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© 2023 International Monetary Fund
WP/23/20
IMF Working Paper
Fiscal Affairs Department and Monetary and Capital Markets Department
Fintech Payments in Public Financial Management: Benefits and Risks
Prepared by Gerardo Una and Alok Verma, Majid Bazarbash and Naomi Nakaguchi Griffin
Authorized for distribution by Cigdem Aslan and Naomi Nakaguchi Griffin
February 2023
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: Fintech payments leverage large digital platforms to fill gaps in the traditional payment system. They have made great strides in increasing access to payment services in several countries around the globe. At the same time, like any innovation, the new payment models are exposed to risks in their operating environment. We review the main fintech payment models (mobile money, internet-based fintech payment, and digital money) and discuss operational and financial risks as well as challenges they face. We then explore how public financial management (PFM), especially treasury payments and non-tax revenue collections, could benefit from fintech payments by providing examples of early fintech applications in different countries and discuss the challenges of integrating them into the public sector. The use of fintech in public finance could bring various benefits—including strengthening fiscal transparency, improving budget planning and execution, and upgrading cash management—if public sector institutional and technological capacities are strengthened and risks are adequately mitigated.
RECOMMENDED CITATION: Una, G., A. Verma, M. Bazarbash, N. Nakaguchi Griffin. “Fintech Payments in Public Financial Management: Benefits and Risks,” IMF Working Paper No. 23/20, International Monetary Fund, Washington, DC. 2023.
| JEL Classification Numbers: | E42, E69, G23, O31, H61 |
| Keywords: | financial technology; fintech; public financial management; payments; budget systems; financial management information system |
| Author email addresses: | mbazarbash@imf.org, ngriffin@imf.org, guna@imf.org, averma@imf.org |
| JEL Classification Numbers: | E42, E69, G23, O31, H61 |
| Keywords: | financial technology; fintech; public financial management; payments; budget systems; financial management information system |
| Author email addresses: | mbazarbash@imf.org, ngriffin@imf.org, guna@imf.org, averma@imf.org |
Title Page
WORKING PAPERS
Fintech Payments in Public Financial Management: Benefits and Risks
Prepared by Majid Bazarbash, Naomi Nakaguchi Griffin, Gerardo Una, and Alok Verma1
Contents
Introduction
I. Fintech payments developments
A. Mobile money
B. Internet-based fintech payments (e-payments)
C. Digital money
D. Risks and challenges
Technology and operations
Market conduct and prudent governance
Customer rights and data privacy
Risks to the payment system and regulation compliance
Risks and challenges of cbdc
II. Potential fintech applications for the public financial management
A. Treasury payments and fintech applications
B. Non-tax revenue collection
III. Benefits of fintech applications in pfm
A. Strengthening fiscal transparency
B. Improving budget planning and execution (mainly for cash transfer social programs)
C. Upgrading cash management
IV. Risks and challenges of fintech applications in pfm
A. Public sector institutional and technological capacities to adopt fintech applications
B. Potential pfm risks and challenges in implementing digital money
V. Concluding remarks
References
BOXES
1. Fintech Applications in Senegal for Tax Collections
2. Utilizing e-vouchers in India
FIGURES
1. Digitalization in Global Banking
2. Social Safety Nets, before and during the COVID-19 Pandemic
TABLES
1. Examples of Fintech Payment Applications in PFM and their Benefits
2. Fintech Payments in Treasury’s G2P and G2B: Main Applications, Operational Benefits and Enablers
3. Use of Fintech Payments in Non-Tax Revenue Collection
4. Main Weaknesses of the Core FMIS
The authors would like to thank Parma Bains, Ke Chen, Hee Kyong Chon, Torben Hansen, Argyris Kahros, Ruud de Mooij, El Omari Moulay, Arturo Navarro, Sailendra Pattanayak, Lorena Rivero del Paso, Sandeep Saxena, and Herve Tourpe for their helpful comments.