Mia Overall

Recognizing a Neglected Opportunity: The multiple benefits of electronic wage payments

Consumer goods companies rely on massive supply chains with millions of workers in developing countries. Many of these workers are women, and many are still paid in cash – and herein lies an opportunity for change. Development organizations such as the United Nations, Gates Foundation and the World Bank are now recognizing the opportunities of partnering with these consumer goods companies to increase access to digital financial services through payroll.

According to recently released World Bank Findex 2014 data, increasing access to digital payments can significantly increase financial inclusion. Yet only 41 percent of wage earners in developing countries receive their wages directly into bank accounts (including roughly 45 percent in East Asia and less than 25 percent in Southeast Asia) and the likelihood of receiving wages into an account goes down as income drops.

So why does this matter for consumer goods companies? Global brands have long since monitored how much workers in their supply chain are paid, but few have ever thought to ask how these workers are paid. In fact, most don’t know – and until now, they haven’t had much reason to care whether these workers were getting paid electronically or in cash. But that is now changing. As data increasingly reveals the link between electronic wage payments, financial inclusion and women’s economic empowerment, a valuable opportunity is emerging for both brands and the workers they depend on.

Researchers at the World Bank have observed that electronic wage payments (i.e.: payroll) can be an on-ramp to financial inclusion by bringing people into the formal banking system. This can lead to higher savings rates and greater access to other financial services, such as insurance and credit, that can help poor people manage risk, weather economic shocks and smooth consumption. Women in particular stand to benefit, because having an account into which they are paid electronically gives them greater control, confidentiality and convenience with regards to their finances. It shifts household decision-making toward women and increases their economic empowerment.

In addition to the benefits for their employees, factories benefit from better financial management and reduced risks and costs of handling cash. Electronic wage payments are faster to administer and more secure. And for global brands, whose supply chains have come under increasing scrutiny in recent years, these payments provide greater transparency. Electronic payment records make it harder to falsify records to look like wages were higher than stated. One social compliance manager told me that he is quite sure his company’s factories already pay workers electronically, but claim they pay in cash because they would rather not disclose electronic records to auditors. Plus, being able to tell a story about supporting financial inclusion can provide a public relations boost for consumer goods brands.

In light of these benefits, advocates of financial inclusion and digital payments are beginning to explore ways to leverage the potential influence of supply chain companies to boost financial access and capability. In Bangladesh, for instance, a new study is examining the impact of electronic wage payments on both employees and employers. And Business for Social Responsibility (BSR) has launched a pioneering initiative called HERfinance, which is helping to focus corporate attention on the benefits of supporting financial inclusion in supply chains. In 2012, it began enabling brands such as Levi Strauss, Timberland and Primark to sponsor financial literacy training for workers in garment factories. And in March, it convened a two-day meeting in Hong Kong gathering global brands, financial literacy training partners, and global thought leaders on financial inclusion and payments, to discuss the opportunity of building financial capability through global supply chains.

At the Better Than Cash Alliance (where I work as a Programme Management Consultant), we also realize that digitizing payments often takes collaboration between multiple stakeholders to achieve digital payments ecosystems. At HERfinance’s recent meeting, we shared the stage with the Bill and Melinda Gates Foundation, which is supporting mobile payments through bKash in Bangladesh, and GSMA, an association of mobile operators which supports mobile money for development around the world. It was clear from our discussions with these major players that partnerships with consumer goods companies, suppliers and factories represent a new horizon in driving social benefits through financial inclusion.

Development organizations have also been working closely with governments on this topic. Though it’s hard to believe that the public sector would adopt digital payment technology faster than the private sector, governments now outshine companies in paying wages digitally. That highlights a significant opportunity: Far more progress can be made in the private sector, and companies should aim to surpass governments by the next Findex report in 2017. If they do, they could add to the momentum that has powered recent impressive gains in global financial inclusion.

Mia Overall works as a Programme Management Consultant at the Better Than Cash Alliance.

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digital payments, financial inclusion, mobile finance, supply chains