NB Financial Health
2015 – The Breakout Year for Agriculture Digital Payments?
A robust foundation has been built since mobile money began in 2007, and it seems digital payments will continue to gain traction in 2015. The closing plenary by Bill Gates at the October 2014 SIBOS conference for 7,000 financial industry professionals worldwide was about the potential of digital finance to promote financial inclusion, reduce poverty and promote women’s empowerment. And according to the GSMA’s State of the Industry report, there were 219 live mobile money platforms in 2013. By October 2014, this number had already increased to 251, with over 100 more in the pipeline.
But for digital finance to really expand throughout Africa, MENA, Asia and Latin America this year, it needs greater uptake in rural areas. And though it ’s being used to facilitate transactions for health care, education, clean cookstoves, water, solar power and lanterns, and any number of financial products, the only sector with the transactional volume to economically justify the creation of this new payments channel at scale in rural areas is agriculture. Therefore, to leverage the potential of agriculture as a gateway to serving other village-level mobile finance needs, we must think about how best to strategically insert digital finance into the agriculture value chain.
A number of ongoing initiatives are focused on doing just that. The Technical Centre for Agriculture and Rural Cooperation (CTA) will soon release its landmark study on digital payments for agriculture, which will feature lessons and best practices based on its research on strategic alliances for these payments in coffee, rice and cotton in Uganda, Zambia and Ghana. The Financial Innovation for Smallholder Families initiative at the World Bank’s Consultative Group to Assist the Poor (CGAP) is also closely examining digital channels that improve smallholder farmers’ access to financial services. And recently I was invited to speak at a strategic planning retreat for Olam International, a global agribusiness that sources product from farmers in 65 countries, has 23,000 employees and earns $17 billion in revenue. I also provided strategic advisory for a digital services provider in Ethiopia that has created a “one-stop-shop” for all agriculture functionalities (e.g. payments, information/marketing, surveys, logistics, etc.) that are aligned with the requisite levels of technical and partnership complexities and the need for gradually increasing levels of trust by farmers. It’s clear that stakeholders in both agriculture and finance are aware of the two sectors’ mutual importance to each other.
When it comes to actually using digital finance products, the initial interaction with farmers begins with the payment they receive from global, national or local agribusinesses for their crops. By transitioning these payments from cash to mobile, they can streamline their value chains and help jumpstart rural ecosystems of mobile money agents and merchants that will serve the non-agriculture mobile finance needs in rural villages. With operations in Uganda and Tanzania, a first mover in this space that warrants our attention is SmartMoney. In their first season in Uganda they have registered 50,000 farmers and other rural subscribers in order to accommodate crop payments by three coffee companies. A number of international NGO’s are also positioning themselves as network orchestrators for agricultural digital finance alliances such as Mercy Corps’ Agri-Fin Mobile. These initiatives will combine with many others to bring significant numbers of farmers – and their communities – into the digital finance ecosystem.
The year 2015 should be the year for this to happen. Digital finance has saturated or will soon saturate the large urban centers, primarily because population densities easily permit scale. There has been little to no target market segmentation, service delivery and product innovation while in sole pursuit of transactional volumes, along with predominantly “low touch” customer interaction. By contrast, the next generation of mobile money, taking place in rural areas, will require more business rigor with regard to target market research and segmentation to inform the new business model, mobile wallet fee, and agent commission constructs. Given the demographic profile of farmers, it will also require a more “high touch” customer interaction. Nevertheless, these three steps for transitioning cash payments by large commodity buyers to mobile provide an alignment with what is already the “high touch” nature of knowledge transfer to farmers, season after season, about good agricultural practices.
A strategic approach to agriculture digital payments for crops will maximize its financial inclusion potential in rural areas, reduce costs for large commodity buyers and increase revenues for mobile financial service providers. When these three sectors combine their strengths and business models and start collaborating, we’ll be on our way towards extending the digital finance revolution to the rural poor. If these efforts are successful, 2015 will bring digital finance one step closer to doing for the base of the pyramid what commercial banking did for the Industrial Revolution.
Lee Babcock is a recognized digital finance thought leader with robust private sector, development implementation and consulting experience.