This is one of the observations made by the Better Than Cash Alliance, in a report [PDF] produced from a study they undertook of digital payments in the country, focusing on the period from 2012 to 2016.
In 1996, the Government of Tanzania began the process of modernizing its National Payment System (NPS), which involved making the payments system more convenient for customers, lowering the transaction costs and reducing the time it would take for payments to be processed.
The Bank of Tanzania introduced digital Person-to-Government (P2G) and Business-to-Government (B2G) payments after the enactment of Three key laws – The National Payments Systems Act, The Electronic Transactions Act, and the Cybercrime Act – which were necessary to safeguard the digital payments ecosystem before any transactions could be made.
The report goes on to add that the efficiencies realized from the use of digital platforms to make payments to and from Government creates a dynamic and productive business environment, which in turn drives new investment and economic growth.
Tanzania has introduced mobile payments in various sectors, such as:
- Motor vehicle license fee payments - The license fee accounts for up to two per cent of Tanzanian Revenue Authority’s (TRA) domestic taxes. three weeks into the launch of the digital payment option in 2013, 42% of motor vehicle fees and levies were collected through mobile payments, with this rate going up year-on-year.
- Conservation fees at National Parks - Digital payments have reduced losses from leakage of conservation park entry fees paid by tourists and tourism operators by over 40 percent, meaning that these monies can now be put into supporting investment and employment. The tourism sector contributes up to 13% of Tanzania’s GDP, and the introduction of digital forms of payment has made collection of revenues more efficient.
- Customs and import duty payments - Digitization of custom clearance and payment of import duties has reduced clearance times from nine days to less than one day. The Tanzania Customs Integrated Systems (TANCIS) was launched in 2014 to modernize the country’s customs processing and payment systems and remove inefficiencies in order to reduce the US$1.8 billion lost annually due to transaction costs.
- Government payments to citizens - The Government of Tanzania has deployed digital payment solutions for the disbursement of bulk payments to its citizens such wages for government employees, social support transfers and pensions are openly monitored by interested citizens who want to hold the government accountable for the taxes paid, this enhances accountability and transparency in government expenditure.
The study identified increased financial inclusion as one key benefit from the new digital payment methods, with increased uptake of payment instruments such as prepaid cards for hospital payments. Additionally, the programme established dedicated channels for citizens to pay for government services, increasing customer adoption of and trust in digital payments.
Seamless digital payments require a robust backend for smoother integration and user experience. A critical first step is ensuring that backend technology is capable not only of accepting payments from multiple sources, but also of real time validation, acknowledgment and periodic reconciliation. This ensures that there is a payment trail, and users get immediate feedback that their payments have been received.
The digital payment system has a high initial cost, and users are likely to resist bearing the full burden of digitization. Electronic billing machines are expensive, costing anywhere between US$274 and US$460, which is out of reach for many small traders. They are therefore reluctant to provide full visibility into their revenues for fear of being taxed, and as a result they often offer lower prices to customers prepared to pay in cash, meaning that the system could lead to an informal economy that operates outside of the taxation system.
Challenges aside, Tanzania’s move to digitize government services has led to substantial savings through ensuring accountability, which goes a long way towards reducing loss of public funds through inaccurate or fraudulent payments.
The key conclusion that the report draws from from Tanzania's experiment is that payment digitization can deliver higher revenue collection for governments, with increased compliance and efficiency, higher accountability and transparency, and risk management built in. For individuals and businesses, the digital payments ecosystem provides a crucial link to the formal financial system, which in turn drives new economic opportunities and supports economic growth.