The Mexican Government is saving an estimated MXN17bn (USD1.27bn) per year thanks to a concerted and well-planned shift to electronic distribution of many government payrolls, pensions and social benefits, according to a study released by The Better Than Cash Alliance.
The study concluded that most of the savings came from lower fee payments to the numerous banks that had handled the decentralized, cash-based transfers; from the interest earned by not having to deposit funds in advance of payments; as well as reduced unauthorized or incorrect payments. The study estimates that the shift from cash has saved the equivalent of approximately 3.3% of those expenditures related to salaries, pensions and social transfers, with the added benefit of increasing transparency, and also laying the foundation for banking services to reach those who have little-to-no access today.
“Federal government spending in Mexico used to be highly decentralized, which made government payments inefficient and costly,” said Lic. Irene Espinosa Cantellano, National Treasurer of the United States of Mexico. “Ours is the story of a sustained effort over time driven by successive Ministers of Finance who were sure of the ultimate benefits to government and to recipients of government payments. It is by no means complete and the reforms and policies proposed by President Enrique Peña Nieto are clear actions that it is now accelerating.”
The real benefits come when electronic payments are combined with treasury centralization: centralization definitively reduced costs to government and allowed for better controls, budgeting and oversight by Tesofe over all federal expenditure. Coordination among the different payments providers and designing appropriate incentives were an essential part of a successful change strategy.
According to the study, the eventual savings were the result of a sustained, 15-year effort by Mexico’s Ministry of Finance and the Mexican Central Bank (Banxico) that included work to centralize as well as digitize payments. Beginning in 2010, however, the government further prioritized the shift, creating significant momentum and progress over the last three years.
The success of the shift also relied on installing both the legal framework and technology infrastructure to support the transition, and maintaining momentum across diverse agencies and even through a change in the ruling party.
While the benefits of electronic payments have been known for some time, emerging and developing markets have found it challenging to lead a transition within their economies. The Better Than Cash Alliance was launched in September 2012 in response to public and private sector demand for more strategic advocacy and guidance on how to transition these into electronic payments.
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