Billions of dollars in foreign aid are disbursed by donor governments annually, funneled through intermediary organizations and ultimately distributed to a cross-section of development and humanitarian projects globally. The US government alone disbursed more than $37.7 billion in overseas development assistance in 2012. The potential impact of these funds, however, has been limited by costly and cumbersome cash-based payment systems, which are vulnerable to leakages and other inefficiencies.
The rise of mobile money in countries from Kenya to Bangladesh has introduced a powerful alternative channel through which aid funds can be more effectively disbursed and managed. While some development organizations have successfully integrated mobile money into their processes, however, others face operational and technical challenges in making this transition. As mobile money becomes more ubiquitous globally, how can development stakeholders best tap into these networks to better achieve their goal of poverty alleviation?
Creating “Economic Rails” with Mobile Money
We have written about the operational inefficiencies of dealing with cash in the past, noting that it is often responsible for stifling financial inclusion and economic growth in emerging, cash-based economies. Digital payments, on the other hand, have been shown to benefit both development practitioners and beneficiaries, leading to reduced costs, improved transparency, convenience, and enhanced security, among other benefits, according to this Better Than Cash Alliance report.
Beyond operational improvements, integrating digital payments into the development value chain can enhance adoption of mobile money by program staff and beneficiaries – driving financial inclusion. According to Hamilton McNutt, Project Manager of the Payment Innovations team at NetHope, inclusive electronic payments systems can create “economic rails” through which other financial services can be offered, from savings and micro-insurance to credit and loans. Integrating digital payments at a program level thus serves as a key to unlock access to the formal financial sector and thus to other essential services.
Barriers to Change
Spurred by these potential benefits, the shift to digital payments has gained momentum among many development organizations, which have begun to integrate mobile money into some or all of their processes. Donor organizations have played a large role in accelerating this shift, with USAID Administrator Raj Shah even announcing last year that USAID would incorporate language into all grants and contracts intended to promote the use of mobile and electronic payments globally.
However, despite these positive advancements, many development stakeholders have struggled with taking the first steps towards “cash-lite” operations. From gaining buy-in from senior executives, to assessing how mobile money can be most efficiently used, to identifying and implementing the optimal digital payment technology to, there remain many roadblocks that prevent mobile money from achieving ubiquity in the development sector.
One of the key challenges to realizing this vision is that mobile money itself is still far from ubiquitous. While there were 219 live mobile money services in 84 countries at the end of 2013, active usage of these services remains low and airtime top-up and P2P transfer remain the most adopted products, according to the 2013 GSMA State of the Industry report (although bulk payments via mobile money are the fastest-growing product offering). Without widespread mobile money accessibility, the ability of development organizations to tap into these networks is limited.
Even in contexts where mobile money coverage is strong, such as in Kenya or the Philippines, gaining senior-level support for an organizational shift away from cash can be a daunting task, particularly for large, bureaucratic organizations. Managing this change effectively requires extensive planning and execution, said Dan Kleinbaum, COO of Beyonic, a company that provides a cloud-based platform through which organizations can efficiently make and manage field payments.
“The problem faced by many organizations,” Kleinbaum said, “is that many of the platforms available to them do not have the features that let them efficiently implement mobile payments and significant process redesign and approval up the chain becomes necessary.” This challenge was also raised by McNutt, who noted that the finance teams for development organizations are often paid to be risk averse and run a tight ship, and thus large-scale shifts, such as that to mobile money, need to come with assurances and exhaustive analyses of risks.
Change Agents: Intrapreneurs + Effective Technology
Catalyzing this transition often requires an internal champion or “intrapreneur” within an organization who adamantly pushes for change, according to McNutt. This person takes on the responsibility of making sure that standard operating procedures for the shift are in place and that adequate analysis of risks has been conducted. Specialized bulk mobile payment services, such as the Beyonic Funds to Phones platform, can also dissolve some of the pain points of the transition.
McNutt suggests that a good first step for organizations interested in shifting to e-payments is to gain familiarity with the overall digital payments ecosystem in their country or market and look at what others are doing. It is also important to look internally to identify existing cash-related challenges within the organization and assess the current costs associated with cash. Combining this external and internal analysis can help organizations make an informed decision regarding whether they should move forward with this shift, and how to approach it.
Further, there is a growing arsenal of success stories that can be studied to provide guidance regarding how to shift to digital. Educate! in Uganda, for example, is a US-based educational non-profit that began using mobile payments, on a pilot basis, for their school recruitment activities. The organization is now using the Beyonic Funds to Phones platform for nearly all of their operational expenses, from per diems to petty cash disbursements. Using mobile payments has tripled the reach of their programming. Other examples of successful digital payments pilots include Mercy Corps in the Philippines and Catholic Relief Services in Haiti. FHI360 recently announced that they were helping local partners in Bangladesh overcome the hurdles of transitioning to mobile payments through a combination of raising awareness and providing technical support and grants.
Mobile money is likely to become the norm in the development sector over the coming years. Not only can this improve efficiency within the development sector but it can accelerate the ultimate goal of development – alleviating poverty. Bridging the gap from the current cash-based realities to mobile ubiquity, however, will require a coordinated effort from mobile money providers, foreign aid donors and development organizations, all of which play a key role in realizing this vision.