ICT-enabled Investment Climate Reform – Leveraging Technology

Tbilis, Georgia, June 5, 2013

Lois Quinn

Senior Payment System Specialist

Financial & Private Sector Development (FPD)

The World Bank

B2G & P2G E-Payments

Government Payments

Adoption Challenges

Alternative Approaches

2

• Payments initiated electronically• Traditional: ATM, Card-based, m-banking,

e-banking• Innovative: Mobile payments, Internet

payments, Pre-paid cards

E-Payments

• Business & Individuals• Revenue authorities: Tax, Customs,

Licensing, etc.• Treasury: Comptroller, Financial

Management, Budget• Central Bank: Gov’t accts, Bank accts,

settlement agency acct• Payment service providers

Stakeholders

3

4

 

Mainly cash

Mainly paper-based payment instruments-

cheques, payment orders

Mainly electronic payment instruments such as

payment cards, electronic funds transfers, etc.

Government to person payments      

Public sector salaries 13% 19% 69%

Pensions and transfer payments 31% 13% 56%

Cash transfers and social benefits 25% 19% 44%

Person to government payments      

Taxes 50% 38% 25%

Utility payments 56% 31% 31%

Payment for services, etc. 50% 38% 25%

Government to business payments      

Procurement of goods and services 0% 38% 50%

Tax refunds 6% 31% 50%

Business to government payments  

   

Taxes 6% 56% 38%

Utilities 19% 50% 38%

Benefits transfers 6% 50% 31%

Payments to Government: ECA

*Global Payment Systems Survey ‘10

5

*Global Payment Systems Survey ‘10

 

Mainly cashMainly paper-based

payment instruments-cheques, payment orders

Mainly electronic payment instruments such as payment

cards, electronic funds transfers, etc.

Government to person payments      

Public sector salaries 15% 33% 70%

Pensions and transfer payments 9% 30% 64%

Cash transfers and social benefits 33% 30% 27%

Person to government payments      

Taxes 64% 55% 30%

Utility payments 70% 42% 39%

Payment for services, etc. 67% 39% 27%

Government to business payments      

Procurement of goods and services 0% 64% 52%

Tax refunds 3% 58% 33%

Business to government payments      

Taxes 18% 70% 42%

Utilities 27% 61% 45%

Benefits transfers 9% 58% 36%

Payments to Government: Lower-middle income countries

Modernized Payment Approaches

Go

vern

men

t – F

isca

l Au

tho

ritie

s

Foster greater tax compliance

Cut leakage

Reduce cash handling costs

Reduce staffing requirements

Minimize accounting errors

Speed reconciliation

Eliminate paper handling & storage

Provide electronic record

Ind

ivid

ual &

Bu

sin

ess

Pa

yers

Address inconvenience

Provide electronic record

Speed acct reconciliation

Ban

ks &

Pay

men

t P

rovi

ders

Cut cash transport & handling

Reduce staffing needs

Eliminate paper handling

Enable straight through electronic processing

Foster transparency in processing fees E

cono

mic

Effi

cien

cy &

Pro

sper

ity Enhance business environment

Encourage greater payment system efficiency

Foster Retail payment system development

Promote inoperability of payment services

6

E-filing E-payment

23 economies introduced or enhanced e-filing between 2011

and 2012

Implementation of e-payment lags

significantly behind that of e-filing

Doing Business Index

Tax Payment

7

Adoption Challenges

• Transaction reference information• Payment receipt / confirmation for

payee• Payment recognition / accounting• Payment process• Collection organization –

Consolidated / Decentralized• Transaction costs

8

Assurance of Payment

Revenue agent issues a receipt that discharges the payer of the obligation

Revenue authority records account paid in full

Agent issues a provisional receipt

Final payment confirmation issued after check clears

Revenue authority recognizes account paid in full only after check clears

Payment service provider approves (declines) a payment at time of transaction request, and issues an approval confirmation number or cancels the transaction

Payer is issued an electronic receipt

Under contractual agreement, the payment service provider guarantees payment of the transactions it approves

Revenue agent accepts (approved) e-payment as payment in full

9

Indicative Payment Processes

Payment via Participating Bank (Option 1)

Payment via a Payment Platform (Option 2)

10

Business Registration Portal

1.

2.

Participating Banks

Payment file

3.

Designated Settlement Bank

5.

4.

1. Completion of registration process at ABC portal. The registrant is provided a Transaction Reference Number (TRN) against which payment has to be made

2. Registrant goes to participating banks and makes a payment through internet banking, mobile banking or ATM – access specifically designed screens for ABC payment– and enters TRN and authorizes debit from his/her account. Bank provides the registrant a Payment Confirmation Number (PCN)

3. End-of-day bank sends payment file with payments received against specific TRNs to designated settlement bank(s)

4. Bank submits consolidated amount through existing clearing/settlement channels 5. Settlement bank after receipt of funds from bank credits ABC’s account with the

settlement bank and uploads TRN and PCN details and OCR marks the business registration process complete. <<T+1>>

6. Registrant is informed about completion of process by SMS/Email and can also check on the ABC Portal

Option 16.

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Business Registration Portal

1.

Designated Settlement Bank

1. Completion of registration process at ABC portal. <<Transaction Reference number (TRN) created>>2. ABC launches payment gateway and registrant makes payment using preferred payment method. <<TRN tracked in the

background>>3. The preferred payment service completes the standard online payment authorization process and confirms successful

authorization from the registrants payment account and ABC records approval and completes registration4. Registrant is informed about completion of process by SMS/Email and can also check on the ABC Portal5. End-of-day the payment service network sends payment file with payments received against specific TRNs to designated

settlement bank6. Payment service network submits consolidated amount through existing clearing and settlement channel7. Settlement bank after receipt of funds from payment service network credits ABC’s account with the settlement bank and

uploads TRN details

4.

Payment Gateway

Payment File

Payment Service Network

2b.

3a.

2a. 3b.

5.

6.

7.

Option 2

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Tax authority

Customs

Business licensing

Social

insuranceCour

t fees

& fines

Car registra

tion

Tax authority

Customs

Business licensing

Social insurance

Court fees & fines

Car registration

Decentralized

Consolidated Approach

13

Processes Across Government

Government manages consolidated online portal

• Singapore• Oman•

Each agency / jurisdiction manages its own payments

• India• USA

Private sector specialized entity

• Malaysia

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Guidelines for government payments

The World Bank, in consultation with the International Advisory Group for Government Payments (IAG), developed the “General Guidelines for the Development of Government Payments Programs”

Help governments develop a comprehensive approach to address these challenges, and others, associated with government payments, that takes into account governments broader role in national payment systems

Guidelines:

Facilitate coordination amongst stakeholders within payments value chain on a “framework-based approach” derived from international good practices and allows flexibility in implementation approaches

Not prescriptive in nature but give provisional guidance to governments and other stakeholders to address key areas of uncertainty during implementation process including a rapidly changing payments landscape

Key focus on efficiency in government payment processes and flows that utilize country’s domestic payments infrastructure

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A. Safety, Efficiency and Transparency Ensure proper program governance and risk management: Guideline 2: Review and streamline

treasury processes, then work on their automation.

Review and streamline treasury processes, then work on their automation.

Take full advantage of electronic payment methods.

Create appropriate organizational arrangements to foster the continuous development of government payment programs.

The General Guidelines

B. Legal and Regulatory An appropriate legal framework with specific applicability to government payment programs

can further underpin their safe and efficient operation.

Laws and regulations on payment instruments and systems, competition and consumer protection can also have an important bearing on government payment programs.

C. Payment Systems Infrastructure

An appropriate payments infrastructure should be in place Maximize the potential of the available infrastructures through interoperability and

widespread usage

D. Cooperation & Partnerships to Leverage Govt Payment Programs

Adopt a strategic approach to the development of government payment programs Leverage on government payment programs to promote financial inclusion

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ADDITIONAL CHALLENGES

17

Transaction Reference Information

• Tax payer ID• Amount paid• Reference code –

– Payment category (VAT tax, licensing fee, parking fine, court expenses, etc.)

– Account to which the funds are being paid

Program E-filing system to generate a Transaction Reference Number (TRN)

18

Payment authentication / processing

Cash / check Payment

Paper record in triplicate Revenue authority Payment service provider Payer

Authentication Signed Stamped

Paper trail accessibility

E - Payment

Electronic record Revenue Authority Payment Service Provider Payer

Authentication Digital Signature

Electronic file access

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Transaction Costs

Paper-based

Indirect & opaque• Treasury pays fee to

central bank• Revenue collection

agency typically bears no direct transaction fee

• Revenue collection agency bears staffing costs & paper management costs

Electronic

Direct & transparent• Revenue collection

agency enters contractual relationship with payment service provider

• Revenue collection agency pays transaction fee to payment service provider

• In-house processing costs decline

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REFERENCE SLIDES

21

Commercial Banks

Central Bank

Non-financial payments service

providers

Other FinancialInstitutions

Central Govt Consolidated Account

Government Revenue Messaging and Payment Systems Schematic

22

Electronic Payment Flow

Payment info & confirmation

Payment info & confirmation

P & BPayers

E-File

Payment Receipt / Confirmation

E-P

aym

ent O

rder

Cash Kiosk

Comptroller

Treasury Ledger System

Budget & Financial Management

CollectionAuthorities

Cash & Check

Cash & Check

Cash

Cash

Private service provider Payment info & confirmation

• E-filing

• Payment Info & Confirmation

• Payment Receipt / Confirmation

• E- Payment Order

• Cash / Check Payment & Transport

• Agency budget & spending info

Payment Modernization Lags ICT Modernization

Mainly

Cash Non-cash, paper-based Electronic

Government to person paymentsPublic sector salaries 11% 24% 76%Pensions and transfer payments 14% 26% 67%Cash transfers and social benefits 22% 31% 52%

Person to government paymentsTaxes 40% 48% 44%Utility payments 55% 33% 42%Payment for services, etc. 54% 35% 34%

Government to business paymentsProcurement of goods and services 2% 50% 61%Tax refunds 2% 49% 50%

Business to government paymentsTaxes 11% 58% 57%Utilities 16% 53% 50%Benefits transfers 9% 52% 46%

Source: Global Payment Systems Survey ‘10

Table 1: Survey of Payments to and from Governments

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