At the margins of the 6th Multi-stakeholder Forum on Science, Technology and Innovation for the Sustainable Development Goals (STI Forum), the Permanent Mission of the State of Qatar and the Republic of the Philippines co-organized a side-event together with the ILO, focused on “Advancing Decent Work through Digital Wage Payments”. The event showcased country-level initiatives that have helped businesses and workers transition from cash-based wages to more efficient digital payment systems.
In recent years, digital technologies have disrupted the financial system and transformed the way workers and businesses alike conduct their financial transactions, quickly moving away from cash and embracing digital means. The COVID-19 pandemic has accelerated these digital changes in the world of work, and the digitalization of wage payments has been receiving increased attention throughout the pandemic, as it is a way to minimize human interactions during financial transactions. Before, and even more during this crisis, several governments have been implementing policy and regulatory changes to encourage the transition to digital payments, including the payment of wages, and in the current context, the payment of temporary wage subsidies.
Yet, over 230 million workers around the world still receive their wages in cash. Cash-based wage payments are inefficient for employers and they are risky and disempowering for workers, in particular vulnerable women workers. Evidence shows that the transition from cash to digital wage payments has the potential to increase the efficiency of payroll services, the respect of labour rights and workers’ financial inclusion.
Digital Wage Payments in Qatar and the Philippines
H.E. Mr. Gil Beltran, Undersecretary for Finance of the Philippines, stated that the COVID-19 pandemic had highlighted the need to shift digital payments, in order to reduce the risk of carrying cash and to advance labour formalization. Digital payment systems were key in building resilience as economies were rebuilding from the pandemic. H.E. Alya Ahmed bin Saif Al-Thani, Permanent Representative of the State of Qatar to the United Nations, added that digitalization of wage payments was vital in detecting and remedying wage violations, particularly for migrant workers. About 96% of eligible workers in Qatar were now covered by the wage protection system. Qatar had invested in digital infrastructure, becoming a driving force for social, environmental and economic transformation.
Positive Impact on Governments, Workers and Employers
The side-event’s fireside chat highlighted the numerous benefits of digital wage payments. Mr. Craig Churchill, Chief of the ILO’s Social Finance Programme and lead of the ILO’s Global Centre on Digital Wages for Decent Work, discussed digital wages’ cost-effectiveness and security, particularly for workers that would be normally be paid in cash. Digital wages supported transparency of financial transactions, thereby benefitting taxation as well as social security payments. Ms. Sharan Burrow, General Secretary, International Trade Union Confederation (ITUC), stated that transparency provided by digital wage payments had the potential to deliver a guarantee against wage theft for workers. The transparency had to be coupled with a compliance system; transparent employment contracts and disputes handling mechanisms could support the formalization of work. It is also important to look beyond wages and consider the social protection payments. However, privacy and costs had to be addressed and social protection digital payments shall be considered along digital wages. Mr. Matthias Thorns, Deputy Secretary-General, International Organisation of Employers (IOE), stated that digital wage systems made it easier to show compliance. There were particular benefits for female workers, as digital wages empowered them to have ownership over their earnings. It also had significant productivity gains. Yet, proof of identity and bank access were key elements to make digital wages a reality. A cultural shift was also needed to normalize the systems.
Partnering to Scale Digital Wages
Digital payments can create wage systems that:— ILO-NY (@ILO_NewYork) May 5, 2021
✔️ Empower workers
✔️ Are cost-effective
✔️ Improve compliance
✔️ Increase business productivity
✔️ Facilitate social protection payouts#STIForum #DigitalWages pic.twitter.com/CnczRRACIq
Following the fireside chat, a panel discussed actions needed to scale digital wage payments. There was consensus that digital wage payments had to be coupled with digital infrastructure and an ecosystem of merchants and stores accepting digital payments.
Digital wage payments could significantly contribute to financial inclusion, as highlighted by Ms. Pia Bernadette Roman Tayag, Director, Office of the United Nations Secretary-General's Special Advocate for Inclusive Finance for Development, who also emphasized the need to implement digital ID and interoperable payment systems; benefitting from the digital wages was dependent on merchants, mom and pop shops and communities accepting and using digital payments. Cybersecurity and consumer protection frameworks were also necessary. In order to address all these aspects, multi-stakeholder partnerships are needed. One such partnership was the Better Than Cash Alliance, which brings together the UN, governments and the private sector. The Alliance’s Head of Private Sector Digital Payment Innovation, Ms. Marjolaine Chaintreau, added that the right ecosystem for digital wages was dependent on various digital payment solutions being jointly implemented; it had to include technology systems, bank accounts, mobile money, mobile wallets and other innovations. It was not enough to get paid digitally; it was necessary for the workers to have the capacity to spend digitally and to access recourse system when needed. Better Than Cash Alliance’s responsible digital payment guidelines provide a set of principles and practices to support the adoption of responsible practices in the move from cash to digital payments.
Bringing the perspective of a financial provider, Ms. Laura Mackenzie, Senior Vice President, Financial Inclusion, Mastercard, underscored that not only was alignment between the digital solutions and the cash-in cash-out infrastructure important, but the technologies had to be combined with digital and financial literacy and simplicity of the solutions. The digital solutions had to be accessible for people, regardless of their equipment, and broadband and Internet access had to be provided.
Accelerating Financial Inclusion for Women
Scaling digital wages will require:— ILO-NY (@ILO_NewYork) May 5, 2021
✅ Collaboration between workers, employers and governments
✅ Digital infrastructure
✅ FinTech solutions
✅ Security and consumer protection
✅ Ecosystem of merchants that accept digital payments#STIForum #DigitalWages pic.twitter.com/C2lF8yPNq5
The transitions to digital wage payments could be particularly transformative for women. Ms. Harsha Rodrigues, Chief Strategy Officer, Women’s World Banking, highlighted women’s disadvantages in the labour market and noted that they were typically less likely to have access to financial services. However, when women did receive payments, they were more likely to invest the funds into their families, thereby creating a positive multiplier effect. Beyond the implementation of digital wages for women, women’s empowerment would require their ability to spend and use digital payments, further emphasizing the need for a full digital ecosystem.
Supporting Transitions to the Formal Economy
The right financial tools, such as mobile money, could facilitate digital wage payments and serve as a financial intermediation by converting unbanked individuals’ resources to full credit, as mentioned by Mr. Rishi Raithatha, Senior Advocacy Manager, Mobile Money, GSMA. In Uganda, higher mobile money balances had been positively associated with long-term increases in private sector credit. Digital wage payments and mobile money solutions could therefore support workers in the informal sector transition into the formal economy and help them access business networks, formal banking, insurance and savings.
As the global economy recovers from the COVID-19 pandemic, digital solutions can improve wage payment systems, empower workers, support business productivity and ultimately accelerate the achievement of decent work. The ILO’s Global Centre on Digital Wages for Decent Work provides an avenue for multi-stakeholder partnerships that can jointly implement such solutions in countries where they are needed the most, and promote the adoption of responsible practices and standards to accelerate the transition to digital wage payments.