Digital Identity, Government-to-Person (G2P) Payment Delivery and Uptake of Social Assistance

Abstract

Governments are increasingly using digital unique identification numbers (UIDs), often linked to citizens' biometrics, to deliver social welfare payments. On the one hand, UID-linked payments reduce frictions in cash access through an additional channel of Banking Agents (BAs), typically nano-store owners with biometric-enabled micro-ATMs. On the other hand, implementation complexity and low financial awareness of citizens can increase frictions in cash access through incorrect linkages in the account mapper and redirection of payments to accounts that citizens are unaware of. Methodology: We examine the impact of UID-linked systems in the context of India's workfare program under which citizens in rural areas have a legal right to demand up to 100 days of work. We hypothesize that the increased (reduced) friction in cash access for citizens will reduce (increase) their confidence in the workfare program and, consequently, their future uptake of work. We test our hypothesis using 22.84 million payments to 1.91 million citizens, of which 57% transition to UID-linked payments. Using a unique cohort-wise difference-indifferences design, we find that average quarterly earnings per citizen rise by INR 281.07, a 41.84% increase after transition. Citizens with a proximate BA (within three kilometers of their village) see a 44.03% quarterly wage increase, vis-à-vis 37.76% for those without. Among transitioned citizens, 26% experience wage redirection. For them, the impact of UID-linked system is insignificant, compared to a 49.98% increase for those whose accounts were mapped correctly. BA presence slightly mitigates this: redirected citizens with a proximate BA see a 4.85% increase, while the impact remains insignificant for those without a proximate BA. Implications: As governments increasingly adopt UID-linked systems, we present the first long-term evidence that the impact of these systems is shaped by the broader institutional ecosystem of public programs, financial institutions, and BAs, within which they are implemented.

Keywords: Public Programs, Payment Systems, G2P Payments, Base of the Pyramid, Biometric Authentication