More than 4.57 billion people around the world now use the Internet. The 2020 Digital Report of We Are Social reveals that the average Internet user spends 6 hours and 43 minutes online every day. In just a few decades, digital technology has become an essential part of our daily lives, prompting many companies to make digital transformation a top priority.

But one sector is lagging far behind in this respect: public services.

Digitisation of the public sector in Europe

Overall, European countries are improving every year with an average maturity of digital solutions in public services of 65%. Estonia takes the first place as 99% of its public services are digitised and 97.9% of the population has an electronic identity card.

Several European states would like to replicate the Estonian success. In France, the “Action Publique 2022” program aims to digitise the 250 most frequent administrative procedures by 2022.

Meanwhile, in 2017 Germany passed the Online Access Act, with the goal to generalise the digitisation of administrative procedures at the federal, Länder and municipal levels by 2022. Germany plans to provide €500m for its implementation.

In April 2011, the British government created the Government Digital Service which manages the GovTech Catalyst. The purpose of this £20m fund is to finance private sector companies that develop solutions to public sector problems using innovative digital technologies.

The obstacles to digital transformation

Despite these governmental initiatives, digital transformation remains slow as it is hampered by the many regulations inherent in the public sector. New technologies, especially artificial intelligence (AI), often raise safety issues in highly regulated sectors such as the pharmaceutical industry. Governments must ensure that personal data and individual liberties are protected, as it is now the case in Europe with the General Data Protection Regulation (GDPR). Such regulations also help reassure citizens who are wary of certain technologies. In the UK, only 37% of the population thinks the government should use more innovative AI technologies, compared to 57% in Singapore. The government even had to abandon an AI facial recognition database project in the face of strong opposition from the British people.

Accessibility is another recurring problem. Indeed, these digital solutions require a quality Internet connection, which can be an issue in some rural areas or with vulnerable people. The deployment of very high-speed broadband could improve network coverage, but 5G is shrouded in controversy. The government must also implement tools that are accessible to all users, including people with disabilities or those with no computer skills.

Today, Govtech is an emerging sector, with limited access to capital: between 2012 and 2019, Govtech startups in France raised €1.53bn, including €150m for the Doctolib unicorn in 2019. These startups are struggling to find their place on the public market, which uses long and laborious calls for tenders. This is why 69% of French Govtech startups claim that it is “more difficult” to work with the public sector than with the private sector, and six out of ten startups find it “extremely difficult” to respond to a call for tenders. Why is it so? Because governments like to carry out extensive due diligence to avoid setbacks such as the Seaborne Freight scandal in the United Kingdom. Independent actors can help states optimize the due diligence process and adapt it to startups without taking too many risks. For example, Capgemini UK is working with Early Metrics to help HMRC in its search for startup partners.

A winning strategy

Govtech startups need more support from public authorities since they can meet the needs of citizens who demand more simplicity, speed and proximity in their administrative procedures. In 2019, the Great National Debate organized by French President Emmanuel Macron revealed that 74% of respondents expressed digital access to some public services was a top priority. The government must be able to provide continuous access to these services, including remotely when faced with exceptional circumstances such as the 2020 lockdown and Covid-19 health crisis.

Digital transformation does not only benefit citizens, far from it in fact. It enables governments to deliver a better quality of service. Thanks to automation, agents have more time to devote to value-added tasks (projects, advice, responses, special cases, etc.). It can also help improve operational processes, such as border controls, which is a major challenge in dealing with migration crises and pandemics. By supporting European Govtech startups, states could also strengthen their technological sovereignty and thus free themselves from their dependence on American and Chinese companies, which are not subject to the same regulations on data management.

Finally, while digital transformation involves initial investments, it will ultimately save significant amounts of time and money: Estonian Minister Urve Palo estimates that the country saves the equivalent of 2% of GDP per year thanks to digitalization.

Companies, especially SMEs, would also benefit from this digitisation, since it facilitates all the steps to be taken at each stage of their development and ultimately enables them to become more competitive.

Leveraging the expertise and agility of Govtech startups

Due to their nature, startups are characterised by their innovation and agility. They adapt more easily and quickly than traditional players, and therefore seem to be in the best position to assist governments in their digital transformation. Startups quickly develop prototypes which states can test under real conditions, often on a local scale, before deploying the best solution. These tests often reveal areas for improvement, and startups are more open to adapting their solution to a specific use case. On the contrary, for a large group, the government can be seen as just one client among many and has to make do with an off-the-shelf solution.

Initiatives have been launched to foster this collaboration between states and startups, such as the GovTech Summit, the third edition of which was held in late September 2020. They highlight the variety of areas where startups could add value.

However, we notice that some sectors are digitising faster, such as healthcare. Telemedicine has indeed gained ground in recent years, with a strong acceleration in recent months in response to the health crisis. Since April 2017, the Doctolib platform has been deployed in AP-HP hospitals in Paris, reducing the number of no shows. In the United Kingdom, the startup Babylon worked with the NHS to develop the GP at hand telemedicine solution.

There are many examples of successful collaboration in other areas. Thanks to the partnership between Pôle Emploi and OpenClassrooms, French job seekers can benefit from three months of free courses on digital topics. The Scottish government is working with Novoville to make life easier for its citizens and resume a dialogue: Scots have access to a range of online services and information, reducing calls and visits to town halls, and local authorities can communicate more easily through a variety of channels.

Although it is an emerging market, Govtech represents a strong potential, with an expected growth to €20bn in France by 2024 and £20bn in the UK by 2025. Governments have no choice but to accelerate their digital transition, driven by the demand of their citizens but also by a changing context, as we have seen this year. It is therefore in their best interest to increase collaboration with startups, as these companies are best placed to support the public sector in this transition.