Digitizing G2P Payments: Lessons from Indonesia

Digitizing social assistance program disbursement through government-to-person (G2P) payments has emerged as a powerful tool for fostering inclusive economic growth and alleviating poverty.  Indonesia, for example, was able to bypass conventional development stages by leveraging cutting-edge technologies in G2P digitization. Indonesia's journey showcases what can be achieved when strong government commitment and collaboration are combined with advanced technologies.

CGAP, along with the World Bank, Indonesia’s Ministry of National Development Planning (Bappenas), which is responsible for formulating the country’s development planning and budgeting, and the National Team for the Acceleration of Poverty Reduction (TNP2), developed a vision for G2P reform dubbed the G2P 4.0 roadmap. The roadmap aims to advance G2P payments by enhancing efficiency, the accuracy of beneficiary targeting, good governance, and broader financial inclusion. 

Motivation for G2P reform

The Indonesian government hoped to achieve the following through reform its G2P programs:

• Efficiency and accountability – a G2P system that is responsive, cost-effective, and maximizes the impact for beneficiaries.
• Transparency and public trust – eradication of corruption and benefits that reach those who need them most.
• Technology adaptation – streamline the disbursement process and turn Indonesia into a global hub for innovative solutions.
• Financial inclusion – increase access to formal financial services for low-income populations and empower their participation in the formal economy.
• South-South cooperation – foster knowledge exchange and inspire other nations to enhance their social protection programs through G2P reform.
   

Success factors

Government commitment

The Indonesian government initiated a G2P digitization reform to maximize impact and set global benchmarks for social protection systems. The top-down approach, initiated by the President and coordinated by the Vice President, emphasized streamlining processes to ensure that G2P payments effectively reached their intended beneficiaries. Starting in 2014 with a new cabinet, this journey relied on senior government commitment and cross-government collaboration.

Collaboration

Upon becoming a national priority, various stakeholders played pivotal roles in the reform, each contributing uniquely to the initiative's success. The following are notable contributors: 

• Ministries, regulators, the central bank, and financial services authority relaxed regulations (during the pilot projects), granted access to the national ID database, enabled electronic know-your-customer (e-KYC), facilitated bulk savings account openings, tested new payment/authentication mechanisms, and strengthened the payment system ecosystem.
• Local governments disseminated information to beneficiaries and provided offices/points for enrollment, training, and socialization.
• Banks ensured that beneficiaries had access to secure financial tools, enabled seamless transactions, developed basic savings accounts, introduced branchless/agent banking, implemented digital wallets, provided debit cards, and encouraged financial literacy.
• Post offices served as bank agents and facilitated cash-out points in remote areas where digital solutions were not yet prevalent.
• Telcos provided G2P beneficiaries with free SIM cards valid for five years, implemented mobile money, and ensured widespread mobile network connectivity.
• Technology startups developed and tested innovative solutions, including mobile money and biometric authentication.
• International donors and institutions provided financial resources, technical expertise, and best practices, adding a global perspective to the digitization journey.
   

Country-centric approach

The success of G2P digitization hinges on tuning the reform to a country’s unique circumstances such as its socio-economic, cultural, political, and regulatory landscape, financial services providers, and digital infrastructure, all of which shape the transformation. While learning from other countries, Indonesia prioritized tailoring strategies to its specific context. This included studies and pilot projects to develop evidence-based policy reforms. The pilot projects provided a controlled environment for testing G2P digital solutions, facilitating iterative improvements, and ensuring a successful and nationwide implementation.

Mobile money, debit cards, QR codes, and near-field communication (NFC) were tested between 2014 and 2016 as potential G2P payment solutions. The pilot projects revealed constraints in mobile money and NFC transactions due to beneficiary unfamiliarity with phone-based transactions, while printed QR codes were found susceptible to fraud due to easy duplication. Debit cards emerged as the most practical payment solution, capitalizing on their widespread use and extensive automated teller machine (ATM) availability in Indonesia. Based on pilot project results, a presidential regulation on non-cash social assistance distribution was launched in 2017 to support broader G2P payment implementation. A combo card was deemed the optimal solution – a debit card featuring multiple digital wallets and a savings account. In 2019, biometric authentication was piloted to enhance the transaction mechanism. This solution aimed to ensure that only the intended beneficiaries could spend the benefits while addressing challenges related to remembering PINs for debit card transactions. 

Transformation in practice 

Pilot projects determined the most suitable transaction mechanism, leading to initiatives shifting from in-kind delivery toward ever-more sophisticated digital delivery. 

Food subsidy: from in-kind delivery to e-vouchers 

Originating in 2002, the Rice Program for Prosperous Families (Rastra) aimed to provide 15 kg of rice monthly to impoverished households through in-kind delivery. After the 2017 G2P reform, Rastra transformed into the Non-Cash Food Assistance Program (BPNT), introducing e-vouchers. Eligible beneficiaries received USD 7 monthly through a combo card with a BPNT digital wallet. In 2020, the program increased the disbursement to USD 10 using the combo card, enabling diversified purchases of staple foods. Amidst the COVID-19 pandemic, it served as a channel to distribute stimulus funds.

Conditional Cash Transfer – PKH: from cash to bank savings account

Introduced in 2007, Indonesia's Family Welfare Program (PKH) pioneered conditional assistance, initially targeting women, including pregnant women,  breastfeeding mothers, and families with children. Over time, the program expanded to support the elderly and individuals with disabilities. Initially, payments were made at post offices. Following the 2017 G2P reform, PKH transitioned to a non-cash system, transferring funds into beneficiaries' savings accounts and utilizing a combo card for transactions. This approach allowed beneficiaries to withdraw funds from ATMs, bank branches, or bank agents, and save some or all of the received funds for future use in their savings account.

Kartu Prakerja – advanced G2P: online registration, e-KYC, virtual account, and beneficiary choice for incentives disbursement

Introduced in 2020, Kartu Prakerja is a pre-employment program aimed at enhancing work and entrepreneurial skills for working-age beneficiaries. The program integrates with the national ID database during registration for KYC requirements. A notable advancement is liveness detection, which ensures registrant authenticity through specific instructions like winking. Beneficiaries receive non-cash training funds in a virtual account for training expenses. After training completion and survey submission, incentive funds are credited to either a bank savings account or a fintech electronic money account.

G2P 4.0

From 2019 to 2020, in collaboration with CGAP, the World Bank, and the Bill & Melinda Gates Foundation, Indonesia embarked on designing the G2P 4.0 payment roadmap. This initiative marks a pivotal shift towards a more inclusive, digitalized social protection framework, aiming to enhance the overall beneficiary experience. The G2P Payment 4.0 transformation has been integrated into Indonesia's development agenda. A current challenge is developing the Central Mapper and its operating institution. The Central Mapper serves as a centralized database designed to match a beneficiary’s unique identifier (national ID), enrollment in G2P program(s), and the beneficiary’s account number (in financial service providers).

The G2P 4.0 payment roadmap has a few key features: 

• Digital integration: incorporation of cutting-edge digital technologies to streamline payment processes.
• Centralized database systems: development of unified databases for efficient beneficiary management.
• Digital ID implementation: establishment of a digital identification system to ensure secure and accessible services.
• Beneficiary preferences: expansion of service options to respect and accommodate individual beneficiary choices.

Adaptability is key to the success of G2P digitization. It recognizes that each country faces its own unique challenges and opportunities. Crafting a narrative that considers these factors allows governments to tailor G2P payment initiatives to country/beneficiary-specific contexts. This approach enables governments to surmount challenges, seize opportunities, and unlock the true potential of digitization. It goes beyond fund disbursement, fostering responsive governance that enriches lives and promotes sustainable development.