Written by Franz Gomez and Alejandra Montes Saénz of Fundación Capital
COVID-19 is making digital payments more appealing and presents an opportunity to bring financial services to more small businesses and the Café Paga Project shows how.
Don Silvio Gómez lives with his family in the village of El Triunfo, near the small city of Pitalito in southwest Colombia. At age 74, he has dedicated more than 50 years of his life to growing coffee. He never imagined that one day it would be possible to make payments using his cellphone. Last September, however, Gómez, along with 182 other coffee growers from Pitalito, participated in a Capacity Building for Financial Inclusion workshop as part of a digital payments pilot. The pilot is part of the sustainable sourcing strategy, NKG BLOOM, of Neumann Kaffee Gruppe (NKG), the largest coffee trading group in the world, and is implemented by its subsidiary in Colombia, SKN Caribecafe Ltd.
As part of the strategy, digital payments help smallholder farmers like Gomez gain access to and training on formal financial services to help them attain better pricing from suppliers, greater savings and faster payments, among other benefits. Fundación Capital, with support from Mastercard and Neumann Kaffee Gruppe, piloted the digital payments program in Mexico and has since expanded to Colombia.
Digitization makes it easier for companies to make their payments to contractors, employees and suppliers by avoiding the mobilization of cash. It also allows greater traceability and operational efficiency.
During the workshop, Gómez and his fellow coffee growers learned about and downloaded the digital solution, Movii, which they can use to manage payments from suppliers and is linked to a Mastercard debit card. They received an incentive of $3 USD credited to their Movii wallet. After the workshop, Gómez, who has had savings accounts with financial institutions before but prefers to use cash, used his Movii wallet and debit card to refuel his motorbike. "I saw that the gas pump had a POS [point of sale], so I swiped the card and tanked the bike.”
Although Gómez’s story occurred prior to the COVID-19 pandemic, the lessons derived from his experience and other participating in the pilot take on special relevance in the context of the current crisis, both for companies and governments. In the case of government-to-person payments, digital financial services function as a flexible and cost-effective way to transfer subsidies and monetary support to a population affected by the crisis. In Colombia, three of the coffee growers in the project were able to receive, in a quick and timely manner, the government-sponsored Ingreso Solidario – a cash transfer from the government to the poorest families in the country to enable them to get through the lockdown period while income-generating activities may have to come to a halt – through their Movii account. Because this transaction was digital, they did not have to approach a financial entity, thus avoiding crowds and unnecessary risks of contagion.
Digitization makes it easier for companies to make their payments to contractors, employees and suppliers by avoiding the mobilization of cash. It also allows greater traceability and operational efficiency. Meanwhile, for payment recipients, digital delivery means less risk of contagion since they do not have to go out to receive a payment. Receiving digital payments is also more convenient, as they can use the money to make purchases and pay bills digitally without having to travel or take public transport.
Digital payments can generate significant benefits for vulnerable individuals and communities, but they require an ecosystem that integrates, encourages and supports them.
Below, we share some of the lessons and recommendations from the digital payments pilot as part of the NKG BLOOM strategy, which have been complemented by Fundación Capital’s extensive experience implementing financial inclusion programs for poor populations in 12 countries in Latin America. We hope their implementation by governments and businesses in the region will help mitigate the negative impacts of the current pandemic on the most vulnerable people.