DIGITIZING BULK PAYMENTS IN AGRICULTURE: IS MOBILE MONEY CHEAPER THAN CASH?

Transcription

1 WEBINAR DIGITIZING BULK PAYMENTS IN AGRICULTURE: IS MOBILE MONEY CHEAPER THAN CASH? October 25, :30 a.m. (U.S. EDT)

2 Speakers Nathan Were Bram Peters Ciprian Panturu Pall Kvaran 2

3 Agenda 9:00 Introductions 9:05 Value Chain Context and Project Objectives 9:15 Results 9:45 Business Case for Mobile Network Operators Unlocking the Mobile Money Potential 10:00 Conclusions 10:10 Q&A 3

4 Value Chain Context in Uganda UNCDF is involved in the digitization of five agricultural value chains Source: 4

5 Project Objectives and Approach Value proposition mapping and transformative DFS business case Identify (if any) positive value propositions for the provision of digital financial services (DFS) along the coffee value chain, in partnership with agribusiness Kyagalanyi Coffee Limited (KCL). This required: Detailed mapping of payment processes and modeling of related value propositions (cash vs. DFS) by stakeholder category Value proposition mapping (VPM) Using the VPM results to inform a business model aimed at identifying optimum pricing of DFS while ensuring positive value propositions for all stakeholders throughout the coffee value chain DFS business case 5

6 Research Overview Exploratory research, non-random sample Main focus on building the VPM models: Exploratory research with small, non-random sample Low variance in collected data inspires some confidence in the results 22 in-depth qualitative and quantitative interviews within the community: 8 small and medium farmers 12 small and medium traders 2 large traders Detailed analysis of agribusiness s payment process and cash movements Detailed analysis of mobile network operator (MNO) mobile money revenues and cost structure 6

7 What is it? Approach adapted from traditional activity-based costing (ABC) Stakeholder s payment behavior mapped for a year Mapped monthly Incorporating virtually all sales and purchases And where the transactions took place To estimate the cost of conducting payments in cash Direct transport cost Cost of time spent The value of risk interviewees place on traveling with cash And compare with the cost of making the same payments digitally. Fees charged to do transactions ( P2P ) Fees for cashing out (regular practice in Uganda) = Net value proposition (positive/negative) of DFS vs. cash 7

8 Example of an Average Farmer Profile Fred: 37 years old, married, five children Location: 30 minutes (medium) drive from Manafwa WS, gravel road Farm size: 5 acres (3 coffee, 2 other) HH: Wife and five children live on farm risk value: 20,000/800,000 Thinks mobile money would be a good way to get paid (*varies) 8

9 Excel-based collection and analysis tool Sample extract from VPM analysis master file Farmers Analysis Retained Activities Data Consolidation from Interviews Cost of Transactions (100% cash) Cost of DFS Transactions (100% DFS) for DFS Integration Cost of Transport Travel Time Avg. Yearly Avg. Total Cost Cost of DFS Value Cost of DFS Value % of Paid in Paid in Total Cost Total Cost Integrate Value of Note: All Monetary Figures below are in Thousands of UGX ('ooo) Risk Time Cost (min. one Value/ mars-16 avr.-16 mai-16 juin-16 juil.-16 août-16 sept.-16 oct.-16 nov.-16 déc.-16 janv.-17 févr.-17 Balanc Nb. of DFS Category (no Prop. (with Prop. Total MM of Risk of Time Lost (risk+time+transp.) (risk only) on DFS DFS txns Value (kugx/ (one way) way) Transactio e Of Tnxs Transport Out) VS Out) VS Receipts ,031 2, ,617 5,595 Coffee Sales 1.37% ,849 2, ,837 ###### 4, Merchant Payments 0.00 POSITIVE 3.58 NEGATIVE yes 4837 Livestock / Livestock Products 2.02% % P2P Payments 0.00 POSITIVE 1.93 NEGATIVE 0 Other Agricultural Produce 1.25% ,805 ###### 3, P2P Payments 0.00 POSITIVE 3.58 NEGATIVE 0 Trade Sales (Agricultural/ Other) 3.30% % P2P Payments 0.00 POSITIVE 5.78 POSITIVE yes 167 Employment (permanent/ casual) 3.66% % P2P Payments 0.00 POSITIVE 0.88 POSITIVE yes 189 Remittances Received 2.98% % P2P Remittances 0.00 POSITIVE 1.93 POSITIVE yes 84 Assets Sale 0.00% % P2P Payments 0.00 POSITIVE 0.00 POSITIVE 0 Loans Received 2.83% % Service Payments 0.00 POSITIVE 5.78 POSITIVE yes 56 Other Income % % P2P Remittances 0.00 POSITIVE 5.78 POSITIVE yes 262 Other Income % % POSITIVE 0.00 POSITIVE 0 Payments 1, , ,154 5,388 Seeds & Seedlings 1.26% % Merchant Payments 0.95 POSITIVE 4.53 NEGATIVE yes 298 Herbicides/ Pesticides/ Spraying 1.79% % Merchant Payments 0.66 POSITIVE 2.59 NEGATIVE yes 99 Fertiliser 1.43% % Merchant Payments 0.95 POSITIVE 4.53 NEGATIVE yes 373 Livestock Purchases 2.57% % P2P Payments 2.20 POSITIVE POSITIVE yes 453 Trade Purchases (Agricultural/ Other) 2.63% % P2P Payments 1.40 POSITIVE 4.98 POSITIVE yes 72 Workers 1.14% % P2P Remittances 1.40 NEGATIVE 2.59 NEGATIVE 0 Land Purchase/ Rental 1.71% , ,903 ###### 1, P2P Payments 2.20 POSITIVE POSITIVE 0 Electronic Equipment (TV, Radio) 1.38% % Merchant Payments 1.25 POSITIVE 7.03 NEGATIVE yes 476 Machinery & Motor 0.00% % Merchant Payments 0.00 POSITIVE 0.00 POSITIVE 0 Food & Beverages 1.51% ,164 ###### 1, Merchant Payments 0.66 POSITIVE 2.59 NEGATIVE 0 Clothes 0.81% % Merchant Payments 1.25 POSITIVE 7.03 NEGATIVE yes 367 Airtime 1.44% % Airtime 0.00 POSITIVE 0.00 POSITIVE yes 435 Cable TV (DsTV) 1.25% % Service Payments 1.00 NEGATIVE 1.00 NEGATIVE yes 13 School fees 1.39% ,465 ###### 2, Service Payments POSITIVE POSITIVE yes 2465 Loans Repaid 1.26% % P2P Payments 1.40 POSITIVE 7.18 NEGATIVE yes 233 Veterinary/ Medicine 1.65% % P2P Payments 1.40 NEGATIVE 3.33 NEGATIVE 0 Health Expenses 0.99% % P2P Payments 1.40 POSITIVE 4.98 NEGATIVE 0 Remittances Sent 3.55% % P2P Remittances 1.40 POSITIVE 2.59 POSITIVE yes 104 Other Expenditure % , % P2P Payments 2.20 POSITIVE NEGATIVE 0 Other Expenditure % % P2P Remittances 0.50 NEGATIVE 0.58 NEGATIVE 0 9

10 Farmer VPM Receipts Figures are in thousands of UGX. Each is an average of all farmer answers and refers to how much it costs to conduct one average sized transaction. 1 USD = 3600 UGX Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Receipts Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Coffee Sales 50.30% POSITIV 3.58 NEGATIV Livestock / Livestock Products 2.25% POSITIV 1.93 NEGATIV Other Agricultural Produce 39.57% POSITIV 3.58 NEGATIV Trade Sales (Agricultural/ Other) 1.73% POSITIV 5.78 POSITIVE Employment (permanent/ casual) 1.96% POSITIV 0.88 POSITIVE Remittances Received 0.88% POSITIV 1.93 POSITIVE Loans Received 0.58% POSITIV 5.78 POSITIVE Other Income % POSITIV 5.78 POSITIVE 10

11 Farmer VPM Receipts 1. Remittances (large portion of current MNO revenue) have a very positive value proposition as farmers do not need to travel to pay. Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Receipts Coffee Sales 50.30% POSITIV 3.58 NEGATIV Livestock / Livestock Products 2.25% POSITIV 1.93 NEGATIV Other Agricultural Produce 39.57% POSITIV 3.58 NEGATIV Trade Sales (Agricultural/ Other) 1.73% POSITIV 5.78 POSITIVE Employment (permanent/ casual) 1.96% POSITIV 0.88 POSITIVE Remittances Received 0.88% POSITIV 1.93 POSITIVE Loans Received 0.58% POSITIV 5.78 POSITIVE Other Income % POSITIV 5.78 POSITIVE 11

12 Farmer VPM Receipts 1. Remittances (large portion of current MNO revenue) have a very positive value proposition as farmers do not need to travel to pay. 2. But in other cases, only cost of risk is compared to cost of DFS as farmers need to travel regardless. Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Receipts Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Coffee Sales 50.30% POSITIV 3.58 NEGATIV Livestock / Livestock Products 2.25% POSITIV 1.93 NEGATIV Other Agricultural Produce 39.57% POSITIV 3.58 NEGATIV Trade Sales (Agricultural/ Other) 1.73% POSITIV 5.78 POSITIVE Employment (permanent/ casual) 1.96% POSITIV 0.88 POSITIVE Remittances Received 0.88% POSITIV 1.93 POSITIVE Loans Received 0.58% POSITIV 5.78 POSITIVE Other Income % POSITIV 5.78 POSITIVE 12

13 Farmer VPM Receipts 1. Remittances (large portion of current MNO revenue) have a very positive value proposition as farmers do not need to travel to pay 2. But in other cases, only cost of risk is compared to cost of DFS as farmers need to travel regardless 3. Value proposition for coffee sales and other major receipts is slightly negative. Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Receipts Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Coffee Sales 50.30% POSITIV 3.58 NEGATIV Livestock / Livestock Products 2.25% POSITIV 1.93 NEGATIV Other Agricultural Produce 39.57% POSITIV 3.58 NEGATIV Trade Sales (Agricultural/ Other) 1.73% POSITIV 5.78 POSITIVE Employment (permanent/ casual) 1.96% POSITIV 0.88 POSITIVE Remittances Received 0.88% POSITIV 1.93 POSITIVE Loans Received 0.58% POSITIV 5.78 POSITIVE Other Income % POSITIV 5.78 POSITIVE 13

14 Farmer VPM Receipts 1. Remittances (large portion of current MNO revenue) have a very positive value proposition as farmers do not need to travel to pay. 2. But in other cases, only cost of risk is compared to cost of DFS as farmers need to travel regardless. 3. Value proposition for coffee sales and other major receipts is slightly negative. Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Receipts Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Coffee Sales 50.30% POSITIV 3.58 NEGATIV Livestock / Livestock Products 2.25% POSITIV 1.93 NEGATIV Other Agricultural Produce 39.57% POSITIV 3.58 NEGATIV Trade Sales (Agricultural/ Other) 1.73% POSITIV 5.78 POSITIVE Employment (permanent/ casual) 1.96% POSITIV 0.88 POSITIVE Remittances Received 0.88% POSITIV 1.93 POSITIVE Loans Received 0.58% POSITIV 5.78 POSITIVE Other Income % POSITIV 5.78 POSITIVE Overall, the cost of DFS without cashing out is zero because it costs farmers nothing to receive but if we look at payments 14

15 Farmer VPM Payments 1. -out fees have to be considered in the transaction cost (the usual practice in Uganda is that when users want to pay with mobile money, the receivers ask them to add the cash out fee). Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Payments Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Seeds & Seedlings 3.26% POSITIV 4.53 NEGATIV Herbicides/ Pesticides/ Spraying 1.09% POSITIV 2.59 NEGATIV Fertiliser 4.08% POSITIV 4.53 NEGATIV Livestock Purchases 4.95% POSITIV POSITIVE Trade Purchases (Agricultural/ Other) 0.79% POSITIV 4.98 POSITIVE Workers 2.61% NEGATIV 2.59 NEGATIV Land Purchase/ Rental 20.79% POSITIV POSITIVE Electronic Equipment (TV, Radio) 5.20% POSITIV 7.03 NEGATIV Food & Beverages 12.72% POSITIV 2.59 NEGATIV Clothes 4.01% POSITIV 7.03 NEGATIV Airtime 4.75% POSITIV 0.00 POSITIVE School fees 26.93% POSITIV POSITIVE Loans Repaid 2.55% POSITIV 7.18 NEGATIV Health Expenses 2.42% POSITIV 4.98 NEGATIV Remittances Sent 1.14% POSITIV 2.59 POSITIVE Other Expenditure % POSITIV NEGATIV 15

16 Farmer VPM Payments 1. -out fees have to be considered in the transaction cost (the usual practice in Uganda is that when users want to pay with mobile money, the receivers ask them to add the cash out fee). 2. The cost of cash for most of the payments is reduced to risk only, as the users still have to be present for the exchange of goods. Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Payments Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Seeds & Seedlings 3.26% POSITIV 4.53 NEGATIV Herbicides/ Pesticides/ Spraying 1.09% POSITIV 2.59 NEGATIV Fertiliser 4.08% POSITIV 4.53 NEGATIV Livestock Purchases 4.95% POSITIV POSITIVE Trade Purchases (Agricultural/ Other) 0.79% POSITIV 4.98 POSITIVE Workers 2.61% NEGATIV 2.59 NEGATIV Land Purchase/ Rental 20.79% POSITIV POSITIVE Electronic Equipment (TV, Radio) 5.20% POSITIV 7.03 NEGATIV Food & Beverages 12.72% POSITIV 2.59 NEGATIV Clothes 4.01% POSITIV 7.03 NEGATIV Airtime 4.75% POSITIV 0.00 POSITIVE School fees 26.93% POSITIV POSITIVE Loans Repaid 2.55% POSITIV 7.18 NEGATIV Health Expenses 2.42% POSITIV 4.98 NEGATIV Remittances Sent 1.14% POSITIV 2.59 POSITIVE Other Expenditure % POSITIV NEGATIV 16

17 Farmer VPM Payments 3. Positive value propositions are there (e.g., school fees, land, livestock). But these are highvalue transactions likely to be affected by the limited level of agent liquidity. Moreover, the timing for these does not necessarily match that of their income. Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Payments Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Seeds & Seedlings 3.26% POSITIV 4.53 NEGATIV Herbicides/ Pesticides/ Spraying 1.09% POSITIV 2.59 NEGATIV Fertiliser 4.08% POSITIV 4.53 NEGATIV Livestock Purchases 4.95% POSITIV POSITIVE Trade Purchases (Agricultural/ Other) 0.79% POSITIV 4.98 POSITIVE Workers 2.61% NEGATIV 2.59 NEGATIV Land Purchase/ Rental 20.79% POSITIV POSITIVE Electronic Equipment (TV, Radio) 5.20% POSITIV 7.03 NEGATIV Food & Beverages 12.72% POSITIV 2.59 NEGATIV Clothes 4.01% POSITIV 7.03 NEGATIV Airtime 4.75% POSITIV 0.00 POSITIVE School fees 26.93% POSITIV POSITIVE Loans Repaid 2.55% POSITIV 7.18 NEGATIV Health Expenses 2.42% POSITIV 4.98 NEGATIV Remittances Sent 1.14% POSITIV 2.59 POSITIVE Other Expenditure % POSITIV NEGATIV 17

18 Farmer VPM Payments 4. Faced with the cost of cashing out, farmers are left with limited use cases for the digital income they receive (mainly airtime and remittances sent). Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Payments Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Seeds & Seedlings 3.26% POSITIV 4.53 NEGATIV Herbicides/ Pesticides/ Spraying 1.09% POSITIV 2.59 NEGATIV Fertiliser 4.08% POSITIV 4.53 NEGATIV Livestock Purchases 4.95% POSITIV POSITIVE Trade Purchases (Agricultural/ Other) 0.79% POSITIV 4.98 POSITIVE Workers 2.61% NEGATIV 2.59 NEGATIV Land Purchase/ Rental 20.79% POSITIV POSITIVE Electronic Equipment (TV, Radio) 5.20% POSITIV 7.03 NEGATIV Food & Beverages 12.72% POSITIV 2.59 NEGATIV Clothes 4.01% POSITIV 7.03 NEGATIV Airtime 4.75% POSITIV 0.00 POSITIVE School fees 26.93% POSITIV POSITIVE Loans Repaid 2.55% POSITIV 7.18 NEGATIV Health Expenses 2.42% POSITIV 4.98 NEGATIV Remittances Sent 1.14% POSITIV 2.59 POSITIVE Other Expenditure % POSITIV NEGATIV 18

19 Farmer VPM Payments 4. Faced with the cost of cashing out, farmers are left with limited use cases for the digital income they receive (mainly airtime and remittances sent). 5. As a result, there is a need to eliminate the need for cashing out, enabling farmers to use mobile money for nearly all transactions. Farmers Analysis Note: All Monetary Figures below are in Thousands of UGX ('ooo) Payments Data Consolidation from Interviews % of Total (risk+time+tra nsp.) (risk only) Cost of DFS (no Out) VS Cost of DFS (with Out) VS Seeds & Seedlings 3.26% POSITIV 4.53 NEGATIV Herbicides/ Pesticides/ Spraying 1.09% POSITIV 2.59 NEGATIV Fertiliser 4.08% POSITIV 4.53 NEGATIV Livestock Purchases 4.95% POSITIV POSITIVE Trade Purchases (Agricultural/ Other) 0.79% POSITIV 4.98 POSITIVE Workers 2.61% NEGATIV 2.59 NEGATIV Land Purchase/ Rental 20.79% POSITIV POSITIVE Electronic Equipment (TV, Radio) 5.20% POSITIV 7.03 NEGATIV Food & Beverages 12.72% POSITIV 2.59 NEGATIV Clothes 4.01% POSITIV 7.03 NEGATIV Airtime 4.75% POSITIV 0.00 POSITIVE School fees 26.93% POSITIV POSITIVE Loans Repaid 2.55% POSITIV 7.18 NEGATIV Health Expenses 2.42% POSITIV 4.98 NEGATIV Remittances Sent 1.14% POSITIV 2.59 POSITIVE Other Expenditure % POSITIV NEGATIV 19

20 Off-taker results overview KCL faces positive value proposition from direct cost savings when shifting to DFS. Digital payments are 27% less expensive than cash payments. Bank Fees 2% Stationery 8% Insurance Cost 12% Cost of Working Capital 13% Transport Cost 17% Cost of Staff 48% Economy VS 27% DFS Equipment 9% Aggregator Fees 21% Cost of Staff 11% MNO Fees 32% Direct Cost per Payment Direct Cost per DFS Payment (as % of Direct Cost of ) Main cost driver for cash payments is staff (75% lower with DFS). Main cost driver for DFS payments is the fee per transaction (73% of costs). 20

21 Off-taker results overview The indirect benefits push the DFS value proposition even further. Digital payments become 45% less expensive than cash when accounting for the additional opportunities that they bring. 21

22 Farmers and off-takers: high-level analysis Short-term recommendations: Receipts: Continue digitizing coffee sales. Uptake is likely to be slow, as the cost of cash vs DFS (including cash-out fee) is similar (3,460 UGX vs. 3,580 UGX per transaction). Payments: Digitize agricultural input purchases. is cheaper than DFS (including cash-out fee). However, KCL has a strong interest in promoting the use of quality agri-inputs. Digitize school fee payments. This provides an immediate use case, thus reducing the cost induced by the digital coffee receipts. 50% DFS Receipts 41% DFS Payments 22

23 A Typical Day in Uganda That s a lot of transactions 10 payments a day: 6 related to transportation 4 related to consumption Payer always physically present Marginal distant service payments (i.e., remittances, utilities, school fees, TV, etc.) 23

24 DFS Business Case Pricing as a key barrier for mobile money services MTN Mobile Money - Customer Fees in Uganda (1 USD ~ 3,600 UGX) From To P2P MTN Users Bills, Goods & Services Most payments take place on first 3 tariff bands. P2P tariffs are prohibitive: 17% of first band, down to 10% of third band s average value. Considering previous example, the client would have a daily cost of 5,800 UGX (1.6 USD): 10 transactions x (250 UGX P2P UGX cash-out fee) Regular mobile money payments are unlikely to catch on with the current pricing! 24

25 DFS Business Case DFS providers: high-level analysis Long-term recommendations: Provide affordable (additional) payment use cases for DFS to reduce the cash-out/withdrawal need, creating a positive value proposition for most of the transactions. DFS providers should shift from value to volume-driven pricing models. Today mobile money is primarily known for remittances, where the value proposition is highly positive and straightforward. This is not the case for regular payments, where the user is physically present (DFS is no match for cash in this context). Build the ecosystem from the end user upward. If positive value propositions are created for farmers so they accept DFS as means of payment, the traders and merchants are likely to follow as well (ecosystem driven by customer demand). 25

26 Conclusions Value chain actors are inter-linked with the community as a whole. The value proposition for DFS must be positive not only for the stakeholders involved in the value chain itself, but well beyond to drive adoption and use. An ecosystem rather than value chain approach is more likely to get traction. Mobile money is regularly cheaper than cash when there is no cash out. End users have to top up their payments with the cash-out fee, as someone ends up cashing out eventually. When adding the cash-out fees, the cost becomes prohibitive for the adoption and regular use of DFS by all actors, across and beyond the value chain itself. There are ways to address the challenge of cash-out fees. DFS providers can grow revenue by lowering transaction fees, relying on high numbers of small-value payments instead of small numbers of large transfers. This would lead to positive value propositions at almost all levels and for the entire ecosystem, effectively unlocking the payments potential in rural areas. 26

27 Further Information Useful Links Blogs & Articles: Going Digital, or Stick to? (UNCDF) Making Mobile Money More Attractive to Farmers (UNCDF) How to Make Mobile Money More Appealing than (UNCDF) Digital Payments that Work for Low-Income Farmers (CGAP) VPM Model Templates: Nathan Were, CGAP Youtube Tutorials: Digital Payments Tool 27

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