The messy reality of UBI

Give a Buck is Mashable’s deep dive into Universal Basic Income — an idea gaining currency in a time of pandemic and mass unemployment. Now more than ever, our future depends on whether we can pay the bills.

Making universal basic income a reality in the United States will be a difficult process fraught with untold missteps, but perhaps not just for the reasons bandied about by talking heads on either side of the political divide. Like with so many things, it’s the details that get you. 

The idea of universal basic income, or UBI as it is more commonly referred to, is beyond just having a moment. Teed up by academics and policy wonks, driven home by real-world pilot programs, super charged by former presidential candidate Andrew Yang, and exploded by the coronavirus pandemic, the time for a stabilizing and unconditional cash payment made to every American adult is decidedly now. However, as the federal government’s attempt to distribute a one-time stimulus payment has made clear, the logistics of pulling off such a grand and encompassing policy are far from ironed out. 

To put it another way, how do you actually move that much money — reliably and repeatedly — into the hands of U.S. adults? How do you prevent such a system from being riddled with errors, glitches, and intentional abuse? How do you, in other words, make sure the damn thing works?

As more and more elected officials begin to take the idea of UBI seriously, it’s worth looking into what payment approaches have and haven’t worked in the past, what may work in the future, and how without the right foundation it could all come crashing down. 

The challenge of scale

The pandemic and corresponding economic collapse has revealed a number of truths about the capabilities of the U.S. government. One such revelation is that it has no way to effectively distribute payments to all Americans. 

This was made abundantly clear in the unequal timing of the stimulus payments, officially known as economic impact payments (and which technically are not a UBI scheme because of the temporary relief). Over 80 million Americans either already have, or are set to receive the one-time payment born out of the coronavirus calamity. Some of those whose direct deposit information the IRS already had on file from last year’s taxes awoke the morning of April 11 to find a much-needed cash infusion in their bank accounts. Those whose bank accounts are not on file, however, have to either input that information into an IRS website or wait for a paper check — checks that, according to officials, were “on the way” as of April 20. 

The almost two-week disparity between the two groups is not the only payment shortcoming revealed by the stimulus checks. Because all this, of course, assumes that your payment wasn’t stolen. 

The New York Times reported on April 22 that the IRS’s online payment system, which only required basic information in order to direct an economic impact payment to a specific bank account, is a dream come true for scammers. Eva Velasquez, the chief executive of the nonprofit Identity Theft Resource Center, summed it up.

“The scope, the scale, the speed and the efficiency of the scams is breathtaking,” she told the Times.

The Americans in need — struggling to get a check in time to make a mortgage payment, or logging into the IRS economic impact webpage only to discover their payment had already been claimed through some form of identity fraud — deserve better. 

If we are ever to make universal basic income a reality, a reliable and secure payment method will be a fundamental pillar of the entire enterprise. We don’t have to look far to see just that.  

On not reinventing the wheel

While unconditional cash payments to working and non-working adults alike may sound radical, it’s not new. In fact, there are limited and well-studied examples right now of such policies in action. Learning from them, before an attempt is made to scale UBI to an entire country —like Spain is proposing, for example — will be required if the project is to do anything besides fall flat on its face. 

One such case study can be found in the California city of Stockton. Kicked off in February 2019, the Stockton Economic Empowerment Demonstration (SEED) gives 125 city residents $500 a month for 18 months. It’s funded by the nonprofit Economic Security Project, and the payments are unconditional. 

“Poverty results from a lack of cash, not character”

“A hand up, rather than a hand out, SEED seeks to empower its recipients financially and to prove to supporters and skeptics alike that poverty results from a lack of cash, not character,” explains SEED. 

To distribute that cash, SEED elected a method familiar to anyone who’s been on the receiving end of unemployment benefits or social security. In a March 28 interview on the PBS NewsHour, SEED Director Sukhi Samra explained that the organization elected to go with prepaid debit cards in recipients’ names. 

“So everyone has what’s called a focused card that has your own name on it and each month on the 15th or close to the 15th as possible, we load the $500,” explained Samra. “From there, folks are able to spend it just like you would any other debit card. They can transfer the money onto their own accounts and they can withdraw as well.”

This approach solves a major problem presented by UBI: What to do about Americans without bank accounts? According to a 2017 survey by the Federal Deposit Insurance Corporation (FDIC), approximately 14.1 million American adults (for the purposes of this survey the FDIC considered “adults” those aged 16 years or older), or about 5 percent, were unbanked that year. Notably, the survey points out that even its finding likely understates the true number, as “these figures do not include residents of ‘banked’ households who do not have an account in their name and do not benefit from a bank account owned by another household resident.” 

Making UBI payments directly to a prepaid card effectively serves as a workaround to that problem. 

Mobile first

GiveDirectly, a nonprofit founded in 2009 with the goal of “[sending] money directly to the world’s poorest,” took a different approach. In addition to working with U.S. families affected by COVID-19, GiveDirectly committed to pay 44 villages (4,966 people) in Kenya approximately $0.75 per adult, per day, for 12 years. That may not sound like a lot, but according to the nonprofit the average Kenyan recipient lives on only $0.65 a day. 

“We believe people living in poverty deserve the dignity to choose for themselves how best to improve their lives — cash enables that choice,” the nonprofit . 

To make this happen, GiveDirectly set recipients up with so-called mobile money wallets. Essentially, the organization made bank accounts unnecessary by tying payment to SIM cards. And, unlike stimulus checks, the recurring payments made by GiveDirectly have a basic level of digital security not easily circumvented by culling data breaches for personal information. 

The SIM cards are protected by PINs, which recipients must enter whenever they want to send money to another mobile wallet or cash out. If someone loses his or her phone or SIM card, there’s a process to get a new one that involves verifying their identity with the telecom company, Joe Huston, GiveDirectly’s managing director, explained over email.

“The money stays associated with the phone number,” wrote Huston, “so this is not typically a big problem unless a recipient’s PIN was compromised (they used their year of birth, told a neighbor, etc.).”

GiveDirectly, in other words, has landed on a method of distributing ongoing payments completely independent of traditional bank accounts. In 2019, the Pew Research Center found that 96 percent of Americans — that’s all Americans, not just those over 16 — owned a cellphone. Could U.S. officials follow GiveDirectly’s mobile-first model for future UBI payments at home? 

Huston thinks so, albeit not with the current technological setup. 

“As an organization, we’re aiming to reach 100,000 households over the next few months, but the U.S. government could certainly reach the entire U.S. population with cash transfers,” wrote Huston. “[The] government would also need to invest in improvements to its payment technology to allow them to more quickly reach people with different financial access levels.”

Making government-sponsored UBI reliant on mobile payments is not without its own risks, however. SIM swapping fraud is definitely a problem in the U.S. and elsewhere, but the time-consuming process of individually paying off or tricking employees of cell providers is not quite as scalable as downloading a stolen database of 143 million Americans’ social security numbers, for example, and plugging them into an IRS website. 

Still, if UBI is ever going to fulfill its loftier promises of redefining the lives of Americans, perhaps a more radical approach is required.  

Beyond Cash

Cryptocurrency and often amorphously defined blockchain tech have for the past few years been posited as the solution to everything from supply-chain tracking to the authentication of real-world and digital goods. Oh yeah, and there’s that whole redefining money thing. 

In many cases the reality hasn’t lived up to the hype. There are notable exceptions, however, such as the undeniable success of Bitcoin as a store of value and digital currencies like Bitcoin Cash and Monero as a means of exchange. Could some form of cryptocurrency both be used to make UBI payments and, as the value of the currency increases with use, in effect pay for itself? 

The team behind the cryptocurrency Manna thinks so. 

“Cryptocurrency is by far the most cost effective and accessible solution for distributing regular value”

Founded in 2015, the organization behind Manna bills its cryptocurrency as “the first blockchain-based currency to be created and distributed by a tax-exempt nonprofit organization, and the first digital currency to implement a Universal Basic Income as its primary method of distribution.”

The project leans hard into the universal aspect of UBI. Essentially, anyone can sign up to receive periodic payments of Manna to their Mannabase digital wallet. The idea is that, were Manna to take off and be traded on digital currency exchanges, the coin will increase in value. 

Managed by the nonprofit Hedge for Humanity, Manna was launched in 2017. According a member of Hedge’s financial committee, Jon Frechin, cryptocurrency makes sense as the future of UBI.

“Especially on a global scale, cryptocurrency is by far the most cost effective and accessible solution for distributing regular value to upwards of millions of people worldwide,” he told Mashable over email. “The most common bank in the world is quickly becoming the smartphone, and that is precisely the prerequisite required for distributing value using cryptocurrency and digital based assets.”

So how did Manna turn out? An initial explosion of growth — from a few thousand users to almost 100,000 in a couple of months — led to unexpected problems for the nonprofit. 

“We quickly learned all the creative ways people would try to abuse the system through the creation of fake accounts as well as various scalability issues that needed to be resolved in order to accommodate further growth,” continued Frechin. “Since then, it has been a continuous trial and error process, methodically developing and fine tuning the system.”

While Manna itself may have sputtered, the idea is now out there. CoinDesk, the blockchain and cryptocurrency news publication behind the annual Consensus conference in New York City, published a March 30 editorial arguing that a digital stablecoin created by a central bank and tied to digital wallets could be the key to making UBI a reality. 

With ongoing rumblings of a possible federally-issued stablecoin, this will undoubtedly not be the last time such an argument is made. 

First steps

As the U.S. government tries, sometimes successfully and sometimes not, to get economic impact payments into the hands of Americans, more and more people will be confronted with the messy challenge presented by large-scale payment programs. 

It doesn’t have to be that way. 

Organizations like SEED and GiveDirectly have shown that, in the real world, universal basic income payments can be made reliably and consistently. While cryptocurrency may be a ways out from resolving the UBI payment question, purveyors of digital wallets have seized the pandemic moment to offer an alternative to delayed and stolen payments.

Jack Dorsey, CEO of both Twitter and Square, is one such voice. Notorious for his support of Bitcoin, in recent weeks he’s touted the ability for users of the Square-owned Cash App to directly deposit their stimulus payment into what amounts to a digital wallet.

Square didn’t respond to our repeated requests for comment, but the implications are obvious: If the U.S. won’t build the infrastructure for distributing UBI, then private companies like Square will be more than happy to oblige. 

One thing is clear: It’s going to take more than political will to make universal basic income a reality. The logistics of actually giving people money must be sorted out, and quickly, so that the entire dream isn’t doomed from the start.