Delivering the Last Mile : A Payments Perspective on Humanitarian Assistance

This article is derived from a webinar Jeffrey gave on Tuesday, June 23, 2020 to the Digital Frontiers Institute. You can watch the webinar below or read the article.

Globally, $28.9 billion dollars is spent in humanitarian aid. This is a huge amount of money for international development. Of this, more and more aid is becoming digital. In countries where regulations permit, digital payments are increasingly becoming the predominant and preferred delivery mechanism for assistance. This trend is set to continue across the humanitarian industry and to scale rapidly.

But the challenge remains in delivering to the last mile. 

The largest humanitarian organization in the world, WFP, last year transferred a record US$2.13 billion to 24.5 million people in 64 countries, representing over 35% of their assistance. This significant scale up – from US$10 million in 2009 – prompted not only by the organization’s desire to scale cash delivery but also a desire to improve efficiency and effectiveness and better serve beneficiaries. This is indicative of a greater movement occurring throughout the humanitarian industry- a shift away from aid (food, in-kind) and towards assistance (cash).

As a payments expert, I see the field of digital humanitarian assistance a bit different than humanitarian workers do. Years of experience working with banks and fintechs, building payments products, banking solutions, and core transactional platforms gives you insights that working for a government or humanitarian organization does not.

A payments perspective to humanitarian assistance puts a financial services lens on the development of aid distribution solutions for beneficiaries. It understand the concepts of financial services, payments, financial education, product design, marketing, pricing and acceptance. It applies the logic of customer focus, market segmentation, competition, scale, standard setting and collaboration- to reduce friction in transacting to scale the use of financial services. It sees not only other market actors as competitors, but also other payment instruments – primarily cash – as the key challenge to overcome. 

First and foremost: Delivering to the last mile is always the biggest challenge in payments. Thanks to global developments over the last 50 years, you can readily transfer money from any country in the world to any country effectively in a matter of minutes- from any bank account to any bank account in an instant. Thanks to all this incredible hard work, this is actually the easy part. The hard part is what happens after it reaches the destination account in a national bank.

To deliver funds those in need- clients, users, or beneficiaries, however you call them, you need accounts, acceptance points, and cash distribution networks. In most countries of the world, financial services infrastructure is severely lacking. The more rural you get, the worse the situation is. More often than not the very people you want to send funds to do not have ID, do not understand the product or service, operate informally and have for generations, have no access to liquidity networks, and interact with limited places that accept digital funds. Furthermore the lack of common and interoperable solutions, the lack of perceived profitability, the cost of acquiring and servicing a consumer and the lack of financial education and infrastructure are the roots of financial inclusion.

The figurative – and sometimes literal - mile between the bank branch, the ATM, or the agent and the beneficiary is the last mile challenge that we all struggle to overcome. 

Financial inclusion, especially over the last decade, has done much to resolve this. Since 2011, over 1.2 billion people have gained access to a financial account. Agent networks transformed thousands of small retail locations into human ATMs. This increased access is doing much to remove the challenges of the last mile. But the most vulnerable are not really the target of financial inclusion: they have little long term profitability, often live far away, and remain expensive to service, even considering advances in technology. Digital humanitarian aid intends to deliver much needed financial assistance to the bottom of the pyramid. It provides the ability for an organization to find efficiencies in delivering assistance and grants the ability for beneficiaries to better manage the support they receive.

But are humanitarian agencies tasked with achieving financial inclusion? Or are they there only to deliver financial assistance? Financial inclusion is actually intended only for the top of the bottom of the pyramid, with the bottom still being left behind. This is an ongoing conversation with many large organizations, resulting opportunities to play a key role in advancing financial inclusion. 

Sadly and as a result, digital assistance from humanitarian organizations is often provided in a manner that is distortionary to the market, with no vision on impact to existing services and collaborators in the space. It is often delivered clumsily, with many restrictions, and with the organization’s needs superseding those of the beneficiary. Many times, it is delivered digitally where frankly it just doesn’t make sense to do so.

The most pressing issues facing the delivery of cash for humanitarian organizations include the following:

Key Challenges

Beneficiary / Environmental

• Limited Know Your Customer (KYC): Limited or nonexistent identification, challenging to meet basic requirements, data collection processes are weak or non-existent
• Reliable Electricity: Intermittent electricity means digital solutions are not appropriate in many countries 
• Unreliable Network Connectivity: No network or mobile connectivity is available in beneficiary areas. 
• Low Financial Literacy: Low level of understanding of the value / functionality of formal financial services. No follow up or ongoing training.
• Poor Liquidity Management: Ensuring consistent and dependable access to cash in beneficiary areas remains a challenge
• Low Technical Capacity of Local FSP: Limited knowledge or technical capacity present in local FSPs. In some cases, no local FSPs are available. Challenge to comply with humanitarian requirements.
• Desired Mobility of Beneficiaries: Beneficiaries cross international borders and require assistance in multiple countries. Tracking of beneficiaries is challenging. 
• Limited Product Selection: Financial service products offered are insufficient to meet financial inclusion goals. Service areas offer a limited supply of products to beneficiaries.

Implementation / Institution

• Contracting is complex: Contracting processes for financial service providers to delivery funds is overly difficult
• Identification, training, registration: Identification, training, registration of beneficiaries are difficult
• Beyond funds delivery: Current operational business processes only partner for funds delivery
• Lack of KYC : Lack of KYC prevents registration of beneficiaries and smooth delivery of assistance
• Liquidity issues: Limited acceptance network, complexity of establishing acceptance network, liquidity issues upon delivery of assistance
• Usage remains low: Usage of financial services products remains low
• Poor Financial Product Experience: Products developed don’t match beneficiary requirements by prioritizing organizational requirements over beneficiary experience

Overcoming these challenges requires an application of a payments lens to delivering humanitarian assistance.

Recommendations

The following are my key messages to humanitarian organizations:

1: Focus Digital Aid on Beneficiaries

Payments are focused on the user. Who benefits from digital payments? Many would assume that beneficiaries are the key benefactors. However, if humanitarian agencies asked beneficiaries what kind of assistance they wanted most, they would say cash. Payments are an extra layer of complexity that complicate access and use for beneficiaries.

Let’s be honest- all the cost in developing digital solutions, the complexity of registrations and distributions, the establishment of cash in and cash out and merchant networks all serves to the meet the requirements of organizations and their donors. With so much pressure to be accountable for funds, organizations bend over backwards to ensure funds are delivered to their destination, making things complicated for beneficiaries.

Organizations really need to understand their beneficiaries to determine what is in the best interest of the beneficiary – before designing solutions. Doing so requires and understanding of the differences between your organizational preferences vs the beneficiary preferences. Beneficiary needs should be prioritized as much as possible.

Finally, when designing a solution, what behaviour are you teaching? Working with biometrics may make sense for your organizational or donor needs, but if the market is not using biometrics, NFC or QR, you are establishing a customer behaviour and expectation that is not in line with the market. How is this in their best interest?

2: Move away from family assistance models 

Payments utilizes individualized identity as a core element. Traditional means of delivering assistance focuses on calculating assistance based on families with loose identity. Much work and effort is spent developing records of beneficiaries and linking family relationships.

Establishing a model that operates on holding identity information unnecessarily to comply with past concepts of aid is time consuming and not necessary. The reality is that families change, often. Keeping records on this is tough, and really does not add value. Humanitarian organizations should transition to storing data on an individualized basis and building assistance models around individuals rather than family units that can be prone to misrepresentation.

3. Work with Regulators in the interest of the Beneficiaries

Payments sees regulation as an advantage. Regulators often regulate with a view towards large financial actors and everyday users. Beneficiaries often do not fit these profiles. As such, governments can prohibit the use of digital assistance inadvertently. Instead of fearing the regulations, humanitarian organizations should engage directly with regulators to see whether there is any flexibility for at-risk populations. Often, for low-value low-volume transactions, regulators are willing to make exceptions to accommodate their vulnerable populations.

Remember, for organizations that operate their own payment services, if are delivering funds that can be converted into cash, your service may fall under the legislative requirements for operating as a payment service provider. Many organizations currently operating in house payment services are at a serious legal risk for operating in an unlicensed manner.  Working closely with the regulator is a way to avoid these operational risks.

4. Collaborate to gain scale

Payments sees collaboration as essential to reach scale. There is much opportunity for the humanitarian industry to collaborate to improve their service delivery to their beneficiaries. Often, multiple humanitarian organizations work with the same people, knowingly or unknowingly. The lack of coordination and interoperability means beneficiaries have to go through different registration processes, different identification processes, and use services that do not work with each other. No sharing of information results in multiple cards, multiple authentication methods, multiple balances that serve multiple purposes- some vouchers, some commodities, some cash that cannot be intermingled. While this serves organization interests, it's a pain for the beneficiary. 

Clearly there are benefits in working together. Having interoperability on data sharing and common standards on ID significantly lowers the burden of registration and validation. Shared liquidity management lowers the costs and challenges of operating agent networks. And connecting solutions means beneficiaries no longer need to hold multiple cards for their benefits, and can intermingle funds between one organization and the next.

Donors need to provide strong incentives to create an environment where organizations are encouraged to collaborate, instead of pitting organizations against each other as competitors.

5. Run Humanitarian Assistance as a Business

Payments is a business. Most humanitarian organizations have little understanding of the financials behind operating digital assistance. Sometimes it costs a lot to set up a system to deliver funds, resulting in a higher cost of implementation than the benefit the beneficiary receives. Humanitarian organizations need to understand the cost elements and business metrics behind their implementations, and make informed decisions based on cost, use and efficiency. 

Much pressure comes from donors to avoid leakages. But the cost of leakages with one payment method may be lower than the cost of implementing another. Banks know this, work hard to reduce fraud but accept the cost of beating it entirely outweighs the benefits. Donors need to be more flexible and understanding. Organizations have to weigh the options carefully.

6. Work With, Instead of Against FSPs

Payments are regulated to reduce risk. In-house solutions should be seen / used as a solution of last resort, when a country is unable to provide market actors able or willing to provide financial services itself, when no other suitable payment instrument option is available. They are intended to be used in scenarios where local FSPs are not present or cannot meet standards, and/or are unwilling to work in the areas in question; where regulatory requirements are prohibitive; where there is limited or no connectivity for authentication; and when there real and valid need to have an especially high level of authentication using biometric information. This is not always the case.

Running an in-house solution at any kind of scale to distribute cash effectively implies having to play the role of a FSP, rather than just operating a piece of technology. Doing so implies the assumption of costs associated with owning and managing identities, registration of beneficiaries, establishment and responsibility for merchants, the distribution and management of cards, the issuance and acceptance of transactions, and significant operational and financial risks. Additionally, choosing to operate an in house solution to distribute cash may fall under the legal jurisdiction of financial services regulators, which come with operational and reporting requirements.

There is risk involved in operating a financial service. Where possible, humanitarian organizations should transfer that risk to a regulated financial service entity. It is the government's job to regulate financial services providers, not the humanitarian organization's. Working with an FSP significantly reduces operational and reputational risk for an organization as the FSP – a regulated entity- normally takes responsibility for the vast majority of these elements as part of their service offering

Solving the Last Mile for Humanitarian Beneficiaries

It is becoming clear that humanitarian assistance through digital channels - disbursements of funds in cash- is the future of humanitarian assistance. Crises such as pandemics, natural disasters and political crises underlie the demand for the use of digital payments and having access to formal savings, insurance and credit. But many organizations implementing payments solutions to deliver humanitarian assistance have limited experience and exposure in doing so, resulting in complex solutions that make life harder for their beneficiaries.

This need not be the case. Humanitarian organizations need to seek individuals with specialized training in payments in order to design solutions that meet beneficiary needs. They need to hire individuals who understand financial services, financial modelling, and customer focus.

By focusing on the beneficiary themselves, and delivering a solution that meets their needs through a payments lens, humanitarian organizations can leverage the best elements of payments solutions to deliver their assistance to those who need it most.

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Jeffrey Bower is Founder of Bower & Partners. Jeffrey is a digital financial services and payments expert, determined to accelerate the use of innovative digital financial services around the world. Jeffrey has authored national strategies, developed country payment schemes, launched new payments businesses, & influenced national policy & regulations.

Most recently, Jeffrey served as Payment Services Lead for the UN’ World Food Programme, driving the design of ScopeCard, the organization’s in-house payment service, guiding payment instruments selection for national programs, & setting the organization’s fintech partnership strategy to bring payments to millions of the world’s poorest. Jeffrey founded Bower & Partners, a digital payment consulting practice that has delivered work for World Bank, International Finance Corporation, Alliance for Financial Inclusion, UN’s Better Than Cash Alliance, a number of national payment switches, for regulators and central banks, as well as major international banking institutions & fintech platforms.