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Vikas Raj

The platform and “as a service” startups that are leading the next phase of fintech have to ensure their financial services offerings are embedded but also responsible.

Article

<em>A version of this article originally appeared on <a href="https://www.forbes.com/sites/vikasraj/2020/11/30/embedded-inclusive-fintech/?sh=333fe04110cc" target="_blank" rel="noopener noreferrer">Forbes.com</a>.</em>

We have entered a new age of fintech and financial inclusion. Our space, which was evolving quickly until March, was built around the core idea that digitizing everything could create the data and distribution advantages that would let startups finally help the underserved. Now, those core trends have gone into hyperdrive during the pandemic, as the consumers and small businesses that inclusive fintechs seek to serve — everyone from blue-collar workers in Bangalore to small mom-and-pop retailers in Lima — have become increasingly vulnerable and have moved increasingly online.

Platforms already had a big role to play in financial inclusion. Their importance has only grown in the post-COVID era, as small businesses must now connect to digital rails to remain a part of supply chains and consumers can only access core services online. <a href="https://www.forbes.com/sites/vikasraj/2019/11/20/platform-fintechs-are-cominghow-should-startups-respond/?sh=4895f0dc2b0f" target="_blank" rel="noopener noreferrer">In this post last year</a>, I defined how a new generation of “platfin” startups would play a key role in making platforms relevant for financial inclusion, replicating platform advantages by solving core logistical challenges themselves, and then adding financial services over time.

Over the last several months, we have witnessed this transition in dramatic fashion. Large tech platforms from <a href="https://www.grab.com/sg/" target="_blank" rel="noopener noreferrer">Grab</a> to <a href="https://www.mercadolibre.com.ar/" target="_blank" rel="noopener noreferrer">Mercado Libre</a> are become financial services companies, leveraging their unique position as trusted partners with unique insights into the cashflows of their customers to provide financial products. But, perhaps more exciting, we are seeing a whole new generation of platfins – non-financial services companies like <a href="https://sokowatch.com/" target="_blank" rel="noopener noreferrer">SokoWatch</a> in Kenya (a portfolio company of Accion Quona Inclusion Fund) and <a href="https://jumbotail.com/" target="_blank" rel="noopener noreferrer">Jumbotail</a> in India that are solving core distribution and logistics problems first — problems that are brought into stark relief by the pandemic — and layering relevant financial services on top. These companies are embedding financial services into specific use cases — assisting end customers in achieving a goal through access to financial services rather than looking at these services as an end product.

Many of these platfins are themselves being forced to reckon with the complexity of offering financial services, whether embedded or not. Sometimes these offerings are developed in-house by an internal staff working through bank partnerships. Other times, the strategy is outsourced, with the platform finding a fintech enabler to frictionlessly add financial services — a lender, insurer, or investor “as a service.”

Either way, these are the next two key categories in inclusive fintech investing — the platfins and what we will call “inclusion as a service” (Iaas) players. And there are big opportunities for these companies — the platfins that are integrating financial services and the enablers who support them – as they connect, digitize and serve the millions of SMEs and billions of consumers that are still underserved by the financial system. But there are also big risks for the end customer as the connection between financial product and customer is diffused. How do we ensure that underserved populations continue to be served, and that products are relevant? How do we ensure pricing is fair and that data is used responsibly and transparently? Ultimately, truly responsible and customer-centric players must ensure they are embedded <em>inclusive</em> fintech companies.
<h2>What does embedded inclusive fintech look like?</h2>
<h3>Incorporate end customer views and needs into product design and interaction</h3>
It is critical that platfins and IaaS companies continue to focus on the customer when it comes to defining their products and engagement strategies. Lami, an insurance-as-a-service company based in Kenya, integrates with non-insurance companies, enabling them to offer insurance. But <a href="https://www.lami.world/" target="_blank" rel="noopener noreferrer">Lami</a> goes beyond underwriting and claims to ensure that their partners are well-positioned to identify and provide end products — like bus driver motorbike and crop insurance — that reflect the real needs of end customers. Lami and other IaaS companies need to be aware of responsible offerings, and then leverage their partners’ inherent advantages of knowing their customers and being able to access them easily to offer more diverse, tailored, and affordable products. Similarly, <a href="https://somosheru.com/" target="_blank" rel="noopener noreferrer">Heru</a> in Mexico partners with Uber Eats to offer financial services to their contractors, as well as central convening spots for access to financial services. Responsible startups will need to continue to keep customers in mind when they design and evolve financial products for their platforms.
<h3>Enable truly responsible offerings</h3>
When it comes to the core elements of a financial services offering, particularly pricing, platfins and IaaS companies cannot diffuse responsibility for the quality of their end products. In fact, given the expertise and economies of scale platfin and IaaS companies are able to unlock, we expect these types of companies to offer even better terms and pricing than their more traditional fintech counterparts.

<a href="https://terramagna.com.br/" target="_blank" rel="noopener noreferrer">TerraMagna</a> in Brazil, a <a href="https://news.crunchbase.com/news/exclusive-terramagna-sows-2m-seed-for-brazilian-farm-lending/" target="_blank" rel="noopener noreferrer">recently announced</a> Accion Venture Lab portfolio company, works with input suppliers to better underwrite their customers using satellite-verified crop collateral, allowing them to offer more favorable rates than the competition and higher quality inputs. AgriM, an agricultural retailer eCommerce platform in India, enables access to high-quality agri-input supplies at transparent prices. <a href="https://www.alude.com.br/" target="_blank" rel="noopener noreferrer">Alude</a> in Brazil and <a href="https://alquilando.com/" target="_blank" rel="noopener noreferrer">Alquilando</a> in Argentina partner with real estate brokers to offer prospective tenants the possibility of renting without a co-signer or guarantee, at prices that are better than other options. All of these companies prove that new platfins or IaaS companies are positioned to provide better, more responsible products, as well as greater efficiency and reach.
<h3>Embedded but not invisible</h3>
One big advantage of fintech’s movement toward embedded finance is that transactions are seamless and available at the touch of the button. There has been much written about the benefits of making services nearly invisible — the grease that allows the wheels of commerce to grow. However, for true embedded inclusive finance to occur, the financial products need to be visible as well as embedded. Consumers and small businesses, many of whom may be unwittingly engaging with financial services for the first time, need to know the implications of using them — the price, the terms, the data being used.

<a href="https://www.atomicinvest.co/" target="_blank" rel="noopener noreferrer">Atomic</a>, an investments-as-a-Service provider in the US, offers customized investment portfolios for consumers via platform partners. But Atomic doesn’t just provide seamless access and a simplified set of investment options — they also educate consumers about their portfolios and encourage them to make active investment decisions. Rupifi, an Indian fintech that helps platforms provide credit to their MSME customers, ensures that pricing and product details are clear to the borrower throughout. Ultimately, IaaS companies should enable better, clearer, and more transparent products for customers because they can focus their energies and access the expertise and scale needed to design delightful, responsible products.

Platfin and IaaS businesses are the key players in the next stage of inclusive finance. But these new players’ degree of separation from finance is not an excuse for them to play hot potato with the responsibility to create impactful and inclusive products. We will only move toward a more inclusive world if these companies really focus on embedded inclusive fintech.

<em>Note: Some of the companies above are existing or prospective portfolio companies of Accion Venture Lab or Accion-related entities</em>

What does embedded inclusive fintech look like?

Michael Schlein

Innovative and inclusive fintech is crucial to drive recovery from the economic effects of the COVID-19 pandemic

We are living through a time of extreme difficulty — and that’s especially true for the world’s 3 billion people who are left out, or poorly served by, the global financial system. Without tools like savings, credit, or insurance, they are at risk of being left behind as we recover from COVID-19.

We are also living in a time of extraordinary innovation that is changing all our lives. This innovation has the power to solve complex problems at a critical time, and finally bring basic financial tools to those who need them most.

Innovation is chipping away old obstacles that surrounded the world’s poor. Today, no distance is too far, no transaction size is too small, and with data and data analytics, we can understand clients’ needs wherever they may live.

Early-stage fintechs are nimble, flexible, and digitally native — making them uniquely positioned to leverage technology and innovation for the benefit of vulnerable people and small businesses. Here’s how fintech startups in Accion Venture Lab’s portfolio are doing that:
<ul>
 	<li><a href="https://terramagna.com.br/" target="_blank" rel="noopener noreferrer">TerraMagna</a> is using satellite imaging in Brazil to <a href="/how-one-company-uses-tech-to-support-brazilian-farmers" target="_blank" rel="noopener noreferrer">see small farms who are ignored</a> by large banks. They use those images to assess collateral and figure out what a farmer needs to grow and thrive.</li>
 	<li><a href="https://toffeeinsurance.com/" target="_blank" rel="noopener noreferrer">Toffee Insurance</a> has successfully <a href="/a-start-up-innovates-to-give-the-uninsured-a-safety-net" target="_blank" rel="noopener noreferrer">reached India’s uninsured</a> by offering “bite-sized” policies covering risks that are most relevant to consumers, like unexpected illness, bicycle damage, and theft.</li>
 	<li><a href="https://www.fieldintell.com/" target="_blank" rel="noopener noreferrer">Field Intelligence</a> uses AI and data analytics to <a href="/how-tech-is-helping-to-meet-health-care-needs-during-the-pandemic" target="_blank" rel="noopener noreferrer">help community pharmacies</a> in Nigeria and Kenya optimize their inventories and ensure their customers have the medications they need, when they need them.</li>
 	<li><a href="https://www.self.inc/" target="_blank" rel="noopener noreferrer">Self</a> is helping Americans with thin or damaged credit files <a href="/win-from-within-how-fintech-startups-can-grow-by-building-value-for-existing-users#case-study-3.1-self" target="_blank" rel="noopener noreferrer">build their credit scores</a> through innovative credit-builder loans.</li>
 	<li><a href="https://www.creditmantri.com/" target="_blank" rel="noopener noreferrer">CreditMantri</a> is using alternative data sources to <a href="/a-small-business-owner-gets-a-second-chance" target="_blank" rel="noopener noreferrer">help consumers in India</a> who have been invisible to the financial system access credit for the first time. (I recently had the honor of awarding Gowri Mukherjee, CEO of CreditMantri, with <a href="/honoring-two-women-leading-through-crisis-with-the-2020-claugus-award" target="_blank" rel="noopener noreferrer">the 2020 Edward W. Claugus Award</a> for leadership and innovation in financial inclusion.)</li>
</ul>
<h2>Fintechs are meeting customer needs during the pandemic</h2>
New data confirms how fintechs are answering new needs. In the initial months of the pandemic, consumer demand surged for financial products that build resilience, including savings accounts, personal financial management tools, and payment platforms. Fintechs offering these products saw their compounding monthly growth rate go from 7.4 percent to 15.4 percent from December 2019 to May 2020.

<img class="alignnone wp-image-23052 size-full" src="https://content.accion.org/wp-content/uploads/2020/12/if50whitepaper.jpg" alt="fintechs offering payment and saving products are more likely to increase CMGR" width="1112" height="699" />

This insight comes from a recent <a href="https://www.inclusivefintech50.com/white-paper-2020" target="_blank" rel="noopener noreferrer">whitepaper</a> that looks at data submitted by the <a href="https://www.inclusivefintech50.com/2020-cohort">2020 cohort</a> of applicants for Inclusive Fintech 50, an initiative that elevates promising early-stage fintechs driving financial inclusion and resilience around the globe. The initiative provides valuable visibility, resources, and connections that startups need to grow and thrive, especially as they contend with the added problems raised by a global pandemic.
<h2>Fintechs must grow to continue supporting vulnerable people</h2>
Indeed, inclusive fintechs must overcome major challenges to grow, scale, and continue supporting underserved populations. In the midst of a global recession and limited funding, fintechs have had to extend their financial runways while simultaneously finding ways to grow their businesses.

To achieve growth quickly, historically, some fintechs have pursued a “grow at all costs” mentality that prioritizes customer acquisition. But customer acquisition can be costly: bringing on a new customer is anywhere from 5 to 25 times more expensive than retaining an existing one. Fintech startups should consider more sustainable pathways to growth, namely via increased usage, uptake, and earnings among existing clients.

We explore this concept in <a href="/win-from-within-how-fintech-startups-can-grow-by-building-value-for-existing-users" target="_blank" rel="noopener noreferrer">our latest publication from Accion Venture Lab</a> that highlights how fintechs are doing just that. And building value for current users is very relevant in the era of COVID-19. Vulnerable people need more and new financial service innovations to rebuild their safety nets and livelihoods as their savings and inventories have been depleted.

I was also very glad to join two partners featured in the report, Jaime de los Angeles, CEO of <a href="https://advance.ph/" target="_blank" rel="noopener noreferrer">Advance</a>, and Tommy Yuwono, co-founder and director of <a href="https://pintek.id/" target="_blank" rel="noopener noreferrer">Pintek</a> at the Singaore Fintech Festival in early December. Pintek provides credit to students and schools to improve access to education in Indonesia—and has helped <a href="/schools-go-virtual-with-fintech-support-in-indonesia" target="_blank" rel="noopener noreferrer">schools go online during the pandemic</a>. Advance is a salary-on-demand platform that’s been adopted by large companies in the Philippines to provide employees with early access to their wages and <a href="/a-digital-solution-for-people-living-paycheck-to-paycheck-in-the-philippines" target="_blank" rel="noopener noreferrer">promote financial wellbeing.</a>

https://www.youtube.com/watch?v=oOwRSMbk8uI

Inclusive fintech startups are offering inspiring examples of how innovation is answering today’s most urgent challenges. As we look toward building an inclusive recovery from COVID-19, we must ensure they have the tools and resources to grow sustainably and answer their clients’ most pressing needs.

Fintech startups are small yet mighty partners in building resilience—but they need to grow to succeed

Shannon Dwyer

Elizabeth Winters

Using a digital platform, Accion Venture Lab investee Self Financial gives people a pathway to build credit and savings, so they’re better prepared to face life’s challenges 

Millions of Americans struggle to apply for apartments, auto loans, and credit cards because they have a poor credit score and burdensome debt. Others, especially immigrants and those who come from low-income backgrounds, may not have a credit history at all. Without the safety net that credit and savings provide, people can fall further and further behind in times of crisis. Our Accion Venture Lab portfolio company <a href="https://www.self.inc/" target="_blank" rel="noopener noreferrer">Self Financial</a> is in the business of helping people become financially resilient through life’s challenges by offering tools to build a credit history and save.

[caption id="attachment_23088" align="alignleft" width="300"]<img class="size-medium wp-image-23088" src="https://content.accion.org/wp-content/uploads/2021/01/self-financial-mobile-app-300x300.jpg" alt="Self Financial's Credit Builder mobile app" width="300" height="300" /> <em>Self’s user-friendly app allows customers to easily track their progress as they pay off their loan and improve their credit score.</em>[/caption]

“Over 100 million Americans either don’t have a credit score or have a low credit score. The challenge is if you need a credit history in order to get credit, then how do people get started? And so that’s where Self comes in. We’re creating the opportunity for people to help themselves,” says CEO James Garvey. The Self Credit Builder Account offers people an opportunity to build credit history and emergency savings, minus interest and fees — especially pertinent for people who encounter unexpected medical bills or need a financial boost because of the pandemic. Self provides a loan for customers to purchase a certificate of deposit, which they then pay back in installments. Because the purpose of the loan is to build credit history, customers don't get the loan proceeds upfront; instead, the money is held in a bank account while the payments are made. Once their loan is paid off, they receive the principal back, minus interest and fees, and their credit scores may benefit as they pay back their loan responsibly.

<img class="alignright size-medium wp-image-23089" src="https://content.accion.org/wp-content/uploads/2021/01/anton-self-financial-client-300x291.png" alt="Anton J, a client of Self Financial" width="300" height="291" />Anton J. managed to raise his credit score by 121 points since he began using Self’s Credit Builder product in August 2019. He was drawn to “the fact that it was literally my money that I was saving while also building my credit at the same time.” Now that he’s improved his credit score, he can access loans that weren’t available to him before. “It’s helped me improve my credit to the point where I was able to move into my first home, and I’m looking into [getting] a car in the next few months,” says Anton.

Sharita Humphrey experienced a time in her life when she struggled financially and <a href="https://www.self.inc/blog/homeless-to-homeowner-building-credit" target="_blank" rel="noopener noreferrer">experienced periods of homelessness with her two young boys</a>. She learned how to build financial health and used Self’s product to improve her credit, eventually rebuilding it to the point that she was able to access unsecured credit products and a home for her family. “I was able to get myself into a position where I have and maintain excellent credit. I’ve broken the chain of generational debt and generational poverty,” she says. “I’ve become my family’s trailblazer.”
<h2>Finding financial stability during COVID-19</h2>
A significant number of Self’s customers have been negatively impacted by the pandemic: In response to a recent survey in conjunction with Financial Health Network, 48 percent reported being laid off or furloughed due to COVID-19, nearly half have reported a decrease in income, and many have lost their health insurance. In addition to their standard 15-day grace period for late payments, Self is offering further flexibility and support to their customers who are struggling during the pandemic, like giving customers the option to close their accounts early without a penalty fee.

Many customers are still benefiting from Self’s credit product during the pandemic. One customer shared that their income was reduced due to COVID-19, so they’ve had to turn their focus to credit options to get by. They’re using Self as a method to provide structure and a plan to build credit during a time when credit is most needed. Despite the new stressors and financial setbacks, in a recent survey, 60 percent of Self customers reported they are still saving money for emergencies each month, and more than 80 percent of customers reported they are interested in using the money they receive from their Credit Builder Account for savings. With support from Self, their customers are upholding their commitments to themselves and continue to work on their financial health.

A financial tool like Self gives people who have fallen on tough times the ability to overcome their past financial difficulties and invest in their long-term goals. Sharita’s journey to rebuild her credit and educate herself about financial health has even inspired her to devote her career to helping others do the same. She became a Certified Financial Education Instructor and started working with Self so that others can get help rebuilding their credit as she did. “Now, I help people to change their financial trajectory,” she says. <a href="https://www.youtube.com/watch?v=ZyNP4b9y4UU">Watch her inspiring story here</a>.

<a href="https://www.youtube.com/watch?v=ZyNP4b9y4UU" target="_blank" rel="noopener noreferrer"><img class="aligncenter size-full wp-image-23105" src="https://content.accion.org/wp-content/uploads/2021/01/from-homeless-to-financia-educator-with-self.png" alt="From Homeless to Financial Educator With Self" width="568" height="323" /></a>

Everyone deserves a second chance to build credit and financial security

Raliat Sunmonu

Federico  Gomez Romero

Small businesses create half the world’s jobs, but they need useful digital financial services to survive and thrive

Small businesses play a vital role in communities around the globe, not only by providing goods and services, but by creating jobs. In fact, <a href="https://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">half of the world’s jobs</a> come from micro, small, and medium enterprises (MSMEs). Small businesses alone account for <a href="https://www.worldbank.org/en/topic/smefinance" target="_blank" rel="noopener noreferrer">half of the global GDP</a>. For many of these businesses, accessing finance is a struggle. We’re constantly working to find and invest in financial service providers that empower the world’s MSMEs, especially in the poorest regions. As access to mobile phones and the internet grows, digital financial services have the power to bring much-needed support to the most vulnerable communities and ultimately open opportunities for new jobs.

Digital financial tools that are accessible via mobile phone have been a game-changer for financial inclusion. In sub-Saharan Africa, the percentage of adults with bank accounts increased from <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/referpdf/IFC088%20-%20FINDEX%20Note%201_DRAFT%202.pdf" target="_blank" rel="noopener noreferrer">34 percent to 43 percent between 2014 and 2017</a>, and the majority of these gains can be attributed to mobile money accounts.

<a href="https://www.gsma.com/newsroom/press-release/gsma-5g-moves-from-hype-to-reality-but-4g-still-king/" target="_blank" rel="noopener noreferrer">GSMA estimates</a> that, by 2025, over 70 percent of the world’s population will have mobile phones. This growth will be driven by developing countries with the most underbanked populations, creating vast potential to bolster MSMEs and ultimately boost job creation.
<h2>Helping microentrepreneurs embrace digital tools</h2>
Still, barriers stand in the way of some MSMEs’ ability to embrace technology. Young microentrepreneurs tend to be tech-savvy but older ones tend to be less confident transitioning to new, unfamiliar tools. We’re investing in financial service providers (FSPs) with innovative strategies to train microentrepreneurs to confidently use digital tools that will help their business survive and grow.

Helping microentrepreneurs is especially urgent as COVID-19 has wreaked havoc on traditional, in-person businesses. MSMEs that have at least partially digitized their business and can accept digital payments have proven to be more resilient. Our FSP partners are on the frontline of the pandemic supporting the most underserved essential businesses — including mom-and-pop shops that sell food and medicine. , These institutions are accelerating their own digital transformations and helping their customers to embrace digitalization as well. They are rapidly designing new digital products and training clients to use digital tools so that these vital businesses can stay open and keep providing jobs in their community.

In Nigeria, our partner <a href="https://www.accionmfb.com/" target="_blank" rel="noopener noreferrer">Accion Microfinance Bank</a> has helped ensure that MSMEs can continue to sustain local economies and create jobs. Their digital products and services include a mobile app that allows customers to access financial services remotely, which has seen broader use after a recent marketing boost. Interbank transfers and mobile airtime purchases made through the app have increased far beyond pre-pandemic levels. Accion Microfinance Bank sends agents to support customers who can’t access digital channels or safely visit a branch, and hosted a series of well-attended free webinars to support their customers. They're now working to expand their agent network even further to bring financial services to customers in hard-to-reach locations.
<h2>Leaning on fintech innovation to close credit gaps</h2>
As established financial institutions are driving financial inclusion by creating useful digital financial tools, fintech startups are also helping to close gaps in underserved communities through innovative products and services. In Mexico, there are over 5 million MSMEs, but commercial banks often refuse to serve them because they are small, informal, and not seen as profitable, or because their owners lack credit history. Informal lenders exist but often charge exorbitant interest fees. Our fintech partners in the region, however, have developed innovative digital lending services that can close the credit gap.

<a href="https://konfio.mx/" target="_blank" rel="noopener noreferrer">Konfio</a> is an online lending platform that uses innovative credit algorithms and alternative data analysis to help MSMEs in Mexico obtain affordable working capital loans. Along with investing in them, Accion Venture Lab sent a team to help them define priority geographic areas and customer segments so that they could identify where to focus their marketing efforts and expand their product offering. By creating products that respond to customer needs, Konfio has grown from serving a few hundred businesses in 2014 to being the leading online lending platform for small businesses in Mexico and a global model for how inclusive fintech can be successful.

<a href="https://www.tiendapago.com/" target="_blank" rel="noopener noreferrer">Tienda Pago</a> is another fintech partner that currently operates in Peru and Mexico. They use a digital platform to provide digital supply chain finance services to underserved small businesses. They’re supporting mom-and-pop stores to help finance the upfront purchase of the goods they sell. Tienda Pago’s agents work with existing supply chains and provide one-on-one guidance through onboarding before their algorithm analyzes data collected by the agent to produce a credit score and loan amount. While the management of the loan payouts and the payments for consumer goods deliveries is through their digital app, the Tienda Pago staff is only a call or text away if needed.

When small businesses have access to high-quality and fair financial services, they are better able to survive the shocks of crises like the COVID-19 pandemic, keep the employees they’ve hired, and eventually create more jobs. Digital technology, along with proper training and customer support, has proven to be an indispensable facilitator when it comes to supporting underserved microentrepreneurs in the world’s poorest regions. As mobile phone and internet access spreads, we’ll continue working to open opportunities to underserved small businesses so that they can thrive and help their communities prosper.

Opening opportunities for job creation in developing countries

A review of the key tools and systems that early-stage fintechs are using to drive their business in 2020

Toolkits and Guides

A key to success for any early-stage company is using the right tools for the job. With myriad solutions available to support a company's operations — from customer management to accounting to developer collaboration — what to use is not always a simple decision. The wrong choice might not only be expensive but also can result in lost productivity and efficiency.

Every few years, Accion Venture Lab — in partnership with Quona Capital — surveys our portfolio to identify the tools and systems our fintech founders use to operate their business. In 2020 we expanded this survey beyond core business operations to include a deeper dive into some of the tools that drive success for software teams.

This survey will help any early-stage fintech founder:
<ul>
 	<li>Gain a broader understanding of the investment companies are making in these systems, based on the company’s stage and size.</li>
 	<li>Identify some of the more popular tools and systems companies are adopting across nearly 20 categories.</li>
 	<li>Assess the various qualities companies use to evaluate the type of tool to use.</li>
</ul>

Software, systems, and tools survey for early-stage fintechs

Matthew  Schaar

Fintech startups and industry experts convened to share perspectives and guidance on moving forward during — and beyond — the pandemic 

Every 18 months, the Accion Venture Lab team partners with our friends at <a href="https://quona.com/" target="_blank" rel="noopener noreferrer">Quona Capital</a> to <a href="/the-fintech-event-that-puts-people-first" target="_blank" rel="noopener noreferrer">host a global forum</a> of startup leaders and industry experts to discuss the future of fintech. Aside from the hard-hitting and productive sessions these forums typically entail, reconnecting with fellow compatriots in the effort to create a more inclusive and just world feels like a reunion among old friends.

We entered 2020 excited to get together in the summer. But when the COVID-19 pandemic struck, the Accion Venture Lab and Quona teams stayed abreast of global travel advisories and quickly determined that our plans would need to be adjusted — much to everyone’s disappointment. Yet despite the challenges of the pandemic, our portfolio companies still had an appetite for growth, learning, and connection.

One founder stated their interest in what a “return to normal” would look like: <em>“I'd like to cover how portfolio companies are getting back to ’normal’ after the COVID-19 crisis. It would include discussions around new credit policies, collections, and new origination strategies.”</em>

Another mentioned that they would appreciate insights on how to build and scale remote teams: <em>“In an increasingly remote work environment, I would appreciate sessions that focus on the difference in managing in-person vs. remote. Also, some practical tools to support remote management.”</em>

With these suggestions in mind, we organized and hosted four virtual sessions covering a variety of topics our portfolio leaders wanted to hear about, and we assembled a team of experts in multiple fields to share their perspectives and words of wisdom. Here are a few highlights:
<h2>Building and managing remote teams</h2>
Jason Warner, CTO of GitHub, and Aditya Narula, head of operations at Stripe, joined us to share their experiences across their years of building and leading remote-friendly teams of various disciplines, shapes, and sizes.
<ul>
 	<li style="font-weight: 400"><span style="font-weight: 400">Even for an organization with remote set-ups prior to the pandemic, </span><b>this is not a normal remote time for a variety of reasons</b><span style="font-weight: 400">. Many leaders were accustomed to working more closely with their teams in person. They’ve had to adapt their approach to leading, building teams, and hiring in unprecedented ways.</span></li>
 	<li style="font-weight: 400"><span style="font-weight: 400">However, there are also some </span><b>unique advantages to this current time.</b><span style="font-weight: 400"> Remote working provides a few distinct advantages:</span>
<ul>
 	<li style="font-weight: 400"><b>Greater access to talent — </b><span style="font-weight: 400">Since remote work doesn’t require employees to live near an office, employers have more flexibility in hiring. For Jason and Adi, whose companies are both headquartered in San Francisco, this enables them to find great talent without needing to convince prospective employees to uproot themselves from their current place of living and relocate.</span></li>
 	<li style="font-weight: 400"><b>Maximize productivity</b><span style="font-weight: 400"> — If leveraged properly, remote work can lead to increased productivity. Teams can be more distributed across time zones, giving developer teams more available time to work on products, and enabling sales and customer support organizations to sync with their customers’ timezones.</span></li>
</ul>
</li>
 	<li style="font-weight: 400"><span style="font-weight: 400">To work effectively, </span><b>remote teams require</b><span style="font-weight: 400">:</span>
<ul>
 	<li style="font-weight: 400"><b>Hiring well</b><span style="font-weight: 400"> – Jason/Adi suggests taking a long-term view when hiring, and hiring for empathy: As Jason stated succinctly, “We look for people who seek to understand someone, not for someone who seeks to be understood.” Asking questions around someone’s situational awareness (e.g., understanding a previous customer’s needs and priorities outside of the business transaction) can help a hiring manager understand a candidate’s relationship-building skills.</span></li>
 	<li style="font-weight: 400"><b>Overcommunicating and establishing clear lines of responsibility</b><span style="font-weight: 400"> — Remote teams require effective communication, especially from leadership, but teams should take care not to abuse communication channels. </span></li>
 	<li style="font-weight: 400"><b>Showing vulnerability from leadership</b><span style="font-weight: 400"> — The worst habits of leaders can be amplified in remote settings. Awareness + transparency goes a long way.</span></li>
</ul>
</li>
 	<li style="font-weight: 400"><span style="font-weight: 400">Finally, Jason and Adi provided their perspective on how remote work differs for earlier-stage companies. They emphasized the need for </span><b>flexibility: </b><span style="font-weight: 400">what a company needs tomorrow differs substantially from what they’ll need in a year. Just as it’s important to pivot product and customer needs in response to change, leaders must be prepared to do the same when it comes to building and scaling an efficient organization.</span></li>
</ul>
<h2>Deepening vs. broadening product offerings</h2>
Ken Lin, founder and CEO of Credit Karma, and Matt Harris, partner at Bain Capital Ventures, joined us to share some perspectives on how leaders should explore the next frontier of product offerings.
<blockquote class="pullquote--right"><span style="text-align: right">Financial services are now the cake, not the frosting</span><span style="font-weight: 400"> — no longer a nice-to-have.</span></blockquote>
<ul>
 	<li><b>There’s been a fundamental shift in fintech</b><span style="font-weight: 400">. With Fintech 1.0 came a wave of founders digitizing and streamlining traditional financial services, but not fundamentally changing them (ex: Chime, Robinhood, LendingClub, OnDeck, etc.). Founders executed on Fintech 1.0 by either competing with or enabling incumbents. Now, software companies are becoming financial services companies, offering a deep, data-rich product to their customers that enables them to leverage that connectivity to cross-sell financial services in a way that’s hugely value-added and disruptive to the incumbents. </span><b>Financial services are now the cake, not the frosting</b><span style="font-weight: 400"> — no longer a nice-to-have.</span></li>
</ul>
<ul>
 	<li><span style="font-weight: 400">The 2008 recession hit just one quarter after CreditKarma’s launch. This crisis profoundly shaped CreditKarma, and the coronavirus pandemic reminds Ken of that recession to some extent. Ken’s main focus during the recession was staying in the game: “If you run out of money, the game is over.” Ken shared his takeaways from weathering that crisis, including:</span>
<ul>
 	<li><b>Run lean</b><span style="font-weight: 400"> — Ken focused on running CreditKarma efficiently by keeping his team to five staff for about three years, and contracting out the rest. </span></li>
 	<li><b>Focus on unit economics and the product</b><span style="font-weight: 400"> — Unit economics are a key driver for getting through recessions, and Ken views his team’s focus on getting qualitative feedback from CreditKarma users as crucial.</span></li>
 	<li><b>Caution is key in fundraising —</b><span style="font-weight: 400"> Despite being pressed for cash and struggling to fundraise, Ken and his team refused the only term sheet they had at the time because it had egregious terms. “One of the toughest decisions was saying no,” said Ken. After more than 100 “no’s” from investors, CreditKarma acquired funding from fintech investor QED with good terms that were “fundamentally transformative.” </span></li>
</ul>
</li>
 	<li><span style="font-weight: 400">And Ken and Matt shared some tips on approaching diversification:</span>
<ul>
 	<li><b>Building trust takes time</b><span style="font-weight: 400"> — Ken advised going deep in one vertical to build something that’s unique and defensible before moving into other verticals.</span></li>
 	<li><b>Focus on your north star — <span style="font-weight: 400">What is your purpose? Diversification should be a deliberate step towards this goal.</span></b></li>
 	<li><b>Diversification requires a deep, software-enabled connection to your customer</b><span style="font-weight: 400"> — You need defensible, durable relationships to diversify. Companies that have harnessed profit pools of financial services to augment the need for software revenue are going to be the winners.</span></li>
 	<li><b>Recognize your recency bias — </b><span style="font-weight: 400">Remember that the large ubiquitous companies out there (Google, Amazon, etc.) started one thing and leveraged data to expand.</span></li>
</ul>
</li>
</ul>
<h2>Leadership in challenging times</h2>
Jerry Colonna, founder and CEO of Reboot, led our company leaders in a session designed to create an environment of transparency. All of our CEOs have a shared experience of being a founder during a global pandemic, which allowed for a safe place to open up with each other and share common challenges and sacrifices. This session produced some valuable conversations and a few important highlights:
<blockquote class="pullquote--right"><span style="font-weight: 400">Real learning and strength emerge when leaders can let go of needing to be the strongest, most faultless person in the room</span></blockquote>
<ul>
 	<li style="font-weight: 400"><span style="font-weight: 400">The session started by asking CEOs about their biggest challenges and sacrifices.they’ve faced as leaders. The most common answers: work-life balance; team dynamics; delegating; health; financial stability.</span></li>
 	<li style="font-weight: 400"><span style="font-weight: 400">There’s a common belief system that leaders are expected to be strong and perfect, and vulnerability connotes weakness.</span><b> But real learning and strength emerge when leaders can let go of needing to be the strongest, most faultless person in the room.</b></li>
 	<li style="font-weight: 400"><b>A key tool for successful leaders is radical self-inquiry</b><span style="font-weight: 400">. It’s important to ask questions like: Who do I want to be as a leader? How am I complicit in creating the conditions I say I don’t want? How are my actions (and inactions) shaping my company?</span></li>
 	<li style="font-weight: 400"><span style="font-weight: 400">Jerry suggested that leaders do regular check-ins with their teams. A framework he uses is </span><b>“red/yellow/green,”</b><span style="font-weight: 400"> asking people to categorize their current state of mind based on those three levels. He knows that if he’s seeing a lot of red, or even yellow, within his team, there are underlying individual issues that need to be addressed before the team can work effectively.</span></li>
 	<li style="font-weight: 400">After breaking the participants up into small groups, we found similar themes that come out of every in-person CEO Forum: <b>The shared experience of emerging markets fintech founders, especially this year during a pandemic, means that Quona and Venture Lab CEOs are consistently facing similar personal and professional challenges, opportunities, and decisions</b>. Connecting with peers in this group brings tangible value to the portfolio.</li>
</ul>
<h2>Fundraising during a pandemic</h2>
The final session of the series featured two Quona portfolio company leaders, Sergio Furio, founder and CEO of Creditas, and Lizzie Chapman, co-founder and CEO of ZestMoney. They shared their perspectives on the current state of fundraising:
<ul>
 	<li><b>Fundraising is a two-way street</b><span style="font-weight: 400"> — Based on early interactions with investors, founders should categorize investors as high-touch, low-touch, and no-touch, and engage with them accordingly. “You can save yourselves a lot of time and heartache by applying common sense to fundraising,” says Lizzie.</span></li>
 	<li><b>Approach fundraising in a structured way — <span style="font-weight: 400">Fundraising is time-consuming and arduous. After a long Series B fundraise, Lizzie advised participating companies to put together a proper fundraising process and timeline to ease the burden. Sergio noted that, as your company grows, you both have more progress and data to share with investors, and you will have identified how you can improve the fundraising process based on your previous experience. </span></b></li>
 	<li><b>Take advantage of due diligence learnings, and prepare differently for virtual due diligence</b><span style="font-weight: 400"> — As investors continue to run virtual due diligence due to travel restrictions, founders should be authentic and prepared with higher quality slides. Many investors are also relying more on references as part of their diligence efforts. Sergio acknowledged that though due diligence can be stressful, the conversations he had with investors, particularly during the business diligence process, helped shape Creditas’ strategy. “Those questions from investors are the ones that make you grow faster and better,” says Sergio. Sergio and Lizzie added that one of the often overlooked keys to getting value out of these conversations is just listening and shutting down the urge to respond and defend your business. </span></li>
 	<li><b>There is an appropriate time for bringing in strategic investors, with caution </b><span style="font-weight: 400"> — They can come with great benefits, but hard to manage if you’re too early.</span></li>
</ul>
<span style="font-weight: 400">Finally, Amee Parbhoo from Accion Venture Lab shared some highlights from our recent experiences with </span><a href="/guide-to-remote-due-diligence" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400">remote due diligence</span></a><span style="font-weight: 400">. Some of the suggestions Accion Venture Lab provided included:</span>
<ul>
 	<li><b>Build a data room as soon as possible and</b> <b>lean on your team to help construct it — </b><span style="font-weight: 400">Often, fundraising is centralized around two or three key members of an early-stage company, but given the nature of more comprehensive due diligence efforts, having one team member take a large volume of investor calls can lead to burnout.</span></li>
 	<li><b>Set aside dedicated time for fundraising — <span style="font-weight: 400">Amee recommended blocking 2-3 hours every few days to focus on investor calls and diligence efforts, as letting these activities “bleed” into other parts of the day can distract from company operations. Encourage others on the team to be available for impromptu calls and questions during this time block as well.</span></b></li>
 	<li><strong>Expect the process to take longer than in-person diligence</strong> — Accion Venture Lab’s typical diligence efforts would include a 1-2 day visit to the company to meet with founders, team members, and customers. Having these sessions remotely — and in the prescribed time blocks mentioned above — means the process may take a little longer than normal. Be kind to yourself in those moments, and take care of yourself and your team as the process moves forward!</li>
</ul>
You can read, Accion Venture Lab’s extensive look into effective remote due diligence processes, <a href="/guide-to-remote-due-diligence" target="_blank" rel="noopener noreferrer">downloadable here</a>.

After a year like no other, we hope that sharing these learnings from our industry and portfolio helps fintech leaders navigate this challenging time and be prepared for a dynamic year ahead.

<em>A version of this blog is also posted on <a href="https://quona-capital.medium.com/an-exercise-in-radical-candor-quona-accion-venture-labs-2020-inclusive-fintech-leadership-91315bbb9d3c" target="_blank" rel="noopener noreferrer">Quona Capital’s blog</a>. </em>

Forging a path ahead for the fintech community

An interview with Carlos Dejavite, co-founder of SmartMEI, a fintech in Brazil that connects microentrepreneurs and gig workers to business tools and financial products

Podcast

[embed]https://soundcloud.com/accioninternational/growing-digital-tools-to-match-workers-needs-an-interview-with-smartmeis-carlos-dejavite[/embed]

“Most microentrepreneurs here in Brazil… don’t have a lot of the tools that a bigger business would get. And they were struggling a lot,” says Carlos Dejavite, co-founder of <a href="https://www.accion.org/clients/smartmei" target="_blank" rel="noopener noreferrer">SmartMEI</a>, on the final episode of a four-part miniseries of <a href="https://www.accion.org/series/win-from-within-how-fintech-startups-build-value" target="_blank" rel="noopener noreferrer">VentureKast</a>. In this series, we discuss insights from Accion Venture Lab’s <a href="https://www.accion.org/win-from-within-how-fintech-startups-can-grow-by-building-value-for-existing-users" target="_blank" rel="noopener noreferrer">latest publication</a>, which explores how fintech startups can “win from within” by focusing on building value for their existing users. SmartMEI’s app offers microentrepreneurs and other workers operating in the gig economy in Brazil — like delivery drivers, street vendors, and electricians — business solutions and a gateway to banking services. SmartMEI continues to evolve their platform and scale new products so these workers can succeed. Listen to the full episode on SoundCloud, Spotify, and Apple Podcasts.

Growing digital tools to match workers’ needs

Ashley Lewis

Innovative financial tools give low-income farmers, who are vulnerable to extreme weather conditions, the ability to save securely and adapt to shocks and crises

Nearly two-thirds of the world’s poor depend on agriculture to survive, and many of these families collect money only once a year, stretching their income from one harvest to the next. But climate change is putting their livelihoods in peril — as global surface temperatures increase, so does the risk of drought, the intensity of storms, and the frequency of natural disasters. Furthermore, our global food supply is at risk because it depends in large part on the productivity of smallholder farmers who live and work in emerging markets. In sub-Saharan Africa and Asia, smallholder farmers provide over 80 percent of the food supply.

In sub-Saharan Africa, nearly <a href="https://blogs.imf.org/2020/06/04/safeguarding-africas-food-security-in-the-age-of-covid-19/" target="_blank" rel="noopener noreferrer">half the population</a> lives below the poverty line and depends on agriculture, herding, and fishing to feed their families and earn an income. Their food supply is extremely vulnerable to climate change and the effects of a food shortage can be devastating — malnutrition surges, school enrollment drops, the economy suffers, and lives are lost.

<img class="alignright wp-image-23023" src="https://content.accion.org/wp-content/uploads/2020/12/kenya-nakuru-farmers-300x200.jpg" alt="" width="400" height="267" />However, when farmers have the ability to adapt to shocks and crises, they can avoid the worst impacts of food shortages. That’s why it’s crucial for farmers to have access to savings accounts, credit, and insurance. For many of us, the idea of saving seems pretty simple: you set money aside in a secure place and earn interest. But, many people around the world lack access to a formal savings account, and <a href="https://www.accion.org/global-challenges" target="_blank" rel="noopener noreferrer">less than half</a> of adults saved at all in 2017. Moreover, <a href="https://globalfindex.worldbank.org/" target="_blank" rel="noopener noreferrer">235 million</a> unbanked farmers receive agricultural payments in cash, including 115 million women. Since cash is invisible to lenders, it doesn’t generate credit histories and as a result, it prevents families and businesses from borrowing appropriate financing if they need it. In Ethiopia alone, creating a digital agricultural payments system could cut the share of unbanked adults by up to <a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses" target="_blank" rel="noopener noreferrer">60 percent</a>.
<h2>How agricultural fintechs open opportunities in Africa</h2>
<span style="font-weight: 400">Through our early-stage investment initiative, Accion Venture Lab, we’re supporting innovative agricultural fintech startups. These companies build useful tools that give low-income farmers, who are most vulnerable to extreme weather conditions, the opportunity to afford high-quality seeds and fertilizer, save securely, and adapt when challenges arise. </span>

<span style="font-weight: 400">Formal accounts open opportunities for farmers to access a wider array of financial services, including credit and insurance. Insurance and innovative digital products can help smallholder farmers endure climate risks, improve their farming practices, and boost their incomes over time. Accion Venture Lab portfolio company Pula is doing just that in 11 countries across Africa and Asia. So far, they’ve provided over 3.3 million traditionally excluded smallholder farmers with agricultural insurance and data-driven insights and advice to help them increase crop yields in sustainable ways. This has been a game-changer for </span><a href="/for-rose-in-kenya-crop-insurance-is-a-game-changer" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400">Rose Kilonzo</span></a><span style="font-weight: 400">, a Kenyan farmer who now has confidence that she can provide for her family no matter the circumstances. </span>

<span style="font-weight: 400">“When you plant, you have faith it will be taken care of should your crop fail,” she tells us. With a more secure income, she’s looking forward to expanding into commercial agriculture and passing on the trade to her children and grandchildren.</span>

<img class="alignnone wp-image-14546 size-large" src="https://content.accion.org/wp-content/uploads/2018/09/Kitui_0022-1-1024x684.jpg" alt="" width="1024" height="684" />

<span style="font-weight: 400">Another innovative tech-based company we are supporting is </span><a href="/this-agricultural-fintech-empowers-the-farmers-who-feed-the-world" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400">Apollo Agriculture</span></a><span style="font-weight: 400">, an agricultural fintech that helps farmers maximize their profits with financing, farming products, optimized advice, and insurance. Their model combines input financing with sophisticated analytics, remote sensing, agronomic machine learning, and mobile money. This approach opens opportunities for the poorest farmers to purchase high-quality farming inputs, such as hybrid seeds and fertilizer, on credit with flexible repayment terms and post-harvest due dates. </span>

<span style="font-weight: 400">In addition to financing and distributing agricultural inputs, Apollo Agriculture’s integrated solution includes the necessary training to farm effectively and sustainably. This multifaceted approach ultimately allows farmers to increase their crop yields, leading to greater financial security, better livelihoods, and a reliable food supply for the world.</span>

<span style="font-weight: 400">Eventually, Apollo Agriculture plans to leverage its technology to support farmers with personalized solutions based on their specific geographical, weather, and land characteristics. In the long term, these customized farming techniques will improve soil quality and curb erosion, which helps boost productivity and sustainability.</span>
<h2>A tech-based approached to farmer credit in Latin America</h2>
<span style="font-weight: 400">In Latin America, we’re investing in </span><a href="/how-one-company-uses-tech-to-support-brazilian-farmers" target="_blank" rel="noopener noreferrer"><span style="font-weight: 400">TerraMagna</span></a><span style="font-weight: 400">, a Brazilian company that uses their proprietary machine learning platform and monitoring technology to generate a more personalized farmer credit score and an accurate estimate of collateral value. Because family-run farms in Brazil lack access to traditional financial institutions, they often seek credit from retailers where they purchase seeds, fertilizer, and other inputs. TerraMagna partners with these local retailers and uses their tech-based approach to reduce the manual cost of the underwriting process and assess the collateral value with more precision, which lowers the retailers’ credit risk and enables them to provide lower-cost loans.</span>

<span style="font-weight: 400">Lenders in Brazil have typically used land as collateral and have found it difficult to properly accept crops as collateral, given the high fraud risk. Using satellite images, TerraMagna can track the crop status in real-time and help prevent fraud attempts. This approach aligns with our thesis that technology and innovative lending models can work together to create new asset collateral, ultimately granting better access and better credit pricing to family farmers.</span>

<span style="font-weight: 400">We will continue to support smallholder farmers, open opportunities for young people to get into the farming business, and remove the barriers to profitable and sustainable farming for the most vulnerable. As the world’s population grows, so too will our portfolio of partners offering innovative financial and business development services that enable farmers to prosper in a changing climate.</span>

Opening opportunities for smallholder farmers in a changing climate

Priya Punatar

Financial providers in the United States should step up to support small businesses owned by people of color, immigrants, and women during a time of huge challenges 

Kweli is an artist, advocate, and small business owner in the San Francisco Bay Area in California. She integrates creative exercises into leadership training workshops to help social justice advocates build personal and professional skills. Before the pandemic, she conducted all her coaching sessions in person. Now, she’s found innovative ways to host creative workshops online to support leaders. As Kweli says, “I’ve had to adapt the narrative around my business. I’ve learned that you have to be super adaptable and flexible.”

COVID-19 has strained the global economy, and micro, small, and medium enterprises (MSMEs) have been among the hardest hit. In the United States, the pandemic — coupled with issues of racial injustice brought to the fore by the Black Lives Matter movement, and the U.S. presidential election — has led to historic levels of uncertainty.

The unpredictable nature of this crisis has only exacerbated issues that already plagued small business owners in the U.S., like Kweli. Even prior to the pandemic, small businesses struggled to get the financing they need, and now that issue has been exponentially magnified. Entrepreneurs of color, especially, have long faced challenges with systemic racism and other forms of inequality in the U.S., hampering their ability to start, grow, and sustain their businesses. According to a <a href="https://www.brookings.edu/research/businesses-owned-by-women-and-minorities-have-grown-will-covid-19-undo-that/" target="_blank" rel="noopener noreferrer">Brookings Institution study</a>, in 2018, large banks approved 60 percent of loans sought by white small business owners, but only 50 percent by Latinx owners, and 29 percent by Black owners.

Accion Opportunity Fund (AOF), Accion’s primary presence in the U.S., is a nonprofit working to create an inclusive, healthy financial system that supports American small business owners. Through innovative partnerships and outreach strategies, AOF targets underserved communities — including entrepreneurs of color, low-income entrepreneurs, and women — who often lack access to the financial services they need to build their businesses.  AOF realized that the challenges small business owners are facing due to the pandemic called for new innovative products focused on bolstering the resiliency of these businesses. To support these business owners as they stabilize, transform, and grow their business offerings, <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions" target="_blank" rel="noopener noreferrer">Accion’s Global Advisory Solutions</a> is working with AOF to solve the specific pain points and challenges of these entrepreneurs.

Using a human-centered design methodology, Accion and the AOF team recently completed a series of interviews with people of color who own businesses in Los Angeles and Houston. Our objective was to better understand how they came to be business owners, the challenges they face, what they want from their financial service institutions, and what tools and resources they need most to continue running their business.

The key insights from these conversations included:
<h2>Implicit and explicit biases have created an uneven playing field for entrepreneurs of color</h2>
One of our interviewees, a Black woman who owns two salons and a small restaurant in southern California, summed it up well: “We are always starting with two feet behind.” Bias is not experienced in the same way by different people — being a woman, a person of color, or an immigrant creates different challenges that require additional effort and resilience to overcome. Multiple interviewees told us that they found relationships with their financial institutions one-sided and disempowering. Immigrants with limited credit history face barriers to access financial services, and often have a hard time finding information in their language.

As financial service providers across the U.S. think about how to design better financial products to address such challenges faced by women and people of color, they must acknowledge the pervasive systemic discrimination affecting these populations and work to remove bias from their processes.
<h2>COVID-19 has exposed gaps in how small business owners handle crisis</h2>
While all small business owners are dealing with a tremendous amount of uncertainty, individual entrepreneurs are reacting to the crisis in various ways. While some of the more proactive have taken immediate actions, like pivoting their business or moving online, others need more support to better understand their options and determine the best course of action for their business. One entrepreneur told us, “Everything happened so fast, I didn’t even have a chance to get ready.”

Despite the challenges put upon small business owners, their entrepreneurial spirit continued to ring strong. We never heard an entrepreneur tell us they want to close their business and consider a salaried job. Most entrepreneurs feel confident in their ability to ‘figure things out,’ but also shared that they actively seek out advice from peers and experts. In fact, we learned that inner circle relationships are highly influential in their decision making.

To support entrepreneurs on both sides of this spectrum, financial service providers should avoid adding complexity to small business owners’ lives and design products that are simple to understand and convenient to access. They should design for the entrepreneurial spirit and leverage small business networks and experts for information sharing to support small business owners throughout their entire journey — not just when they need financing.
<h2>The small business owner <em>is</em> the business</h2>
All of the entrepreneurs we spoke to define themselves as small business owners. These entrepreneurs infuse their personalities, values, and worldview into their business. One person told us, “I don’t have anything against people that work in corporate America, but I love to be a business owner.” Their businesses have evolved and grown only as they personally have learned and acquired more experience. Their individual values determine how they run their businesses and interact with their employees.

Financial service providers should ground the design of their offerings in the strong identity of small business owners and encourage a sense of empowerment for these individuals. They can do this by building greater trust with customers and eliminating bias from any decision-making processes to build strong and lasting relationships.

Accion and Accion Opportunity Fund are incorporating these insights into the design of innovative solutions that will enable AOF to help small businesses in the United States build their resiliency to this crisis and any future shocks. The need to acknowledge and actively work against the systemic biases that disproportionately impact small business owners who are women, immigrants, and people of color is clear. We know that small business owners want to stabilize and grow their businesses so that they can accomplish their long-term goals. Financial service providers in the U.S. have a huge opportunity to partner with these entrepreneurs along their small business journey through the design of more relevant and meaningful financial products and services.

To learn more about Accion Global Advisory Solutions’ work in the U.S., or if you would like to work with us to better serve your small business clients, <a href="mailto:GLASSupport@accion.org" target="_blank" rel="noopener noreferrer">please contact us</a>.

U.S. small business owners need innovative support in times of crisis

Henry’s coding bootcamp leverages remote learning and an innovative financing structure to make technical education accessible 

Amid the coronavirus pandemic, <a href="https://covid19data.com/2020/07/03/the-pandemic-could-leave-41-million-people-unemployed-in-latin-american-and-the-caribbean/" target="_blank" rel="noopener noreferrer">unemployment in Latin America has risen sharply</a> and <a href="https://www.economist.com/the-americas/2020/09/12/the-pandemic-further-weakens-latin-americas-underperforming-schools" target="_blank" rel="noopener noreferrer">school enrollment is expected to fall 10-25 percent</a>, widening the income gap and adding significant barriers to education in a region that was already among the most unequal in the world. At the same time, the demand for computer science skills keeps increasing. There are only 100,000 professionals with the training necessary to fill almost 1 million open tech positions, and the need for high-quality technical education is rising in Latin America.

Henry was founded to challenge the status quo of education in Latin America by making education accessible to anyone. The company offers virtual coding courses in exchange for a small portion of graduates’ future income, also known as an income-sharing agreement (ISA). Once a student completes the coursework, Henry helps them secure a job in the technology sector. There are no upfront costs for taking the course, and students only start making payments once they get a job after graduating. This model aims to tackle inequality in the region, by empowering anyone to have a career in software development, no matter their location, gender, or background.

Following our investment in <a href="/accion-venture-lab-invests-in-fintech-platform-pintek-to-improve-access-to-quality-education-in-indonesia" target="_blank" rel="noopener noreferrer">Pintek</a> back in May, this is our second deal this year in the edtech (education technology) space, as we recognize the need for <a href="/edtech-can-close-the-digital-divide-in-latin-america" target="_blank" rel="noopener noreferrer">fintech solutions to make education more accessible</a> for the underserved populations. We see Henry as the perfect example of the next phase of inclusive fintech: <a href="https://www.forbes.com/sites/vikasraj/2020/11/30/embedded-inclusive-fintech/?sh=333fe04110cc" target="_blank" rel="noopener noreferrer">startups that are embedding financial services into product offerings to address a critical need</a>.

We are thrilled to join the Henry team in this journey because of their:
<h2>Incentive to invest in high-quality education for their students</h2>
Henry’s product is designed such that the company and its students are working toward the same goal: optimizing graduates’ income. <a href="https://techcrunch.com/2020/08/21/lambda-school-raises-74m-for-its-virtual-coding-school-where-you-pay-tuition-only-after-you-get-a-job/" target="_blank" rel="noopener noreferrer">Similar to Lambda School</a>, another Y Combinator fellow, the company invests in its students’ success. Henry is incentivized to ensure that their curriculum quality and job placement services remain best-in-class as the company scales. Similarly, students are motivated to learn and earn as much as possible, driving them to achieve goals that also support Henry’s revenue and growth. Henry differentiates its curriculum from other bootcamps by offering a live, full-time program (versus self-guided, pre-recorded programs or part-time programs where students aren’t fully focused on the content) and through its practical, “learn by doing” teaching methodology. The company solicits feedback from top local tech companies to ensure that their curriculum prepares students to address employers’ most relevant technical needs.
<h2>Highly relevant product during the COVID-19 pandemic</h2>
Henry’s product offering is particularly relevant during the COVID-19 pandemic. As companies grapple with the economic effects of the pandemic and are forced to lay off and furlough employees, the demand for re-skilling opportunities like Henry is likely to increase as more people seek new job opportunities. Further, Henry’s courses are entirely remote, and the company invests in helping graduates secure remote jobs abroad, allowing students to learn and work while complying with public health guidelines. Understanding the <a href="/win-from-within-how-fintech-startups-can-grow-by-building-value-for-existing-users" target="_blank" rel="noopener noreferrer">value of customer retention</a> and the need for the graduates to remain competitive in this market, Henry created a community where former students continue to receive support, both from the company and fellow alumni.
<h2>Responsible approach to income-sharing</h2>
Henry leverages an income sharing agreement (ISA) model to provide courses to its students at no up-front cost. This innovative way of embedding financial services eliminates the burden that students take on when forced to pay tuition upfront and incur student debt. While we believe these agreements are useful tools for financial inclusion, we also know that, when used without proper guardrails, they can have a negative impact on consumers who end up owing more money than they can afford. Henry’s ISA protects students through a payment cap, so that students never pay more than $4,000 throughout their ISA installments — considerably lower than the price of many other comparable bootcamps. We believe that this cap will ensure that Henry’s ISA structure remains student-friendly and may serve as a positive example to others in the industry.

This is Accion Venture Lab’s first investment in a model like Henry, and we are thrilled to be doing so in this historical moment where investors need to step up and support those companies that are expanding the frontiers of innovation and financial inclusion. Henry was created, as their CEO Martín Borchardt states, <a href="https://medium.com/age-of-awareness/democratizing-education-a-conversation-with-mart%C3%ADn-borchardt-df3fb217a6c6" target="_blank" rel="noopener noreferrer">to change people’s lives</a>. As an impact fund, nothing is more aligned with our ultimate goal than their mission to create new opportunities for the underserved.

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