Can Digital Payment Systems Sustain More Inclusive and Prosperous Societies?

The coronavirus pandemic has highlighted how obsolete payments systems are undermining the ability of countries and communities to respond to crises. Even in advanced economies such as the United States, individuals are waiting weeks or months for public benefits checks and struggling to send funds to loved ones. As of May 15, 20 million American were still waiting for stimulus checks. Another 1 million checks went to individuals who had already died, costing taxpayers an estimated $1.4 billion. The IRS records used to facilitate the stimulus checks rely on technology that dates back to the 1960s. It’s no surprise that these antiquated systems are preventing the federal government from providing relief to millions of people in need.

Digital payments, along with digital identity and data exchange services, form the foundation layers for a new generation of more effective public sector technology solutions. Access to these basic solutions enable communities to channel people, resources, and information efficiently and effectively to meet the needs of citizens and respond to unanticipated crises. DIGI is working with partners around the world to create digital infrastructure that will power the next generation of public institutions and give citizens access to the tools they need to live happy, successful lives.

With these challenges in mind, the Digital Impact and Governance Initiative (DIGI) at New America hosted its second Transformation series online event, which explored how innovative digital payment systems can address these and many other challenges posed by the legacy financial services systems in the US and abroad. A team of amazing panelists -- former CFTC Chairman Chris Giancarlo, Libra Association Vice Chair Dante Disparte, and Global Blockchain Business Council CEO Sandra Ro -- joined DIGI Director Tomicah Tillemann in discussing how innovations in digital finance can create more equitable, resilient societies. DIGI’s Transformation online event series examines how innovation and technology can reshape institutions in a post-pandemic world. You can view a recording of the session here.

The group surfaced a number of important insights about the state of the legacy financial ecosystem and how new digital technologies can benefit both individuals and governments:

• The U.S. financial infrastructure is straining under the demands of a digital world. Public expectations for instant and mobile-first access to financial services have pushed against the structural limitations of legacy banking systems, and the rapid responses of other countries threaten the dominance of the U.S. dollar in global markets. These challenges create a huge opportunity for new technologies that can build and share value while still upholding consumer protection standards and ensuring equal access to financial services.
• Cutting-edge digital payment technologies, like digital tokens, complements the current financial ecosystem. Cash and other representations of value have always been an integral part of the economy. Before the account-based banking system was invented in Europe 600 years ago, the world’s financial systems relied on coins, seashells, and other tokens. The digitization of value merely updates traditional tokens for the modern age, giving alternatives facilitates participation in the digital economy by unbanked individuals.
• The Global South can provide benchmarks for what successful financial innovation looks like. Unencumbered by legacy ICT infrastructure, countries like India and Kenya have set an example for how new technology can offer effective and accessible financial services to large populations. Kenya’s mPesa, which initially started as a way to trade phone call credits between users, offers an inexpensive way to move money for anyone with a mobile phone. Even in areas with no running water or reliable electricity, mPesa provides access to financial services.
• Regulators need to encourage competition and innovation to bolster financial inclusion. Services like remittances are notoriously expensive, costing workers $30B annually in fees. More competition in the space would not only drive prices down and put more money back into workers’ pockets, but reduce financial insecurity risks to countries and economies around the world. Regulators can adopt a “do no harm” approach to innovation so competition can flourish while safeguarding financial protections.
• Data protection frameworks reflect the governance and values of their creators, and financial innovations that put the needs of users first will gain adoption faster. Whether you look at the surveillance centric approach of China, commercially driven applications in the U.S., or the privacy oriented approach of the EU, data governance plays a key role in how consumers derive value from financial services. The use of digital public goods, vigorous private sector competition coupled, and regulation that prioritize consumer needs can all help yield better results for society.

Deploying the next generation of digital payments systems could unlock innovative responses to major crises, and programmable money might prove the foundation for everything from direct transfer payments from governments to individuals to smarter strategies for fiscal stimulus. These systems could also create privacy and geopolitical challenges as different standards and systems spread around the globe.

Our next online Transformation event is July 14th at 11:30 am ET on Building and Reusing Open Source Tools in Government. Send us a tweet at @DIGI_NewAmerica, follow us on Twitter, or subscribe to our newsletter. We look forward to future conversations on the monumental challenges facing institutions worldwide and the innovations that may bring a better tomorrow.