Distributed Ledger — a revolution in conditional payments?
Perhaps you haven’t thought of it, but conditional payments are all around us. Whenever you use a lunch coupon, a social benefit voucher, a buss ticket or even follow your own investment plan, you are using conditional payments. Conditional payments are items which make you eligible for something (product, service, lunch). Or triggers that initiate an action (investment plan). Most of these conditional payments have usability problems, since many of them are on paper, and in most cases the conditions of the payment need to be verified by a person. Distributed ledger technology is a means to digitize and automate conditional payments. This technology gives us immutable and transparent smart contracts with which we could not just automate these processes, but also eliminate human errors, forgery, misuse, and disputes about authorization or the monetary value of the conditional payments.
Smart money is a concept based on distributed ledger. The concept of Smart money has been recently tested in Kela. You can read more about the background and the Proof of Concept here. The goal is to develop the Smart money network into a broader permissioned blockchain network (not to make it into a closed network run by Kela). However, at this point most of the development work is done in Kela and therefore the focus has been on Kela’s use cases.
Student lunch benefit
Case facts
Kela provides university level students a discount for their lunch price. Students can buy one lunch meal per day from any one of the 314 student lunch restaurants in Finland. For the student the lunch costs 2,6 € and Kela pays the rest to the restaurant. 14.4 million student lunches are bought annually and Kela pays 30 million € in total to the restaurants.
The problem with eligibility checks
This social benefit makes it easier for students to focus on their studies, but there are some problems in the process. First of all, Kela doesn’t know who are the students eligible for this benefits. There are multiple student card companies who check the student status before distributing student cards and Kela has to trust that these student cards are distributed correctly. Because there are multiple student card companies it can be confusing for the restaurant to check if the person is eligible for the student lunch benefit or not.
The problem with one per day
Also there is problem with the restriction of one lunch per day. It’s impossible to follow the restriction for two reasons. First, the students can eat in multiple restaurant and there is no way to notify all of the restaurants. Second, there is no reasonable way to manually check student statuses and keep record of eaten lunches.
The problem with the claiming process
The claiming process is done on paper. The restaurants have to fill a paper form, which is then sent to Kela with the cash register report as an attachment. Kela manually goes through these papers and verifies that prices for the student lunches are correct. If the prices are correct, Kela pays the compensation for the restaurants.
The solution
With Smart Money all of these issues can be solved, but at the same time the process would need to evolve a bit. Student status info is stored in spesific database, where Kela could check student statuses in specific intervals. The check could happen as an automatated process. After the status check, tokens would be issued for the eligible students. One token would represent one lunch benefit, and only one token could be used each day. The cashiers wouldn’t need to check student cards anymore. Actually, the cashier might not even notice who is buying a student priced lunch and who is not, since the token is transferred during payment transaction. With this, the queues to the cashiers can be a lot shorter and help busy students to get back to their lectures.
The restaurants would be pleased, since the compensation claiming can be fully automated. The tokens are sent back to Kela, where they can instantly pay the compensations, since the tokens have checked the price and other attributes during the payment transaction.
Basic social assistance for groceries
Case facts
Most of the basic social assistance in Finland is given as money to customers’ bank accounts. But sometimes (9600 times each year), under specific circumstances, people receive basic social assistance for groceries vouchers. The vouchers are paper prints.
The problem with single use
The voucher has to be used all in once, so you have to decide in which store you are going to use it and buy everything that you need at one shopping. This may be a problem for the customer, if the voucher’s amount is big and therefore there would be a lot of carrying.
The problem with urgency
These are always executed as urgent cases, which means that if you apply today you will get voucher tomorrow at latest. Using post service is not sufficient fot this. That’s why customers usually pick the vouchers from Kela’s offices. Sometimes there are no offices where they live or they cannot come to the offices during office hours and this is where it gets tricky. In these situations Kela’s handler phones Kela’s offices to find out if somebody is working after office hours or calls for example city hall, if they could give the voucher for the customer. The voucher is then sent via email to the pickup location where it is printed and the watermarks are added.
The problem with paying
When the customer goes to the store with the voucher it usually takes a lot longer at the cashier because there’s a lot of manual checking and typing for the cashier. This in turn is often embarrassing for the customer, with the queue behind growing. After this transaction, the voucher itself is handled in a manual process at the store and the claiming process is done on paper, just as in the student lunch case.
Kela offers similar vouchers for different purposes as basic social assistance, eyeglasses and identity cards for example. Around 52 000 vouchers are given annually. These are not urgent and therefore delivered via post.
The solution
With Smart Money this whole process would be a lot of faster: no hassle in delivering the vouchers, since tokens are transferred almost instantly via the ledger and the purchase at the cashier is as smooth as with fiat money. Naturally, the claiming process is automated just as in the previous use cases.
Interpreter service for people with disabilities
Case facts
Kela offers free interpreting services for people with disabilities. The number of free minutes depends on the person’s disability. Annually, over 10 thousand interpreting sessions occur. The duration of these sessions varies a lot. There are 15-minute remote sessions and there are multiple-day conferences. Whenever the session is longer than two hours, there are two interpreters.
The problem with lack of transparency and manual labor
The challenges in this service are the lack of transparency for the minutes used and the manual labor in the claiming process. The customer receives the information of remaining minutes after the interpreter has submitted the claim for compensation. Usually this is done within a month, and may result in uncertainty of the remaining minutes before the claim is handled. The claim forms are digital forms but usually filled manually and Kela’s handling process is also manual.
The solution
Smart money provides necessary transparency with the help of tokens. In this use case token value could be shown in minutes instead of token amount or monetary value. When customer transfers one token to his interpreter, customers wallet would show one minute less of interpreting services. Claiming process is automated as in the previous cases.
School travel support
Case facts
School travel support is for 2nd degree students. Second degree in Finland means classes from 7th to 9th and students are between the age of 13 and 15. If the journey to school is longer than 10 kilometres, the student is eligible for school travel support. With this support the student can buy tickets to buses or trains. Bus and train companies send bills with attachment of purchases to Kela for compensation.
The problem and the solution
Currently Kela goes through the bills and the attachments after the bill is already paid. The result is manual job of checking the attachments and the bills and request invoices, when false sales are found. This is inefficient and inconvenient for two reasons. First, the companies cannot be 100% sure that they are going to be paid when they sell tickets. There might be forgery, or for some other reason the person isn’t entitled eligible for the support. Second, it is time consuming to go through all the compensation documents and compare to Kela’s database of supported students. With Smart Money, all this extra work could be reduced close to zero, since the token checks during the payment transaction that the person is allowed to buy the ticket in question.
Use cases outside of Kela
There haven’t been any in-depth studies about the Smart money use cases outside of Kela. However, in public healthcare and in other organizations the process of vouchers and other conditional payments is similar to Kela’s conditional payment processes. There is also a possibility of over-the-border use cases, which can happen either by expanding Smart money network or by building other similar networks to other countries. These similar networks could be connected with smart contracts and would make payments easier for individuals, companies and governments especially on Euro zone, but broader as well.
Many organizations offer lunch coupons and/or coupons for sports/culture for their employees. These coupons works very similar to Kela’s conditional payments, where customer receives paper payment voucher for spesific purpose and gives it as a payment to a service provider. The service provider then claims the compensation from the sponsor.
Many parents give their children weekly or monthly allowance. However, some parents have rules for the allowance. For example you are not allowed to use it all to candy. With Smart Money it’s easy to have the transparency of the usage and add restrictions, if necessary.
Is Smart money worth it?
In summary, Smart money would bring all of these uses cases the same benefits, which include digitization, automation and transparency. These benefits are achieved by digital tokens instead of paper vouchers, automatic claiming process with tokens that validate the payment transaction during the payment transaction and, transparency with distributed ledger technology. Additional benefits can be found, when Smart money is expanded outside of Kela’s use cases. With other organizations’ use cases Smart money could become de facto conditional payment platform and even provide backup payment method if current payment methods are unavailable.
