With unemployment surging and businesses struggling under lockdown, millions of Americans are relying on the extra benefits payments issued under the $2 trillion dollar Coronavirus Aid, Relief and Economic Security (CARES) Act. Yet, amid threats of utility shut-offs and housing and food insecurity, an alarming proportion are still waiting for their stimulus checks.
Hold-ups in issuing paper checks, payments sent to the wrong or non-existent bank accounts, omissions of the additional $500 per child, and similar mistakes are the result of technical and human flaws in the aid distribution process the Internal Revenue Service uses, primarily outdated software systems and inaccurate data.
Shailee Adinolfi is director of government and trade at ConsenSys. Prior to joining ConsenSys, she was Vice President at BanQu Inc., an ethereum based identity platform, and spent over 11 years on USAID funded projects in economic growth, trade, financial services and technology in Africa, Asia and the Middle East.
The US desperately needs to learn from innovation elsewhere. The UN’s World Food Program, for example, is urgently distributing vouchers and cash transfers to over 100,000 Syrian refugees in Jordan using the blockchain-based Building Blocks platform. The program also recently launched in Bangladesh, where there are an estimated 900,000 displaced Rohingya people.
Oxfam transfers digital money to thousands in need of relief in Syria, Greece, Kenya, Australia, and the cyclone-prone island of Vanuatu via SMS, an Android phone app, or an NFC card—a kind of contactless payments card that also acts as proof of ID.
These applications, in Oxfam’s case the Sempo Cash and Voucher Assistance program, have proven capable of disbursing tens of thousands of dollars at a time to many beneficiaries within minutes—at a near negligible cost. Successfully trialled and implemented by the humanitarian sector, efficient, secure, and resilient systems are overdue in America’s federal and financial infrastructure.
From refugee camps to IRS
While the numbers and challenges are on a different scale in America’s current crisis, the US can learn important lessons from solutions deployed in challenging humanitarian environments like refugee camps. Weaknesses in current US benefits distribution systems render them ill-equipped to handle the scale, complexity, and timeframes now needed.
The most obvious and fundamental benefit of innovative direct aid distribution solutions is the ability to send payments between parties within seconds. For digital cash solutions built on blockchains, there is also an immutable record of each transaction. Information, for example details of payment recipients, would be automatically verified and updated without being tied to specific bank accounts. This would avoid the type of problem faced by the IRS last month when 300,000 deposits were erroneously made to non-existent temporary bank accounts and other payments were not processed at all since individuals’ bank account information had changed or could not be retrieved.
Decentralized networks move money without ever touching a commercial bank, reducing settlement time from days to minutes or seconds. Importantly, solutions like those deployed by Oxfam and the UN’s World Food Program prove that individuals can easily and verifiably receive aid from their local government or an NGO with as little as a cell phone number; sometimes not even that is necessary.
Recovering $50 billion
For the US, the first step is for the Federal Reserve to introduce a “digital dollar.” Central Banks and governments around the world have been accelerating requests for proposals on central bank-backed digital currencies, or CBDCs. The Bank of International Settlements recently noted that the pandemic “may put calls for CBDCs into sharper focus, highlighting the value of having access to diverse means of payment, and the need for any means of payments to be resilient against a broad range of threats.”
CBDCs, such as a digital dollar, would serve the 70 million unbanked Americans who are currently waiting weeks for paper stimulus checks to arrive. US Post Offices in remote locations could verify identity credentials, while connecting customers to low-cost financial services such as check cashing, bill payments, and savings accounts. In fact, this type of mechanism was advanced by the House of Representatives last year in a bi-partisan amendment to increase financial inclusion.
Disaster relief agencies have designed their voucher schemes with the unbanked and unconnected user in mind. Similar solutions for the US benefits system would equally serve America’s unbanked population, as well as reduce fees to commercial banks and avoid related losses from inefficient payments.
By contrast, the financial infrastructure used globally to disseminate governmental payments—ACH transfers—is costly, slow, and reliant on banks. Some ACH payment providers charge a flat fee, ranging from around 20 cents to $1.50 per transaction; others charge from around 0.5 to 1.5 percent. If these costs aren’t waived, the US government might have to spend between $48 million and $359 million of capital reserved for life-saving aid just on transaction fees, based on 128.58 million families and 110.6 million single adults potentially eligible for disbursements.