Jorgette Mariñez: Why are cash transactions a problem for companies?
Marjolaine Chaintreau: Cash is expensive to store, transport or insure—and it is also inefficient. For example, many consumer goods companies operating in cash-based countries need to hire security guards to accompany drivers delivering products to shops, as distributors are often targeted for robbery. Cash payments are also more easily subject to fraud and leakages.
Chhavi Ghuliani: In a country like Bangladesh, for example, where we are partnering with the Bill & Melinda Gates Foundation to digitize garment worker wages, cash has to be transported to factories in armored vehicles, then sorted, counted, and distributed to thousands of people. This is a risky and time-consuming process that can span several days in a larger factory. In addition, for global companies sourcing from these factories, cash means less transparency and traceability of wage payments to workers in their supply chains.
Mariñez: What are digital payments, and what are the business benefits they can bring?
Chaintreau: Digital payments are transfers of value made through any kind of digital channel. They include payments made with traditional electronic bank transfers, mobile money accounts (i.e. using phones), and payment cards (credit, debit, or prepaid cards).
Companies that have shifted to responsible digital payments have experienced business benefits, including increased revenues and stronger relationships with supply chain partners. In Kenya, small retailers that are a part of Unilever’s Jaza Duka (“fill up your store”) program were able to access digital working capital loans based on retailers’ purchasing history with Unilever. These shops expanded product inventory and variety, increasing foot traffic to stores and growing sales by 20 percent within the first six months of implementation.
Ghuliani: Our analysis from Bangladesh shows a 53 percent reduction in admin time and effort spent on payroll when a factory switches from cash to digital payments. Additionally, we estimate that a factory can save about 25 minutes of production time per worker by switching to digital wages because workers do not need to be taken off the production line to collect cash. Many of the global companies we partner with also benefit, because they see digitization as a way to support the financial inclusion of women in their supply chains while also ensuring workers are getting paid correctly and on time. The greater transparency that digital wages provide is critically important.
Mariñez: Why is this so valuable for the workers in the supply chain?
Chaintreau: Workers that are paid in cash are often excluded from the formal financial sector; being paid digitally can be the first step toward opening an account. This can provide the ability to save money, which can potentially increase workers’ formal participation in the economy and access to other financial services, such as credit and insurance. Digital payments can also help workers save time, and they can reduce personal security risks, as workers do not need to travel with pockets full of cash.
Ghuliani: The majority of workers in global supply chains, particularly in light manufacturing and agriculture, are women, for whom the benefits of digitizing wages are even greater. Their financial inclusion is linked with greater control and decision-making over financial matters and can reduce the risk they disproportionately face from transporting large amounts of cash. After having their wages digitized, the percentage of women in Bangladesh who reported they were handing their salaries over to their spouses on a monthly basis dropped from 43 percent to 25 percent.
Mariñez: What industries or markets have the most compelling case for considering digital payments?
Chaintreau: In this report, we focused on three main sectors—agribusiness, fast-moving consumer goods, and the apparel industry—to show the breadth and diversity of opportunities that digital payments can bring to workers, smallholder farmers, and small businesses/shops. However, companies of all sizes and sectors can benefit from implementing the necessary building blocks of digitizing payments in their supply chains.
Ghuliani: Any industry that still relies on cash for salary payments can benefit from digitizing. We chose to focus on the garment industry in Bangladesh in our HERfinance work because it still relies on cash, it employs mostly women, and it is a consolidated industry. This meant we could reach tens of thousands of low-income, underbanked women by focusing on a small number of garment clusters in the country.
Mariñez: What are the biggest challenges to digitizing payments?
Chaintreau: It takes time to build trust and drive usage of digital payments. For companies, the main challenge is ensuring that all actors in the supply chain see a positive value proposition to move away from cash into digital payments. This means having appropriate accounts and financial products addressing the needs and capabilities of workers or farmers, especially women. It is also critical to build incentives beyond payments, like access to savings, remittances, or working capital.
Mariñez: For those companies that are interested in doing this, what is the first step?
Chaintreau: Ask the question! How are payments made in our supply chain, and what are our costs associated with using cash? In our experience, the key to successful digital payments solutions is having buy-in from senior leadership and alignment across the departments that will be affected, such as sales, procurement, distribution, and finance.
Ghuliani: My recommendation is for companies that are thinking about this issue, particularly in the supply chain context, to collaborate. To maximize the benefits of digitization to workers, we must shift entire industries away from cash and also build a supporting ecosystem so workers can not only be paid digitally, but also spend digitally. This can only happen when we reach significant scale. Our HERfinance Digital Wages program has reached more than 160,000 low-income workers so far, and while that is significant, there are still millions of workers in Bangladesh still paid in cash. More action and commitment from buyers and their suppliers is needed.
Chaintreau: I agree! Collaboration will be required to successfully make this transition. While some leading companies, financial institutions, and governments are already working together to build inclusive and responsible digital payments ecosystems, there is an opportunity for more companies to join this movement and realize the full benefits of digitization for their business and stakeholders.