New financial technologies (fintech) have been held up as key means of delivering poverty reduction across much of the Global South. As a World Bank official interviewed by the Financial Times in early 2019 rhapsodized, “It reduces costs, it’s much more efficient, it can be scaled up…It does come with risks as well because, you know, you really don’t want to hurt those that are most vulnerable, so we have to be careful. But I think it is really remarkable.”
There is a growing army of consultancies, think tanks, and philanthropic organizations similarly promoting fintech applications. There is also, at least in some places, a considerable volume of venture capital (VC) chasing fintech investments.
However, critics have raised a range of concerns about this agenda. Daniela Gabor and Sally Brooks have highlighted the disciplinary forms of surveillance deployed by many new apps making use of ‘alternative’ credit data. Others have shown how new apps and platforms exhibit tendencies towards monopolization. Fintech platforms seek to profit, in no small part, by positioning themselves as key infrastructures through which basic functions — the ability to make payments, access credit, purchase crop inputs — must be accessed. The ‘innovative’ character of fintech has also increasingly been called into question by authors pointing to important continuities with longer-run patterns of neoliberal development practice, and increasingly with colonial patterns of exploitation and uneven development.
Even erstwhile promoters of fintech have grown wary of some digital financial services. In Kenya, for instance, mobile payments service M-PESA has long been touted as a virtual miracle cure for poverty. But by 2018, a rising tide of digitally-enabled debt distress in the country had led even officials at the World Bank’s Consultative Group to Assist the Poor (CGAP) to conclude that, “a market slowdown and a greater focus on consumer protection would be prudent”.
In the early months of 2020, it looked like Covid-19 and associated public health measures would pose substantial challenges for fintech in the Global South in general, and for fintech’s place in global development agendas in particular. The first half of 2020 was very turbulent for fintech startups, with many credit-related applications in particular, running into difficulty as borrowers’ incomes, and hence repayments, were squeezed. The pandemic amplified ongoing concerns that too much money was flooding into fintech startups, encouraging irresponsible lending on the part of some firms flush with VC cash. In the words of one investor interviewed by the FT, “Everyone had gone out and raised money with insane valuations. There was some fluff in there.”
However, any such doubts about the rising prominence of fintech were apparently short-lived. Fintech is increasingly being re-positioned at the forefront of global development agendas, albeit in slightly different forms. Key promoters of fintech-for-development have begun to frame a wider range of payment, insurance, and investment applications as key for both immediate crisis responses and for longer-term approaches to the acceleration of climate breakdown and deepening precarity. In this essay, I focus on one particularly salient example of this trend: Expanded efforts to digitize state transfers to individuals and households, increasingly referred to as ‘Government to Person’ or ‘G2P’ payments.
Fintech is increasingly being re-positioned at the forefront of global development agendas, albeit in slightly different forms. Key promoters of fintech-for-development have begun to frame a wider range of payment, insurance, and investment applications as key for both immediate crisis responses and for longer-term approaches to the acceleration of climate breakdown and deepening precarity.
The Digital G2P Payments Agenda and the Pandemic
As researcher Christopher Webb rightly noted, the pandemic has brought out clashing visions for the future of social protection. Early on, governments rushing out emergency aid measures for people affected by lockdowns, raised hopes of a transformation of social policy. Civil society groups and organized labor in the Global North and South have sought to press for expanded forms of social protection funded through progressive taxation on the back of these measures. Meanwhile, in Webb’s words, we can also see the growing prominence of a “coalition of financial institutions, technology companies, and development institutions who see this as an opportunity to further the inclusion of the poor into financial markets”. The World Bank and major donors have seized on the pandemic to push for the closer integration of mobile and digital payment systems, and digital-identity verification systems, with public systems for social protection.
Shortly before the outbreak of the pandemic, the World Bank had launched the G2Px initiative, together with the Gates Foundation, aiming to encourage wider adoption of digital payment and digital identity systems in administering state transfer payments in the Global South. The Covid-19 outbreak presented a singular opportunity to press this project forward.
Digital payments were framed in the early days of the pandemic as means of delivering emergency social assistance while minimizing physical contact. They were also more generally presented as a way of facilitating more rapid distribution of emergency aid. World Bank officials argued that “countries with advanced G2P payment ecosystems are able to push transfers out with lightning speed”. By contrast, “In countries where investments in payment infrastructure and digital financial services (DFS) have not yet been made and where regulations have not been modernized, scaling up G2P and continued access to financial services will be more difficult.”
Yet, G2Px is clearly aiming for a more thorough change in social protection systems than merely faster delivery of state transfers, in at least two ways: It increasingly frames transfer payments as, primarily, a means of increasing participation in the formal financial system. And, the particular forms of digitization being pursued embody a particular vision of social protection as a system of fast, hyper-targeted emergency cash grants for people in trouble (rather than as, say, universal social provision).
The digitalization of G2P payments is explicitly seen by the Bank and others as a way of expanding the use of digital financial services in general. The Bank has made little secret that the wider purpose of digitizing emergency G2P payments is to ramp up adoption of digital financial tools more broadly: “The crisis may represent an opportunity to fast track changes already in the works in areas such as interoperability, mobile money adoption and DFS in general.” For the Bank, ‘social’ protection and financial ‘inclusion’ objectives blur together to the point that reducing taxes on mobile and digital payments has, in itself, been explicitly presented as a ‘social protection’ measure.
This blurring of financial inclusion with social protection, and emphasis on using social transfers to expand ‘access’ to financial services goes hand-in-hand with the particular vision of social policy being enacted through these projects. Much of the work on G2Px emphasizes the ways that digital identification, in conjunction with machine learning and other tools, might enhance public authorities’ ability to target the delivery of social assistance. In one flagship report, the Bank notes that “the ability to cross-check various databases using the unique identifier has made it possible to increase the precision of targeting”. The digitization of social assistance, then, is tied directly to a particular vision of social protection based on the rapid, targeted delivery of cash assistance to those most in need.
What’s Wrong with Digital G2P?
The new focus on G2P payments is, on the surface, not as overtly exploitative as, say, a high-interest payday loan. However, it is nonetheless concerning.
In the first instance, the blurring of social protection with financial inclusion should give us pause. The wider adoption of digital financial services is increasingly spoken about in G2P debates as an end in itself. This implies a rather more ambiguous and indirect relationship to poverty reduction than we might want from social protection policies. As Phil Mader rightly argues, shifting focus from reducing poverty to asking “will this make things better for direct beneficiaries in the short run?”, can too easily be a way of evading uncomfortable questions about structural change or redistribution. Insofar as ‘access to formal finance’ is the goal underlying efforts to digitize G2P, this is cause for concern.
Equally, if mobile and digital payment systems are indeed faster and cheaper for banks and governments, this is often in no small part because they offload some processing and transaction costs onto users’ devices. At bare minimum, using a mobile or digital payment system to access social assistance requires access to a mobile phone and airtime. The Bank’s discussions of G2P payments often hint at an awareness of some of the possible exclusionary impacts of greater reliance on digital finance to deliver social assistance. But responses thus far have often centered on “behavioral science”-themed efforts to alleviate “mistrust” of digital services.
Digitization of social protection, in short, runs the risk of entrenching the role of private finance and technology firms in ways that embed exploitative practices and undercut the capacity of the state, making them very difficult to undo.
Maybe most significantly, the Bank’s model for the digitization of G2P payments, with a heavy role for technology companies working closely with the commercial financial sector, can lead to the pathological privatization of significant chunks of the welfare state. In so doing, it can ultimately embed exploitative practices and undercut the capacity of the state to deliver progressive social policies. The history of South African payments firm Net1 is instructive. Net1 is a South African fintech company, and a pioneer of biometric cash transfer services. By 2012, through a subsidiary named Cash Paymaster Services (CPS), it was responsible for the administration of virtually all of South Africa’s expansive system of social grants. Notably, Net1 was heavily supported by the World Bank through the Bank’s private lending arm, the International Finance Corporation, and was frequently cited as a model of digitally-enabled social provision that encouraged wider financial access.
Net1 and CPS’ role in administering the social grants quickly became increasingly controversial, because of actual or alleged irregularities in the tendering process, but more importantly because it was linked to facilitating exploitative practices where grant recipients were targeted for microloans, for which creditors were able to debit social grants directly for repayments. While the State came under increasing pressure to drop Net1’s contracts to deliver social grants, particularly after a Constitutional Court ruling in 2014 that those contracts had been tendered illegally, it took until 2018 to replace Net1. Keith Breckenridge stresses that Net1 was able to “lock-in” the state’s dependence on its services in order to deliver social grants: “For millions of the most vulnerable people — especially those living in the poorest regions of the country — only Net1 can deliver the grants”. Digitization of social protection, in short, runs the risk of entrenching the role of private finance and technology firms in ways that embed exploitative practices and undercut the capacity of the state, making them very difficult to undo.
Problems of this kind linked to the digitalization of welfare state systems are not confined to the Global South. As Rosie Collington recently documented in detail with respect to Denmark, the digitalization of social protection schemes has gone hand in hand with piecemeal processes of privatization and retrenchment. Digitization has been accompanied by the transfer of critical administrative infrastructures to private actors. Paradoxically, while digitalization has typically been justified in terms of improved ‘efficiency’ and speed, “public sector capacity, and hence the ability to achieve public goals, has been undermined”.
Digitization for Whom?
Post-pandemic fintech-for-development increasingly highlights models of financial services which are less overtly exploitative than, say, high-interest payday loans delivered digitally. The growing emphasis on G2P payments perhaps exemplifies this.
Digitalizing some aspects of social protection administration might under some circumstances be beneficial. Whether this is the case, however, is profoundly contingent on questions of ownership, capacity, and of basic aims. Indeed, one of the most significant dangers behind the growing turn to digitizing G2P payments is that it makes the moderate convenience gains of having a bank account and the speed and precision of ‘targeting’ into the main priorities of social policy. Philip Alston, the Special Rapporteur to the UN Human Rights Council on Extreme Poverty and Human rights, has argued, rightly, that digitalization is often used as a ‘trojan horse’ for welfare retrenchment. He suggests, usefully, that ‘Instead of obsessing about fraud, cost savings, sanctions, and market-driven definitions of efficiency, the starting point should be on how existing or even expanded welfare budgets could be transformed through technology to ensure a higher standard of living for the vulnerable and disadvantaged’.
It also matters a good deal who owns and provides the plumbing for social payments infrastructures. A payments infrastructure which is controlled by a handful of monopolistic firms, designed around principles of surveillance and targeting, and which shunts key costs of operation onto users is likely to do more harm than good. As the case of Net1 in South Africa shows especially clearly, ceding control over key infrastructures to private companies makes them exceedingly difficult to change or displace. Digital social protection systems must, as a starting point, be treated as a public good. They should be publicly owned and democratically controlled.
More broadly, there are limits to what technology can do here. Digitizing social protection cannot substitute for a wider vision of social and economic transformation, expanded social provision of housing, food and basic utilities, and reparative justice.