Three Steps to Jumpstart Mobile Finance: Step 1 – Researching smallholders’ financial behavior to help them transition to mobile payments
Editor’s note: This is the first of a three-part series that will run this month, laying out three steps for embedding mobile money into agriculture development at the BoP. Click here for part two and part three.
Something exciting is happening in agriculture – and in mobile money.
Upcoming research by The Technical Centre for Agriculture and Rural Cooperation (CTA) will reveal that there is a race among large commodity buyers to have the fastest speed of payments to their smallholder farmers. At CTA’s recent Revolutionising Finance for Agri-Value Chains conference in Nairobi, the GSMA – the apex organization for 850+ mobile network operators worldwide – agreed, declaring that transitioning payments to farmers from cash to mobile is a huge opportunity for mobile financial service providers. Other organizations such as Rockefeller Foundation, MasterCard Foundation and USAID are also looking at this intersection of agriculture and mobile money. Last year, USAID even committed to including language in all its grant and contract solicitations to accelerate the use of mobile and electronic payments globally.
It’s becoming increasingly clear that cash payment schemes are obsolete in the 21st century. By definition they present a value chain efficiency gap deserving of a designed intervention to transition payments to mobile. Migrating value chains to become cashless has multiple benefits for farmers, buyers and mobile finance service providers:
- Farmers obtain a first-ever financial identity. They become more productive on their farms because they spend less time traveling to and from cash transactions, and they have greater safety and security because they don’t carry lump sum cash payments for crops. Also, the greater privacy of a mobile payment, compared to cash payments to farmers when/where they aggregate, mitigates against community pressure to gift and/or provide loans to others.
- Large commodity buyers can disincentivize farmers’ side-selling by providing instant payment, while significantly reducing the onerous and costly administrative, recordkeeping and security protocols that are required when distributing cash to thousands or tens of thousands of farmers.
- Finally, mobile financial service providers register new users, while also promoting loyalty and reducing churn among existing customers. They also increase their annual revenue per user, a key metric for mobile network operators (MNOs).
Against this backdrop of interest by and benefits for all the stakeholders in agriculture, how might we help the sector transition to mobile payments? The first step is to conduct cash usage behavioral research with farmers, to inform the design of the requisite ecosystem of cash-in/cash-out agents and merchants that are tightly aligned along the targeted value chain. At the same time, this research can also assess the financial literacy of farmers by identifying their existing savings, spending and borrowing behaviors and basic numeracy skills. Further, research can identify latent demand for financial products such as credit, savings and payments as well as mobile money functions (e.g. free account balance inquiry, pictogram-based menus, etc.). Interestingly, there has been little effort to date by MNOs to do such research to inform how to roll out mobile financial services into rural areas.
Agricultural development interventions are often informed by comprehensive pre-project analysis work to identify efficiency gaps and inform the design of subsequent interventions to close those gaps. With some creative additional effort, such pre-project analysis can also capture the market research and financial literacy data described above. As either a stand-alone exercise or integrated into a pre-project analysis effort, this market research will provide visibility into the frequency of cash transactions, the average amounts, who makes the cash payments, and the precise locations where these transactions take place. For that reason – and because agriculture is often the only source of income for households at the base of the pyramid – mobile financial service providers in pursuit of profitable business opportunities will welcome the leadership of, and partnership with, agriculture entities.
But we should make note that the potential of these new technologies and business models is germane to more than just agriculture. Mobile finance can – and ultimately will – serve the entire financial needs for households at the base of the pyramid, including expenses for agriculture inputs, education, health, water, utilities, clean cookstoves, solar lanterns, solar panels and more. In the next two blogs in this series, we’ll discuss how to use digital payments to farmers to jumpstart the mobile finance ecosystem for all the other essential needs of households at the base of the economic pyramid.
Lee Babcock is a recognized digital finance thought leader and consultant.