Strategy requires each department to identify a minimum of three exemplar services for redesign – with this process commencing no later than April 2013.After April 2014 all new or redesigned transactional services will need to meet the Digital by Default Service Standard when they go live. All services handling over 100,000 transactions per year need to be redesigned in compliance with the Digital by Default Service Standard by March 2015.
Digital payments use dedicated IT systems, advanced cryptography and digital communication to provide a service that can be used whenever and wherever they are needed. They are a proven, highly secure and low cost component of today’s digital ecosystem that integrate fully with existing reporting, accounting and reconciliation systems. People can use digital payments for receiving money into their Payment Account electronically, by phone, through a mobile app, on-line or directly from their bank account. People can obtain cash from their Payment Account at an ATM and pay for goods or services either in retailers through a Point of Sale device. Such Digital Payment Accounts do not have chequebooks, cannot go overdrawn, and do not require a branch network. Government departments can use Digital Payment Accounts to increase efficiencies, track payments and reduce the time it takes to distribute and receive payments.
Currently 17 Government departments deliver 714 different transactional services with 1.41 billion transactions every year. Data covering high volume transactional services (over 750,000 per year) indicates that larger transaction volumes are carried out at lower cost the more services are digitalised:HMRC processes 934 million transactions at a cost of £553 million (with 88.6% digital take-up)Home Office processes 118 million transactions at a cost of £1.3 billion (4.04% digital take-up)DWP processes 107m transactions at a cost of £4 billion (6.98% digital take-up)
Across all 17 Government Departments there are large number of routine transactions which would be more cheaply administered using digital payments. NOTE: CRB checks have now become Disclosure and Barring Service checksThe examples below all involve over 1 million transactions per year – although there are many other potential candidates for digitalisation which are above 100,000 annual transactions (divorce applications, Common Agricultural Policy payments to farmers, pet licences, Intellectual Property patent licences….etc).
The Demos report “the Power of Pre-paid” noted that 20% of Local Authorities current use pre-paid cards for direct payments – primarily in the area of social care. It offered 7 recommendations which included the use of pre-paid cards in the future to support payments for asylum seekers, care leaver payments and local emergency fund schemes. It also suggested that pre-paid cards could be used to deliver Universal Credit and/or other benefits to vulnerable or disadvantaged groups – potentially integrated with other direct payments relating to health or social care. The “personal budgets” agenda is a trend towards integrating multiple payments (currently mainly in relation to social care payments) so that recipients are offered greater flexibility on how these funds are used. Current examples of this include the “Right to Control” pilot schemes which integrate disability benefits, social care and supported living funding into a single pot for selected groups of disabled citizens. Pre-paid card approaches allow government to monitor exactly how these payments are being spent by the recipients – as well as to exercise a greater degree of control in potentially restricting certain inappropriate uses (by prevent pre-paid cards being used in betting shops….etc).
