Interview: 'Digital payments are the future of payments for enterprises regardless of their size'

How has the COVID-19 pandemic acted as a catalyst for garment factories to transition from cash payments to digital wage systems? What specific challenges did the pandemic highlight that made this transition necessary?

COVID-19 accelerated the transition to digital wage payments in the garment sector which before the pandemic had difficulty gaining momentum. Factories have many good reasons for making the switch to paying their employees digitally, but two reasons became critical during COVID-19. First, digital payments helped remove the risk of virus transmission associated with the direct handling and receiving of wages in cash. Second, it helped ensure business continuity and helped ensure workers‘ confidence in receiving their wages safely and timely during the pandemic.

In light of the global trend towards digital payments, how can digital wage systems specifically benefit small and medium enterprises (SMEs)? What advantages do they bring to these businesses, and how can they contribute to their growth and sustainability?

Digital payments are the future of payments for enterprises regardless of their size. A body of evidence is growing that digital wage payments can benefit enterprises of different sizes, including SMEs, at least in two important ways. Digital wage payments, when done correctly and responsibly, have the potential to promote an enterprise’s sustainability and scalability as it is more efficient, safer, transparent and more compliant. For SMEs, transitioning to digital wage payments could improve access to public financing or enterprise development services by the government and formal financial services. Another important aspect of the benefits is what it does for employees. Adopting digital wage payments ensure timely and accurate payments of wages, promotes wage and income management of employees, and thus improves employees’ access to formal financial services and more economic opportunities.

Could you explain how digital wage payments have positively impacted workers' well-being in the garment industry?

When digital wage payments are managed responsibly, a transition that respects national regulations and financial inclusion guidelines, there is a high chance that employers and employees can reap the benefits that the transition had promised and yielded elsewhere. What we have seen in Cambodia‘s garment industry is that workers started to receive wages on time, more regularly, and in full amount even though they may be absent from work on payday. Workers also expressed that it’s more convenient and safer than cash wages as they no longer carry large sums of cash with them, reducing the risks of loss or theft. Digital wage payments have included many workers in formal financial services as they open accounts with financial institutions for the first time to receive wages. And it enabled workers to learn, adapt, and perform basic financial transactions such as paying utility bills, transfering/receiving digital payments, and savings.

It is often stated that digital wage payments have the potential to empower women and youth. How can these payment systems specifically address the needs and challenges faced by these demographic groups in the garment industry?

The industry employs more than 800,000 workers, 80 percent of whom are young women workers. This offers a fantastic opportunity to include youth and women workers in formal financial services and help them to gradually learn and adapt to these new digital and financial technologies. Digital wage payments create opportunities for and offer tools to women and men workers to have better control over their incomes and manage their finances more easily. A case in point, it was hard to find a garment worker saving at a financial institution, paying bills digitally, or using a QR code as means of payment a few years ago when most wages are being paid in cash, but this is no longer the case. Workers are learning and adapting to these technologies as soon as they are exposed to them through receiving digital wage payments or other channels. In this sense, having a responsible transition to digital wage payments, where workers received sufficient support to access digital wages and financial services such as savings that come along with digital wage payments, can serve as a strategic starting point.

Have there been any concerns or challenges associated with the implementation of digital wage systems in garment factories? How have these issues been addressed, and what lessons have been learned from the implementation process?

Both employers and workers faced challenges as they rolled out wage digitization for the first time. For many employers, it’s a difficult task to ensure a smooth and responsible transition from cash to paying workers’ wages digitally, especially if it is a transition for a large factory of 2000 workers or more in size. Often factories lack internal buy-in or the know-how to make the transition. Another challenge for enterprises is limited financial infrastructure such as limited ATMs / cash counters and high payroll transaction fees, which often time resulted in workers having difficulties in accessing their wages and employers’ delayed decision to make the transition. For workers, limited financial and digital literacy is the most reported challenge, leading to low trust, fear of deductions or financial losses, and slow adoption of available digital financial services among the target group.

Better Factories Cambodia, in collaboration with the ILO’s Global Center on Digital Wages for Decent Work, has centered its approach around building partnerships, increasing capacity, and raising awareness on the benefits and risks of digital wage payments with local partners such as the Ministry of Labour and Vocational Training, Textile, Apparel, Footwear and Travel Goods Association in Cambodia (TAFTAC), Brands, factories, workers’ organizations, financial service providers and concerned development partners. More specifically, the project has provided technical and guidance support to TAFTAC and factories, developed the capacity of local partners to support factories and workers, adapted a comprehensive ILO Financial Education Training Module, and provided Training of Trainers to local trainers on financial education aimed at increasing in-country resources to support financial literacy efforts in the sector and beyond.

What lessons have recent transitions taught you regarding responsible implementation, and what steps should be taken to ensure a successful transition to digital wage payments?

First, it’s important to take a step–by–step approach to the transition to avoid chaos, a loss of trust, and disappointment as workers start to receive their wages in their digital account for the first time. This approach allows factory management sufficient time to support workers, learn about the process and identify key areas for improvement before scaling up for more workers. Second, the fact that workers received wages digitally does not guarantee that they could benefit from digital wage payments. It’s crucial to ensure there is enough support at the start, during, and after the wage digitization process. This is vital for workers (especially vulnerable workers) and workers with low literacy skills to make sure they are not left behind in the process or exposed to risks of financial losses brought about by digital payments. Social dialogue between employers, worker representatives / trade unions not only help to ensure support from workers but also to provide a platform to gather concerns and understand the needs of workers regarding the choices of financial services and relevant support.

What role do you see trade unions playing in the context of digital wage payments? How can they ensure that the rights and interests of workers are protected in this evolving landscape?

Trade unions have a critical role to play in the process. For this transition to take place responsibly, engagement with trade unions and workers is essential. Trade unions play an important role to influence and support the process. From engaging with employers in the planning stage, consulting and negotiating with employers in choosing financial services that are suitable for workers, to disseminating relevant information to workers about the risk and benefits of digital wages, monitoring and collecting workers’ feedback and concerns related to receiving digital wages and working with the employer to address these concerns and make improvements.

How can governments and regulatory bodies support the adoption of digital wage systems in the garment industry? Are there any policy changes or initiatives that could facilitate a smoother transition for factories and workers?

Supports from the government for the transition to digital wage payments are already in place, especially from the Ministry of Labour and Vocation Training. The transition to digital wage payments in the garment industry is well aligned with key government policies, namely the Cambodia Digital Economy and Society Policy Framework 2021-2035, Cambodia Garment, Footwear and Travel Goods Sector Development Strategy 2022-2027, and National Financial Inclusion Strategy 2019-2025. But the Royal Government of Cambodia can always do more to facilitate the transition. On the one hand, through dialogue with employers, workers, and relevant players, enterprises that are still paying cash wages should be encouraged and incentivized by the government to join the transition. It is also important to promote fair and effective competition among financial service providers as this can help provide employers and workers with the greatest range of choices among financial products and services at the lowest cost. The promotion of a digital approach to financial inclusion should balance innovation and risk. Therefore, the financial and digital capabilities of the workforce must be enhanced, and financial consumer protection mechanisms should be strengthened to effectively monitor, prevent, and address non-compliance.

Looking ahead, what further advancements or developments do you anticipate in digital wage systems for the garment industry? Are there any emerging technologies or trends that have the potential to reshape the way workers are paid in this sector?

It’s hard to fully predict the technological solutions coming to the market, but we are optimistic that the financial infrastructure and interoperability in Cambodia has matured and reached a point where different financial technologies can be developed, targeted, and scaled to serve that purpose. Digital wage payments or more broadly digital payments are becoming more common among garment workers. There are clear examples where garment workers are adopting QR codes and digital transfers as their preferred methods of payment and fund transfers. This has the potential to significantly reduce the cost of payments/transfers for them. In the meantime, stakeholders should also be more vigilant about a growing number of financial products and services that might expose workers to digital fraud, financial losses, or violations of their data privacy.

Virak Nuon is leading Digital Wage Initiatives at Better Factories Cambodia, the International Labour Organisation. He is a former project manager of UNDP, a SEA Manager at adidas Sourcing, an Enterprise Advisor ILO/BFC. Virak extensively worked and engaged in improving working conditions in global supply chains, youth entrepreneurship, workforce skill development, social protection, and decent work in both formal and informal economic settings. He holds an MSc in development studies from the Royal University of Phnom Penh and an MSc in public policy from the Australian National University.