Payments Briefing: Meeting the growing demand for digital payments in the public sector
- This week, we explore the growing need for digital payments in the public sector, and how governments can digitize their payments strategies.
- We also look at why Apple is trying to build its own payment technologies.
While digital payments are increasingly becoming table stakes for industries like retail, governments have been much slower to adopt digital payment technologies. With concerns ranging from budget and personnel resources to cybersecurity and compliance, governments have historically been hesitant to embrace the digitization of payments.
Jeff Kump, president of payments at CSG, believes that there are now reliable strategies and technologies available that local governments can adopt to ensure that their digital payments solutions keep their data secure, bring long-term value, and keep constituents more satisfied.
Jeff shared his thoughts with me on why there is a growing need for digital payments in the public sector, and how public entities can incorporate them into their payments strategies.
Here’s what he had to say.
Extracting long-term value
Digital payment services not only satisfy constituents’ demands for a flexible and easy payment experience, but they also save the government (and therefore taxpayers) money in the long run. For local governments, where spending is viewed under a microscope, adopting digital payments saves administrative costs and allows municipalities to have quicker access to funds so they can make timely investments in their communities.
For example, customer-facing technologies like a user-friendly customer portal and automated text messages can remind residents of upcoming bills, which increases the likelihood of on-time payments. As a result, the municipality will reduce resident frustration around late fee charges and will waste fewer resources on things like resolving complaints and issuing late notices. Ultimately, this allows governments to reallocate human resources to more strategic operations.
Keeping resident data secure
Our governments hold some of the country’s most sensitive data, and keeping that information secure is a top priority for them and their constituents. Considering the rapid growth in cybercrime (49% increase in 2020), it’s not surprising that governments are likely to be cautious about any digital payment technologies due to the risks associated with them.
To overcome such concerns, governments must hire a trusted payments provider that can work closely with the municipality to ensure cybersecurity and compliance are protected while allowing for a smooth digital payments experience.
A reliable payments partner can provide tools like Payment Card Industry (PCI) point-to-point encryption, multi-factor authentication, and tokenization to keep customer data secure. A good partner can also ensure that government digital payment offerings remain compliant with all measures from both PCI and National Automated Clearing House Association (NACHA) as it relates to collecting, storing, and working with sensitive information.
To further ensure a successful rollout of digital payments, local government leaders should establish clear lines of communication with their constituents to help them understand the security of their data and the measures in place to protect it. This improves constituent trust in the solution, and two-way communication allows users to flag phishing schemes and potential fraud, allowing governments to quickly act before more damage can be done.
Satisfying constituent demand
Constituents are now looking for the same personalized experiences from their municipality that they have been receiving from retailers over the past couple of years, including QR codes, Apple Pay, and Google Pay capabilities. The increased demand for digital payment options is emphasized by the fact that 60% of respondents in a Mastercard survey said they would think twice about doing business with a merchant that didn’t offer any electronic payment options.
The roadblocks to digital payments adoption are slowly diminishing. The time is now for elected officials to meet the demands of their constituents. Implementing and carefully managing digital payment solutions will be important to maintain constituent goodwill, generate revenue, and save government resources.
Why is Apple building its own payments tech?
Apple is looking to build in-house tools for a broad range of financial services, including payment processing, lending, fraud analysis, and credit checks, as a step toward building new fintech capabilities and reducing its reliance on outside partners over time.
The plan could be bad news for Apple’s fintech partners. Shares of Green Dot, the bank infrastructure company used by Apple Pay, shed nearly 6% following the news. Another Apple partner, CoreCard, saw its stock tumble more than 14%.
Bloomberg reports that the push would turn Apple into a bigger force in financial services, building on a lineup that already includes an Apple-branded credit card, P2P payments, and the Wallet app.
The new plan is reportedly part of a project called “Breakout,” highlighting Apple’s bid to strike out on its own in financial services. It underlines Apple’s growing interest in expanding beyond Apple Pay, the Apple Card and iMessage, as well as the financial transactions it handles via iTunes and the App Store.
Apple is also working on its own BNPL feature for Apple Pay transactions. Additionally, the firm recently introduced Tap to Pay, a service that would let merchants use their iPhone to process payments without any additional hardware.
The Breakout project represents Apple’s biggest foray to date into the world of finance, and it may help the firm expand its future services to additional countries. Although Apple Pay is available in more than 70 countries, services such as P2P payments and the Apple Card remain confined to the US. Partners like CoreCard and Green Dot have been focused on the US, limiting Apple’s ability to grow internationally.
Even by Apple’s standards, though, plans to develop financial services internally are ambitious. Apple will have to compete in an already crowded payments industry. Although Insider Intelligence forecasts that Apple Pay will have 55 million US users by 2025, this latest push could have it competing head-on with industry giants.
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What we’re reading
- Zelle's bank owners split on competing with cards at the checkout – WSJ (Finextra)
- Plastiq unveils new Plastiq Pay solution to help SMBs manage cash flow (Finovate)
- The Clearing House raises RTP limit to $1 million (PYMNTS)
- PayPal’s new credit card pays 3% cash back on all PayPal purchases (TechCrunch)
- Visa to bring BNPL to Air Canada (Finovate)
- Chase and Amazon (finally) reach agreement on Amazon Prime Rewards Card (PaymentsJournal)
- Adyen moves into embedded finance (Finextra)
- BNPL survey says 25% of customers are “financially vulnerable” (deBanked)
- Paystand launches business expense card with bitcoin rewards (Finextra)
- i2c, Visa team up for fintech processing across MENA (PYMNTS)
- Papaya Global to buy Azimo for $150 million to expand its payroll payments to more markets (TechCrunch)