Ripe opportunity
Embedded finance in agriculture
Alfredo Dellepiane
LAC Regional Head Agro Industry Verticals and AP/AR, Visa Commercial Solutions
Alfredo Dellepiane
LAC Regional Head Agro Industry Verticals and AP/AR, Visa Commercial Solutions
Agriculture is the foundation upon which our global population grows and thrives. It’s also way behind other industries in the transition to embedded finance and digital payments.
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In 2022, nearly 60% of farmers globally reported that they still used cash as their main payment method.⁵
The seasonal nature of agricultural production cycles poses a unique challenge, too. Small to medium-sized farms rely on the revenue from harvest to pay for seed, fertilizer, and equipment, which leads to a cash crunch in between cycles. This demand for financing and shortage of digital payment options creates a largely untapped market for banks and fintechs to implement tailored solutions that benefit all stakeholders.
One clear opportunity: online agribusiness marketplaces, built to make it easier for all parties to exchange goods. Imagine Facebook Marketplace, but for large orders of fertilizer or tractor equipment. While these digital platforms allow farmers and suppliers to arrange sales more efficiently, payment is often completed outside the platform – in cash or in check. With the support of a partner, those marketplaces could offer payment and/or digital financing options directly in the platform, enabling a more efficient and secure payment process.
Working capital needs for agricultural sector
Compared to other industries, the agricultural sector is more likely to cite “cash flow” as a reason for utilizing external working capital.¹ Of those utilizing working capital, the most commonly used tools are working capital loans, bank lines of credit, and third-party revolving credit facilities. A supplier could offer a line of credit directly, which can be disadvantageous for the farmer, or a bank could provide a loan or line of credit. These can be difficult to obtain – especially in rural areas far from physical banks.
Access to working capital varies across regions. In Latin America, more than a third of agriculture growth corporates utilized working capital to smooth out expected cash flow gaps.² In India, only half of farmers have access to traditional financing services at all.³ Even in the well-banked U.S., the demand for farm lending continues to grow while the number of farm-focused banks is falling.⁴ In 2022, nearly 60% of farmers globally reported that they still used cash as their main payment method.⁵
The volume of transactions in the value chain magnifies the inefficiencies of cash and increases the considerable risk to farmers who rely on it. All stakeholders, from family farms to massive manufacturers, stand to benefit from the adoption of efficient, digital payment solutions.
Evolving digital payments landscape
The digitalization of agriculture payments has moved at a slower pace compared to other industries, but technological transformation is picking up speed. Regionally, payment innovation in this industry often mirrors the digital adoption of the respective population.
ACCELERATING GROWTH
Ripe opportunity: embedded finance in agriculture
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The digital payments landscape region-by-region
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Opportunity for banks and fintechs
While digital payment adoption trends vary globally, the pain points for farmers are consistent — and the utilization of embedded finance offers a solution.
Agribusiness marketplaces
The development of digital marketplaces for agricultural purchases has been a welcome innovation for the industry, but most platforms lack integrated payment options. Buyers and sellers agree on a price and then complete the payment outside of the system, creating delays and requiring tedious, manual processes. Embedding payment processes within an already popular platform would differentiate the marketplace from its competitors, and offer a seamless, secure transfer of funds for all parties.
Tokenization
Agrotoken, a Brazilian fintech company that specializes in Real-World Asset (RWA) tokens of agricultural products, announced an agribusiness collaboration with Banco de Brasil, allowing farmers to purchase fertilizers and equipment directly on the bank’s digital platform with the tokenized form of their grain production.⁶ This innovation, built on blockchain technology, eliminates the hassle of cash or check payments for both producers and distributors.
The transition to embedded finance presents a ripe opportunity for the agricultural sector.
Closing thoughts
The cash flow challenges faced by small to medium-sized farms present a significant opportunity for the integration of digital payments and embedded finance. Beyond the benefits of added security and speed, digital loan and BNPL options would alleviate the need for traditional loans.
The inefficiencies and risks associated with cash transactions, still the main payment method for approximately 60% of farmers globally, further underscore this need. Emerging solutions, such as the tokenization of agricultural products and integrated payments through online marketplaces, demonstrate the potential benefits of digitalization in this sector.
Banks, fintechs, and other stakeholders are positioned to benefit from the development and implementation of these tailored solutions. Not only can they help smooth out expected cash flow gaps and improve access to credit, but they can also enhance efficiency and security in the value chain. As such, the transition to embedded finance presents a ripe opportunity for the agricultural sector.
This page is also available in Spanish and Portuguese
Sources:
- Working Capital Index 2023-24, Visa & PYMNTS, published 2023.
- Working Capital Index 2023-24, Visa & PYMNTS, published 2023.
- How Agtech is Poised to Transform India into a Farming Powerhouse, McKinsey, published 2023.
- The Next Fintech Revolution: Agriculture Finance, Forbes, published 2023.
- Global Farmer Insights, McKinsey, published 2022.
- Driving payments innovation for business in Latin America and the Caribbean, Visa.
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