Even in the furthest corners of Peru’s widely varied landscape – across the driest desert, in the highest snow-capped peaks, and through the humid jungle – you can always find a cold beer. The satisfying hiss heard when opening a bottle is not only refreshing, but also represents the success of the reach of the consumer packaged goods business, which until today has had to bear the burden of the cost of cash.
A new pilot, started two weeks ago in a heavily populated region of Lima, intends to change this. Using Bim, the shared national digital financial services platform, three of the country’s major goods manufacturers have collaborated on the region’s first national multi-stakeholder supply chain payments digitization solution using digital money. The goal is to reduce the use of cash in a massive way, in every corner of the country.
The companies involved in the pilot – Backus, the country’s largest beer producer and subsidiary of AB Inbev; Corporacion Lindley, the local Coca Coca bottler; and Grupo Gloria, a major producer of milk products – have decided to collaborate in increasing the use of digital payments with hundreds of thousands of shopkeepers across the country.
Cash in the Distribution of Consumer Goods
The shops that sell these goods are mainly ‘mom-and-pop’ corner stores. They represent the backbone of commerce in communities large and small. Located on almost every corner of every major street, these shops are trusted members of the community they serve. A huge percentage of the goods they sell come from a small number of distributors – and Backus, Lindley and Gloria are some of the biggest. For the most part, these shops are informal and operate almost (if not) exclusively on a cash basis. Managing money, staff, product, and personal issues is a complex challenge, especially for mom-and-pop shopkeepers. Today, when product is delivered, it is paid for in cash. Tomorrow, it will be paid for using digital money through Bim.
These consumer packaged goods companies must organize a highly complex collection network that manages hundreds of millions in cash collected on a street-by-street basis. End-of-day reconciliation processes is costly and time consuming, often taking hours. In areas with high crime, much time and effort is spent on security- changing distribution routes to avoid the unavoidable- as a truck half filled with cash and half filled with beer is a very attractive target.
For shopkeepers, the problem lies in the fact that there is a cost to managing cash. This may seem hard to quantify, but since cash is susceptible to theft, hard to manage, and using it means that access to formal and competitive credit, insurance and savings is limited, therein lies the cost. For consumer packaged goods companies, the cost of cash is clear in the management requirements, but the scale of resolving the challenge of the use of cash is, to say the least, daunting. It is not possible for individual organizations to overcome this challenge on their own.
Digital payments through mobile money offer a solution to these problems. But to achieve these results, both shopkeepers and consumer packaged goods companies need to collaborate in using a platform that works on all networks, with multiple issuers, is easy to access, and works with many the distributors.
Collaboration Enables Payments
In 2016, Peru’s national digital financial payments program, Bim, launched. All in all, the entire financial services sector (along with approved issuers of electronic money) came together to build a shared payments platform that worked across all the country’s major telecommunication companies. By collaborating and pooling assets, Peru’s financial services sector designed a payment product within reach of all Peruvians. This is why Bim is uniquely positioned to enable distributors to digitize their payment streams in a way that no other single supplier program could do on their own. Bower & Partners supported the launch and scaling of the Bim platform.
I know these challenges first hand. In 2012, I worked with Scotiabank to launch Peru’s first e-money solution, Billetera Movil. Together with the local team, I designed a solution with Backus that would reduce the use of cash by allowing shopkeepers to pay for the delivery of goods using digital money. The solution worked, but constraints meant that the product worked only with one distributor with one bank on one network, which inevitably limited use. The interest was definitely there, but shopkeepers commented that it was hard to change payment behaviour for just one of their distributors. Distributors wanted the solution for all their clients, not just for some.
Understanding that Bim resolved many of the access issues, Bower & Partners worked with Pagos Digitales Peruanos, the entity behind Bim, to revisit supply chain payments solution. The concept that allows shopkeepers to pay for the delivery of goods using e-money still is valid, but this time, with a platform that worked across all issuers and all telcos, and the product was truly ready to scale. In doing so, shopkeepers become financially included, gaining access to formal credit, savings and insurance. When the three major distributors showed significant interest, the pilot came together.
The strategy behind the pilot is clear. By working with shopkeepers, the distributors reduce the time and cost associated with managing cash. Bim issuers gain access to hugely important and trusted network of merchants in every corner of the country. Shopkeepers improve their ability to manage their businesses, receive attractive offers, and ease into the process of formalization. As customers increasingly demand to pay in cash, shopkeepers see the value of accepting digital payments to have the funds to pay their suppliers. Ultimately, cash is reduced at a national scale and hundreds of thousands of unbanked shopkeepers join the word of formal financial services.
National Digitization of Supply Chains
The hope is that the pilot gains traction to allow the product to be rolled out at a national level, and that further distributors could use the service in order make the transition from cash to digital. Initial results show that multiple distributors working on a shared platform makes the transition from cash to digital a simpler process, and interest from the shopkeepers remains high.
Through Bim, Peru is proving itself to be a leader in the digital finance space, with beer, soft drinks and milk products leading the way. So drink up! You’re contributing to the digitization and formalization of the economy.
-Jeffrey Bower is founder of Bower & Partners, a consulting practice focused on the development of payment ecosystems that profitably achieve financial inclusion. We work with governments, private companies and international organizations to launch and scale national payment platforms and digital payment initiatives to drive meaningful use.