The payment system used by Auxílio Emergencial Introduction of the digital social account, and the banking of more than 100 million people in 9 months Pedro Lara de Arruda Marina Lazarotto de Andrade Tiago Falcão Diana Teixeira Barbosa Matteo Morgandi TECHNICAL NOTE No. 2 Brasilia, december 2021 The payment system used by Auxílio Emergencial Introduction of the digital social account, and the banking of more than 100 million people in 9 months Pedro Lara de Arruda Marina Lazarotto de Andrade Tiago Falcão Diana Teixeira Barbosa Matteo Morgandi © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington, DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Translations—This work was originally published in Portuguese under the title: O sistema de pagamento utilizado pelo Auxílio Emergencial: Introdução da conta social digital e a bancarização de mais de 100 milhões de pessoas em 9 meses. It was translated by Fabricia Ferrari. Adaptations—If you create an adaptation of this work, please add the following disclaimer along with the attribution: This is an adaptation of an original work by The World Bank. Views and opinions expressed in the adaptation are the sole responsibility of the author or authors of the adaptation and are not endorsed by The World Bank. Third-party content—The World Bank does not necessarily own each component of the content contained within the work. The World Bank therefore does not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to reuse a component of the work, it is your responsibility to determine whether permission is needed for that reuse and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; e-mail: pubrights@worldbank.org. Cover design: Diana Catalina Murcia Alejo, World Bank 4 Auxílio Emergencial Acknowledgments This Technical Note was written by a World Bank team composed of Matteo Morgandi (Team Leader), Tiago Falcão, Pedro Lara de Arruda, Diana Teixeira Barbosa, and Marina Lazarotto de Andrade. This publication is part of the project ‘Sharing and Institutionalizing Lessons Learned from Brazil’s Social Protection Response to Covid-19’, which is financed by the United Kingdom’s Foreign, Commonwealth & Development Office (FCDO). This project analyzes the Auxílio Emergencial, a temporary cash transfer benefit launched by the Brazilian Federal Government during the pandemic. In the scope of this project, the team has produced also a Summary Note and three other Technical Notes with their respective one-pagers. The research is based on an extensive document analysis and semi-structured interviews conducted with managers and operators of the Auxílio Emergencial. The team would like to express its sincere gratitude for all the support and contribution to Alan do Nascimento, Aline Khoury, Allan Maia, Ana Carolina do Santos, Ana Gabriela Fillipi Sambiasi, Angelia Faddoul, Anna Carolina Machado, Atanásio Darcy Lucero Junior, Bruna Angélica Silva Ribeiro, Bruna Bastos, Caroline Paranayba Evangelista, Charlotte Bilo, Clare McCrum, Cristiane Souza Fernandes Curto, Cristina Yamanari, Davi Carvalho, Deine Suruagy Nunes Pael, Eduardo Vieira, Elaine Mota, Eleasara Antunes, Fabiana Peres, Fabiana Rodoupolos, Flávio Ronison Sampaio, Florentino Goncalvez Chavez, Francesca Aloisio, Gabriel Lyrio, Gabriel Saad Travassos do Carmo, Gabriela Gerin, Georgina Marin, Gilmar Souto, Giulia Parzani, Henrika Chagas, Igor Costa, José Antônio Barreto, José Roberto Frutuoso, Laís Maranhão, Laura Campbell, Laura Gaensly, Leonardo Rolim, Liomar Leite de Morais Lima, Lívia Peres, Luciana Peres, Luis Henrique Paiva, Marcelo Moura da Conceição, Márcio Maurício, Maria Carolina Lage, Maria Concepción Steta Gandara, Marina de Lorenzo, Martim Cavalcanti, Mateus Drigo, Nilza Yamasaki, Pablo Ariel Acosta, Rafaell Dias Leite Feliz, Raphaella de Almeida Bandeira, Raquel Kimie Pereira De Sousa Tsukada, Rigan Gonzalez, Taisa Ribeiro, Thadeu Normando, Thiago Lima Dantas and Tiago Cordeiro de Oliveira. The payment system used by Auxílio Emergencial 5 Index Executive Summary 10 1. Introduction 17 2. General Aspects of Auxílio Emergencial (AE) 20 3. Payment flows during the three phases of Auxílio Emergencial 24 4. Caixa's hiring process and exceptional measures to guarantee coverage and communication with the population 26 5. Caixa's Digital Social Savings (PSD) 30 6. The PSD Dissemination Process 36 7. Stimuli to carry out digital transactions and the specific attention dedicated to the public coming from the PBF 40 8. The PSD and the stimulus to the generation of savings 43 9. Inclusive measures of the payment system and cash management 46 10. Final Considerations 48 Bibliography 53 All conversions from BRL amounts into American dollars observed the 5.23 exchange rate. (Average value of the “domestic currency per US dollar, period average” calculated by the IMF (2021b) Between January 2020 and July 2021 –cut point for other data presented in the text–). 6 Auxílio Emergencial Index of figures Figure 1. Main AE flows 20 Figure 2. Timeline of the three stages of AE and the main characteristics of each one 21 Figure 3. Evolution in the number of beneficiaries per inflow (AE1, AE2, AE3) 22 Figure 4. Relationship between applicants and eligible (million people) in AE1 22 Figure 5. 2020 Auxílio Emergencial (AE1 and AE2) payment timeline for three different hypothetical situations 25 Figure 6. The flow of receipt of the first installment of AE1 (P1) via inbound 25 Figure 7. Simplified interface of the Caixa Tem application 30 Figure 8. Number of Pix-enabled users 35 Figure 9. Indicators of issuance and use of Virtual Cards and their specific use through transactions via QR Code 38 Figure 10. Pix usage indicators by Caixa customers (not limited to PSD account holders) 39 Figure 11. Example of payment cycles for Single Registry non- PBF and ExtraCad publics: AE3 account credit dates and cash 41 withdrawal rights Figure 12. Example of payment cycles for the public PBF: AE3 payment dates 41 Figure 13. Net funding from the Savings Account (SBPE + RURAL), monthly evolution 44 Figure 14. Net raising of the Savings Account (SBPE + RURAL), annual evolution 44 Figure 15. Recommendations for promoting the access of beneficiaries of social programs to financial instruments 45 Figure 16. Timeline with key relevant facts regarding the AE payment system 48 The payment system used by Auxílio Emergencial 7 Index of boxes Box 1. Scope and methodology of the project "Documenting learning from the experience of Auxílio Emergencial" 19 Box 2. Mobile agencies for payment for isolated communities 27 Box 3. Communication strategies undertaken to support the payment transaction 29 Box 4. The simplicity and speed of transfers via Pix and its dissemination as a means of payment as well 35 Box 5. Parsimony in the migration of the payment system for AE beneficiaries from the PBF 37 Box 6. The reflection of hoarding during the crisis and actions to offer cash carried out by the Central Bank and Caixa 47 8 Auxílio Emergencial List of acronyms ACP – Ação Civil Pública – Public Civil Suit FCDO – Foreign, Commonwealth & Development Office AE – Auxílio Emergencial FEBRABAN – Federação Brasileira de BASA – Banco da Amazônia – Bank of the Bancos – Brazilian Federation of Banks Amazon FGTS – Fundo de Garantia do Tempo de BB – Banco do Brasil – Bank of Brazil Serviço – Guarantee Fund for Length of BC – Banco Central – Central Bank Service BEm – Emergency Benefit for the MC – Ministério da Cidadania – Ministry of Maintenance of Employment and Income Citizenship Maintenance NIS – Número de Identificação Social – BND – Banco do Nordeste – Bank of Social Identification Number Northeast PBF – Programa Bolsa Família – Bolsa CadÚnico – Cadastro Único para Família Program Programas Sociais do Governo Federal – GDP – Gross Domestic Product Single Registry for Social Programs of the Federal Government PIS – Programa de Integração Social – Social Integration Program CF – Caixa Fácil PSD – Conta Poupança Social Digital – CGU – Controladoria Geral da União – Digital Social Savings Account General Conrtoller’s Office RFPC – Renda Familiar Per Capita – Per CNPJ – Cadastro Nacional de Pessoa capita household income Jurídica – Brazilian Registry of Legal Entities RFT – Renda Familiar Total – Total Family Cop – Community of Practice Household Income CPF – Cadastro de Pessoas Físicas – SECAD – Secretaria Nacional do Cadastro Individual Taxpayer Identification Number Único – Single Registry National Secretariat DOC – Documento de Ordem de Crédito – SENARC – Secretaria Nacional de Renda Credit Order Document e Cidadania – National Secretariat for DPVAT – Danos pessoais causados por Citizenship Income veículos automotores de via terrestre – TED – Transferência eletrônica – Wire Personal Injuries Caused by Motor Vehicles Transfer on Land The payment system used by Auxílio Emergencial 9 Executive Summary General Aspects of Auxílio Emergencial (AE) • Although it was one of the countries most affected by the epidemiological effects of COVID-19, in the sphere of social protection, Brazil offered some of the quickest, most robust, and continuous responses among developing countries. This response is led by introducing an emergency cash transfer program: Auxílio Emergencial (AE). • Launched in April 2020, Auxílio Emergencial was created to mitigate the socioeconomic impacts caused by the COVID-19 pandemic, under the expectation that the crisis would have a short duration. • The AE was led by the Ministry of Citizenship (MC), with support from several other bodies, including the Social Security Technology and Information Company (Dataprev, responsible for analyzing the program’s eligibility) and Caixa Econômica Federal (Caixa, federal public bank that developed the application for application to the program and made the payment to all program audiences). • AE utilized three entry channels: (a) automatic selection of PBF beneficiaries who would be eligible to receive more significant benefits through the AE program; (b) the automatic selection of people registered in the largest administrative registry of Brazilian social programs (the Single Registry – Cadastro Único or CadÚnico) but who were not beneficiaries of the PBF; (c) passive selection based on requests submitted through the app developed by CAIXA for this purpose, which led to the creation of a new temporary registry (the ExtraCad). • The AE was created to be a temporary program, with an expected duration of only three months. However, the benefit was reissued in 3 versions (each with its legal diploma) which share the same operational structure, although they maintain significant differences in their rules and procedures. • With each new stage, the program became less generous in terms of the size of coverage and the amount of benefit offered. Payment flows during the 3 phases of the AE • The first edition of the program (AE1) took place between April and August 2020 and offered five monthly payments. The second version (AE2) ran from September to December 2020, offering up to four payments, upon monthly eligibility reassessment, and non-cumulative with AE1 benefits still being received. After the program was interrupted from January- March 2021, a third version (AE3) was inaugurated and is expected to end in October 2021. AE3, therefore, offers up to 7 payments in this period, also upon monthly eligibility reassessment. • From AE2 onwards, only beneficiaries enrolled on previous phases of the program were considered for the selection process. 10 Auxílio Emergencial Caixa’s hiring process and exceptional measures to guarantee coverage and communication with the population • Like the Bolsa Família Program (PBF) and other traditional Brazilian social programs, the AE payment operation was centralized by Caixa Econômica Federal. Caixa is a public bank covering 99% of Brazilian municipalities and is historically responsible for managing the Federal Government’s Single Registry for Social Programs (Cadastro Único or CadÚnico, the most significant administrative registry of social assistance policies in the country). • Given the context of the pandemic, Caixa was selected through a simplified contracting process and limited to public banks. These are subject to greater scrutiny by Brazilian comptroling authorities and to a legal framework that allows for greater flexibility in renegotiating the terms of the agreement during the course of the program. Among the public commercial banks qualified to dispute the AE payment transaction, only Caixa showed interest. • Public banks, such as Banco do Brasil, also have almost universal coverage throughout the Brazilian territory. However, they operate a business model more focused on the credit market for people with higher incomes, and prefer payment transactions related to pension schemes and the payroll of the middle and high-level public bureaucracy. Other options, such as Banco do Nordeste and Banco da Amazônia, have an operation more restricted to the Northeast and the Amazonian region of the country and would not manage the payment operation throughout the national territory. A consortium operation was even discussed, but it would bring additional costs and would be of little interest to the banks per month. • Even though the large private commercial banks could have applied for the payment operation of the program, they do not have sufficient capillarized physical facilities to manage the payment operation throughout the country. Furthermore, these banks do not have previous experience managing payment operations for social programs. • The quick contracting of Caixa was made possible thanks to legal mechanisms that allowed the readjustment of values as necessary in the program’s execution. This arrangement allowed the bank to incur unexpected costs related to adapting payment locations to sanitary measures, expanding branches and coverage of mobile branches and social communication strategies. • Both the profile of AE’s low-income customers, and the low remuneration charged by Caixa, end up making AE’s payment operation presumably uninteresting to private banks. The cost per payment of the PBF, for example, ranged between R$1.35 and R$2.46 (about 1.2% of the average benefit paid by the program). The expectation of scale gains for the AE allowed this amount to be reduced to R$1.39 per payment (representing 0.2% to 1% of the amounts paid in the different stages of the AE). These amounts are more than ten times lower than those charged to maintain equivalent cheaper accounts offered by private banks. Caixa’s Digital Social Savings (PSD) • The biggest innovation in the AE payment system was the creation of the Digital Social Savings (PSD), a bank account aimed at moving digitally, via an intuitive application (Caixa Tem). The greatest asset of this innovation resides in the possibility of purchases via virtual debit card; thus, avoiding the challenge of distributing physical cards as a matter of urgency in a pandemic context. The payment system used by Auxílio Emergencial 11 • With the exception of beneficiaries from the PBF, whose receipt routine was changed gradually and sparingly to avoid confusion, the other AE beneficiaries had PSD accounts created automatically and mandatory upon their adhesion to the program. • PSD holders have all the services of a traditional bank account, such as withdrawals, transfers, payment slips, statement consultation, among others. However, as PSD does not offer a physical card, purchasing with the virtual card at physical stores requires retailers to have a card data processing terminal (machine) that operates under the Elo brand. These terminals must be modern enough to generate QR Codes on their displays to be scanned by a smartphone camera. For online purchases, the PSD holder simply informs their virtual card data in a similar way to what happens with physical card holders. To withdraw amounts in cash, the account holder simply generates a token in his application, Caixa Tem. • Despite the good results in using the Digital Card for physical retail purchases, this option is subject to some liquidity challenges that were largely mitigated with the introduction of Pix. • Pix is an instant and simplified transfer option, free of charge for individuals, which was launched in the country in November 2020 and is available to anyone with a bank account (regardless of whether or not they are an AE beneficiary). Pix quickly became popular as a form of retail payments and purchases, therefore appearing as an alternative payment option for PSD account holders when their virtual card is not compatible with the machines used by retailers. The process of dissemination of the Digital Social Savings • The Digital Social Savings (Poupança Social Digital – PSD) initially served as a means of payment for emergency programs, such as the AE, BEm1 and FGTS Emergency Seal2, but as of October, there was legal consent for its use in the payment of regular programs such as the Abono Salarial/PIS3, Seguro Unemployment4, Defense Insurance5, DPVAT Compensation6 and for programs led by sub-national governments. • AE beneficiaries from the PBF were exempted from the mandatory creation of PSD and continued to receive through the traditional channels of the PBF until November 2020. Between December 2020 and March 2021, however, all the PBF public that did not have a Caixa account automatically and mandatory received a PSD account. 1 The Emergency Benefit for Employment and Income Maintenance (BEm) was created by MPs 935 and 936 of April 1, 2020. It allowed for a reduction in wages and working hours with partial coverage of loss of income by the Federal Government if employers committed not to dismiss employees within the next 6 months. The effort preserved more than 12 million formal jobs in 2020, has led to the reissue of the measure on April 27, 2021, by MPV nº 1.045. 2 The Employment Compensation Fund (FGTS) is a mandatory monthly contribution fund to protect formal workers. FGTS redemption was allowed (up to R$1,045.00 per taxpayer, equivalent to US$199.80). 3 The Social Integration Program (PIS), created in 1970, is a benefit paid by the federal government every year to private company workers. This benefit integrates, through a Participation Fund, the employee with the life and development of the company. 4 The Unemployment Insurance (SD) program, created in 1986, is a contributory pension for formal workers, financed by the FAT, which offers 3 to 5 installments after the termination of an employment relationship. 5 The Seguro Defeso, created in 2003, is a benefit granted to professional fishermen who carry out their activity in an artisanal way. This professional is prohibited from fishing during the closed season, that is, during a period established for the preservation of the species. In this way, during the closed period, such persons are entitled to the benefit. 6 DPVAT Insurance, created in 1974, is mandatory insurance designed to cover personal injury caused by land- based motor vehicles and is used to support traffic victims regardless of the fault for the accident. DPVAT is paid by vehicle owners and is mandatory for the licensing process. 12 Auxílio Emergencial • The mandatory creation of an account to receive a social program was a pioneering practice in Brazilian social policy. Before the AE, the Bolsa Família Program made a great effort to make its beneficiaries more bankable. However, as it was a choice of the beneficiary rather than a condition for receiving the transfer, around 46% of PBF holders preferred to receive the benefit without adhering to the bank account offered by the program7. • Before the PSD, the PBF traditionally offered its beneficiaries two options for receiving the benefit: the Caixa Fácil account or the Social Card. The Social Card is not linked to any bank account and its use is limited to the full withdrawal of benefits. In addition, amounts that were not even partially withdrawn after 3 months were returned to the Treasury on suspicion of error or fraud. On the other hand, PBF beneficiaries who had Caixa Fácil accounts were not subject to any reversal clause if they did not transfer the amount received. • The PSD resulted in the banking of approximately 9 million beneficiaries of the PBF who, until then, had received their benefits via the Social Card. • The PSD was launched to enable the payment of the AE, but it quickly served other emergency programs and gradually also captured the payment operations of regular programs, including at the subnational level. Furthermore, this bank account was also an attractive option for people who did not receive benefits from social programs. As a result, between April and December 2020, PSD reached more than one hundred million customers, 34 million of whom had never bankrolled before. • PDS client’s use of the Virtual Card function saw a rapid rise during the second and third quarters of 2020, but after that, with the inauguration and dissemination of Pix, the demand for this type of operation has significantly reduced. Stimuli to carry out digital transactions and the gradualist approach dedicated to AE beneficiaries selected from the PBF public • Except for the public coming from the PBF, the AE determines an interval of a few days between the benefit credit, which limits its use to digital transactions, and the right to withdraw cash. The use of digital operations accounted for 75% of the movement of resources paid by AE. Assuming that a significant part of these digital transfers was not maneuvers to circumvent the interval (for example, transferring to the account of a family member or friend who returns the amounts in cash to the beneficiary), it can be assumed that the behavioral strategy was successful in stimulating digital operations. This hypothesis is plausible since the effort required to carry out the indirect withdrawal of the program seems more costly than using the resource through digital operations available for free and conveniently. • AE beneficiaries coming from the PBF were subject to special payment rules to preserve their traditional payment routine as historically operated by the PBF. • As of December 2020, however, the PBF itself adhered to the PSD as a form of payment. Even so, AE beneficiaries coming from the PBF are entitled to cash withdrawals as soon as the benefit is credited to their account. 7 It is worth remembering that the PBF is a family, not an individual, targeting program. The data of 46% of program holders who are bankrolled refers to the percentage of heads of household who receive the benefit on behalf of their families and who do not have bank accounts. This statistic, therefore, does not reflect the reality of other members of the beneficiary families besides the heads of household. A good way of estimating the situation of PBF beneficiaries in addition to the heads of household is to assess the degree of relationship of the program’s beneficiaries with the national financial system, which includes all family members benefiting from the PBF with more than 15 years-old. with financial institutions. According to this metric, more than ¾ of the members of families covered by the PBF already had some degree of relationship with institutions in the financial system before the AE. The payment system used by Auxílio Emergencial 13 • The AE has adopted the PBF’s current practice of staggering paydays to avoid overcrowding of banks and withdrawal sites. PBF beneficiaries continued to have their payment dates spread over the last 10 days of the month according to the last digit of their enrollment registry in the program, the Social Identification Number (NIS). The other AE beneficiaries, as they do not have NIS and because they are subject to an interval between benefit credit and the right to withdraw in kind, had their payment dates staggered each month according to their month of birth. • Over the course of the program, more than fifteen payment calendars were edited, reflecting the different processing capabilities of the program during its operation. The subsequent exposure of AE beneficiaries to the risk of confusion due to the ad hoc nature of these calendars was mitigated by intense communication campaigns at various levels. • Social communication campaigns led by Caixa, in addition to the Ministry of Citizenship’s campaigns, included partnerships with subnational governments, despite their formal non- inclusion in the AE operation. Digital Social Savings (PSD) and the encouragement to generate savings • PSD is innovative as it makes the allocation of resources in savings more convenient to users. The new account modality allows savings amounts to be automatically deducted through a purchase, transfer or withdrawal order; thus, exempting the user from withdrawing money from savings to be able to dispose of the amounts in a checking account. Naturally, amounts moved over a month do not entail receiving dividends from savings, which is limited to amounts that have remained in the account at each one-month cycle. • The strong correlation between the national net balance of savings funding and the AE operation suggests that the program has been a strong inducer of the surplus savings balance that reversed the trajectory of the previous year and reached the ceiling of its historical series in 2020. • Although aggregated data on national savings balance are not sufficient to identify which strata of income distribution most contributed to this trend, the hypothesis that the huge volume transferred by the AE was one of the drivers of this phenomenon is also supported by the downward trend in raising savings during the months in which the AE was discontinued, between January and March 2021. Furthermore, Caixa’s savings capture rate was almost double the national average, strongly driven by PSD accounts. • The months in which the AE operated most generously had the largest surpluses in raising savings, and the period of discontinuation of the AE (between January and March 2021) was marked by an abrupt deficit. Inclusive measures of the payment system and cash management • Possession of a valid CPF was the only credit analysis to which the opening of PSD accounts for beneficiaries of the AE and other emergency programs was conditional. In this context, there was an active effort to regularize CPFs8. 8 The Internal Revenue Service opened, concurrently with the process of requesting the benefit, an online channel for the free regularization of the CPF for those who had the document suspended. 14 Auxílio Emergencial • The program prohibited the sequestration of the benefit to settle any outstanding debts of the beneficiaries. This measure was in force for all accounts held by the beneficiary of the program as long as the transfer of the resource occurred through traditional means, TED or DOC, capable of tracing the origin of the resources from the AE. • The AE adopted a similar clawback rule to that practiced by the PBF in the case of beneficiaries who did not have a bank account and received the benefit via the Social Card. As a way to mitigate errors and fraud, the AE payment system recovered amounts paid in accounts that did not record at least partial withdrawal for long periods, with the effect both for the majority of beneficiaries who were assigned a PSD, as well as for the minority coming from the PBF and which, until December 2020, continued to receive through the payment systems of the PBF (read, through Caixa Fácil account or the Social Card). • Initially funds that were not at least partially withdrawn were returned to the Treasury after 90 days. Later, this period expanded to 270, and the rule was made more flexible for some vulnerable groups with greater difficulty accessing their accounts, such as beneficiaries of the PBF, indigenous people registered in Single Registry (Cadastro Único)9 and residents of the Amazon states Acre and Amazon. • There is still no public data available to measure the real need for measures to revert unused benefits, nor the effects of this practice on the saving behavior of the program’s beneficiaries. • Given the strong transfer of resources due to emergency programs such as the AE, as well as the hoarding trend observed during the pandemic, the Central Bank of Brazil (BC) expanded the monetary base held by the public (M1, paper money and currency metallic) by 32%, almost triple the average expansion observed since the year 2000. • Another BC measure also related to the demand for cash generated by the AE was the introduction of the R$200 note in September 2020 (double the value of the largest note available until then). The economy received the new currency well and did not face liquidity problems. • AE’s cash management was guided by pre-existing mappings that Caixa carries out in support of the PBF payment operation. This operation involves crossing the bank’s administrative data with those from the Single Registry and other sources to identify the regions with the highest concentration of withdrawals by people who travel great distances to withdraw cash. This allowed Caixa to direct sufficient cash to the withdrawal points most subject to the cash shortage crisis, preventing this type of problem from materializing. Final Considerations • Although the main axis of the AE payment system was the creation of the PSD, throughout the program there was a need for active coordination to maximize the integration of this solution with other relevant events; such as, for example, the creation of Pix, the increase in demands for cash and reactions from the BC, and lawsuits contesting the difficulty of some vulnerable groups to access the program’s payment system. • The rapid spread of the PSD was probably the fastest and most comprehensive banking process in history. Although the AE has contributed to this, for example, through the 9 Cadastro Único or Single Registry is the main federal government registry to access social policies. In addition, it allows the integration among the programs offered by the government. The payment system used by Auxílio Emergencial 15 automatic creation of accounts, it is notable that the program has created specific rules so that its most vulnerable beneficiaries, coming from the PBF, could gradually migrate to the new payment system gradually and parsimoniously. Yet, it would be important to establish more positive incentives and reinforcements so that these groups adhere to a sound banking culture, which can be a way to access financial services. This can be a complementary measure to social protection programs in the advent of new covariate shocks new shocks. • The introduction of Pix added convenience to AE beneficiaries with PSD accounts, as it allowed to mitigate liquidity problems in situations where retailers did not have machines compatible with payment via Virtual Card. Therefore, fast and free transfers, such as Pix, should appear as an interesting alternative for countries facing liquidity dilemmas in accessing monetary benefits paid via POS and similar. • The AE payment transaction is probably the one with the greatest potential to continue even after the context of the pandemic. This fact is already configured as something accomplished since the PBF and other social programs have already migrated to this new form of payment. Countries interested in adapting the Brazilian experience should consider that Brazil has mitigated the entry costs of these new technologies through the use of the solution by various programs, subsequently generating economies of scale. 16 Auxílio Emergencial 1. Introduction The Auxílio Emergencial (AE) was the main social policy in response to the COVID-19 crisis in Brazil, and one of the most vigorous in the world, both in terms of its generosity, speed, and coverage, as well as because of the program’s auspicious design. Given the serious socioeconomic implications brought by the COVID-19 pandemic, Brazil chose to launch one of the most generous, long, and timely emergency social programs in the world. Originally designed to last only 3 months, the AE had to be expanded consecutively given the recalcitrance of the crisis. Operating since April 2020, the program is already in its third phase and its effects may have mitigated the impacts of the crisis and improved the country’s socio- economic conditions, even considering the levels of the immediate precrisis. In addition to powerful features, this program’s success is also based on a complex and intelligent architecture. The AE debuted several innovations in operating social policies, especially concerning the use of IT for remote applications and, mainly, payment of benefits. The AE payment system combined Caixa’s historical experience, responsible for operating the payment of social transfers such as Bolsa Família, with innovative solutions. These allowed the use of a 100% digital means of payment and with an incentive to save, which contributed to the largest collection of savings in the Brazilian historical series. The AE delegated the payment function to Caixa, the largest public commercial bank in Brazil and a traditional payment operator for regular social transfers, such as the Bolsa Família Program (PBF). However, for the AE, a completely new payment system was developed, characterized by the automatic access of beneficiaries to a Digital Social Savings account (PSD). This account offered convenience for bank transactions similar to a checking account, but with savings remuneration for the amounts did not use each month. This factor is seen as crucial for the increase in the capture of savings, which reached the peak of its historical series in May 2020, even with rates of return significantly lower than inflation in the same period. With no cost to create an account and free of fees for a given number of basic banking operations (such as transfers, withdrawals, statements, and payment of bank slips), PSD operated entirely digitally. The account introduced innovations such as the virtual debit card in this process and exempted the program from having to rapidly distribute physical cards in the midst of a pandemic. The conjunction of PSD with Pix was a great solution to the liquidity dilemmas that often affect fully digital payment systems. The convenience of PSD is also related to the advantages inaugurated by the introduction of a new modality of immediate and free transfers in November 2020: Pix. In practice, the introduction of Pix allowed bank transfers to become popular in Brazil. They were also used as a form of payment for retail purchases; thus, offering a solution to the traditional liquidity dilemma faced by electronic payment systems that rely on retailers to sign up to a specific provider of card data processing terminals (machines). PSD, for example, offered a digital virtual card compatible with only 10% of the machines existing in the country. In this sense, it was healthy to have Pix as an alternative payment option when the PSD virtual card was not compatible with the machine used in a certain commercial establishment. The payment system used by Auxílio Emergencial 17 PSD’s experience as AE’s payment channel was so positive that other programs used the tool and surpassed the one hundred million customer mark in just 9 months. The use of PSD as a means of payment for the AE and the inauguration of Pix was such a success that other social programs quickly started to use PSD as a payment instrument. This led to the creation of over one hundred million accounts between April and December 2020. In the context of AE, the assignment of PSDs was gradual, though automatic. In the first 6 months of AE operation, beneficiaries who had declared a preference for receiving the amount in other accounts had the benefits credited to PSD accounts automatically opened upon inclusion in the program. These amounts, however, were automatically and free of charge transferred to the preferred bank account indicated when enrolling in the program. After this period, the transfer continued to be possible, but no longer automated. This change has the merit of emphasizing to beneficiaries that a PSD account linked to the program was created and favors the loyalty of clients by Caixa; but, on the other hand, it decreases the user’s convenience. In the case of AE beneficiaries from the PBF, the parsimony was even greater, as they were given the option of continuing to receive through the PBF payment channels until December 2020. The gradual migration of PBF beneficiaries to PSD accounts began from that date onwards. Furthermore, this public also followed a specific calendar and protocol in order to preserve the routines already established by the PBF (for example, with regard to the rules for the scheduling of payment days each month). Also, as a way to avoid crowding at bank branches, AE created behavioral incentives for users to prioritize digital transactions instead of cash withdrawals. As a result of the special care given to AE beneficiaries from the PBF, this group may, for example, be excused from behavioral measures applied to other AE beneficiaries as a way to encourage the use of digital operations to the detriment of physical withdrawal of values. Among these measures that apply to all AE beneficiaries except for those coming from the PBF, the most notable was the introduction of an interval of a few weeks between the benefits credit (allowing only its use through digital operations) and the right to withdraw of these values in kind. Of all the innovations brought about by the AE, those carried out in the context of its payment system have the greatest potential to permanently remain part of the regular system of social protection in Brazil even after the pandemic. In fact, this is already a reality since the vast majority of social programs have started to adopt PSD. The convenience and possibility of automatic creation of the PSD allowed, for example, the banking of nine million beneficiaries of the PBF who, despite historic efforts, hesitated to bank. However, it remains to be seen what are the implications of the automatic creation of bank accounts for beneficiaries of social programs without their explicit consent in the medium and long term. Furthermore, Caixa and the social programs it serves are responsible for seeking to consolidate these new waves of customers by offering adequate financial products, but also which, ideally, can contribute to the resilience of these people in the event of new covariate shocks in the future. 18 Auxílio Emergencial BOX 1. Sharing and Institutionalizing Lessons Learned from Brazil’s Social Protection Response to COVID-19 To catalog and analyze innovations introduced lessons from the Brazilian experience responding by the Auxílio Emergencial, the Foreign, to COVID-19”. Upon demands expressed by the Commonwealth & Development Office of the FCDO, the Brazilian government, and social policy Government of the United Kingdom (FCDO) managers in African countries that participated in funded a research agenda developed by the the Mini-CoP on June 22, 2021, the project also World Bank, titled ‘Sharing and Institutionalizing elaborated the 4 Technical Notes listed below, Lessons Learned from Brazil’s Social Protection each going deeper into more specific aspects. Response to COVID-19’. The project consisted • Technical Note 1: Validation of eligibility of the analysis of 587 bibliographic references1 criteria, beneficiary selection, and use of identified according to the authors’ screening administrative registries and data crossing from and suggested readings over 35 semi-structured different databanks as part of the AE. interviews involving 66 people from 11 different institutions (and 7 different offices within the MC). • Technical Note 2: The payment system used by the AE, introduction of the Digital Social Project interviews were conducted between April Savings Account and opening bank accounts 8th and July 16th, 2021. The choice of groups and to more than 100 million previously ‘unbanked’ focal points that were interviewed for this study people in 9 months. was the result of an initial screening conducted by the authors with an expansion of the sample • Technical Note 3: Advantages and challenges according to the snowball methodology, in which in the implementation of emergency social people already interviewed suggested other policies in a decentralized arrangement: people and institutions that we could interview. In considerations about the AE in Brazil. this process, the suggestions made by the SECAD • Technical Note 4: Specific measures for team and, particularly, by the then Secretary Nilza inclusion and adequacy of the AE for vulnerable Yamazaki and by the General Coordinator for groups. Registration Management and Processes, Ana Gabriela Sambiase, were fundamental. This text, Technical Note 2, therefore addresses the issue of payment systems used by the AE. The main product of the research agenda is the Summary Note entitled “Auxílio Emergencial: 1 175 of the main references used in the elaboration of this research agenda are available in the project’s online library through the link: https://www.zotero.org/groups/4504692/auxlio_emergencial_library_for_ public_access_world_bank_project/library. The payment system used by Auxílio Emergencial 19 2. General Aspects of Auxílio Emergencial (AE) Although it has been one of the countries most affected by the epidemiological effects of COVID-19, in the sphere of social protection, Brazil has offered some of the quickest, most robust, and continuous responses among developing countries, led by the introduction of an emergency transfer program income: Auxílio Emergencial (AE). Brazilian social assistance, which historically receives around 1.5% of GDP (World Bank 2021a), received around 5% of GDP in 2020, 87% of which went to AE (GoB, CGU 2021). The initiative consisted of a temporary and unconditional cash transfer program, designed in an ad hoc manner to benefit adults (or teenage mothers) without active formal employment, informal workers, and individual micro-entrepreneurs with per capita household income (RFPC) of up to half the minimum wage (R$522.50) and/or total family income (RFT) of up to 3 minimum wages (R$3,315.00 or U$633.8). Additionally, the program was limited to people whose income declared in the income tax of the previous fiscal year did not exceed R$ 28,559.70 (U$ 5,460.7), and who did not receive social security and/or labor benefits. The AE was also restricted to people who did not receive other social transfers from the Federal Government. An exception to this criterion was the case of the Bolsa Família Program (PBF) beneficiaries, who automatically started to receive the AE benefit whenever it was more generous. This PBF audience represented 19.5 million and 10 million AE beneficiaries in 2020 and 2021, respectively. In addition to the beneficiaries coming from the PBF, the AE also carried out the automatic inclusion of those eligible who were enrolled in the Single Registry until April 2, 2020 but were not beneficiaries of the PBF. This public, non-PBF Single Registry, represented 10.5 million and 5.2 million AE beneficiaries in 2020 and 2021, respectively. Finally, the program benefited eligible people who requested access through an app developed for this purpose, Cadastro Extra/ExtraCad. The latter audience represented 38.2 million and 23.8 million AE beneficiaries in 2020 and 2021, respectively (World Bank 2021c). Figure 1. Main AE flows Source: Elaborated by the authors. 20 Auxílio Emergencial 20 The Ministry of Citizenship led the AE. However, the benefit had seminal operational support from Caixa for receiving the requirements and making payments and from Dataprev in the eligibility analysis stage. The Ministry of Citizenship headed the program’s operation, highlighting the roles of two departments: the National Secretariat for Citizenship Income (SENARC) and the National Secretariat for the Single Registry (SECAD). SENARC was responsible for the beneficiaries automatically included from the PBF. SECAD, on the other hand, was responsible for the other beneficiaries (read, those included automatically from the Single Registry, although not beneficiaries of the PBF, and those who requested the program via cell phone application). Caixa, the traditional operator of the PBF and manager of the Single Registry, was responsible for making payments for the program and developing the application for requesting the benefit and its respective database, the Cadastro Extra (ExtraCad). Another important player, albeit without a previous record in the operation of the PBF, was a public technology and information company, Dataprev. The company has developed an advanced technological solution allowing the interoperability of Single Registry, ExtraCad, and dozens of other bases used for measuring (Ibid). Figure 2. Timeline of the three stages of AE and the main characteristics of each one Source: Elaborated by the authors from different sources (GoB, CGU 2021; GoB, Min. Cidadania 2021d; 2021e; Lara Ibarra 2021; Yamasaki e Rodopoulos 2021; Bartholo et al. 2020; Valor Econômico/ Valor Data 2021; GoB, Min. Cidadania 2021d; 2021e). Note: Payments determined through the courts, although numerically marginal given the program’s operation, may have occurred after the reference period indicated here for each stage of the program. These payments refer to cases in which the program’s selection system denied the payment, but these people sued the program and ended up getting a court decision forcing the program to reverse the denial. The payment system used by Auxílio Emergencial 21 The AE was created to be a temporary program, with an expected duration of only three months. However, the benefit was reissued in 3 versions (each with its legal diploma) which share the same operational structure, although they maintain significant differences in their rules and procedures. Approved as law by Congress on March 30, 2020 (Law No. 13.982/2020) and sanctioned by presidential decree of April 2 of the same year (Decree No. 10.316/2020), the first version of Auxílio Emergencial (AE1) offered a base benefit of R$600 per month and made its first payment on April 8, 2020. Initially designed to last three months, the AE1 was extended for another two months until August 2020. Between September and December 2020, a new phase of the program (Residual Aid, AER, or AE2) was launched by MP No. 1,000 of September 2, 2020, and subsequent Decree No. 10,488 of September 16, 2020. AE2 changed the eligibility rule and a drastic 50% reduction in the benefit amount. In addition, he introduced the monthly program reassessment eligibility rule. Between January and March 2021, the initiative was discontinued. However, with the worsening of the crisis due to the second wave of the pandemic, in April 2021, the AE3 (or Aid 2021, AE2021) was launched through MP Nos. 1.037, 1.038, and 1.039 of March 18, 2012, and Decree No. 10.661 of March 26, 2021. With an estimated duration of 4 months (already expanded by another three months), AE3 offers a base benefit of R$250, with an additional R$120 for single mothers and a reduction of R$100 for beneficiaries living in single-person households without children (Ibid). The application to AE1 was open between April 2 and July 2, 2020. After that, the selection of AE2 and AE3 beneficiaries was limited to people who had been considered eligible for AE1 (albeit retroactively through legal disputes). Figure 3. Evolution in the number Figure 4. Relationship between of beneficiaries per inflow (AE1, applicants and eligible (million AE2, AE3) people) in AE1 Source: World Bank (2021d; 2021d) based on Ministry of Citizenship coverage data (GoB, Min. Cidadania 2021d) and application data gathered from an interview with program managers. Note: The data referring to AE1 and AE2 express monthly coverage peaks during these phases, while those referring to AE3 coverage refer to consolidated monthly coverage peaks in July 2021. With each new stage, the program became less generous in terms of the size of coverage and the amount of benefit offered. In addition to the benefit values, the limitation of the window for requesting access to the program, and the monthly eligibility revalidation rule, at each new stage of the AE, its legal diploma defined more restrictive regulations to arbitrate eligibility for the program. In AE1 and AE2, for example, eligibility was subject to the RFPC or the RFT. However, in AE3, the regulation required that beneficiaries have both incomes below the eligibility threshold. In AE1, eligibility was only determined by direct income, while in AE2 and AE3, some assets were included to be considered as income predictors (such as high-value cars and boats and investments in the financial market). In AE1, two people per household could benefit from the program, including a double payment for single mothers. 22 Auxílio Emergencial In AE2, single mothers’ receipt of a doubled amount impeded receiving a second quota per household. And in AE3, it was defined that only one person per household could receive the benefit. Furthermore, the protocols for assessing eligibility were also becoming stricter. The selection process was exclusively based on the crossing of administrative records. Along its trajectory, the program expanded the number of records used from 17 to more than 40 (or more than 100 considering that some of these are, in fact, the agglutination of smaller records that do not necessarily have standardization among themselves)(World Bank 2021c; 2021d). The payment system used by Auxílio Emergencial 23 3. Payment flows during the three phases of Auxílio Emergencial The AE had a limited inclusion window for beneficiaries between April and July 2020, and those with late access in this period ended up receiving a smaller number of benefits until December of that year. Unlike regular programs, such as the PBF, whose admission of new beneficiaries occurs permanently according to the program’s financial possibilities, the AE had its application window limited to its first four months of operation. During its implementation, the AE also changed its benefit structure, which initially guaranteed access to the five installments. However, it later began to guarantee monthly installments for the duration of the program (and that beneficiaries remained eligible since eligibility started to be assessed monthly since the launch of the AE2). An essential point in the characterization of the AE benefit concerns the payment flow rules and (non) accumulation of benefits. AE1 beneficiaries (operational between April and August 2020) were entitled to five monthly installments regardless of when they were accepted into the program. In the case of AE2 (which operated between September and December 2020), monthly non-cumulative payments were assured with installments from AE1 that were perhaps still being received after August. The practical implication of this rule was that the first AE1 beneficiaries, accepted as early as April 2020, received five AE1 tranche (designated P1 to P5) and another four AE2 installments (designated R1 to R4), while beneficiaries who entered after April stopped receiving a share of AE2 for each month of ‘delay’ in their first access to the program. Figure 5 below exemplifies this situation concerning three hypothetical cases. In the first of these, the beneficiary, Maria has her access to the program granted in April 2020, with her first payment also received this month; in this case, Maria received five installments from AE1 until August and another four from AE2 between September and December. In the case of beneficiary Ana, her inclusion in the AE1 only occurred in June 2020. As a result, she received five installments of AE1 by October 2020 and only received 2 AE2 benefits in November and December. In the case of beneficiary José, his entry into AE1 only took place in August 2020 (he probably must have applied for the benefit close to the deadline of July 2nd, he had a first application rejected, but he was granted access after contesting the first rejection). Therefore, José only received the fifth installment of his AE1 benefit in December, and as a result, he did not receive any AE2 installment. In addition to fiscal limitations, the time restriction for receiving program applications and its non-cumulative flow of payments reflected the program’s saturation of eligibility processing capabilities. This payment structure resulted from an initial expectation that only provided for the AE1 (with a limited duration of three months) and considered the saturation of the operational capacity of the MC and other entities involved in the policy. Although the choice has the inherent risk of penalizing those who made the late request as they are very vulnerable and have difficulty in accessing them, the data seem to indicate that most of these cases are, in fact, people who challenged in court for their right to program. On the one hand, this initial arrangement had the merit of prioritizing the payment of the five AE1 installments 24 Auxílio Emergencial (with a base benefit of R$600 or U$114.7) instead of standardizing all payments after August based on the reduced amount (from R$300 or $57.4) of AE2. On the other hand, and although more than 70% of AE1 beneficiaries had access already in the month of April (including almost the entire public PBF and Single Registry non-PBF), a disadvantage of this system was the reduction in the total amount that could be claimed in 2020 by someone who applied late to the program. There is still no data available to allow the socioeconomic characterization of these beneficiaries with later access who subsequently received fewer portions of the AE2. As indicated in figure 6, however, this group is mainly composed of people who got their right to benefit through legal means. It is assumed that people with relative access to public services. In any case, the hypothesis that late beneficiaries also include people in a situation of extreme vulnerability which, for this very reason, had more difficulty in requesting the benefit is worrying. Figure 5. 2020 Auxílio Emergencial (AE1 and AE2) payment timeline for three different hypothetical situations Source: Ministry of Citizenship (GoB, Min. Cidadania 2021a). Figure 6. The flow of receipt of the first installment of AE1 (P1) via inbound Source: Ministry of Citizenship (GoB, Min. Cidadania 2021c). The payment system used by Auxílio Emergencial 25 4. Caixa’s hiring process and exceptional measures to guarantee coverage and communication with the population All AE payments throughout its three phases were centralized in Caixa, the Bank also developed and managed the application request and the ExtraCad, in addition to making available for the program a modality of Social Digital Savings Account (PDS), which, until that moment, operated on a pilot basis. The conjunction of Law 13.979 of February 6, 2020 (making public management procedures more flexible during the pandemic, including those relating to the signing of contracts) and Law 13.982 of April 2, 2020 (establishing the AE1) indicated that the hiring of a paying entity of the program, exempt from the bidding rite, should be restricted to one or more of the four federal commercial banks in the country: Caixa (Caixa Econômica Federal), Bank of Brazil (Banco do Brasil, BB), Bank of the Amazon (Banco da Amazônia, BASA) and Bank of Northeast (Banco do Nordeste, BNB). The options were limited to these banks as, as they are federal public banks, they are subject to scrutiny by control bodies capable of mitigating risks due to the simplified contracting procedure allowed on an extraordinary basis for the articulation of the AE. For private banks to be candidates to carry out this operation without the risk of violating legal principles of public procurement in Brazil, the selection process would have to follow traditional bidding procedures that would take much longer. Through preliminary consultations carried out during the approval of Law 13.982, Caixa emerged as the most interested candidate in capturing the operation. In addition, Caixa is not only the paying agent for other crucial social security and assistance benefits (such as Seguro Desemprego and PBF), but it is also the bank with the greatest capillarity in the country (with a presence in 5,415 of the 5,570 municipalities Brazilians in December 2019)(Yamasaki and Rodopoulos 2021; Yamasaki and Sambiase 2021; Bartholo et al. 2020; Assumpcao et al. 2020; GoB, Agência Brasil 2019). Given the scale of the AE operation, Caixa managed to charge only R$1.39 per payment made; therefore, cheaper than the amount Caixa charged for payment of the PBF (GoB, Min. Cidadania and GoB, Caixa Econ. Federal 2020). As verified in the interviews for this project, Caixa’s comparative advantage, given its previous involvement in assistance programs, as well as its highly competitive price, were factors that discouraged other public banks from disputing the AE payment operation. In addition, other public banks, such as BB. However, they also have capillarity in practically all municipalities in the country. They operate credit markets that are more geared towards the middle and high-income public, with a predominance of involvement in the payment of social security benefits and salaries for medium and high- ranking public servants. Other options, such as BASA and BNB, have a very focused coverage on these regions (the Amazon and Northeast) and would not have the capillarity to carry out the operation on a national scale. On the other hand, the complexity of carrying out the payment operation in a consortium ruled out this possibility, not least because it would dilute the potential advantages of the bank that would lead this consortium. Finally, it is worth noting 26 Auxílio Emergencial that private banks in Brazil have no record of operating social transfer payments. Furthermore, judging by the business model profile and the value of maintenance fees for even their most straightforward accounts, the amount paid to Caixa would possibly not have been attractive even if they could have participated in the simplified selection process (GoB, Banco Central 2021c). BOX 2. Mobile Agencies for Payment for Isolated Communities Since the beginning of AE, Caixa has expanded its presence in the national territory. Its physical branches, which in 2019 covered 97% of the municipalities, now cover more than 99%. More than 26 thousand physical service points include 4.2 thousand branches and bank points, 8.8 thousand exclusive banking correspondents, 13 thousand lottery units, 8 truck branches, and 2 boat branches (Caixa, 2021). In addition to the expansion in the number of physical branches, there was also a need to expand coverage of mobile services, especially to cover areas where digital services were not very helpful given the scarcity of telephone and internet coverage and given the centrality of cash in the forms of commerce available in the context of traditional communities such as riverside dwellers, quilombolas and indigenous peoples. In these cases, the availability of mobile agencies also fulfilled the role of discouraging members of these communities from exposing themselves to the risk of contagion by COVID-19 on long journeys to receive the benefit. Thus, the payment of benefits was avoided from becoming a vector of contagion for these communities with difficult access to basic health services. In 2020, Caixa increased the number of cities served by boat agencies. Thus, the coverage of Agência Barco Chico Mendes increased from 6 to 16 municipalities, while Agência Barco Ilha de Marajó increased from 10 to 15 municipalities, thus totaling 31 remote municipalities and the public of more than 2,000 riverside dwellers served monthly by these routes. This action prevented the population, mostly indigenous peoples, from moving in the midst of the health crisis (Caixa, 2021). Source: Caixa (2021k). In addition to the boat branches, Caixa has eight mobile service units using trucks. These trucks travel to 158 cities in the country’s interior (with few or no fixed Caixa service stations), and, in 2020, they provide more than 6,600 general services (Caixa, 2021). Source: Prefeitura Granja (2020). Source: Elaborated by the authors. The payment system used by Auxílio Emergencial 27 The quick contracting of Caixa was made possible thanks to legal mechanisms that allowed the readjustment of values as necessary in the program’s execution. The entire negotiation was carried out in a highly agile manner, with the selection of Caixa on April 3, preparation of the AE application and PSD access apps on April 6, formalization of the contract on April 8 with the transfer of the first batch of payments to the bank on the same day and subsequent payment of the first 2.5 million beneficiaries the following day (GoB, Caixa Econ. Federal 2020b). As verified in interviews, these achievements were technically made possible by Caixa’s prior interest in developing an inclusive modality of digital accounts, which was already operating in a pilot format. Furthermore, Caixa not only paid for programs such as the PBF but also managed the Single Registry and, for this reason, was already carrying out studies on how to improve the tool. The speed with which Caixa was hired also reflects the merit of the legal structure available in the country, which, under the mediation of the Federal Attorney General (Advocacia Geral da União, AGU), allowed a good faith agreement based on preliminary estimates of the volume of payments and costs which, as seen later, need to be adjusted due to the unexpected costs incurred in operating the program. The program’s payment operation included expenses for adapting payment sites to sanitary measures, expansion of branches and coverage of mobile agencies, and social communication strategies during its operationalization. As an illustration, according to Caixa (2021g), the support provided under the AE led to the hiring of 7,704 new employees, of which 2,766 were employees, 1,162 were interns, 2,320 security guards, and 1,456 receptionists. Other costs not initially foreseen in the first contract with Caixa resulted from the need for actions such as the purchase of personal protective equipment for employees and customers and the installation of tents that would provide some comfort to customers while waiting in lines. Due to the pandemic, the lines are longer and more spaced than usual, they overflowed the covered space of bank branches. There were also exceptional expenses to guarantee banking access to isolated communities (no access to traditional bank branches or internet signal for handling digital operations). In extreme cases, it was necessary to move mobile agencies (including boat agencies and bus agencies in regions of the Amazon) (Caixa Econômica Federal, [s.d.]). Social communication actions complementary to those of the program as a whole was also needed. Caixa incurred significant expenses with social communication actions necessary to explain the rules for credit and withdrawal of benefits. Another target aspect of the social communication strategy was the dissemination of information about the benefit payment schedules. These calendars were determined on an ad hoc basis at different periods to reflect the operational capacity available at each time. There was also a lot of social communication action to instruct the beneficiary population to operate the application used as the main form of payment for the program. These actions complemented those carried out directly by the Ministry of Citizenship. Although there was coordination between the Ministry of Citizenship and Caixa regarding the content of the informative messages, there was no specific remuneration for these communication actions undertaken by Caixa. Presumably, these costs were internalized (at least partially) in the amount charged by Caixa for payment made, although there may have been additional funding from Caixa as part of its strategy to establish itself as the main bank operating social programs in the country. In this way, Caixa’s actions deflate the recurring campaigns that defend its privatization through performance evaluations that give little value to the bank’s social role. 28 Auxílio Emergencial BOX 3. Communication strategies undertaken to support the payment transaction Caixa organized its communication strategy for houses. According to the interviewees’ reports, Auxílio Emergencial into two pillars: digital media sound cars, reports on local and regional radios, and local communication. Through its profile on distribution of calendars, and reports in strategic the main social networks - Instagram1, Facebook2, points with a high circulation of people were used. Twitter3, and publicity for open television - Caixa The campaigns aimed fundamentally at clarifying publishes information and constant updates the program’s eligibility rules; instruct the related to the benefit and its calendar. In addition, population on the use of the applications to Caixa periodically holds press conferences and apply for the program and access the benefit; and YouTube lives4 vthrough which the public bank emphasize some rules of the payment process, makes an effort to provide greater transparency such as the one referring to the interval between in its actions and results by presenting data and credit and the right to withdraw the benefit and information related to Auxílio Emergencial and the rule that returns to the Treasury amounts that opening space for questions and answers. In are not even partially withdrawn after 90 days. 2021, Caixa signed a partnership with WhatsApp to send messages about the benefit to registered In terms of publicity and advertising for all its numbers. The partnership allows the mass activities, Caixa spent, in 2020, a total of 106 million sending of information regarding the program to reais. During this period, the bank also had an 88% beneficiaries from an official number assigned to increase in the number of followers compared to the AE as a way to minimize the chances of crimes the previous year (Facebook, Instagram, LinkedIn, of misrepresentation by people who pretend to be Twitter, and YouTube). Publications on social program operators in order to obtain confidential networks increased from 1.4 thousand in 2019 information or commit other crimes (Globo, 2021). to 3000 publications in 2020. Caixa also showed growth in press attendance in the order of 134.1% Unlike the communication strategy through (from 6.2 thousand to 14.7 thousand services from digital media, the second pillar is composed of a 2019 to 2020) (Caixa, 2021). decentralized communication strategy at the local level based on the action of agencies and lottery 1 Caixa’s official account can be accessed at: https://www.instagram.com/Caixa/?hl=pt-br 2 Caixa’s official account can be accessed at: https://www.facebook.com/Caixa 3 Caixa’s official account can be accessed at: https://twitter.com/Caixa 4 The official Caixa channel can be accessed at: https://www.youtube.com/playlist?list=PLjyojW8y_ HLu0jYfa3IIf5kZXJSKtVNAd Source: Elaborated by the authors. The payment system used by Auxílio Emergencial 29 5. Caixa’s Digital Social Savings (PSD) The Digital Social Savings (Poupança Social Digital, PSD) was launched concomitantly with a specific bank transaction application for this account and the Caixa Fácil account (previously offered to PBF beneficiaries). The application has a more intuitive format and quick shortcuts for recurring transactions between beneficiaries of assistance programs (see Figure 7). On April 6, PDS was launched together with the Caixa Tem app, a lighter, more intuitive app that aims to beneficiaries of social programs than the standard internet banking app offered by the bank until then. Although it consumed little mobile data, this app did not offer free access, as in the case of the AE application. Through the Caixa app, beneficiaries holding Caixa Fácil or PDS accounts can carry out a series of traditional banking operations as listed in Table 1. The app format is designed for people without much familiarity with internet banking, with a display of services in a dialog format similar to the WhatsApp app (most used chat in Brazil) and direct options for consultation of social benefits and other services with greater demand among this audience (GoB, Caixa Econ. Federal [s.d.]). Figure7. Simplified interface of the Caixa Tem application Although many people may have limited access to the Caixa Tem app due to digital exclusion, the option of carrying out operations through face-to-face visits to Caixa’s service network was available throughout the program. Even without data to estimate the barriers to accessing the Caixa Tem app, it is known that this is a significant risk since, in 2019, 21% of the population did not have access to the internet, and 40% of the population did not have access to the internet by cell phone (CETIC 2020a; 2020b). Presumably, there are an even larger number of people who have access to the internet but who are not familiar with performing operations via the app. In any case, it is worth noting that PSD beneficiaries who were unable to carry out digital operations through the Caixa Tem application had the 30 Auxílio Emergencial possibility of carrying out these operations through a physical visit to Caixa’s on-site service network (which adopted protection and has remained functional since the beginning of the pandemic). Until September 2020, ExtraCad and Single Registry non-PBF beneficiaries who indicated a preference for receiving the benefits in other accounts (of other banks) had the convenience of already having the value of the benefit fully transferred automatically and free of charge to the account designated in your program application form. In some cases, this convenience was even confused as if other banks were also paying entities of the AE. As of September 2020, however, this option was discontinued, and the transfer of the PDS to another account became the responsibility of each beneficiary (GoB, Caixa Econ. Federal 2021e). The end of automatic transfers of benefits credited in PSD accounts to other bank accounts of AE beneficiaries represented less convenience for these beneficiaries. On the other hand, the measure was important to ensure that the benefits of the program realized that their adherence to the program was linked to the creation of a PSD account. Additionally, the measure reduced the operational stress on Caixa and contributed to the possibility of retaining these new customers beyond the duration of the program. This is one of the main reasons that led Caixa to manage this operation at a cost so low compared to that practiced by the market and, even, by Caixa itself in the context of other programs such as the PBF. The PSD has advantages and disadvantages when compared to the type of bank account traditionally available to beneficiaries of the PBF – the Caixa Fácil (CF). As you can see in Table 1, the advantages of CF over PDS include 10 more free withdrawals per month and the absence of a daily limit on amounts for bill payments and other transactions. CF also has three different platforms for accessing digital services, including the Caixa Tem app. PDS, in turn, has the advantage of an unlimited number of free transfers between Caixa accounts and two more free transfers to other banks than what CF offers. However, PSD account holders have a daily value limit that can be moved, while CF account holders do not have this type of limit. On the other hand, the PSD allows monthly transactions up to a higher limit than allowed by the CF. Table 1. Comparison of benefits Caixa Fácil, PDS and Regular Accounts offered by Caixa Integrated Digital Social savings to Caixa Fácil PBF Social Savings the bank V Savings Card Account account Account (PSD) (Cash)/ regular Membership and None None None None Annuity Costs The card arrives by post office, Account opening but it does Lottery house Digital Caixa branch location not require a checking account The payment system used by Auxílio Emergencial 31 Balance and Nonexistent Free of charge Free of charge Free of charge statement inquiry Free, but the Up to 12 free Up to 2 free entire amount withdrawals withdrawals Free at service, of the monthly per month at per month at Withdraw ATM, and benefit must be service points, service points, lottery outlets withdrawn at ATMs, and ATMs, and once lottery outlets lottery outlets Up to 8 free transfers per month to Free and Free and another Caixa unlimited for unlimited for Transfer (TED) Impossible account. Caixa. Up to 3 Caixa. Limit Limit of 1 free free transfers to 4 transfers to transfer per other banks. other banks. month to other banks. Free at service, lottery, agency, and digital outlets, but limited to a maximum daily limit of BRL 1200.00 with a Free at service, Free at service, ceiling of BRL Bill payment Impossible lottery, agency, lottery, agency, 1200.00 for and digital and digital payment slip payments and BRL 600.00 for other payments and transfers ($229.4 and $114.7 respectively). Free and Access to savings Impossible Free of charge Free of charge automatic There is no debit card access Impossible Free of charge physical card Free of charge (digital only) It depends on the type of checking account. Some already include Credit card access Impossible No No it with the opening of the account; others need a request and analysis by Caixa. 32 Auxílio Emergencial The card only BRL 5,000.00 allows the full per month withdrawal of (USD 956) App: the monthly BRL 600.00 per benefit (with transaction Account a maximum - transfer or R$ 3.000,00 There is no limit movement limit accumulation payment - and of 3 months limited to BRL before the 1,200.00/day funds are (USD 114.7 returned to the and 229.4, Treasury) respectively) • Internet Banking Caixa • Bolsa Família Internet Digital platform None Caixa app App Caixa Tem Banking – Caixa for consul- tations with the public PBF • Caixa Tem Source: Caixa Econômica Federal (GoB, Caixa Econ. Federal 2020d; GoB, Min. Cidadania 2020; GoB, Caixa Econ. Federal 2021a). However, the biggest advantage of PSD in relation to the Caixa Fácil account concerns the new possibilities of digital transactions that it opens up, as in the case of withdrawals and payments without a card or through a Virtual Card. Caixa network ATMs, including Lottery stores10 and associated withdrawal terminals, allow the withdrawal of amounts upon confirmation of the token generated by the application. These played a central role in exempting the program from the challenge of distributing physical cards in the context of the pandemic. Purchases with a virtual card take place in two main ways. For online purchases, the application generates a virtual card with all the necessary data to make the purchase. In the case of direct purchases, the application was a pioneer in Brazil by allowing payment by scanning a QR Code through a smartphone’s photographic lens that could be generated by all card data processing terminals (machines) associated with the Elo brand (third largest Brazil, just behind the Visa and Mastercard brands). At the end of the second quarter of 2021, around 10% of the 11 million machines in Brazil operated in partnership with the Elo brand (GoB, Caixa Econ. Federal 2021h; ABECS 2020). To receive this via this route, there is no need for specific registration of the merchant with Caixa. However, older machines still do not have this possibility of generating QR Codes for payment (GoB, Caixa Econ. Federal 2020d; Oliveira 2021), and not all of them operate Elo branded cards. As of November 16, 2020, with the introduction of a new transfer modality, Pix, the limitation on electronic debit card payments due to incompatibility with some machines was largely mitigated (more information about Pix in Table 3). Unlike traditional transfers of values (Available Electronic Transfer – TED and Credit Order Document – DOC) that allow transfers only during banking days and hours and, in addition, allow the charging of fees by 10 Lottery units are establishments that sell federal lotteries and provide services delegated by Caixa, operating as franchises. The payment system used by Auxílio Emergencial 33 banks, the Pix enables immediate transfers at any time and any bank cannot charge this service (GoB, Banco Central 2021a; Matsuura 2020). In this way, Pix became popular as a means of payment for retail purchases as well, particularly because it presented itself as a viable alternative in cases where there was an incompatibility between the small machine used by the shopkeeper and the digital card of PSD account holders. Overall, the PSD digital operations app, Caixa Tem, works satisfactorily and has even developed solutions to problems of saturation of simultaneous accesses. Inspired by the application used in the sale of FIFA Soccer World Cup tickets, Caixa Tem developed a “waiting line” device that prevents the entire system from falling when there is a greater amount of simultaneous access than is supported. In this way, the beneficiary was put on hold, and the application allowed an option to operate in the background so that the account holder could use the cell phone for other purposes while waiting for his/her turn (Doca 2020; Dall’Agnol 2020). Until April 27, 2020, Caixa Tem’s maximum capacity was 200,000 simultaneous accesses, but with the app update released on this date, the capacity increased to 500,000. For most of 2020, the waiting time for those being referred to the “waiting line” was around 1 to 15 minutes, although there are anecdotal reports that the application often had to be accessed at dawn when there was less demand(Dall’Agnol 2020). 34 Auxílio Emergencial BOX 4. The simplicity and speed of transfers via Pix and its dissemination as a means of payment as well Pix is a new method of free transfer, immediate In view of the conveniences inaugurated by Pix, and with a simplified procedure, available to commercial establishments in the country quickly the entire Brazilian population and which has adopted the new technology and started offering become popular as a payment option for retail the option of payment via Pix. Usually, the places purchases as well. While regular transfers require already make available the QR Code or the identification of the recipient - including information establishment’s code at the payment counters such as full name, CPF1 or CNPJ2, branch, and so that customers can do it in an uncomplicated bank account - and can take up to an hour for way. Another advantage of Pix is that, to receive confirmation by the receiving party - subsequently this type of transfer, it is enough that the person giving rise to fraud -, Pix only requires the insertion or establishment has any bank account and that of a recipient’s identification code which can even they enable this option without any additional cost be the same number as the recipient’s CPF or cell or the need to join any specific payment system phone number. As with traditional transfers, Pix provider such as occurs in the case of card data can be done through automated and in-person processing terminals (machines) (GoB, Banco service terminals, through a call to the bank, or, Central 2021a; Matsuura 2020). As illustrated in more commonly, through an internet banking the figure, data from the Central Bank indicate that application. To add even more convenience to this 106 million users had already registered to send type of transfer, any person or institution that has and receive transfers via Pix until August 2021, activated the Pix service can generate and print a recording an average of more than 26 million Pix QR code with their data so that payment issuers transfers per month and an average total monthly can just scan this QR code instead of entering the movement above R$14 billion (equivalent to numeric code identifying the recipient. US$2.67 billion). More than ¼ of the registers authorized to operate Pix transfers were account holders with Caixa (GoB, Banco Central 2021d). Figure 8. Number of Pix-enabled users Source: (GoB, Banco Central 2021d). 1 Brazil does not have a single identity record. The Certificate of Physical Person is a record created in 1965 and is maintained by the Internal Revenue Service. 2 The National Register of Legal Entities (CNPJ) was created in 1998 and is maintained by the Federal Revenue. Source: Elaborated by the authors. The payment system used by Auxílio Emergencial 35 6. The PSD Dissemination Process Despite occasional or anecdotal complications, the evaluation of the efficiency of the PSD and its application for digital access was positive and motivated the dissemination of these options to other programs and audiences. This expansion of use culminated in a total of more than 100 million account holders between April and December 2020. During the implementation of the AE in 2020, Caixa acted swiftly in solving technical problems relating to the PDS and the Caixa Tem app, producing an extremely positive result in the perception of managers. This good assessment motivated the extremely rapid dissemination of this type of bank account beyond the AE beneficiaries. At first, PDS accounts were automatically created for beneficiaries of the AE and other federal government emergency programs (such as the FGTS Emergency Seal and the BEm) even though these people had bank accounts in other banks. Until September 2020, AE beneficiaries who had indicated that they had a bank account with other banks received their benefit in the accounts assigned to them by the AE, but these amounts were automatically transferred free of charge to their accounts in another bank. As discussed in Box 4, until December 2020, AE beneficiaries from the PBF continued to receive through the traditional payment channels of the PBF so as not to generate confusion among this audience. But, after this date, this public also started to receive exclusively via PSD accounts, which were automatically assigned to them. Another factor in the dissemination of the PSD was the approval of Law n. 14,075 of October 22, 2020, which allowed the use of the PSD for other social and social security benefits (such as Abono Salarial/PIS, Unemployment Insurance, Defeso Insurance, DPVAT Indemnity) and for programs led by subnational governments (GoB, Caixa Econ. Federal 2020d; GoB, Min. Cidadania 2020). As a result, PSD went from a pilot experience covering just 30,000 beneficiaries before AE1 to an account type covering over 100 million as early as December 2020. This represented an increase in the bank’s account holder base by around 25% and made Caixa the bank with the most clients in the West (GoB, Caixa Econ. Federal 2020e; Caixa Econômica Federal, [s.d.]). Balance sheets for the first quarter of 2021, for example, show that by then, the Caixa Tem app had already computed 345 million downloads, driving growth in digital transactions between bank account holders of around 150% when purchased in the same period in 2020 (GoB, Caixa Econ. Federal 2021b). As illustrated in Figure 9, PSD Virtual Card usage reached peak movement in the second and third quarter of 2020. The number of PSD virtual debit cards issued in the same quarter by Caixa peaked at 54.7 million when the AE was launched in the second quarter of 2020. By the end of the second quarter of 2020, the virtual cards issued totaled 114 million. The peak of transactions carried out by PSD virtual cards occurred in the third quarter of 2020 when 69 million transactions were reached, which moved a total of R$ 27.5 billion. It should also be noted that transactions using QR Codes represented an expressive portion of transactions carried out via Virtual Card. During the first quarter of 2021, when the AE and other emergency 36 Auxílio Emergencial benefits that make their payments through PSD were discontinued, all indicators of the use of this type of bank account dropped drastically, highlighting the strong role of social programs in inducing these new movement channels banking. BOX 5. Parsimony in the migration of the payment system for AE beneficiaries from the PBF With peaks of more than 95% of the PBF public only entitled the full withdrawal of amounts covered by the AE at times, the migration from the received each month; therefore, not generating payment system traditionally used by the PBF to the beneficiary’s banking services and leaving him that inaugurated by the AE was carried out with subject to the rule according to which benefits not extreme parsimony. This care was motivated by the withdrawn within 90 days were reversed to the analysis that the PBF public is the most vulnerable Treasury on suspicion of error or fraud. group among the AE beneficiaries; and, therefore, However, between December 2020 and March more subject to difficulties in accessing payment 2021, the PBF decided to migrate its payment due to possible changes in the procedure and system to PSD. This measure was effective for possible confusion in the internalization of these its beneficiaries receiving the AE and those who new routines. Furthermore, the entire operation continued to receive the traditional benefit. This of the AE was carried out on the premise that the migration was voluntary for PBF beneficiaries who program would only last (more) a few months. already had Caixa Fácil accounts, even though they Thus, the effort to change the payment routine for were offered a simplified and free migration if they the PBF public would mean a new effort to return so wished. In the case of the 9 million beneficiaries to the PBF routine once the emergency program who still received their benefits through the Social has ended. Card, PSD accounts were created automatically One of the most notable efforts to avoid confusion and mandatory during this period. among the PBF public was the choice to keep Specifically, for the PBF public, it was allowed that this group receiving the AE payment in the their PSD accounts could also be operated using same way as the PBF payment was made until the physical cards that these people already had November 2020. Those beneficiaries who opted before the creation of their PSDs, without prejudice could migrate to the PSD conveniently and free to the possibility of transferring the account of charge. Although the PBF offered access to a through PSD’s digital channels. Additionally, this Caixa Fácil account, this membership was never public continued to receive its AE payment without automatic or mandatory for receiving the PBF undergoing any behavioral measures aimed at benefit. Until November 2020, only 5 million heads encouraging digital transactions, in addition to of families covered by the program had adhered having followed its payment schedule that differed to this banking option. Another 9 million heads from that of other AE beneficiaries (see Chapter 7). of families covered by the PBF chose to receive the benefit through the Social Card. This modality Source: Authors’ elaboration based on Caixa Econômica Federal (2020d, 2020a, 2020f), Ministry of Citizenship (2020), and Hellman (2015). The payment system used by Auxílio Emergencial 37 Figure 9. Indicators of issuance and use of Virtual Cards and their specific use through transactions via QR Code Source: Authors’ elaboration based on Caixa Econômica Federal (2020a; 2020c; 2020f; 2021d; 2021h). 38 Auxílio Emergencial The discontinuation of AE and other emergency programs in the first quarter of 2021 and the popularization of a new payment modality inaugurated in November 2020 may have contributed to the reduction in the use of the Virtual Card among PSD account holders. During the first quarter of 2021, when the AE and other emergency benefits that make their payments through PSD were discontinued, all indicators of the use of this type of bank account dropped drastically. As illustrated in the figure, another factor that may have contributed to the reduction in the use of the Virtual Card, even with the resumption of AE and other social programs, from the second quarter of 2021, may have been the gradual popularization of Pix since its launch in November 2020. Figure 10. Pix usage indicators by Caixa customers (not limited to PSD account holders) Source: Authors’ elaboration based on Caixa Econômica Federal (2020a; 2020c; 2020f; 2021d; 2021h). The payment system used by Auxílio Emergencial 39 7. Stimuli to carry out digital transactions and the specific attention dedicated to the public coming from the PBF The possibility of operating without a physical card not only exempted Caixa from the logistical challenge of rapidly generating and distributing cards to AE beneficiaries but also allowed the adoption of strategies that stimulate digital transactions as a way to reduce agglomerations for cash withdrawals. More specifically, it was decided that, for Single Registry non-PBF and ExtraCad beneficiaries, the credit of the benefits would be made on a date, but the physical withdrawal of these amounts could only occur a few days later. The idea was precisely to encourage the engagement of beneficiaries in digital transactions and subsequently reduce the capacity of Caixa’s branches. The intervals between benefit credit and release for physical withdrawal ranged from minimum periods of 10 to 18 days (as in the case of payments of the second installment of AE1 in May 2020) to maximum periods of 27 to 53 days (in the case of payments made between the 28th of September and the 26th of November 2020). As a general trend, it can be said that, throughout the program, there was a gradual extension of the term between credit and the right to physically withdraw the benefit (GoB, Caixa Econ. Federal 2021c). To avoid disruptions in the payment routine of the PBF public, only this group of AE beneficiaries was able to withdraw their benefits in cash as soon as the credit was made to their checking accounts. As highlighted in Box 5, this exception was granted to the PBF public as a way to avoid confusion as this group was already used to the PBF payment procedure and, ultimately, it was expected that the AE would have a short duration and the beneficiaries PBF would soon return to their usual routine(GoB, Caixa Econ. Federal 2021c). There was also a staggering of payment days to avoid agglomerations and saturation of the system, with beneficiaries coming from the PBF following their own calendar, different from those applied to other AE beneficiaries. The AE adapted the BFP’s traditional practice of staggering paydays throughout the month to avoid crowding. However, with the difference that the PBF payment days each month were fixed, and, in the case of the AE, these dates changed and were disciplined by dozens of new calendars that were released by Caixa over time. Furthermore, the AE worked with two parallel calendars: one specific for PBF beneficiaries (which maintained the PBF routine of staggering payment dates based on the last digit of the NIS of these people and which indicated the same day for crediting the benefit in account and cash withdrawal right) and another for Single Registry non-PBF and ExtraCad beneficiaries (which staggered payment dates according to the month of birth and indicated the credit date of the benefit and subsequent date for cash withdrawal rights). Since its origin, the PBF has scaled its payments based on the last digit of the record it creates for its beneficiaries: the NIS. In this way, recipients with a NIS ending in 1 receive first, followed by those with a NIS ending in 2, and so on until the turn of those with a NIS ending in 0. In the case of the PBF, the payment dates each month were always staggered to occur in the last 10 40 Auxílio Emergencial business days of each month. In the case of the AE, these dates changed a lot each month and were disclosed from time to time by payment calendars produced by the MC. Between April 2, 2020, and April 15, 2021, 15 Ordinances were issued with AE payment schedules11. At each Ordinance, there was the disclosure of two calendars: one for PBF beneficiaries and the other for other beneficiaries (Figure 11 and Figure 12). This is because, as already mentioned, Single Registry non-PBF and ExtraCad beneficiaries had different dates for crediting the benefit and the right to withdraw in cash. Furthermore, as many of these beneficiaries did not have a NIS, it was agreed that payment for these groups of beneficiaries would be staggered based on the months of birth. Thus, the payment started with people born in January and ended with people born in December(GoB, Caixa Econ. Federal 2021c). Figure11. Example of payment cycles for Single Registry non-PBF and ExtraCad publics: AE3 account credit dates and cash withdrawal rights Figure12. Example of payment cycles for the public PBF: AE3 payment dates Source: Caixa Econômica Federal. (GoB, Caixa Econ. Federal 2021c). Dates: day/month. 11 Ordinances 386/2020, 413/2020, 428/2020, 438/2020, 442/2020, 453/2020, 474/2020, 491/2020, 496/2020, 546/2020, 558/2020, 597/2020, 606 /2021, 622/2021 and 627/2021. The payment system used by Auxílio Emergencial 41 The risk of confusion due to the variation in paydays each month was mitigated by social communication actions. While it is understandable that the exact dates of credit and physical withdrawal rights would change from time to time, reflecting the processing capacity of the program and its ad hoc, there is an inherent risk in this option that beneficiaries will end up being confused about the exact day of receipt every month. Against this scenario of uncertainty, there is the potential to generate even more crowding if people often need to go to agencies to obtain information. In order to mitigate this risk, Caixa led several efforts to publicize dates in a variety of ways. As indicated in Table 3, communication strategies ranged from advertisements on TV and radio, lives on YouTube and other social networks, to a broad bilateral collaboration effort with states and municipalities with the involvement of their respective social assistance teams. In general, the strategy of encouraging digital transactions at the expense of physical withdrawal of values seems to have had an effect. According to data from Caixa (2021e), from April 2020 to March 2021, 75% of the resources distributed by the program were used digitally through the Caixa Tem application. As a result, only 25% of these amounts were withdrawn from the digital social savings accounts. Of course, beneficiaries may have resorted to strategies for indirect access to money during the period between the credit and the right to withdraw. To do so, it would be enough, for example, to transfer the funds to the account of a third person who was willing and make the withdrawal and transfer the amount to the beneficiaries, even with the risk of creating an informal market to carry out this procedure. Although there is no data capable of evaluating the occurrence of this type of practice, it is noteworthy that there were not even anecdotal reports in this regard echoing in media channels. Furthermore, the measures taken by Caixa to manage cash proved to be sufficient based on the intended withdrawal flow with the forecast of an interval between the credit of the amounts and their respective withdrawal; thus, corroborating expectations that the mechanism worked efficiently. Conceptually, there also does not seem to be much practical advantage in carrying out the triangulation of the benefit for immediate withdrawal since the PSD provided several other more convenient channels so that the amounts credited to the account could be used for purchases, payment of debts, and other related operations. 42 Auxílio Emergencial 8. The PSD and the stimulus to the generation of savings Another advantage of the PSD is that it automatically includes credits in a savings account with remuneration of the beneficiary for the period in which the resources are in it, without prejudice to the liquidity of these resources. In this way, the beneficiary does not need the reflex of transferring available resources from a checking account to a savings account and, on the other hand, the amounts kept in the savings account can be automatically withdrawn whenever the user decides to transfer, withdraw or pay bills, without the need to previously redeem the amounts in savings. Amounts that remain in the account and are not used for a month, however, are remunerated by the country’s savings system (which in December 2020 yielded 2.11% in the last 12 months, against inflation of 4.52% in the accumulated for the same period). Given the program’s broad coverage, it is possible that the AE has a direct and immediate effect on the average household savings rate nationally12, whose 2018 estimate (in the 1.8%) range (GoB, Banco Central 2021b) was well below the global average (20.5%)13. Although it was not possible to access the profile of financial products consumed by AE beneficiaries as a whole, it is known that, at least for the public coming from the PBF, there was a significant increase in access to banking and savings collection. Before the AE, only 46% of heads of households benefiting from the PBF were bankrolled (GoB, Caixa Econ. Federal 2020d), and 75% of family members covered by the program had relationships with institutions of the national financial system (GoB, Banco Central 2021f)14, while only 25% had investments in savings. (World Bank 2021b) After the AE and the mandatory adoption of the PSD by the PBF, virtually all heads of households covered by the program became bankrolled and began to have access to a savings account (World Bank 2021b). As illustrated in Figure 13 and figure 14, there is a strong correlation between the operating cycle of the AE and the trend towards net savings in Brazil. During 2019, the net inflow of savings followed an erratic and unstable trajectory. However, with the inauguration of the AE, an upward trend began, reaching the ceiling of the historical series. It is known that a driving force behind the increase in savings collection is the hoarding trend observed 12 More specifically, the value refers to “the country’s family savings rate” defined as the sum of the net investment (applications fewer redemptions) of family members in strictly financial assets - such as savings accounts, investment funds, shares, pension private, government bonds, gold, foreign currencies and capitalization bonds - and in real estate (acquisitions of real estate and land in cash or in installments, discounted sales). 13 The global data refer to the indicator of “Private saving rates” and are not strictly comparable as they date from 2015 or before and are calculated through a panel that accommodates certain differences in the definitions of savings. For further methodological details, see Grigoli, Herman and Schmidt-Hebbel (2014). 14 It is worth remembering that the PBF is a family, not an individual, targeting program. The data of 46% of program holders who are bankrolled refers to the percentage of heads of households who receive the benefit on behalf of their families and who do not have bank accounts. This statistic, therefore, does not reflect the reality of other members of the beneficiary families besides the heads of household. A good way of estimating the situation of PBF beneficiaries in addition to the heads of household is to assess the degree of relationship of the program’s beneficiaries with the national financial system, which includes all family members benefiting from the PBF with more than 15 years of employment. with financial institutions. According to this metric, more than ¾ of the members of families covered by the PBF already had some degree of relationship with institutions in the financial system before the AE. The payment system used by Auxílio Emergencial 43 by those who remain liquid during periods of crisis. Mutatis mutandis, the social distance resulting from the pandemic, also allowed for saving a greater portion of income. Even so, Figure 13 suggests that AE significantly added to these forces as a driver of saving behavior. The benefit possibly made this behavior possible with a public that, otherwise, would not have disposable income to meet their basic needs and, much less, to save. The possible relevance of the AE is suggestive when one considers, for example, that, during its interruption, between January and March 2021, there was a strong withdrawal of savings, even with a sharpening of the social isolation measures expressed by the Stringency Index. This withdrawal trend was only interrupted after the AE resumed (GoB, Banco Central 2021e). Furthermore, the intensity of savings capture also seems to be correlated with the generosity of AE benefits in each of its three stages. Figure13. Net funding from the Savings Account (SBPE + RURAL), monthly evolution Source: Central Bank (GoB, Banco Central 2021e). Figure14. Net raising of the Savings Account (SBPE + RURAL), annual evolution Source: Central Bank (GoB, Banco Central 2021e). 44 Auxílio Emergencial If the role of the AE as an inducer of national savings is confirmed, it would be important that the characteristics responsible for such effects were also expanded to regular programs that traditionally have little effect on access to financial instruments in general. A recent study by the World Bank (2021b) on the subject revealed that PBF beneficiaries, for example, are less likely to save and use other financial instruments than the rest of the population, even when controlling for other relevant characteristics. Confirming the hypothesis that the AE had a relevant role in the formation of national savings in 2020, it would be important to understand which characteristics of this program generate this result more significantly and how such characteristics can be internalized by regular programs. Although this possible effect may be the effect only of the generous benefit of the AE when compared to regular programs, it is likely that the phenomenon is also the result of incentives such as the automatic assignment of a bank account, the availability of a savings account with liquidity similar to that of an account. Currently, the use of the application as an interface for the offer of financial products and the encouragement itself to the use of banking application through the interval between the credit of the benefit and the right to withdraw the value in cash. In addition to these possibilities, other good practices that can contribute to expanding access to financial products include the elements set out in Figure 15. Figure 15. Recommendations for promoting the access of beneficiaries of social programs to financial instruments Source: World Bank (2021b). The payment system used by Auxílio Emergencial 45 9. Inclusive measures of the payment system and cash management To open a PSD account, it was enough that the person had a CPF in good standing. Thus, no other form of impediment arising from the additional credit analysis was applied. The CPF requirement for access to the AE was a contested measure as it is not a civil registry but a registry necessary for carrying out banking operations and complying with tax obligations for people with income and assets above a certain threshold that does not include all AE-eligible persons. The measure, however, was important for the functioning of the program since no other registry with comparable national coverage allowed the link to other administrative registries. The entire AE eligibility analysis was based on the crossing of public administrative records, reinforcing the relevance of the CPF. To mitigate selection biases of this documental requirement for the program, however, joint efforts were organized to regularize and issue new CPFs, in addition to rules that accelerated and made this process more flexible (World Bank 2021c; 2021d). The program prohibited the sequestration of the benefit from settling any outstanding debts of the beneficiaries. This measure resulted from an agreement signed with Brazilian Federation of Banks (Federação Brasileira de Bancos, FEBRABAN) and was valid both for the maintenance of funds at Caixa and for their transfer to other accounts with the same ownership in other banks. However, transfers should be made by a traditional modality (TED or DOC) since Pix does not allow the identification of the origin of this resource to implement this rule. As a way to mitigate errors and fraud, the AE payment system is used to recover amounts paid in accounts that were not used for long periods. However, the program was careful to extend the movement time for vulnerable groups with greater difficulty in accessing their accounts. AE1 and AE2 had a rule that funds not moved by beneficiaries for more than 90 days would be automatically returned to the Treasury. In AE3, this period was increased to 120 days (GoB, Min. Cidadania 2021b). As already explained before the AE, PBF beneficiaries who did not have a checking account and only had the right to withdraw their monthly benefit in full were already subject to this 90-day rule. In both cases, the choice was based on the purpose of reducing errors and fraud. It should be said that any withdrawals or transfers made during the period were sufficient to avoid the return of funds. Although reasonable from an error and fraud control perspective, the resource devolution mechanism can reduce the incentives to create savings and become a barrier to access for isolated groups. In these cases, there was also the additional risk that members of these groups would be driven out of their communities more frequently to carry out withdrawals or gain access to the internet. Subsequently, they would expose themselves and their peers to increased contamination risks by COVID-19. In order to mitigate these risks, Public Civil Actions (Ação Civil Pública, ACPs) were granted, which led the MC to extend the return period to 270 days in the case of residents of the Amazon states of Acre and Amazônia, beneficiaries of the PBF and indigenous people registered in the Single Registry in general(World Bank 2021c; 2021d). 46 Auxílio Emergencial An additional measure taken to mitigate the burden of beneficiaries who face long journeys to access the benefit was the continuity of strategic cash management (as has been done for years for the PBF) and the introduction of the R$200 bill (equivalent to $38.2) in the economy. The cash management strategy in regions more exposed to the risk of lack of liquidity basically consisted of monitoring the branches that make the most payments made by people who have to face long commutes. In this way, it was possible to compute these demands and ensure that there was no cash shortage crisis. As a traditional payer of social benefits for the federal government, Caixa already had the area’s most subject to this type of risk duly mapped and was, therefore, able to guarantee the proper supply of cash. In addition to this more specific measure, the Central Bank of Brazil anticipated the growing demand for cash evidenced during the pandemic and launched on the market triple the amount of cash originally planned and introduced, on September 2, 2020, the R$200 note (until then the highest available bill was $100) which was well assimilated by the economy without alleviating any liquidity problems. BOX 6. The reflection of hoarding during the crisis and actions to offer cash carried out by the Central Bank and Caixa According to the president of the Central Bank, As part of the strategy for introducing these values Roberto Campos Neto, the pandemic produced into the economy, the BC also assessed that it an increase in the population’s demand for cash. would be strategic to inaugurate a R$200 bill. This In times of crisis, this demand was driven not only note was launched on September 2, 2020, having by the desire for security through hoarding but been well assimilated by the economy, without also by the increase in government spending via facing liquidity problems (Central Bank, 2020a). payment of benefits such as Auxílio Emergencial Despite their efforts to encourage digital and FGTS withdrawals (Banco Central, 2020b). transactions over the use of cash, the increased In the period from March to August 2020 alone, demand for cash was also felt at bank branches. the amount of money in circulation went from 260 More specifically, there was a 1.23% growth in the billion reais to 351 billion (equivalent to $49.7 volume of ATM withdrawals. With the introduction billion and $67.1 billion). As a result, the expansion of the R$ 200.00 bill, Caixa guided the use of cash of the monetary base (M1, paper money, and at branches and service machines (Caixa, 2020). metallic coins) in 2020 was 32%, almost triple the average expansion observed since the year 2000. Source: Elaborated by the authors. The payment system used by Auxílio Emergencial 47 10. Final Considerations Although the cornerstone of the AE payment system was the automatic creation of the PSD and its use to encourage digital operations, the proper functioning of this operation required parsimony and permanent coordination of this orientation with other relevant facts that emerged throughout the program. AE beneficiaries from the PBF are still subject to special payment rules. There was a 6-month window until AE beneficiaries stopped having their benefits automatically transferred to other bank accounts of their choice. The use of the PSD began restricted to emergency programs (such as the AE, emergency withdrawal from the FGTS and BEm) and only later began to serve other social transfers and subnational initiatives. Given the magnitude of the AE, its payment operation had direct effects on monetary policies, as in the case of the launch of the Pix, the introduction of new currencies, and a greater volume of cash in the economy by the BC, in addition to the program’s effect on the national savings capture rate. Briefly, some of the main milestones and innovations in the management of the AE payment system and the expansion of the PSD, in general, are illustrated in the figure. Figure 16. Timeline with key relevant facts regarding the AE payment system Source: Elaborated by the authors. 48 Auxílio Emergencial The 100% digital and cardless operating bank account, PSD, was the biggest innovation brought by the AE payment system, so much so that this mechanism soon expanded to enable other social transfers. The payment system developed by AE was one of the most positive legacies brought by the program. Some of its aspects, such as the PSD, are already being internalized as part of regular social protection programs in the country. The PSD worked so well that, in addition to its use in the context of the AE, the initiative already serves other important social programs and has a legal diploma so that it can be used by other initiatives both by the federal government and by states and municipalities. In addition to the possibility of automatic account creation by selecting beneficiaries for social programs, the PSD also ushered in a new era in terms of the use of digital banking operations. Performing all basic banking operations entirely digitally not only exempted AE from distributing physical cards in a pandemic context but also acted as a strong stimulus for the population to become familiarized and make use of this type of service. Suggestions for improving the use of PSD in Brazil and encouraging the development of similar solutions in countries that draw on the Brazilian experience include: • As a way to increase the applicability of the virtual debit card for in-person purchases, it would be desirable to promote greater interoperability between the machines and the card brands or to provide the beneficiary with the possibility that the debit card offered is from another brand of their choice. • As a way to reduce access barriers due to the digital divide, PSD’s online management application could offer free mobile data access, at least for a certain limit of data consumed due to the use of the app. • As the pandemic cools down and circulation restrictions ease, it would be interesting to offer the alternative of issuing a physical card to customers who prefer to do so. • Countries interested in adapting the Brazilian experience to their contexts should note that this technological solution requires significant access by the population to the internet and smartphone. In addition, even with all the incentives for digital operation, Caixa still operated under considerable face-to-face demand, and its capillarity, covering practically the entire national territory, was crucial for this operation. • Countries interested in adapting the Brazilian experience to their contexts should consider developing this type of bank account to serve various social transfers to offset entry costs through economies of scale. • Countries interested in adapting the Brazilian experience should note that the Brazilian option does not encourage competition among national banks for control of the payment operation, nor does it invest in coordination so that several banks can participate in the payment operation. In contexts of less concentrated banking offer than in Brazil, where commercial banks offer satisfactory coverage throughout the national territory or where there is no commercial bank capable of covering the entire national territory on its own, partnership models with private banks can be interesting. Many limitations of the virtual debit card were mitigated by the free and instant transfers inaugurated with the introduction of Pix in the country. This option alleviated the disadvantages that PSD had in relation to the account until then offered to beneficiaries of the PBF (Caixa Fácil) regarding the limitation of non-tariffed traditional withdrawals and transfers, as well as the limitations on the use of the digital card for purchases face- to-face. AE was also fortunate to have Pix inaugurated during the period of its operation, with subsequent effects on the user’s greater convenience in carrying out digital banking operations. The payment system used by Auxílio Emergencial 49 Suggestions for improving the use of PSD in Brazil and encouraging the development of similar solutions in countries that draw on the Brazilian experience include: • Improve Pix so that transfers made by this means can maintain certain privileges granted to AE beneficiaries, such as, for example, the prohibition of sequestration of the benefit to settle debts, as already protected in other transfer modes such as TED and DOC. • Transfer forms similar to Pix have the greatest potential for impact in countries that have a significant portion of their population with internet access and were other digital payment options face liquidity problems. In addition to its positive impacts on supporting cash transfer programs, this type of transfer can contribute to cash management in contexts that combine monetary expansion and a tendency towards hoarding, as has been the case in Brazil since the beginning of the pandemic. The use of PSD in the AE generated stimuli for the accumulation of savings, although measures to curb errors and fraud through the return of non-transferred amounts may have exerted an opposite influence. There were two main mechanisms stimulating the formation of savings in the context of the AE: the prohibition of the sequestration of benefits to settle outstanding debts and the very nature of the PSD. The PSD, as highlighted, credited the benefits directly to a savings account that allowed the movement of resources in real-time in a way similar to a current account (although the income earned by savings remained linked only to amounts that remained unused in the bank account for a minimum period). However, these incentives for the formation of savings may have had their effects reduced due to the rule of permanence in the program (monthly reassessment of eligibility from AE2 onwards) and the rule of automatic redemption of amounts not withdrawn after a certain period. However, this last risk seems to be reduced since any withdrawal of the amount received, however small, already avoids the return of funds. Furthermore, the period for not moving was expanded from 90 to 120 days with the launch of AE3. Since AE1, this time window was 270 days for groups with potential difficulty in moving their accounts, as in the case of indigenous people registered with Single Registry, residents of Amazonas and Acre, and beneficiaries of the BFP in general. Suggestions for improving the incentives offered by the AE and PSD to generate savings in Brazil and for adapting these measures in other countries include: • It would be beneficial to make available public data characterizing the relevance of the resources recovered through the rule of reversal of benefits not moved so that one can have more clarity about the cost-benefit of maintaining this practice in view of its potential to discourage savings. • Regular or continuing-duration social transfers, such as the AE, should offer recipients more predictability to maximize their savings-stimulating effect. As such, you should not only refrain from reviewing benefit amounts and eligibility rules too often but also refrain from reassessing the eligibility of people you have already selected on a monthly basis. • Add educational material (financial education) to the application, in addition to other behavioral measures such as drawings for those who manage to save a certain percentage of their benefits, prizes for savings targets, or even the mandatory transmission of a portion of the benefit. • Offer beneficiaries other financial products, such as microinsurance against rare but catastrophic risks, or investments with better returns, given that Brazilian savings have been 50 Auxílio Emergencial offering returns well below inflation. At the limit, it is possible to explore the possibility that the bank paying the benefit also offers investment alternatives in other financial institutions by filtering the appropriate options for each specific public in order to avoid harmful indebtedness. • The Brazilian experience reveals how much a mere procedural simplification for the client – allowing resources to be withdrawn from savings in the act of carrying out other transactions – can increase savings behavior. • Even in contexts where savings income is not advantageous in face of inflationary behavior, stimulating savings is still healthy, as it plays an important preventive and protective role against idiosyncratic and covariate shocks. AE was a pioneer in establishing automatic bank account opening for program beneficiaries in the country. The choice certainly contributed to the payment operation’s speed and to Caixa’s interest in carrying out this operation. It should be remembered that none of the other 4 public banks authorized for this attribution showed interest or capacity to guarantee this operation throughout the national territory. In addition to being the bank with the greatest coverage in the national territory, Caixa also qualifies for this role due to its previous experience in carrying out social transfers to low-income people and the institution’s subsequent expertise in offering adequate financial products to this audience. However, a concern regarding this automatic opening of current accounts concerns the degree of invasiveness with which the measure can be perceived when analyzed from the perspective of individual freedoms. Suggestions for mitigating risks inherent in automatically opening bank accounts for AE beneficiaries and other social programs include: • Carrying out communication campaigns to ensure that beneficiaries are fully aware that an account has been opened in their name, with due clarification of the duties and obligations that this entails. • It is important that, once the benefit that gave rise to the creation of accounts is discontinued, communication efforts are made so that people know that they can/should close their accounts if they wish. For those who choose to remain, the communication must inform about any costs or obligations to maintain the account. • In the case of the AE, opening an automatic checking account was possible because the CPF was a mandatory document to access the program. During the AE, there were extraordinary measures to make the procedures for issuing and regularizing this document more flexible. In the context of the continued use of PSD to pay for regular or long-term programs, it is important that efforts to universalize valid CPFs be a priority, along with progress in the universalization of civil identity records. • Countries interested in replicating this measure must be able to ensure due to monitoring of fairness by the paying entity, as the automatic and simplified opening of bank accounts can generate incentives to fraud, corruption, and predatory competition among financial agents. The AE payment system was sensitive and gradualist in the inclusion of beneficiaries who already had other bank accounts and, also, in the case of BFP beneficiaries. At the beginning of AE1, whoever indicated a preference for receiving the benefit in another bank account had the benefits automatically transferred to this account. Gradually this transfer stopped being automatic and became manual, albeit free. This was a way of reinforcing these The payment system used by Auxílio Emergencial 51 people that, upon joining the program, a PSD account was created for them. In the case of PBF beneficiaries, their acceptance by the PSD was even more gradual. Its inclusion was mandatory only from December 2020. The traditional PBF payment routine was replicated to the maximum, and even today, this public remains exempt, for example, from the rule that imposes an interval between the credit of the value (limited to digital operations) and the right to physically withdraw the money. Suggestions for developing the gradualism with which the program introduces its innovations and for the potential adaptation of this experience in other contexts include: • NIS allocation to non-BFP beneficiaries for possible harmonization of payment schedules for all AE beneficiaries. • If the AE is extended again or becomes a more permanent program, it would be interesting for beneficiaries from the PBF to eventually be subject to behavioral incentives to promote their engagement in digital banking operations that will expand their options without prejudice to the convenience of access to the benefit – for example, by offering an additional benefit to those who use a certain percentage of benefits digitally. • Countries that aspire to introduce changes that require prior familiarity with IT solutions should look to the Brazilian experience of stratifying their beneficiaries and start the mandatory use of these solutions by the strata with greater purchasing power and potentially better positioned to make use of new technologies. In any case, the option of physical/ face-to-face service at branches should be available to those who do not feel comfortable performing the procedures strictly remotely. In view of so many successes, the payment system inaugurated by the AE seems to be the institutional innovation with the greatest potential to continue being used even after the pandemic has cooled down. In fact, this trajectory already seems irreversible after the migration of beneficiaries from the PBF and other programs to the PSD. In the context of regular programs, the few bottlenecks experienced in the context of AE tend to be overcome given the more stable time horizon of the programs and the longer duration of their beneficiaries; therefore, it does not require ad hoc efforts to communicate payment dates each month. 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