The hidden costs of welfare’s legacy payment systems: Why Europe must modernise now

Outdated, fragmented welfare payment systems are still the norm in many European countries, leading to delays in pension disbursements, healthcare reimbursements and social benefits. These inefficiencies not only create hardship for individuals but also cost billions each year – up to 1.5% of GDP in some economies. Governments must address these systemic flaws as urgent fiscal and operational risks, not just minor inconveniences.

As Europe grapples with aging populations and rising demand for welfare services, one critical issue remains overlooked: outdated payment systems. At Fast Forward Foundation, we recognise that these inefficiencies are not merely technical challenges but significant barriers to creating equitable, efficient welfare systems across the region. This is why we commissioned a report led by experts Biagio Bossone, Jose Antonio Garcia Luna and Camilla Venter. Titled Leveraging Modern Payment Techniques to Enhance Integrated Welfare Solutions, the study examines the inefficiencies plaguing current welfare payment structures and advocates for integrated digital platforms as a transformative solution.

Welfare sector payments (WSPs) extend beyond direct transfers to beneficiaries and include social security contributions, tax deductions, administrative fees and other transactions that sustain welfare programmes. These transactions, which number in the hundreds of millions annually across Europe, remain hindered by legacy systems, leading to increased administrative burdens and delays.

A practical, scalable solution

The study’s authors propose transitioning to integrated digital payment systems as a cost-effective, scalable solution. These platforms would automate processes, minimise delays and reduce administrative expenses. By adopting interoperable digital frameworks, governments could create more transparent and secure welfare payment channels.

Key benefits of digital payment modernisation include:

• Greater efficiency: Automating transactions reduces processing times and costs
• Enhanced transparency: Digital records improve accountability and minimise fraud risks
• Financial inclusion: Real-time payments ensure beneficiaries can access funds without delay

Ensuring equitable access to digital systems
While digital payment modernisation offers significant potential, it is essential to ensure that no one is excluded. Governments must prioritise inclusive design in the development of digital welfare solutions, offering alternative access points for individuals lacking digital tools or skills. This may include providing assistance with digital literacy, offering offline alternatives and ensuring that welfare services remain accessible to all citizens, regardless of their technological access or abilities. By combining the efficiency of digital platforms with accessible solutions, we can create an equitable welfare system.

A framework for systemic change
To achieve these goals, a comprehensive, unified approach is necessary. The study introduces the Integrated WSP Architecture (IWSPA) – a framework designed to streamline WSPs across different sectors. This approach encourages collaboration between governments, central banks and payment system operators to create a seamless, accessible and resilient infrastructure that supports the broader shift to digital payments.

While modernisation requires upfront investment, the long-term benefits far outweigh the costs. Savings from reduced inefficiencies could be reinvested into expanding coverage and enhancing social protection, improving the overall effectiveness and resilience of welfare systems in the long term. As welfare systems face increasing financial strain, maintaining outdated payment structures is no longer viable. Modernising digital payment infrastructure is a vital investment to ensure the future strength and sustainability of Europe’s social safety net.

Testing the transition to digital payments
To bring this vision into practice, Fast Forward Foundation is planning a pilot project in Portugal to assess WSP systems at both national and regional levels. By leveraging Portugal’s advanced infrastructure and robust welfare environment, the project aims to create a scalable blueprint for other countries pursuing the modernisation of welfare payment. This initiative supports Fast Forward Foundation’s mission to advance sustainable, inclusive social protection solutions across Europe.

As we continue to pioneer integrated welfare – the integration of healthcare, social protection and financial inclusion through digital payments solutions – we remain focused on innovative, applied approaches that bridge the gap between social policy and real-world delivery. We are actively seeking collaboration with Philea members, as well as governments, civil society, and financial institutions, to help us drive sustainable and inclusive transformation in welfare systems, safeguard individuals and communities and ensure a future of equitable access for all.