Last month Mastercard Worldwide and the World Food Program (WFP) announced a global partnership in “digital food”. The public-private partnership aims to harness Mastercard’s expertise in electronic payments to develop WFP’s electronic voucher programs. Can it work?
There are good reasons to think that “going cashless” could make WFP’s operations more efficient and improve people’s lives. But the benefits are far from certain, and WFP and Mastercard would do well to ensure rigorous evaluation of what amounts to a giant experiment (about which, more below).
Voucher programs in high-income countries (like US food stamps) are often electronic. But in developing countries with little financial infrastructure, these programs often require distributing paper vouchers to recipients in remote rural areas.
This not only generates printing, transport and monitoring costs for the implementing agency (such as WFP), but can also result in significant costs to program recipients, who may need to travel long distances to pick up their vouchers. In theory, using digital payments (in the form of mobile money or pre-paid debit cards) could greatly reduce both types ofcosts, while improving financial inclusion. Indeed, the potential for lower implementation costs and higher financial inclusion have motivated a shift towards digital payment systems in some developing countries. Numerous governments have started implementing electronic “government to person” (G2P) payments as part of their social protection programs, as have international and non-governmental organizations .
In at least one case, it appears to have been effective. Our evaluation of mobile money-based cash transfer program in Niger found that using mobile money reduced the costs of implementing the program, reduced the time program recipients spent getting their transfer and resulted in other improvements at the household level. Yet these results were for one program and in one country, and other evidence is certainly needed to see how these findings are similar (or differ) in other contexts.
Here are five key questions that WFP and Mastercard should keep in mind while rolling out this program:
1. What do we mean by digital payments? "Digital" has many facets – from mobile phone technology to pre-paid debit cards to electronic bank account transfers and savings accounts. Deciding which digital technology will be used depends upon the financial and mobile infrastructure, which varies greatly from country to country.
2. Is the necessary infrastructure in place at the market and household level? This seems pretty straightforward, but you would be surprised how often this is overlooked. Mobile money take-up is still relatively low in many countries (outside of Kenya), perhaps due to the number of agents where potential consumers can “cash in” or “cash out”. In this context, then, program recipients will need to have access to the necessary hardware – mobile phones, mobile SIM cards and vouchers – but also the necessary infrastructure to use those services. In other words, are there agents or shopkeepers in the targeted area who can accept vouchers? And if so, are they equipped to process those digital vouchers?
3. Is the necessary software in place? Even if the agent network is in place and program recipients have mobile phones or debit cards, a key issue is whether program recipients know how to use the service. If the technology is completely new, program recipients might not be aware of it or know how to use it. This is especially an issue when the digital technology requires PIN codes, which can be a barrier for illiterate populations. In addition, going cashless requires that program recipients put their trust in something that is unobserved, which can be a problem in areas that might have unreliable banks, when people might want physical cash. These issues have to be addressed early on in the program.
4. Is corruption and leakage the same or different with electronic payments? While many of these programs have used electronic payments to reduce corruption, a priori there is no reason to think that leakage would be less with electronic payment systems. Electronic transfer systems can bypass NGO or public sector distribution agents and put money directly into the accounts of recipients, which can lower potential corruption. Yet the switch from cash to “cashless” payments might increase costs for recipients who have a hard time finding a shopkeeper or agent where they can use their cashless voucher. In fact, corruption could increase if shopkeepers or agents are able to demand an unauthorized share of the payment for their services.
5. And finally and perhaps most importantly, is cashless really better than cash? Are paperless vouchers better than paper vouchers? While we have some evidence of the impact of electronic payments on program costs and benefits, this is in a small number of contexts. With this new initiative, implemented across many different countries and contexts, both WFP and MCWhave the opportunity to learn what works and what to do better.
Going cashless is a huge transition for WFP and its program recipients, and the agency and Mastercard should invest the time and resources needed to rigorously evaluate these programs to ensure that they not only reduce costs (for WFP), but that those reduced costs also result in the same (or better) benefits for program recipients. (For tips on how to do this type of evaluation, see this blog post
The program looks promising. But without proper evaluation, WFP and Mastercard may find that they have done little more than jump on a digital bandwagon.