NGOs and Electronic Value Transfer Providers:
Tips and Recommendations for Picking the Right Partner
Part One
by
Nicholas Lesher[1]
KokoéviSossouvi[2]
The use of cash transfersor vouchers as a form of direct assistance to vulnerable populations—be they for humanitarian relief, development, or state-sponsored social welfare—has reached considerable scale with estimates in the USD billions according to the recently formed Better than Cash Alliance.[3] Increasingly, these disbursements are made not by stuffing envelopes and dispatching personnel but by electronic means. These electronic value transfers (EVTs) usually involve an electronic wallet (e-wallet) accessible either via mobile handset or the combination of a plastic card and point of sale (POS) terminal. At present, efforts are being made to build evidence, capacity as well as develop standards and tools for the humanitarian sector on EVTs, through, for example, the recent release by the Cash Learning Partnership (CaLP) of the "E-transfers in Emergencies: Implementation Support Guidelines" (Sossouvi, 2013).
We use the term EVT in this paper because the term “mobile money” is, and should be, a discrete term that refers to the sale and purchase of electronic value for the purpose of storing, transacting, transferring, or re-converting purchased electronic value back into physical currency. Vouchers, however, refer to transactions with varying levels of conditionality placed on them that restrict how the recipient may use them. These conditions typically apply to the type of transaction permitted (e.g. medical supplies or basic food stuffs), how long it is valid for, where it can be redeemed (e.g. specific district or department), and with whom (e.g. affiliated merchant/vendor or some other authorized location). Voucher recipients are also not permitted to convert the value received into physical currency. That said, many of the platforms that provide mobile money services can be modified or customized to provide electronic voucher services.
The growing use of EVTs offer potential benefits to both implementing organizations (i.e., cost reductions, increased operational efficiency, and enhanced monitoring capabilities) and recipients (i.e., increased privacy, speed of delivery, reduced time and transport costs) when compared with existing alternatives.[4]For organizations focused on the design, delivery, and management of development and humanitarian aid initiatives where EVT services have recently been introduced (such as Haiti, Colombia, Brazil, Niger, DRC, Nepal and Pakistan to name just a few), local staff are testing, integrating, and expanding the use of electronic transfers to more rapidly and reliably reach intended beneficiaries.
When successful, relationships between the private sector and NGO/aid agencies can yield benefits on a wide scale. For instance, the World Food Program (WFP) and MasterCard recently decided to combine their respective expertise in delivering food aid at scale in challenging environments and in managing electronic payment systems by creating a global partnership dedicated to the delivery of “digital food”.[5] And by 2046, WFP has committed to expanding its use of electronic cash and voucher transfers by 40 per cent.
However, while some NGOs/aid agencies have succeeded in capitalizing on these new opportunities, the realities of partnering or contracting with EVT providers (be they a bank, MNO, or 3rd party provider) often prove challenging. We distinguish between partnering and contracting here because EVT services are in various stages of maturity throughout the world and the nature of the supply does not always meet the needs or expectations of institutional clients such as NGOs/aid agencies. Therefore, the level of effort required on the part of NGOs/aid agencies to receive specific services (e.g. bulk payments/disbursements) varies. Where EVT service deployments are in a pilot or initial launch phase (operational for less than 2-3 years), this often leads to relationships that are more time and labor intensive for NGOs/aid agencies than if they had simply contracted a provider. As a result, they often take on characteristics of a partnership; whereby strategies and resources are shared, roles and responsibilities are formalized, and a division of labor is established (e.g. enrolling and training users).
We elected to focus on these types of relationships for two reasons: 1) given how recently the majority of EVT providers has emerged, they are more likely to be the norm for some time, and 2) they require more thought and effort to achieve the desire result—i.e. a program that can reliably deliver direct assistance via electronic means. So, why the challenge?
In this first of three installments, we directly address this question by presenting a conceptual blueprint for NGOs/aid agencies to better understand and leverage these partnerships. Although we focus our observations and recommendations on EVT services provided by MNOs, we believe these observations are applicable toa range of EVT providers. Below, we pose and then answer fourstrategic partnership questions that NGOs / aid agencies should ask themselves before embarking on a potential partnership.
In the second installment, "EVT Partnerships 101: Service Level Agreements", we will dive into greater detail on issues of operational and technical support, how this support is defined and formalized, as well as provide guidance to NGOs that are about to begin formal contract negotiations with an EVT provider. In the third and final installment, we consider practical, actionable paths forward for both NGOs and donors serious about fully leveraging these products and services as a means of increasing financial access and empowerment, and not simply viewing EVTs as an alternative disbursement mechanism for humanitarian relief or short-to-medium term development.
But let us be clear on a number of important points from the outset:
- We believe that the efficiencies, cost savings, and other benefits associated with EVTs versus non-EVTs are real and quantifiable for implementing organizations and program participants.
- When it comes to offering the under-banked and unbanked in vulnerable communities more than just a mechanism for receiving direct assistance and, instead, providing them with a meaningful transaction and value storage alternative as well as increased access to basic financial services, we believe EVTs possess the greatest potential to do so.
- We do not subscribe to the notion, however, that EVTs are always the “best" disbursement option when compared with other, traditional alternatives (e.g., paper vouchers or cash disbursements done directly or via 3rd party).
- Nor are we convinced that one type of EVT serviceis inherently better than another (mobile handset-based vs. card/POS terminal-based). On both points, these decisions must be made on a case by case basis following a careful examination of local market conditions, service provider capabilities, and participant capacity.
- And finally, as many others before us in development have observed, technology is an essential tool not a panacea. Its value and utility are entirely a function of how it is understood and applied.
I. How might a potential EVT partner perceive NGOs?
Before an NGO/aid agency engages a prospective EVT provider, it’s worth spending a little time internally reflecting on how this potential partner might perceive the organization and how that might impact their approach to a potential partnership.Based on our own experiences supporting, engaging, and observing these interactions, there are a number of concerns that may cause the private sector to be hesitant or skeptical of such a relationship.
Private Sector Concern: Narrow Strategic Vision - Private sector actors are not always sure what to make of other organizations that do not act based on market conditions or do not have to justify their decisions to investors.A common perception is that, because NGOs and other humanitarian orgs are almost exclusively donor-driven, they often pursue shorter term, narrow objectives and their commitment and presence in a market will last only as long as they can secure funding.
- NGO Counter/Reply - Depending on the market context, programs may have short, medium, or long term objectives. It will be important for NGO/aid agencies to be transparent with their private sector partners as to whether the EVT services they require will support shorter term disaster relief/post-conflict efforts or longer term economic/livelihood development efforts. NGOs/aid agencies would also be well-served to outline their strategic commitment to the country and the overall history of the organization, provide a brief summary program activities in other sectors that might potentially involve EVTs (e.g., SME loan disbursement/ repayment, Ag value chain payments, social welfare payments), as well as any major relationships/ partnerships public, private or civil society actors they have cultivated.
Private Sector Concern: Loose Organizational Structure –There is a perception that the lines of authority and communication within NGO/aid agencies are not as explicit as in the private sector. This, they feel, will negatively impact strategic planning, decision making, coordination, and implementation. Additionally, EVT providers perceive aid organizations as unskilled at properly calculating and managing operational costs, which could complicate discussions and decision-making around what additional resources are realistic for EVT providers to allocate (e.g., such as personnel, training materials, hardware).
- NGO Counter/Reply - Private sector partners may have limited knowledge of/experience with how an NGO/aid agency functions. NGO and aid agencies, especially those with a regional or even global presence, have considerable experience procuring goods and services from private sector vendors. They have the internal structure, personnel, tools, and other resources to draft and review contracts, implement, monitor and audit projects. Be prepared to discuss your country office structure, how key strategic and operational decisions are made as well as speak to past project management experience, with an emphasis on reporting requirements and internal auditing processes designed to ensure operational quality.
Private Sector Concern: NGO/aid project requirements are either inflexible or commercially unfeasible to provide. EVT providers, be they banks, MNOs or third party providers, have all acquired dedicated platforms and software applications with features and functionalities designed to serve what the provider believes to be the needs of its target client base. These platforms all offer standard querying and reporting capabilities for internal monitoring, data analytics, etc. That said, these platforms were not designed specifically to align with external auditing/reporting requirements of potential clients (e.g. NGOs/aid agencies).To comply with these requirements, an EVT provider may have to pay for additional customization to its platform, which could take months to complete and could even interrupt commercial service operations.
- NGO Counter/Reply - Many EVT providers are unaware that NGOs/aid agencies are contractually obligated to record and provide certain types of information to donor governments or other institutions.If the NGO/aid agency takes the initiative to explainto the EVT provider what information they are required to gather, they may be able to devise an acceptable proxy for data formatting and reporting based on the information currently being generated and stored on the platform. This would require the NGO/aid agency to engage the donor to secure the proper authorization or waivers but would certainly help to alleviate concerns within their own Finance Department and remove the need for any platform modifications on the part of the EVT provider.
Private Sector Concern: "Low Value" Customers - NGO/aid programs will enroll "low value" customers that EVT providers aren't interested in.Participants are selected from disadvantaged or vulnerable communities, which tend to fall outside the service providers target client segment. They are usually poor households located in urban, peri-urban or rural areas where basic infrastructure is absent or in poor condition (e.g., roads, electricity, and water), reliable employment is hard to find, and disposable income scarce. EVT providers may question the benefits of partnering with an NGO / aid agency to reach these types of clients who ultimately may not be very active users of their service.
- NGO Counter/Reply - While vulnerable or disadvantaged communities certainly have lower income levels and less reliable employment status, many within these communities perceive airtime to be a priority expense and will regularly spend disposable income on airtime and other mobile related services. Therefore, to an MNO with an EVT product, these individuals are not just potential new EVT product users. They may also be entirely new subscribers who will generate additional revenues over the long term. Also, if NGOs have a more in-depth understanding of these client segments (e.g., consumption patterns and revenue sources), the case for reaching these groups can be more easily made to an EVT provider. Finally, as many MNOs with EVT services already know, the largest remaining “untapped” segments in markets where NGOs/aid agencies operate are located in rural areas--same areas that NGOs/aid agencies know well and are well-positioned to engage and serve.
II. How can NGOs structure partnerships with EVT providers to meet their program objectives?
Ideally these partnerships should be built deliberately over time but operational realities and program priorities may force NGOs/aid agencies to accelerate certain steps. While the exact steps will vary from market to market, the steps listed here are common in markets where EVT providers are less well-established:
Preliminary Engagement / Feasibility Assessment- Some EVT providers may not be ready or willing to partner with NGO / aid agencies.Someone with direct project level responsibility should engage the EVT provider at the senior management level or higher to begin the conversation. NGOs/aid agencies will also want to demo the service before moving forward and involve other senior staff in-country.
Project Concept Note / Overall Strategy - The next step is to document the specific aims and parameters of the proposed project as well as the broad objectives of the partnership for presentation to and sign-off from the NGOCountry Director and EVT provider executives. While this will be a joint effort, it is advisable that the NGO/aid agency take the lead drafting role.
Memorandum of Understanding (MOU) - The primary purpose of this document will be to clearly articulate and agree to the respective roles and responsibilities of each party. The partnership should seek to recognize and reinforce the strengths of each party. Additionally, for individual NGOs/aid agencies as well as for the sector at large, close collaboration with EVT providers can have a positive effect vis-a-vis encouraging the adaptation of products and services so that they better meet the needs of program participants and improve their user experience.
On the NGO/aid agency side, their role should focus on end user engagement and field support to ensure adequate knowledge and comfort using the service. On the EVT provider side, their role should focus primarily on service provision, management of all technical aspects of the product, as well as issues of remote customer support (e.g. call center). The respective strengths of each organization are listed in the tables below.
III. How do NGOs communicate their objectives in terms the EVT partner will understand?
To the extent that NGOs/aid agencies can quantify key aspects of their program, they will more effectively capture the attention and interest of an EVT provider. NGOs/aid agencies will also be using terminology that providers can more easily translate into concrete benefits resulting from the proposed partnership. In particular, EVT providers are interested in the activities of a cash transfer or voucher program for the following reasons:
Transaction activity - EVT providers need large volumes of transactions to be profitable. Transaction volume is a function of the total number of customers a provider has enrolled, how often those customers transact (e.g. weekly, monthly, quarterly), what types of transactions they make (e.g., peer-to-peer or P2P transfers, cash-in/-out, bill pay, merchant purchase), and in what amounts (e.g. < $5 USD vs. <$50 USD). Cash-based humanitarian assistance programs, be they conditional or unconditional, typically run for several months, involve frequent, recurring lump sum disbursements (often in $100 USD installments or above), and engage thousands of households.
New users - As mentioned above, these potential partners must spend considerable time, energy, and money attracting and enrolling customers. They cannot, however, be everywhere at once so they tend to focus on specific regions (urban) and demographics (middle age, employed). NGOs / aid agencies, therefore, bring with them the promise of new customers that these providers may never have reached or may not have reached for some time. Especially for those providers that recently entered the market (less than 1-2 years in operation), these partnerships allow them to grow their customer base in a faster, more cost effective way.
For service providers that have matured beyond the preliminary launch phase, NGO / aid agencies offer a cheaper path to service expansion, particularly those programs targeting communities in peri-urban and rural regions. Given their community-oriented approach that actively seeks to tap into existing social networks as a way to deepen program awareness and reach, NGOs/aid agencies create opportunities for service providers to engage these same networks to conduct sensitization, promotion, and training activities as well as customer enrollment.