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Victoria White

The digital transformation of financial service providers has the potential to close the financial inclusion gender gap by bringing financial tools to more women

Article

Despite the great strides made to accelerate global financial inclusion in recent years, women are still more excluded and harder to reach with financial services than men in most developing countries. Many women run small businesses from their homes and are more likely to be shut out of the formal economy. Women often have <a href="https://www.poverty-action.org/sites/default/files/publications/Womens-Economic-Empowerment-Through-Financial-Inclusion-Web.pdf" target="_blank" rel="noopener noreferrer">fewer opportunities</a> to gain an education, earn an income outside of their household, own land, inherit assets, and control their own income and financial futures.

In many developing countries, social norms continue to hold women back. From beliefs that women are meant to be caregivers and shouldn’t spend their time running a business to a reluctance to trust women to make financial decisions at all, these norms perpetuate gender gaps. In many Middle Eastern countries, opening an account requires approval from a male guardian. Furthermore, while mobile phone access continues to grow rapidly across the developing world, women are less likely than men to be digitally and financially literate or to own phones.

When it comes to lifting families out of poverty, fighting hunger, and educating the most vulnerable children, it’s crucial that we find ways to support women microentrepreneurs and small business owners. When women are able to earn a secure income, they are <a href="https://res.torontocentre.org/guidedocs/Barriers%20to%20Womens%20Financial%20Inclusion.pdf" target="_blank" rel="noopener noreferrer">more likely</a> than men to spend it on child welfare, including school tuition and medical care, household utilities, and food. Financial security also tends to empower women, giving them a role in the decision-making process in their households. Beyond empowerment and poverty reduction, supporting female entrepreneurs boosts economic growth, with estimates suggesting that advancing women’s equality can add <a href="https://www.mckinsey.com/featured-insights/employment-and-growth/how-advancing-womens-equality-can-add-12-trillion-to-global-growth#" target="_blank" rel="noopener noreferrer">$12 trillion to the global economy</a>.

Innovative products and services, including new digital financial service offerings, can help us reach more women and close the financial inclusion gender gap. Fintech is already playing a <a href="https://www.imf.org/en/Publications/Departmental-Papers-Policy-Papers/Issues/2020/06/29/The-Promise-of-Fintech-Financial-Inclusion-in-the-Post-COVID-19-Era-48623" target="_blank" rel="noopener noreferrer">major role</a> in closing gender gaps in Middle Eastern and African countries. In Côte d’Ivoire, for example, women are <a href="https://deeply.thenewhumanitarian.org/womensadvancement/articles/2018/04/19/gender-gap-in-bank-account-ownership-hasnt-shifted-in-seven-years" target="_blank" rel="noopener noreferrer">just as likely</a> as men to have a mobile money account, while men are twice as likely as women to have a traditional bank account.

However, in many Asian and Latin American countries, traditional financial inclusion services tend to do more to close gender gaps than digital ones. Part of the variation across countries can be explained by obstacles that digital tools cannot directly overcome, such as social and cultural norms. Regulators can play a role in shifting norms by introducing legislation promoting gender equality while taking into account the beliefs and the contextual constraints that shape those norms. For example, they could remove any regulatory barriers that restrict women from having their own bank accounts.

Nevertheless, digital solutions appear particularly well adapted to the other constraints women face. We’re supporting an array of financial service providers that bundle digital financial products with the educational services needed for women to gain the skills and comfort needed to use them properly.

Our partner DAWN Microfinance in Myanmar — where the population has rapidly adopted smartphones in recent years — embraced their own digital transformation and is now implementing digital field applications to help loan officers better serve their clients, most of whom are women. DAWN is also leading training sessions to reach the women-led businesses that lack access to formal financial services. No longer having to undertake much of the loan process manually, loan officers can spend more time finding and supporting clients.

[caption id="attachment_22007" align="alignright" width="356"]<img class="wp-image-22007 " src="https://content.accion.org/wp-content/uploads/2020/08/Daw-Amar-Myint_3-Swenyein-Swenyein-1-300x225.jpeg" alt="" width="356" height="267" /> Daw Amar Myint prepares delivery meals from her restaurant in Yangon, Myanmar.[/caption]

“Finally, I can spend more time with my customers,” DAWN loan officer Aye Aye Myint <a href="/women-entrepreneurs-empowered-by-technology-in-myanmar" target="_blank" rel="noopener noreferrer">tells us</a>. “The women we are helping now are running their own businesses. They are standing on their own two feet … some women can now rent and open big stores when they used to have just small shops.”

Daw Amar Myint, a client of DAWN, owns a small restaurant serving up traditional Myanmar cuisine in Yangon, Myanmar. When the pandemic hit, she was forced to close her doors and <a href="/digital-tools-open-opportunities-for-struggling-business-owners" target="_blank" rel="noopener noreferrer">turned to social media to sell delivery meals online instead</a>. Because she’s able to sell online, she’s better positioned to withstand the pandemic. DAWN is giving their small business clients like Daw Amar increased support and flexible payment options so they can overcome this crisis and thrive into the future.

Ovante, our <a href="https://www.worldsummitawards.org/2019/12/10/meet-the-40-winners-of-2019/" target="_blank" rel="noopener noreferrer">award-winning</a> digital business education platform has made a major impact on the lives of women entrepreneurs across Latin America. Using interactive tools, including videos and techniques like gamification, Ovante helps users become more financially and digitally savvy. 92 percent of its users say it is their first time using a digital platform.

Margarita, one of over 12,700 woman entrepreneurs Ovante has supported, significantly <a href="/margarita-prepares-her-business-for-the-digital-age" target="_blank" rel="noopener noreferrer">improved her florist business</a> using the financial and digital concepts she learned from the platform. Ovante is providing her with exposure to digital technology as she learns how to organize her finances, reach new customers, and use social media marketing and branding. Entrepreneurs can complete Ovante’s online modules at home at a time that best suits their schedule. In discussing why flexibility matters to her, Margarita exclaimed, “I think it is very helpful that Ovante is digital because you can use it anywhere! It also solves the problem of limited availability of time because there is no set time to use this platform, which makes it more convenient.”

<img class="aligncenter wp-image-17329 size-large" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_Ovante_0083-1024x683.jpg" alt="" width="1024" height="683" />

Karen Yesenia Torres Villamizar and her family own a bakery in Bucaramanga, Colombia. Because her business had always been cash-based, and Karen only sold to her customers in-person at her physical store, she had to adapt quickly during the pandemic. Because she gained the knowledge and confidence to use digital tools from Ovante, <a href="https://www.accion.org/how-the-pandemic-is-spurring-microentrepreneurs-to-go-digital" target="_blank" rel="noopener noreferrer">Karen found a way to keep her business open</a> for delivery by promoting and selling her sweets online.

Innovative financial products and services can help women entrepreneurs like Daw Amar, Margarita, and Karen overcome the digital and financial literacy barrier that many women face. When financial service providers can develop digital tools that can be used entirely from home, without the need for face-to-face interactions that might otherwise prevent women from accessing them, more doors open for women entrepreneurs. However, providers must consider how they can develop products to reach women who don’t have reliable access to smartphones and digital tools, otherwise, they risk worsening the digital gender divide. As women become financially empowered by new opportunities, they can break through arbitrary barriers they have faced because of their gender. While financial providers may not be able to address cultural and social norms head-on, they can play a critical role in helping women overcome them.

Digital tools open opportunities for women to thrive

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

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" /> Self’s user-friendly app allows customers to easily track their progress as they pay off their loan and improve their credit score.[/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

Amy Stewart

People in Chile and Mexico are building their financial health using a personalized platform that meets them where they are

Karen is a single mom who lives in Santiago, Chile, with her young daughter. She went to school to study business administration but had to drop out to care for her daughter. Today, she works at a retail shop where she makes just enough to get by. Karen worries all the time — about paying the bills each month, about providing for her daughter, and about her growing credit card debt. She knows she needs to make a change, but she doesn’t know where to start. She tried to put together a plan to pay off her debt, but couldn’t figure out the total amount she owed, or identify the right person to call. Thinking about money makes her feel stressed, overwhelmed, and alone.

Accion’s partner <a href="https://www.destacame.cl/" target="_blank" rel="noopener noreferrer">Destacame</a>, a Chile-based personal financial management platform, sees many people like Karen, who come to their website looking for a way to get out of debt, access their credit report, and get answers they’ve been unable to find in the formal financial sector. The pandemic has only exacerbated feelings of financial insecurity in Chile. Destacame found that, due to COVID-19, 54 percent of their users are facing reduced or no income, 30 percent are unable to pay bills and almost all noted uncertainty and stress about their financial situation. Only 12 percent said they felt prepared for a shock like COVID-19.

Destacame knew that their users need more than just access to financial products – they need help to navigate their financial lives. This includes clearly understanding their current situation, weighing the pros and cons of the solutions available, planning to achieve goals, and receiving support and guidance along the way. As one user said, “I want to save and change my spending, but I don’t have any idea where to begin! I need an advisor — like Jiminy Cricket — who provides me with guidance and helps me to plan.”
<h2>An advisor and companion on the path to financial health </h2>
[caption id="attachment_23231" align="alignleft" width="300"]<img class="wp-image-23231" src="https://content.accion.org/wp-content/uploads/2021/01/Bienestar-financiero_.jpg" alt="New Destacame site design diagnostic feature" width="300" height="754" /> The diagnostic asks several questions to gauge users’ needs, including budgeting, preparing for unforeseen circumstances, and planning for the future. [/caption]

To truly support users like Karen, Accion and Destacame came up with an ambitious solution: completely redesign the Destacame experience and value proposition around financial health by adding simple diagnostics, customized user journeys, and digestible tips, tools, and product recommendations that match the user’s current reality. Beyond simply adding new products and features, the ‘Experencia Destacame’ (Destacame Experience) project involved changing the core of the platform: how it was structured, how the user interacted, and what value it sought to provide.

The new site design starts by clearly communicating Destacame’s customized offering to potential users and highlighting common challenges for the target user, such as, “Are you up to your neck in debt?” and “Are you stressed by your finances?” Once registered, users arrive at a personalized dashboard that assesses their financial health in three main categories: budget management, shock resilience, and long-term planning. This three-part diagnostic serves as the heart of the site redesign: based on their responses, users are directed to discrete experiences that offer the most relevant support for where they are today, including tips and recommendations, access to tools, and suggestions for financial products. The diagnostic also allows Destacame to isolate a recommended next step, encouraging users to take one first action rather than overwhelming them with a flurry of recommendations and products.

The team also developed two digital tools to support users in their journey towards financial health: a budgeting tool and an expense reduction tool. These pieces are foundational for all platform users: before saving for shocks or planning for the future, individuals must first get their budget in order and make sure their expenses don’t exceed their income. Both tools are easily accessible on mobile devices, require little time to complete, and quickly demonstrate and reward progress towards better financial habits.

The budgeting tool walks users through a series of screens to add income and expenses and calculate their savings. It helps users to consider and understand all possible expense categories and prompts users to return and update after a few months.

<img class="alignright wp-image-23233" src="https://content.accion.org/wp-content/uploads/2021/01/Bienestar-Finanicero-Presupuesto.jpg" alt="Destacame budgeting tool" width="310" height="589" />The expense reduction tool helps users to better manage their monthly cash flow by setting goals to reduce expenses in key categories, and entering spending once a week to assess progress. The tool is designed to be flexible enough to meet user needs (for example, selecting the day to receive reminders) but structured enough to encourage action, using positive language, and offering support.

Destacame recommends customers complete the tools based on their unique situation. For example, if a user is unsure that they can cover their monthly expenses, the platform will direct her to complete a budget first to gain a better understanding of her cashflow. After completing the budget, she may see that she is spending more than she’s bringing in each month and be prompted to work on reducing expenses via the expense reduction tool. After reducing expenses, she may be encouraged to start saving, and provided with recommendations for relevant savings products. Core to our hypothesis is the belief that providing users with the right tool or product at the right time is critical for uptake, usage, and impact.

<img class="alignright wp-image-23234" src="https://content.accion.org/wp-content/uploads/2021/01/Selección-de-gastos-BG-e1611591473407.jpg" alt="Destacame expense reduction tool" width="310" height="482" />
<h2>Impact to date</h2>
Since launching in early 2020, almost 700,000 users in Chile and Mexico have visited the redesigned site. Almost 35,000 people have completed the diagnostic, 60,000 have accessed the budgeting tool, and 10,000 have accessed the expense reduction tool. These conversion rates are consistent with broader usage of Destacame products and impressive for self-driven tools. But perhaps more impressive is that the team is already seeing users’ financial behaviors change: since July, 35 percent of the users that completed the budget tool created a budget for the first time, 20 percent of those that accessed the expense reduction toolset a savings goal, and 17 percent of those using the expense reduction tool actually decreased their expenses.

When the pandemic hit in March 2020, Destacame saw the potential to help Chileans struggling with unemployment, debt, and uncertainty by offering a way for them to navigate their financial situation and set a plan for recovery. They launched a marketing campaign with the hashtag #CuarentenaFinanciera (financial quarantine) highlighting their new resources and encouraging users to focus on building their preparedness, resilience, and overall financial health. In response to a new law permitting pension savings withdrawal, the Destacame team launched another campaign in July called #ChileSinDeuda (Chile without debt) to encourage Chileans to use this opportunity to pay off outstanding debt, and work with their partner banks to offer discounts. Through this program, they were able to offer 3.5 million Chileans an average discount of 60 percent on their outstanding debt.

To encourage sustainable behavior change, institutions need to design for and encourage healthy financial habits that work within users’ everyday lives. While designed to be as easy-to-use as possible, Destacame’s current tools still rely heavily on user input. Users must be highly self-motivated and take the time to update tools. In 2021, Destacame plans to roll out additional products, including a new mobile application and debit card, that automate assessment and support for financial health and reduce effort for users. For example, syncing budgeting and expense management with card transactions, allowing users to set limits for certain categories and create savings wallets, and supporting future planning by projecting income and expenses.

Little by little, Destacame users are progressing on their path to financial health, supported by a more personalized approach that meets them where they are. Destacame’s focus on serving the low-income segment in Chile has also been a market differentiator and offered opportunities for further expansion and innovation. Today, Karen has finally gotten out of debt and is starting to save up towards buying a house. She’s happy with how far she’s come: “Destacame has motivated me to pay off my credit cards quickly, and I was able to get out of debt because of them.”

<img class="alignleft wp-image-10268 " src="https://content.accion.org/wp-content/uploads/2018/08/MetLife-Foundation.png" alt="MetLife Foundation logo" width="165" height="77" />This product is a part of our <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/" target="_blank" rel="noopener noreferrer">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> project, supported by MetLife Foundation.

&nbsp;

Finding a path to financial health in Chile, one step at a time

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: “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.”

Another mentioned that they would appreciate insights on how to build and scale remote teams: “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.”

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">Even for an organization with remote set-ups prior to the pandemic, this is not a normal remote time for a variety of reasons. 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.</li>
 	<li style="font-weight: 400">However, there are also some unique advantages to this current time. Remote working provides a few distinct advantages:
<ul>
 	<li style="font-weight: 400">Greater access to talent — 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.</li>
 	<li style="font-weight: 400">Maximize productivity — 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.</li>
</ul>
</li>
 	<li style="font-weight: 400">To work effectively, remote teams require:
<ul>
 	<li style="font-weight: 400">Hiring well – 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.</li>
 	<li style="font-weight: 400">Overcommunicating and establishing clear lines of responsibility — Remote teams require effective communication, especially from leadership, but teams should take care not to abuse communication channels. </li>
 	<li style="font-weight: 400">Showing vulnerability from leadership — The worst habits of leaders can be amplified in remote settings. Awareness + transparency goes a long way.</li>
</ul>
</li>
 	<li 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 flexibility: 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.</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">Financial services are now the cake, not the frosting — no longer a nice-to-have.</blockquote>
<ul>
 	<li>There’s been a fundamental shift in fintech. 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. Financial services are now the cake, not the frosting — no longer a nice-to-have.</li>
</ul>
<ul>
 	<li>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:
<ul>
 	<li>Run lean — Ken focused on running CreditKarma efficiently by keeping his team to five staff for about three years, and contracting out the rest. </li>
 	<li>Focus on unit economics and the product — 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.</li>
 	<li>Caution is key in fundraising — 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.” </li>
</ul>
</li>
 	<li>And Ken and Matt shared some tips on approaching diversification:
<ul>
 	<li>Building trust takes time — Ken advised going deep in one vertical to build something that’s unique and defensible before moving into other verticals.</li>
 	<li>Focus on your north star — What is your purpose? Diversification should be a deliberate step towards this goal.</li>
 	<li>Diversification requires a deep, software-enabled connection to your customer — 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.</li>
 	<li>Recognize your recency bias — Remember that the large ubiquitous companies out there (Google, Amazon, etc.) started one thing and leveraged data to expand.</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">Real learning and strength emerge when leaders can let go of needing to be the strongest, most faultless person in the room</blockquote>
<ul>
 	<li 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.</li>
 	<li style="font-weight: 400">There’s a common belief system that leaders are expected to be strong and perfect, and vulnerability connotes weakness. But real learning and strength emerge when leaders can let go of needing to be the strongest, most faultless person in the room.</li>
 	<li style="font-weight: 400">A key tool for successful leaders is radical self-inquiry. 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?</li>
 	<li style="font-weight: 400">Jerry suggested that leaders do regular check-ins with their teams. A framework he uses is “red/yellow/green,” 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.</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: 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. 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>Fundraising is a two-way street — 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.</li>
 	<li>Approach fundraising in a structured way — 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. </li>
 	<li>Take advantage of due diligence learnings, and prepare differently for virtual due diligence — 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. </li>
 	<li>There is an appropriate time for bringing in strategic investors, with caution  — They can come with great benefits, but hard to manage if you’re too early.</li>
</ul>
Finally, Amee Parbhoo from Accion Venture Lab shared some highlights from our recent experiences with <a href="/guide-to-remote-due-diligence" target="_blank" rel="noopener noreferrer">remote due diligence</a>. Some of the suggestions Accion Venture Lab provided included:
<ul>
 	<li>Build a data room as soon as possible and lean on your team to help construct it — 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.</li>
 	<li>Set aside dedicated time for fundraising — 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.</li>
 	<li>Expect the process to take longer than in-person diligence — 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.

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>.

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

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

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.

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>.

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 inclusive 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.

Note: Some of the companies above are existing or prospective portfolio companies of Accion Venture Lab or Accion-related entities

What does embedded inclusive fintech look like?

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>
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. 

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 <a href="/for-rose-in-kenya-crop-insurance-is-a-game-changer" target="_blank" rel="noopener noreferrer">Rose Kilonzo</a>, a Kenyan farmer who now has confidence that she can provide for her family no matter the circumstances. 

“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.

<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" />

Another innovative tech-based company we are supporting is <a href="/this-agricultural-fintech-empowers-the-farmers-who-feed-the-world" target="_blank" rel="noopener noreferrer">Apollo Agriculture</a>, 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. 

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.

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.
<h2>A tech-based approached to farmer credit in Latin America</h2>
In Latin America, we’re investing in <a href="/how-one-company-uses-tech-to-support-brazilian-farmers" target="_blank" rel="noopener noreferrer">TerraMagna</a>, 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.

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.

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.

Opening opportunities for smallholder farmers in a changing climate

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