Page 309 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

One business to adopt the product was a courier company that had independent contractors around Nairobi.
The company used “payments hub” as a salary payment system to send scheduled payments out to all their
contractors at a set time. In this situation, the independent contractors acted as the suppliers of labour, while
the courier company acted as the buyer.

The product also helped the courier company by simplifying payments to its contractors. It kept all contractors
in a centralized system, and allowed the company to make payments faster and easier. Kopo Kopo charged the
payers on a per-transaction basis, with an extra fee for integration into company back offices.

In Kenya, more people have digital money accounts than bank accounts. The “payments hub” product helped
the independent contractors by paying them immediately, whether or not they had a bank account. It was
also more secure than cash payments and faster than payment by check.

5 Counter examples

Although there are many benefits to making and receiving payments digitally, there are some situations where
digital B2B payments will not be widely adopted.
Companies that want to avoid taxes and regulations, for example, would likely resist B2B payments. A survey
by the Better Than Cash Alliance found that just 20 per cent of surveyed SMEs in Nigeria paid federal taxes.
More efficient tax collection would raise the costs of digital B2B tools and services, which could inhibit uptake.
25
Another group that could push back is cash-starved businesses. One Kopo Kopo client, a Nairobi-based
restaurant, said that it would be very resistant to using digital B2B payments, because of the faster payments
enabled by digital money. The restaurant pays suppliers using checks. The suppliers then have to take the
checks to a bank, stand in line, and cash the checks. The restaurant uses the time it takes to pay suppliers as
a form of working capital. If the payments were to be deposited in the suppliers account immediately, the
restaurant would have less working capital, which would hurt the business.

Other businesses in Kenya use post-dated checks as a form of credit. The post-dated check typically allows the
merchant a 30 to 90-day grace period before the money is debited from his or her account. There currently
is no electronic alternative to a post-dated check, which creates a large barrier to adoption. 26

Some businesses may not adopt digital payments simply because the status quo is difficult to change. Many
entrepreneurs want to focus on their businesses, and payments are not a large priority. Digital payments are
sometimes seen as a distraction, rather than an enabler, from core business functions.

Bureaucracy may also thwart other businesses from adopting digital payments. Most payment providers
are required to check business licenses and collect other “Know Your Customer” (KYC) information. If these
requirements are difficult to meet, many businesses will simply opt out of digital payment tools and services.

Finally, while supply chain financing could enable more efficient businesses, the service is not free. Mr. Presta
and other supply chain financing companies offer unsecured credit, meaning that the small businesses do
not need to offer assets to access the loans. However, the loans will likely reduce the profitability of each
transaction, and there is a danger that low-income users will not fully understand the credit offerings. This
could open the door to unscrupulous credit companies to employ usurious practices that could exploit low-
income business owners.

25 Brian Loeb. The response of large corporates and their value chains to government policies to shift to digital payments: Nigeria’s
“Cashless” policy,” Better Thank Cash Alliance. January, 2015.
26 Julie Zollmann, Digital Retail Payments in Kenya: Making them Matter for Merchants. Bankable Frontier Associates. October,
2014.

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