Farmers turn to banks, fintechs to address wilting profits

Smaller farms are looking to diversify sales strategies through direct contact with local residents, which in the past meant lots of manual labor.

"Farms relied traditionally on cash or check and order by phone. There was a lot of pen and paper," said Janelle Maiocco, CEO of Barn2Door, a software-as-a-service firm that powers local sales for farmers. "But people like to buy directly online, and once they find an online source they tend to stick with that source."

Independently owned farms found a lifeline during the pandemic by increasing sales to local consumers as orders from bulk buyers fell under financial pressure. Fintechs and community banks are seizing on that direct-to-consumer trend to push technology that can streamline payments and cement relationships between farmers and customers in their local communities. 

"The farms are looking for any form of digital alternative payment," said Shan Hanes, president and CEO of the $140 million-asset Heartland Tri-State Bank in Elkhart, Kansas. Local farmers are turning to online channels to reach buyers, giving rise to a competitive fintech market that includes Barn2Door and e-commerce apps such as GrazeCart, FarmDrop, Farmingo and GrowBy. Community banks, which are concerned about the overall fiscal health of farms in a challenging economic environment, are also trying to expand banking relationships by offering ways to streamline farm operations. 

Stripe, which provides payment processing for Barn2Door and the farming technology firm Ambrook, reports that over the past two years, about 2,000 agribusinesses have doubled their digital payments volume; and the number of agricultural businesses earning more than $1 million through digital payment rails has tripled. 

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Barn2Door, which formed in 2015, embedded Stripe into its platform in an effort to ease digital commerce and payments for farmers. Embedding Stripe enables farms that use Barn2Door to support payments and other digital functions without requiring a second account to process digital payments. Barn2Door's clients include thousands of farms that span different agricultural sectors across all 50 states, such as dairy, beef and vegetables, with early sales generally between $100,000 to $5 million. 

"A lot of farms frequently have a few contracts with larger businesses or wholesale buyers, which can be risky," Maiocco said.

During the pandemic, a steep drop-off in demand for dairy products, for example, created a crisis for dairy farms that sold to wholesale buyers — including restaurants and schools. The recovery has created spikes in demand as businesses that were closed or restricted over the past two years are returning to pre-pandemic volume.

Selling directly to the consumer market, which is easier through an e-commerce interface, provides more flexibility and the ability to diversify a customer base quickly, according to Maiocco. For example, Maiocco said one farmer in Iowa went from 30 deliveries a month to more than 1,200 per month by selling online.

Barn2Door recently introduced a subscription service to help fuel more recurring orders and payments for farm products such as eggs, milk, produce, chicken, beef, pork and other products. That encourages persistent sales to customers on a schedule, increases recurring cash flow, and allows the farms to further diversify their risk across a broader base of buyers. 

One of the big challenges that came out of the pandemic was the difficulty in selling in-person and locally, two major venues that farms use to sell directly to market, according to Emily Glassberg Sands, head of information at Stripe. Ambrook uses Stripe Treasury and Stripe Issuing for payment cards, while Barn2Door uses Stripe Connect, which integrates payments into the farms' software systems; and Stripe Radar, a fraud prevention product. 

"Farming is an example of a business where there is a clear distinction between the traditionally online versus offline business model," Glassberg Sands said.

Farms have access to diverse revenue streams, including opportunities for government grants that address the financial challenges that accompanied the pandemic. Ambrook, which did not comment for this article, reports it has helped farms procure about $7 million in grants over the past two years, and used its payment rail and Stripe connection to route government disbursements to the farmers.

"There are a bunch of rails in the financial system, and Ambrook enables funds to be wired directly into farms' accounts in minutes," Glassberg Sands said.

There are still more economic challenges affecting farmers. The combination of drought and inflation are expected to drive an 8% reduction in net farm income, according to the USDA.

Banks that sell to agricultural businesses are concerned about loan repayments and returns.  An increase in automation can potentially cut costs by speeding transactions, eliminating paper processing and better matching payments to availability of supplies. Businesses in other sectors are turning to digital payments and faster payment processing to address the same concerns. 

The use of digital peer-to-peer payment apps recently surpassed the use of cash at farmers markets, Hanes said. While the farms aren't yet using real-time digital payments, apps are faster than checks and are a way for the farmers to manage financial positions, according to Hanes. More of the bank's farm clients are using online banking to order and pay for fertilizer and other goods when those goods are available and when the farms have the funds to make an order.

Fertilizer prices increased 30% during the first four months of 2022, following an 80% hike in 2021, according to the World Bank, which attributed the hike to supply-chain problems that have been exacerbated by Russia's invasion of Ukraine.  "Things like fertilizer are scarce and are much more expensive," Hanes said. 

As more young farmers enter the industry, the potential to expand digital financial services will also increase. There were more than 321,000 farmers under 35 in 2017, up from 208,000 in 2012, according to the most recent Census of Agriculture, though that growth is muted since some of the young farmers as categorized by the census actually work for their parents' farms. 

"Farmers who are over 35 still want to write checks, but under 35 they all want digital," said Dave Kusler, president of the $68 million-asset Bank of Hazleton in North Dakota, which provides banking and payments for farms in the area. 

The Bank of Hazelton is adding mobile payments for farms, a project that should be complete by August. That will allow the bank's farm clients to make payments to suppliers and accept payments from customers though the institution's mobile banking app.

While farmers still want to access paper documents for loans, B2B transactions and most banking products, there is an increasing demand for faster digital options to allow consumers to pay farmers directly, a use case similar to Barn2Door.  

"Mobile payments should be helpful in selling to consumers," Kusler said.