As part of Accion Global Advisory Solutions, Priya Punatar was the Industry Engagement Manager. She led efforts to share the advisory team&#8217;s learnings and insights with the financial industry. She conducted research and analysis on sector trends and innovations, managed and contributed to the team’s knowledge products, and provided advisory support to financial service providers in areas such as customer strategy and data analytics. Priya earned a master&#8217;s in international development and international economics from the Johns Hopkins School of Advanced International Studies.

Former Senior Manager, Customer Insights and Industry Engagement

Liza Guzman

Priya Punatar

Executive summary

People around the world are continually working to improve their financial lives. They do so with whatever knowledge they have gathered and with the tools available to them, some informal and some formal. Much of this effort happens outside of financial services; people work hard to grow their businesses, send their children to school, and troubleshoot during tough moments. Ultimately, all people aspire for greater financial health and for better lives for themselves and their families.
<blockquote class="pullquote--right">Ultimately, all people aspire for greater financial health and for better lives for themselves and their families.</blockquote>
In 2018, Accion and MetLife Foundation launched a partnership to explore how financial service providers (FSPs) can craft financial products to support these efforts. More specifically, they sought to design products that benefit users’ financial health using customer-centric, behaviorally informed design. The project aimed to build better digital financial products and delivery methods grounded in customer needs to benefit underserved customers.
This paper features five in-depth case studies that detail Accion’s experience working with five financial service provider (FSP) partners in Chile and Mexico over the past three years. 
The teams worked together to design and launch innovative financial products, 
and to monitor their impact via financial health measurements. The case studies dive into the contextual problems we worked to solve, the product features that we designed, and share preliminary measures of product uptake and impact on users seen to date. At the end of each case study, we share key takeaways for FSPs and industry players that are seeking to build the financial health of low-income and underserved populations.
For each of these products, <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions" target="_blank" rel="noopener noreferrer">Accion Global Advisory Solutions</a> helped FSPs develop the skills to truly listen to what their customers need, design best-in-class digital products utilizing behavioral science principles to nudge healthy financial behaviors and implement a financial health measurement methodology. We also worked closely with our partner institutions to ensure that product concepts were <a href="https://www.accion.org/to-succeed-innovative-financial-products-must-be-desirable-feasible-and-viable" target="_blank" rel="noopener noreferrer">desirable, feasible, and viable</a>; to manage organizational change; and to market the products effectively. In Mexico, we launched a supply chain finance product with <a href="https://www.ahorrosbienestar.com/" target="_blank" rel="noopener">Caja Bienestar</a> and a savings product for youth with <a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener">Caja Popular Cerano</a>. In Chile, we revamped a financial health portal with <a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health" target="_blank" rel="noopener">Destácame</a>, tailored a business management application for (micro, small, and medium enterprises) MSMEs with <a href="https://www.accion.org/this-new-app-is-helping-small-business-owners-build-financial-health-and-resilience" target="_blank" rel="noopener">Organizame and Banigualdad</a>, and deployed a crowd-funding platform for microentrepreneurs with <a href="https://redcapital.cl/" target="_blank" rel="noopener">RedCapital</a>. 
To assess and document the impact of these products on users’ <a href="https://www.uncdf.org/admin/editors/ArticleItem/Index/7008?articleTitle=delivering-financial-health-globally-a-collection-of-insights-approaches-and-recommendations" target="_blank" rel="noopener">financial health</a> — the state in which an individual can meet current needs, absorb financial shocks (like global pandemics), and pursue financial goals — we tracked outcomes in five areas that map to our conceptual framework for financial health for individuals and MSMEs: overall feelings of financial well-being, budget management, debt management, savings and long-term planning, and business management.
While these products are still early days in terms of customer uptake and traction, preliminary results reveal significant and positive improvements across these dimensions of financial health. We found that:  
<ul>
<li style="font-weight: 400;" aria-level="1">Nearly all products resulted in less financial stress and greater satisfaction with their current financial situation. Among users that own their own business, many demonstrated an ability to bounce back to levels prior to the COVID-19 pandemic level of sales (or higher!) when compared with control groups that did not use the financial products developed through this project. </li>
<li style="font-weight: 400;" aria-level="1">Easy-to-use budget management tools led to more users tracking their income and expenses on a more regular basis, therefore making users feel more in control of their finances. </li>
<li style="font-weight: 400;" aria-level="1">Across all products, individuals and businesses felt that they had a manageable level of debt, were better able to pay their credit on time, and were more comfortable taking out credit with a formal financial provider.</li>
<li style="font-weight: 400;" aria-level="1">Individuals using each of the products were able to save more and contribute to emergency funds. </li>
<li style="font-weight: 400;" aria-level="1">Business owners that took out working capital credit or used the business management tools noted that the additional liquidity enabled their business to take advantage of more opportunities. </li>
</ul>
Through our work with our partners and their clients across this project, we uncovered five cross-cutting takeaways for building relevant, impactful, and financial health-centric products:

To encourage sustained behavior change, institutions need to embed healthy financial habits within existing practice and actions and minimize the need for additional effort. Products like automated savings accounts and direct debit payments have demonstrated the success of seamless approaches, which reduce decision-making effort (and associated fatigue) and make saving and expense management feel effortless.

To meaningfully build financial well-being, institutions need to ingrain healthy financial habits into everyday life and encourage frequent interaction with the user. An occasional touchpoint is unlikely to lead to durable change.

Human touch is critical for delivering digital financial tools to customers unfamiliar with digital technology or that lack digital literacy. Most successful financial service providers rely on human touch at various stages in a customer journey to build trust, establish relationships, and engage their customers.

Well-designed financial-health-building tools and content are attractive to users, and FSPs increasingly recognize it as a customer acquisition tool. The ability to show impact on end-customers’ financial health, a key pain point globally in the aftermath of the COVID-19 pandemic, can bring new business opportunities and partnerships with other institutions that enable rapid user growth.

Customers that used and engaged with products with an explicit aim to improve financial health reported greater resiliency during the pandemic and a deep sense of gratitude to their financial institutions. They felt the institution was their partner as they sought to navigate their businesses during the pandemic and were significantly more likely to recommend their provider to others.

Introduction

Financial inclusion is more than just connecting people to a bank account. People need financial tools that they trust, use, and benefit from, so that entrepreneurs can hire more employees, parents can save for the future, families can weather economic shocks, and communities everywhere can accelerate social and economic progress. The COVID-19 pandemic has highlighted the importance of well-designed financial tools, especially digital ones, to help low-income populations build resilience to weather prolonged income shocks.
<blockquote>While access to financial services has advanced during the last decade in Latin America, many consumers who have gained access have not taken full advantage of their newly acquired services. As of 2017, <a href="https://www.cgap.org/blog/financial-inclusion-glass-half-empty-or-half-full-pt-2" target="_blank" rel="noopener">17 percent of accounts</a> in Latin America and the Caribbean sat dormant.</blockquote>
This is because widely available financial products are not designed to fit most users’ needs, wants, and behaviors. Moreover, we have found that consumers need better support in navigating how different products can help them to grow their businesses, make choices that fit their lives, and reach their ambitions.
To address dormant accounts and low engagement, financial service providers should focus on products that build <a href="https://www.uncdf.org/admin/editors/ArticleItem/Index/7008?articleTitle=delivering-financial-health-globally-a-collection-of-insights-approaches-and-recommendations" target="_blank" rel="noopener">financial health</a> among users — the ability to meet their current financial needs, absorb financial shocks, and pursue financial goals. Such products are not just good for users, they are good for business. The 2019 <a href="https://finhealthnetwork.org/research/u-s-financial-health-pulse-2019-trends-report/" target="_blank" rel="noopener">US Financial Health Pulse</a> reports that, in the United States, people whose primary institution helped them to improve their financial health were 1.5 times more likely to be satisfied customers and 1.3 times more likely to purchase more products and services in the future. Additional research from Albania has shown that financially-healthy customers <a href="https://www.tandfonline.com/doi/full/10.1080/1331677X.2020.1820362" target="_blank" rel="noopener">exhibit better financial behaviors;</a> they use a more diverse range of financial products and services and use them more actively. And finally, Gallup found that when customers feel that their bank is <a href="https://news.gallup.com/opinion/gallup/176534/looking-customers-financial-table-stakes-banks.aspx" target="_blank" rel="noopener">looking out for their financial well-being</a>, they are much more likely to be fully engaged with that bank. 
By helping consumers build their financial health, FSPs can help customers become more informed and engaged; in other words, they become better customers. Moreover, as competition among FSPs continues to grow, providers that can serve those with unmet needs will win loyalty and growth.
<h2>Our approach</h2>
For decades, Accion has helped FSPs around the world deliver products that unserved and underserved client needs from the formal financial sector. The <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions" target="_blank" rel="noopener">Accion Global Advisory Solutions team</a> is committed to delivering high-quality, affordable solutions for the billions of individuals who are still unserved or underserved by the financial sector. We combine human-centered design with insights into emerging technologies and effective business models to create financial services that accelerate social and economic progress.
<img class="alignright wp-image-25226" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL-08-1024x819.png" alt="Accion-MetLife-report-graphics-client map" width="493" height="394" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL-08-1024x819.png 1024w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL-08-300x240.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL-08-768x614.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL-08.png 1350w" sizes="(max-width: 493px) 100vw, 493px" />
In our view, to build financial health, FSPs need to put customers at the center of the design process and ask, “How can we better understand the challenges that our customers face, and how can we help them tackle these issues through our services?” Accion helps FSPs on this journey to understand the customers’ key pain points and develop tools, exercises, and advice that will build customer’s financial knowledge, skills, and attitudes. 
In 2018, Accion launched a partnership with <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion" target="_blank" rel="noopener">MetLife Foundation</a> to support five institutions in Chile and Mexico to develop products and services clients can trust, use, and benefit from. Over the last three and a half years, we worked closely with our FSP partners to create innovative solutions and services that help underserved families and businesses improve their financial health outcomes, become more resilient to shocks, and take advantage of opportunities that come their way. 
In Mexico, we partnered with two cooperatives: <a href="https://www.ahorrosbienestar.com/" target="_blank" rel="noopener">Caja Bienestar</a> to launch a supply chain finance product and <a href="https://cpcerano.com.mx/" target="_blank" rel="noopener">Caja Popular Cerano</a> to develop a savings product for youth. In Chile, we worked with three fintech organizations: we supported the revamp of a financial health portal with <a href="https://www.destacame.cl/" target="_blank" rel="noopener">Destácame</a>, a business management application with <a href="https://banigualdad.cl/" target="_blank" rel="noopener">Organizame for Fundacion Banigualdad</a>’s clients, and a crowd-funding platform for microentrepreneurs with <a href="https://redcapital.cl/" target="_blank" rel="noopener">RedCapital</a>.
Across all projects, we tracked impact in five specific areas of financial health that together suggest levels of resiliency and ability to take advantage of opportunities:
<img class="wp-image-25151 alignleft" src="https://content.accion.org/wp-content/uploads/2021/11/1-e1637339986812.png" alt="" width="40" height="38" />
Overall feeling of financial well-being: Assess feelings of satisfaction with regard to users’  financial lives, and the extent to which thinking about finances causes stress. 
<img class=" wp-image-25155 alignleft" src="https://content.accion.org/wp-content/uploads/2021/11/5.png" alt="" width="40" height="40" />Business management: Consider whether business owners feel confident about the financial sustainability of their businesses in the long run.
<img class=" wp-image-25153 alignleft" src="https://content.accion.org/wp-content/uploads/2021/11/3.png" alt="" width="40" height="39" />Debt management: Evaluate how well people are managing their existing debt and the extent of access to external resources, if needed.
<img class="wp-image-25154 alignleft" src="https://content.accion.org/wp-content/uploads/2021/11/4.png" alt="" width="40" height="39" />Savings and long-term planning: Observe whether users are building and maintaining short- and long-term savings based on their financial goals. 
<img class=" wp-image-25152 alignleft" src="https://content.accion.org/wp-content/uploads/2021/11/2.png" alt="" width="40" height="36" />
Budget management: Understand what tools are being used to manage personal, family, and business budgets to prioritize expenses and assess profitability.
These aspects of financial health were assessed via short, digital surveys among potential customers before product launch, and again several months after product launch. Due to small sample sizes, we were not always able to achieve statistical validity with our results, but we believe the directionality is still promising. Moreover, these products are still relatively new to the market and early days in terms of customer uptake and traction, so impact is likely underestimated. 
<img class="wp-image-25235 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL_Framework-300x150.png" alt="Accion-MetLife-report-graphics-Social-Framework" width="690" height="345" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL_Framework-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL_Framework-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-Social-FINAL_Framework-1024x512.png 1024w" sizes="(max-width: 690px) 100vw, 690px" />
<h2>A note on timing</h2>
We experienced many challenges throughout the product development process: political insecurity, strikes, violence that made travel impossible, and, of course, the pandemic. Building an innovation mindset to financial institutions is never easy since FSPs are generally conservative, risk-averse institutions, and political, social, and natural uncertainty has made change even more challenging. Though our teams were able to conduct in-depth research through direct engagement with users at the onset of the project, our interactions with end-customers were entirely virtual from March 2020 onwards. These shocks delayed several product launches as our partner institutions shifted their attention to more immediate and pressing priorities. 
Furthermore, many of our end-clients also experienced health challenges and losses during this period. Most experienced disruptions in their business or were forced to shutter their doors and reinvent their livelihoods amid uncertainty. 
Nine months into the pandemic, we surveyed our partners’ clients to validate whether the product concepts we conceived before the pandemic would continue to be relevant, useful, and helpful as they sought to navigate and recover from the pandemic. We overwhelmingly heard from users that products that could give them the working capital they needed to keep the lights on, tools to manage their budget and their debt, and digital records for their business were exactly what they needed to keep their financial lives on track. 
In all, we hope that the lessons shared here will help other institutions develop and launch innovative products that empower their customers to make choices that fit their lives and build habits that improve their financial health, so they can improve their resilience to shocks and reach their ambitions.

Case Study: Caja Bienestar

In Mexico, <a href="http://www.inegi.org.mx/" target="_blank" rel="noopener">99 percent of all businesses are micro, small, and medium enterprises (MSMEs)</a>. They contribute 52 percent of GDP and generate 72 percent of jobs in the country. Although MSMEs play a crucial role in Mexico, <a href="https://read.oecd-ilibrary.org/industry-and-services/financing-smes-and-entrepreneurs-2016_fin_sme_ent-2016-en#page334" target="_blank" rel="noopener">fewer than 10 percent of them have received a bank loan</a>.  
Located in the heart of central Mexico, Caja Bienestar is meeting the needs of MSMEs. It is the largest socially focused financial institution in the country. Now entering its 25th year, the institution has more than 80,000 active microentrepreneur clients. Since its inception, Caja Bienestar has offered a variety of low-cost, high-quality financial services to its clients — both for personal and business purposes — and continues to be one of the most affordable credit options for small businesses and families in Central Mexico.
However, there remained two distinct segments that Bienestar had not able to reach with their current offering.  The first included microentrepreneurs, who, due to their business size, lack of documentation, and low or non-existent credit scores continued to lack access to credit, even from socially focused lenders like Caja Bienestar.  The second segment included microentrepreneurs that have the necessary documentation and credit histories to obtain credit but may lack the financial capabilities that would enable them to take out a loan confidently. For example, these entrepreneurs may not know what type of credit to apply for, may find it difficult to understand interest rates, or may be afraid of finding themselves deep in debt.
As a result of these challenges, these segments of MSMEs in Mexico often obtain the financing they need to purchase inventory from their suppliers, who they know and trust. MSMEs often find it more convenient to access informal credit from suppliers, where there is no need for collateral or paperwork. This short-term credit, with clear fees and schedules, is easier to understand than formal credit. However, such credit is not reliably available and can be expensive. Moreover, not all distributors offer such credit, as it requires them to carry the risk of late repayments, and the risk of theft upon collections. This reluctance means that many MSMEs are left without sufficient access to credit to fuel their business operations.   
<h2>The solution </h2>
To extend credit to informal MSMEs — that lack credit scores or distrust formal financial services but require liquidity to manage inventory — Caja Bienestar developed a revolving credit line product. The team knew that the credit product would have to be deeply customer-centric and tailored to the specific needs of the MSMEs that Bienestar had not previously been able to serve. The working capital loan, with attractive and competitive fees, was designed to not require a credit score, and instead uses information and recommendations from third-party wholesale distributors to assess risk. These distributors have sold to these businesses for many years, often extending them in-kind credit, and can therefore provide reliable assessments of their creditworthiness. In all, several innovative features that make it particularly well-suited to growing the financial capabilities of microenterprises:
<ul>
<li aria-level="1">Fee-based credit rather than interest rates. While most loans include interest rates, Accion’s research with customers found that such calculations are difficult for many microentrepreneurs to understand. Instead, the researchers found that defined fees are easier to grasp and can help shopkeepers better calculate the profitability of various aspects of their businesses. However, it is worth noting that, since various providers describe their pricing in different terms, it can be difficult for users to compare prices, so Bienestar’s loan officers make themselves available to help potential clients understand what option is best for them.  </li>
<li style="font-weight: 400;" aria-level="1">Pre-approved credit based on information from distributors. Using information and recommendations from distributors, Bienestar pre-approves groups of microentrepreneurs to access credit to replenish their product inventory. The sales and payment information from distributors has served as a valuable substitute for credit history, allowing Caja Bienestar to sufficiently assess creditworthiness for those without formal credit histories. </li>
</ul>
Distributors also benefit from this arrangement, as they can optimize their sales and transfer the risk of giving credit to Caja Bienestar. For Caja Bienestar itself, the information received from suppliers helps them get to know their customers better and make more informed decisions regarding the MSME borrowers’ debt, reserves, business inventory, and operations.
<div id="attachment_25230" style="width: 391px" class="wp-caption alignright"><img aria-describedby="caption-attachment-25230" class="wp-image-25230" src="https://content.accion.org/wp-content/uploads/2021/11/Bienestar-credit-simulator-tablet-300x222.png" alt="Bienestar-credit-simulator-tablet" width="381" height="282" srcset="https://content.accion.org/wp-content/uploads/2021/11/Bienestar-credit-simulator-tablet-300x222.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Bienestar-credit-simulator-tablet-768x567.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Bienestar-credit-simulator-tablet-1024x756.png 1024w, https://content.accion.org/wp-content/uploads/2021/11/Bienestar-credit-simulator-tablet.png 1056w" sizes="(max-width: 381px) 100vw, 381px" />Caption: Bienestar’s digital simulator helps MSMEs determine the loan terms they need to finance their inventory.</div>
<ul>
<li aria-level="1">A digital simulator to help MSMEs make informed decisions and prevent over-indebtedness. As MSMEs often lack an understanding of their own margins or costs of capital, the team built a digital simulator that MSMEs can use to determine what loan terms they need to finance their inventory. The tool calculates whether the expected profits from the sale of their inventory will be enough to cover the cost of credit. It then guides them to consider different terms or amounts based on their profitability levels. </li>
</ul>
<ul>
<li aria-level="1">A go-to-market strategy closely tied to key customer pain points. Marketing materials for the product provided customers with tips and advice about how to better understand the cost of credit and how to manage their debt.  Loan offers were also trained to help clients calculate what their monthly sales would need to be to pay back credit, and ultimately determine whether they should take out a loan.  </li>
</ul>
By offering entrepreneurs access to credit as well as free use of the digital simulator and complementing the approach with a communications strategy oriented around building financial health, Bienestar provides underserved entrepreneurs a low-risk way to grow their businesses while building their confidence to adopt and use credit to grow their businesses and manage their debt. The product, Bienestar para tu Negocio, was launched in January 2020 in partnership with six trusted, local textile and construction distributors that provide goods to MSMEs. With Bienestar para tu Negocio, entrepreneurs finally have access to the credit they need and the opportunity to grow their businesses. Over time, this financing will help MSMEs smooth their income and remain resilient in difficult periods. 
<hr />
<h2>Customer Spotlight: Maria Olga</h2>
<img class="size-large wp-image-25286" src="https://content.accion.org/wp-content/uploads/2021/11/DSF5482-1024x683.jpg" alt="MARIA OLGA" width="1024" height="683" srcset="https://content.accion.org/wp-content/uploads/2021/11/DSF5482-1024x683.jpg 1024w, https://content.accion.org/wp-content/uploads/2021/11/DSF5482-300x200.jpg 300w, https://content.accion.org/wp-content/uploads/2021/11/DSF5482-768x512.jpg 768w" sizes="(max-width: 1024px) 100vw, 1024px" />
Maria Olga is a microentrepreneur, she lives with her husband and children in Querétaro, Mexico. She opened her own business four years ago, where she sells a little of everything: spray paint, tools, bicycle parts and even cement and plaster. Lately, she was facing difficulties; customers came to her business to buy certain products, but she did not have capital available to purchase it because her resources were already invested in inventory. She did not dare to acquire a loan, because she thought that it would not be given to her, and she was afraid that the interest rates were very high. One day a supplier told her about the Caja Bienestar product loan, and she applied. Now, Maria Olga can stock her business with everything she needs and learned that she can pay off a loan in the time it takes her clients to pay her. She no longer loses customers due to lack of inventory. She feels very grateful because someone trusted in her.
<hr />
<h2>Results</h2>
During the pilot, the credit product had 14 active users, each of whom has received an average of 18 rounds of credit since January 2020, demonstrating significant recurring use. Ten of these individuals are first-time credit users.  Of those that have used the credit product, nearly 70 percent are between the ages of 26 and 45, 65 percent have had their business for over five years, and the majority describe their business as being in the commerce or transportation sectors. To date, 327 people have used the simulator to determine whether they should take out credit. 
To understand the impact of the credit, the team asked both those who received credit as well as some who did not, a series of questions about financial health at the beginning and end of the pilot in November 2020 and June 2021, respectively.
Overall, we found that use of the Bienestar para tu Negocio credit product is correlated with improved feelings of financial well-being, greater resilience to the shock of the pandemic, but we also saw an increase in stress among users when thinking about taking out credit—likely due to increased business uncertainty as the pandemic continues. 
<img class="wp-image-25236 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-Bienestar-300x150.png" alt="Accion-MetLife-report-graphics-Framework-Bienestar" width="696" height="348" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-Bienestar-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-Bienestar-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-Bienestar-1024x512.png 1024w" sizes="(max-width: 696px) 100vw, 696px" />
<h3>Overall financial well-being</h3>
Feelings of overall financial well-being among Caja Bienestar’s clients who took out a line of credit improved significantly when compared to those in the control group (those who did not take out any credit). In the group that received credit, the percentage of respondents that said their financial situation caused them stress decreased by nearly 10 percentage points in the time since the product launched. For those that did not receive credit, feelings of financial stress increased by nearly 5 percent over the same time period. 
<h3>Business management </h3>
The group of clients that received credit also reported being more able to manage their businesses than those in the control group. They reported a faster recovery after the pandemic and higher profits than this time last year. They also reported fewer instances of lost opportunities due to lack of liquidity or inventory. 
<div id="attachment_25231" style="width: 679px" class="wp-caption aligncenter"><img aria-describedby="caption-attachment-25231" class="wp-image-25231" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Bienestar-300x162.png" alt="Bienestar_Business earnings" width="669" height="361" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Bienestar-300x162.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Bienestar-768x414.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Bienestar-1024x552.png 1024w" sizes="(max-width: 669px) 100vw, 669px" />Caption: Product users reported a marked improvement in their ability to manage their businesses compared to those in the control group. </div>
<h3>Debt Management </h3>
Understanding what interest rate is best when seeking credit is an important skill when choosing a credit product. To test their understanding of debt, respondents were asked what interest rate they preferred when seeking credit. In both the group that received credit and those that did not, a large percentage could not identify the best interest rate. In addition, users of the Bienestar para tu Negocio product reported an increase in stress when seeking credit from a cooperative of a bank (an increase of 10 percent). These key findings demonstrate a need to further strengthen knowledge around how to choose between credit products and build greater confidence in managing debt. 
However, those that used the simulator tool expressed greater willingness to take out credit from a bank or credit union to take advantage of bulk purchase discounts from distributors in the future, demonstrating an improved understanding of when it is appropriate to seek credit.

As noted earlier, interest rates can be difficult to understand and require complex calculations to assess the impact on profitability if using credit to purchase inventory. Conducting a scan of your target customer’s financial knowledge, to understand their current state, is critical for any financial services institution seeking to improve their clients’ financial health and product uptake. With this insight in mind, Caja Bienestar designed a fee-based working capital credit product rather than relying on traditional interest rates to communicate the product’s terms in vernacular that their customers understand.

Globally, the digital divide presents a challenge for even the most customer-centric digital products. During the customer research phase, Bienestar’s small merchant customers expressed anxiety about using a digital device to complete a credit application as many continue to use feature phones and do not have access to smartphones. Others that do have access to smartphones noted a feeling of insecurity in providing their personal details online or simply did not know how to navigate the application on their phones. 
In response, Bienestar has trained its salesforce to teach clients how to use the digital tool and developed a chatbot to provide answers to quick questions for those that are more digitally savvy.

Over the seven-month evaluation period, those who utilized the working capital product saw improved outcomes across various aspects of their financial health. Those who utilized formal credit to finance their inventory reported being more resilient during the pandemic, less likely to lose sales due to a stock out and reported higher sales than a year before when compared with those who did not take out credit. While the financial health outcomes of those that benefited from receiving credit should continue to be monitored, these findings show that thoughtfully-designed financial capability building products can build resiliency among low-income customers – ultimately creating greater retention, engagement, and loyalty for the financial service provider over time.

Case Study: Caja Popular Cerano

Only <a href="https://databank.worldbank.org/reports.aspx?source=1228" target="_blank" rel="noopener">33 percent of the youth population</a> (ages 15-24) in Mexico are clients of a banking institution, compared to nearly 40 percent across Latin America and the Caribbean. These low rates of engagement in Mexico reflect the fact that <a href="https://www.oecd.org/finance/advancing-the-digital-financial-inclusion-of-youth.pdf" target="_blank" rel="noopener">young people do not connect with traditional brick-and-mortar financial institutions,</a> which have limited hours and require in-person transactions. Young people are looking for financial institutions that allow them to conduct transactions around the clock, and that use the channels that they use – social media and smartphone apps.  
<a href="https://cpcerano.com.mx/" target="_blank" rel="noopener">Caja Popular Cerano</a> is one of the many financial institutions that has struggled to connect with young people. It was founded in 1965 as a savings and credit cooperative and is headquartered in Cerano in the state of Guanajuato in Mexico. Today, it has 22 branches and serves more than 100,000 people. Its mission is to extend access to financial services to low-income segments of the population and to improve their users’ quality of life. To do so, Caja Popular Cerano provides specialized savings and loans to the middle-, low- and very-low-income segments, as well as micro, small and medium enterprises. Caja Popular Cerano is part of Federacion Alianza, a federation of 19 cooperatives in Mexico that serves as an umbrella organization to offer its members services such as a core banking system, as well as marketing and product development support. 
Although youth people make up a small percentage of current users, Caja Popular Cerano saw an enormous opportunity to serve the urban youth market in Mexico. However, market research showed that many of their current customers’ children were uninterested in opening accounts with Caja Cerano, a break from the past when families banked with Caja Cerano for generation after generation. The institution was finding their customer base was aging and that they were acquiring very few younger ones. To attract and serve young customers, Caja Popular Cerano needed to better understand the needs and preferences of youth, as they think about their own financial lives, and create a new offering relevant to their lives.  
The Accion and Caja Popular Cerano teams partnered to conduct in-depth interviews and co-creation sessions with several young students, part-time workers, and self-employed individuals to compile a detailed picture of youth in the state of Guanajuato. These research efforts revealed several key findings that became the basis for the product design. We found that many young people had already or aspired to start their own business—and had ambitious plans to grow. We also found that young people are busy managing many responsibilities at once, including school, work, caring for their families, and starting new businesses, in some cases. Despite having ambitious plans to grow their businesses and careers, young people told us that they usually think about their financial lives in short time horizons, planning how to get through the week, rather than thinking about planning for the future. But in the same vein, young people said they were excited to save for specific projects. Even if they do not make much money, they value saving informally. They like to use mobile apps to keep in touch with friends and for online shopping, however, most lack a credit card or mobile money account. Most people told us that they do not currently use formal financial services, are fearful of taking out loans as the risk of not being able to repay and being blacklisted could be detrimental to their lives.
The research also uncovered the extent to which young people use their phones to access the internet. Nearly 40 percent noted that they spend more than four hours a day on the internet, and 23 percent reported spending 2-3 hours on the internet a day. Nearly 90 percent of these respondents noted that they typically connect to the internet through their mobile phone.
<h2>The Solution</h2>
In light of the research findings, Accion worked with Caja Popular Cerano to develop a platform that would motivate young people to develop a saving discipline that would enable them to reach their future ambitions and help them develop positive credit scores over time. The team helped Caja Popular Cerano build their internal capacity to develop their <a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener">first digital product: AlianzApp</a>, an application that allows youth to put money aside weekly for a particular goal, either by putting money into savings or by taking out a very small loan. AlianzApp encourages young clients to save regularly and for specific purposes, borrow when they need, learn the value of a positive credit score, and build trust in formal financial institutions. By cultivating these capabilities in younger clients, Caja Popular Cerano will help customers thrive throughout their financial lives, starting with the app, which will likely be the individual’s first interaction with a financial institution. 
<div id="attachment_25289" style="width: 1034px" class="wp-caption aligncenter"><img aria-describedby="caption-attachment-25289" class="wp-image-25289 size-large" src="https://content.accion.org/wp-content/uploads/2021/11/Cerano-screenshot1-e1638316214976-1024x351.png" alt="Caja Popular Cerano’s AlianzApp helps its clients build healthy financial habits, including setting and saving for financial goals." width="1024" height="351" srcset="https://content.accion.org/wp-content/uploads/2021/11/Cerano-screenshot1-e1638316214976-1024x351.png 1024w, https://content.accion.org/wp-content/uploads/2021/11/Cerano-screenshot1-e1638316214976-300x103.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Cerano-screenshot1-e1638316214976-768x263.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Cerano-screenshot1-e1638316214976.png 1523w" sizes="(max-width: 1024px) 100vw, 1024px" />Caption: Caja Popular Cerano’s AlianzApp helps its clients build healthy financial habits, including setting and saving for financial goals.</div>
To craft a financial services app offer that meets the preferences and expectations of young people, key features of the AlianzApp include:
<ul>
<li style="font-weight: 400;" aria-level="1">Use of avatars to personalize and send timely advice. The app allows youth to choose an avatar, Mauricio or Pamela, who becomes a source of financial information throughout the youth’s journey. As the user saves or takes out credit, Mauricio or Pamela gives them advice, sends messages or nudges as needed.  For example, if a user has not made a loan repayment for more than two weeks, they receive a reminder that not repaying can impact their credit score.</li>
</ul>
<div id="attachment_25290" style="width: 777px" class="wp-caption aligncenter"><img aria-describedby="caption-attachment-25290" class="wp-image-25290 size-full" src="https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano-e1638316141546.png" alt="AlianzApp features Mauricio and Pamela, who guide clients along their financial journey." width="767" height="352" srcset="https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano-e1638316141546.png 767w, https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano-e1638316141546-300x138.png 300w" sizes="(max-width: 767px) 100vw, 767px" />Caption: AlianzApp features Mauricio and Pamela, who guide clients along their financial journey.</div>
<ul>
<li aria-level="1">Built-in calculators to simulate time horizons for reaching their savings and loan goals. In our research, we found that it was very hard for youth to calculate the duration of a loan, or how long they would need to save to purchase something. By including a simulation tool in the app, users can see how long they need to save or to pay off a loan. In the app, users are presented with a dashboard that indicates how much they would need to save a week, and over what time horizon, to meet their goals. The dashboards are designed with flexibility in mind; the user can easily see how their savings requirements change as they change one variable.</li>
</ul>
<div id="attachment_25291" style="width: 762px" class="wp-caption aligncenter"><img aria-describedby="caption-attachment-25291" class="wp-image-25291 size-full" src="https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano2-e1638316171537.png" alt="AlianzApp’s in-app messaging provides positive reinforcement to clients as they reach milestones towards achieving their goal." width="752" height="360" srcset="https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano2-e1638316171537.png 752w, https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano2-e1638316171537-300x144.png 300w" sizes="(max-width: 752px) 100vw, 752px" />Caption: AlianzApp’s in-app messaging provides positive reinforcement to clients as they reach milestones towards achieving their goal.</div>
<ul>
<li style="font-weight: 400;" aria-level="1">Motivating in-app messaging. The user also receives helpful tips about saving and paying back loans via notifications when they use the app. Additionally, the app has built-in motivational markers that show users whether they’re on a ‘streak’ (saving or paying consistently), how close they are to finishing a goal, and reminder messages if they have skipped a payment—and users receive badges when they have accomplished a goal. One of the overwhelming lessons we learned during interviews and prototyping is that youth value validation and celebration. The app includes six badges to incentivize use and continued savings and loan payments.  </li>
</ul>
<div id="attachment_25292" style="width: 206px" class="wp-caption alignright"><img aria-describedby="caption-attachment-25292" class="wp-image-25292 " src="https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano3-e1638315995906.png" alt="AlianzApp allows clients to set automated savings or payment from their account." width="196" height="280" srcset="https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano3-e1638315995906.png 252w, https://content.accion.org/wp-content/uploads/2021/11/Report-graphics-cerano3-e1638315995906-210x300.png 210w" sizes="(max-width: 196px) 100vw, 196px" />Caption: AlianzApp allows clients to set automated savings or payment from their account.</div>
<ul>
<li style="font-weight: 400;" aria-level="1">Automated save and pay options. The application allows users to save or pay their credit automatically, with self-save and self-pay, features that were new to the institution. They allow for payments to be “out of sight, out of mind” for those who opt in.  </li>
</ul>
Outside of the app, the team understood that the application could only be helpful if youth can easily find a place to deposit money. For this reason, the bank built a banking partnership so their young customers can make deposits at any BBVA branch, ATM, or banking agent (which includes OXXO, the largest network of kiosk and convenience stores in the country). This partnership provides a huge network of cash-in points for youth.
<h2></h2>
<h2>Results</h2>
Due to regulatory delays, AlianzApp has not yet launched, but the team expects its launch by the end of 2021. Given how promising the product is, the Federacion Alianza has expressed interest in expanding AlianzaApp to the other 18 cooperatives in the network. To support this growth, Accion has amplified the development of the product to ensure that once it is ready to launch, any cooperative in the network can offer it to their clients. The team is working with a local digital marketing firm to develop an ad and social media campaign to engage with youth and ensure that they learn about the application. The marketing tagline for the product is, #Financialloveexists or #ElAmorFinancieroExiste.
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<hr />
<h2>Customer Spotlight: Alejandra Rico</h2>
Alejandra Rico is 22 years old and currently is studying business management engineering at Guanajuato University. Saving is important to her because it can help her with unexpected expenses. She thinks that going to bank branches for transactions or to check your account movements is a waste of time, especially for young people who are looking to optimize their time. After testing the Cerano app, Alejandra noted that it can be helpful in helping her to control her expenses, and to create a saving habit since the app allows her to define a goal and track progress toward reaching it. Alejandra says the app will create a positive impact in her life via the advice and guidance it provides in setting up goals step-by-step, which is really easy and clear for young people.
<hr />
In our business case projections, we assumed that at least 10,000 users would adopt the product in the first three years. Today, there are less than 10 cooperatives <a href="https://bfaglobal.com/finnsalud/insights/from-analog-to-digitized-future-proofing-financial-cooperatives-in-mexico/" target="_blank" rel="noopener">out of 150</a> in all of Mexico that have digital financial services offerings for their users, and this will be the first digital offering specifically tailored to youth. As such, we expect that many cooperatives will be motivated to adopt this offer, in which case, its reach will scale dramatically.
Overtime, we expect that the use of this app will result in improved measures of overall financial well-being of its users, improved ability to manage debt, and finally, greater capacity to save and plan for the long-term.
Expected financial health outcomes from the use of the AlianzApp:
<img class="wp-image-25238 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-Cerano-300x150.png" alt="Accion-MetLife-report-graphics-framework-Cerano" width="692" height="346" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-Cerano-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-Cerano-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-Cerano-1024x512.png 1024w" sizes="(max-width: 692px) 100vw, 692px" />

In a survey disseminated to the target market for this product, youth respondents noted that they felt that investments and education were good reasons to take out credit, and that making nonessential purchases was not. However, when asked why they have taken out credit in the past, nearly 50 percent of the respondents said that they took it out to make a large purchase. Behavioral science studies have shown that people only sometimes do what they say they will do, often in predictable ways. These insights are helpful for determining what key messages to send through the application. It might be smart to appeal to what people say they want, but to plan for what they do in practice.

To encourage sustained behavior change, institutions need to embed healthy financial habits within everyday practice and action and encourage frequent interaction with the user. The target market for Caja Popular Cerano reported being online several hours of every day. Designing this product as a mobile app, where the youth population is likely to be already, was critical.

Behavioral research has found that products like <a href="https://www.forbes.com/sites/ronshevlin/2021/03/22/need-another-stimulus-check-new-ai-powered-apps-can-help-save-1000/?sh=1b315fd11641" target="_blank" rel="noopener">automated savings accounts and direct debit</a> payments have success when they reduce decision-making fatigue and make saving and expense management feel effortless.  Our customer research showed that youth think about their finances and set money aside through informal savings mechanisms, every week. The team set up the app so that users can automate their existing behavior within a formal structure and use a digital tool to keep better track of their finances and improve their financial health over time.

As more customers demand products that uniquely cater to their needs and values, taking an innovative approach to product design is crucial. It is therefore critical that the entire business — from the Board all the way down to officers — is aligned with the firm’s priorities and objectives. To ensure alignment across all teams involved in the product development and rollout, Caja Popular Cerano created an extended team in the organization with representation from different divisions to ensure ideas resonated across the organization and to promote buy-in from all stakeholders. Ultimately, leadership paved the way for the team. Today, the CEO remains committed to building a culture of financial health, enabling the team to ensure it becomes embedded in every area of the business.

Case Study: Destácame

In Chile, <a href="https://www.oecd.org/chile/Better-Life-Initiative-country-note-Chile.pdf" target="_blank" rel="noopener">53 percent of the population</a> is financially insecure, or at-risk of falling into poverty if they had to forgo three months of income. <a href="https://www.accion.org/five-reasons-small-merchants-arent-using-financial-services-in-chile" target="_blank" rel="noopener">Accion’s research in Chile</a> shows that many Chileans feel significant stress over their financial well-being, lack confidence in interacting with the formal financial sector, and have difficulty identifying how products and services can help them achieve their financial goals. The pandemic has only exacerbated feelings of financial insecurity in Chile.
<a href="https://www.destacame.cl/" target="_blank" rel="noopener">Destácame</a> is a personal financial management platform that seeks to empower individuals by raising their awareness of their own financial situation and facilitating access to financial products and services. On the Destácame website, users can review their credit report free of charge, access discounted options to pay off debt, review product offers from different entities, and learn tips to improve their financial situation. Destácame operates in Mexico and Chile, has over three million registered users, and partners with over 30 financial service providers.
Destácame’s site began as a marketplace to provide users with immediate access to many products and services as soon as they logged onto the site. While the offering was extensive (including credit reports, credit offers, credit cards, and debt reduction), it was not personalized. The original structure worked well to quickly grow the user base, but it did not promote Destácame as a long-term partner or financial health resource; only 11 percent of users were returning to the site month-over-month.
Accion partnered with Destácame to conduct market research, where we found that users feel stressed and alone in the face of managing their finances and financial challenges. We found that this emotional burden adds to daily challenges and manifests in different ways – some actively avoid dealing with their financial obligations, while others think about nothing else. Some people choose to believe that ‘nothing bad will happen,’ while others focus on just getting through the day rather than longer-term financial planning. We learned that people tend to prioritize current consumption without considering the healthy balance between income and expenses. Most users told us that they have no system in place to budget their expenses and were often unable to pay their expenses at the end of each month.
<h2>The Solution</h2>
Destácame knew that their users needed more than just access to financial products – they need an advisor to help them navigate their financial lives, manage a budget and debt, save for the future, and become more resilient to shocks. The fintech, in partnership with Accion, set out to revamp and expand its platform to create a fully customized user experience, <a href="https://www.accion.org/finding-a-path-to-financial-health-in-chile-one-step-at-a-time" target="_blank" rel="noopener">Experiencia Destácame</a>, to allow customers to set, visualize, and work toward their financial goals through simple diagnostics, personalized user journeys, and digestible tips, tools, and product recommendations. Rather than adding products or features to its platform, the Experiencia Destácame project involved changing the core of Destácame’s business and re-envisioning its value proposition around financial health. This revamping of the platform provides a more comprehensive experience for its users, improve retention and engagement so as to improve customer lifetime value. 
The Accion and Destácame teams developed several personalized tools for Experiencia Destácame to better support the financial health of the platform’s users:
<ul>
<li aria-level="1">Diagnostics that assess the user’s financial health and personalize their experience. When a user arrives at the Destácame site, they can take a diagnostic that assesses their financial health in three main categories: budget management, shock resilience, and long-term planning. Based on their responses to the diagnostic, they are qualified as good, neutral, or bad in each category, and provided with suggestions and tips for how to improve their standing. They also receive recommendations for relevant products based on their financial needs.   </li>
<li aria-level="1">A budgeting tool to ensure users can save for the future and become more resilient to shocks. Based on users’ responses to the diagnostic, they may be directed to Destácame’s budgeting tool. This tool provides users a step-by-step, user-friendly approach to building a budget. Users are walked through a series of screens to add income and expenses and calculate their savings. It also provides users with guidance on how much money they can set aside each month to pay off any existing debt, so that they can improve their creditworthiness over time. Design elements were incorporated throughout to provide guidance and encouragement, including easily accessible definitions, quick tips, and an informal, user friendly, positive prose.  </li>
<li aria-level="1">An expense reduction tool that helps users better manage their monthly cash flow. Users may also be guided to an expense reduction tool, which helps them manage their monthly cashflow 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 support. </li>
</ul>
These tools are easily accessible on mobile devices, require little time to complete, and quickly demonstrate and reward progress towards better financial habits. All the tools are also closely linked to each other. For example, after a user completes 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. 
<h2>Results</h2>
Since launching in early 2020, over 1.25 million users in Chile and Mexico have visited the redesigned site. Almost 65,000 have completed the diagnostic, 128,000 have accessed the budgeting tool, and 30,000 have accessed the expense reduction tool, as of July 2021. These conversion rates are consistent with broader usage of Destácame products – and are impressive for self-driven tools. Survey data and usage metrics were collected before using the platform and again 12 and 18 months later in order to assess the impact of the Destácame platform on financial well-being.  
<img class="size-large wp-image-25316 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/12/Accion-MetLife-report-graphics-EN-FINAL_Framework-Destacame-1024x512.png" alt="Destacame Framework" width="1024" height="512" srcset="https://content.accion.org/wp-content/uploads/2021/12/Accion-MetLife-report-graphics-EN-FINAL_Framework-Destacame-1024x512.png 1024w, https://content.accion.org/wp-content/uploads/2021/12/Accion-MetLife-report-graphics-EN-FINAL_Framework-Destacame-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/12/Accion-MetLife-report-graphics-EN-FINAL_Framework-Destacame-768x384.png 768w" sizes="(max-width: 1024px) 100vw, 1024px" />
<h3>Overall feeling of financial well-being</h3>
Experiencia Destácame users were asked about their level of satisfaction with their financial situation. Survey results show a large increase between baseline and final measurement (a 23 percentage point increase of those stating that they agree or strongly agree that they are satisfied with their financial situation). Since this study did not include a control group, it is hard to know how much of the changes to attribute to the platform although our statistical analysis did include controls for various contextual variables.
<img class="wp-image-25241 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Destacame-1-300x162.png" alt="Destacame-Financial Situation Satisfaction" width="689" height="372" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Destacame-1-300x162.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Destacame-1-768x414.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Destacame-1-1024x552.png 1024w" sizes="(max-width: 689px) 100vw, 689px" />
<h3>Savings and planning</h3>
Over the evaluation period, the number of Destácame platform users that place importance on savings increased.  There was also a notable increase in the number of users who have emergency funds, keep their emergency funds in a formal institution, have long-term savings, have a sense of financial security as they age, have plans to achieve financial goals, and have fulfilled a financial goal in the last twelve months. 
<img class="wp-image-25245 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Savings-and-long-term-planning-indicators-table-300x86.png" alt="Savings and long-term planning indicators- Destacame table" width="684" height="196" srcset="https://content.accion.org/wp-content/uploads/2021/11/Savings-and-long-term-planning-indicators-table-300x86.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Savings-and-long-term-planning-indicators-table-768x221.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Savings-and-long-term-planning-indicators-table-1024x295.png 1024w" sizes="(max-width: 684px) 100vw, 684px" />
Users of the Experiencia Destácame platform articulated greater resilience than they did before they began using the platform. The proportion of users that stated that they would be able to survive for more than a month if they were to lose income, increased by 32 percentage points compared to the baseline.
<img class="wp-image-25246 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Destacame-2-300x162.png" alt="Lost incomes Graphs_Destacame" width="683" height="369" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Destacame-2-300x162.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Destacame-2-768x414.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Destacame-2-1024x552.png 1024w" sizes="(max-width: 683px) 100vw, 683px" />
<h3>Budget management</h3>
Usage data of the Destácame budget tool shows that 34 percent of users accessing the budget tool were creating a budget for the first time, 30 percent achieved a positive end-of-month cash flow, and 8 percent said they were able to decrease expenses through usage of the tool.
Since only some of the platform users used the budgeting tool, we were able to compare their responses to those who used the platform but not the budgeting tool. Among those who completed the budgeting tool, the percentage of users that reported spending more than they earn each month increased from 20 percent in the baseline to 27 percent in the endline. Among those that did not complete the budgeting tool, the percentage that reported spending more than they receive monthly decreased from 30 percent to 20 percent.
In addition, those who completed the expense reduction tool reported a higher willingness to recommend the Experiencia Destácame platform to family and friends. The Net Promoter Score (NPS) among those using the tool was equal to 55.56, higher than the NPS of 51.12 for the overall use of the platform.
<h3>Debt management</h3>
The number of Destácame users with delinquent debt decreased significantly over the course of the project (52 percent in the baseline to 24 percent in the final measurement). Results also showed an increase in the number of users that feel that their level of debt is manageable. 
In addition, users that were able to pay off debts using the discount provided by Destácame reported a higher willingness to recommend the Destácame platform to family and friends than did clients who have not used the Experiencia Destácame platform to pay off debt. The average willingness to recommend the platform measured on a scale of 0-10, was 9.44 for among those who leveraged the platform to pay debt, versus 8.45 for those who did not.

Destácame knows that their users like the idea of being financially healthy but that they are often too overwhelmed and tired to invest energy into improving their financial health. The vast majority of Destácame users come to the site to access their credit report free of charge or to explore potential discounts on outstanding debt.
To help their users become more financially healthy, Destácame took a ‘trojan horse’ approach to financial health recommendations, linking the topic closely to popular products by integrating short tips alongside the product journey, embedding links to the dashboard, and suggesting diagnostics as a natural part of the user experience, rather than leaving financial health as a standalone section. Nearly 40 percent of users that completed the diagnostics had first accessed their credit report.

To encourage sustained behavior change, institutions need to embed healthy financial habits within everyday practice and action. Destácame’s dashboard and tools are designed to be user-friendly; they feature a clean design and warm, informal prose, provide options for support throughout, and minimize the information request from the user. Where possible, efforts were made to cross-reference or replace requested information with user data from other parts of the site.
However, by their nature, both the budget and expense reduction tools depend heavily on inputs from the user, who must complete all income and expense fields to generate their monthly budget and record weekly expenses against their expense goals. This limits their impact to users who are highly motivated and will take the time to update the tools. As a result, usage of these tools is consistent with the conversion rates of other aspects of the Destácame site, however, driving further usage has been challenging — only 15 percent of those who have started the budgeting tool have completed it, and only 7 percent have returned to update their budget within 6 months. Of those that have accessed the expense reduction tool, only 17 percent have set an expense reduction goal for themselves.
Understanding these limitations, Destácame is in the process of launching a mobile application and debit card that offer significant opportunities to streamline and automate assessment of and support for financial health, and reduce effort for users. Budget and expense management will be synced with card transaction data, removing the need to input this data manually. Users will have the option to create savings ‘pockets’ with specific goals assigned; this may include a ‘rainy day’ pocket to build resilience. In the long term, they will also be able to classify expenses, as well as project and simulate cash flow to better plan and prepare for future events. Push notifications and emails will also be incorporated to provide targeted advice and promote healthy financial habits.

Beyond the platform changes the team made to create Experiencia Destácame, the team also developed a new monthly-paid subscription product, DestácamePro, which offers users ongoing access to discounted products and personalized advisory to support users in improving their financial health.
During the pandemic, institutions in Chile were eager to provide their employees with additional support for their financial health in order to decrease financial stress, improve overall health and therefore work performance. In response, Destácame developed a corporate version of their Pro product, which provides employees of an institution with Pro benefits and offers the institution high-level reporting on the state of financial health within their institution. To date, DestácamePro has 16,000 users and 6 corporate partners, with the intent to grow the number of users to 28,000 by December 2021.
These new business opportunities depended on the strong reporting framework that allowed the team to demonstrate impact. Early on, the Destácame and Accion teams established usage and impact indicators that could be measured monthly to understand progress and inform changes. A ‘SWAT’ team that included designers, developers, and business analysts met monthly to analyze results, discuss responses, and implement updates. The team now has 14 months of data on over 1.2 million users, which has provided a strong business case for potential partners.

Case Study: Fundación Banigualdad and Organizame

<a href="https://datareportal.com/reports/digital-2021-chile">Eighty-two percent of Chilean nationals</a> report being internet users, a figure significantly above the region’s 72 percent average. According to the same report, 99 percent of Chileans that use social media, access social media via a cell phone. Despite the prevalence of digital tools and usage in Chile, many microentrepreneurs continue to use notebooks to track their income and expenses, rather than digital tools that can help them to manage their business , maintain business records, calculate profitability, and plan for the future.   These manual behaviors persist and are difficult to change.  
In this context, <a href="https://www.banigualdad.cl/">Fundación Banigualdad</a> is a nonprofit organization that helps low-income microentrepreneurs access traditional financial services, giving them greater economic opportunity and equipping them to endure instability. In addition to issuing microloans, Banigualdad provides users with basic training in finance, marketing, sustainability, and business strategy. Today, the Fundación has just over 35,000 clients.
One of Fundación Banigualdad’s clients is Ms. Cecilia, who owns a small shop where she sells everyday items like food, cleaning supplies, and small gifts. While Cecilia knows when her shop is making money, she does not know what her actual profits are on a monthly or annual basis. This is because Cecilia and her husband track sales in several notebooks. When making a sale, they simply reach for the closest notebook and record the item and price sold. However, this process makes it very difficult to balance their accounts. 
This process is typical of many informal microentrepreneurs around the world. While this casual approach to tracking income gets small business owners through the day-to-day, it can hold them back from building longer-term financial health. Without knowledge of their profits, it is hard to make effective, strategic long-term decisions and better prepare for unstable times. Moreover, without an accurate picture of profitability it is difficult for informal microentrepreneurs to begin the process of formalizing their business—which provides greater opportunities for access to credit and government subsidies. 
<div id="attachment_25250" style="width: 310px" class="wp-caption alignright"><img aria-describedby="caption-attachment-25250" class="wp-image-25250 size-medium" src="https://content.accion.org/wp-content/uploads/2021/11/Felipe-Armijo-from-Organizame-shows-Cecilia-how-to-use-the-app--300x192.png" alt="Felipe Armijo from Organizame shows Cecilia how to use the app to digitize the record of her income and expenses." width="300" height="192" srcset="https://content.accion.org/wp-content/uploads/2021/11/Felipe-Armijo-from-Organizame-shows-Cecilia-how-to-use-the-app--300x192.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Felipe-Armijo-from-Organizame-shows-Cecilia-how-to-use-the-app-.png 541w" sizes="(max-width: 300px) 100vw, 300px" />Caption: Felipe Armijo from Organizame shows Cecilia how to use the app to digitize the record of her income and expenses.</div>
<a href="https://www.organizame.cl/">Organizame</a> is a Chilean fintech company that was founded to help formalized small businesses track their sales and expenses digitally and issue electronic invoices. The Organizame website helps digitize business functions like cash flow management, bill payment, and credit applications to help entrepreneurs consolidate business transactions and send electronic documents. In tracking sales and expenses, the application captures significant data on merchant revenue streams that entrepreneurs can use to formalize their businesses and financial service providers can also use to assess credit capacity and offer credit at better prices. 
While the Organizame solution is helping many small businesses, informal MSMEs like Cecilia’s were not among their typical users. The team found that informal merchants don’t actively search for a digital solution and even when presented with one, are reluctant to adopt them given lack of access to computers, high costs, barriers in trust, digital literacy, and knowhow. In sum, the team realized that the original Organizame solution was not suited to the needs of shopkeepers who are accustomed to using a notebook.
Organizame’s interest to meet the needs of informal microentrepreneurs and Banigualdad’s commitment to helping their clients run their businesses more effectively, brought these two organizations together for this partnership. 
During the customer research phase, the organizations found the target segment not only needed a tool to help them reconcile their finances at the end of the month, but also needed support in analyzing and developing new business opportunities, setting and sticking to goals, and keeping their family and business expenses separate. 
<h2>The Solution</h2>
The Banigualdad and Organizame teams saw an opportunity to influence the record-keeping behavior of informal microentrepreneurs by helping them to separate family and business expenses, understand the importance of tracking income and expenses, calculate their business results, and monitor their accounts receivable.
Accion worked with Organizame to tailor their <a href="https://www.accion.org/this-new-app-is-helping-small-business-owners-build-financial-health-and-resilience" target="_blank" rel="noopener">online business management tool</a> to better serve Banigualdad’s informal, low-income clients. The app influences the user’s financial capabilities through several means:
<div id="attachment_25252" style="width: 220px" class="wp-caption alignright"><img aria-describedby="caption-attachment-25252" class=" wp-image-25252" src="https://content.accion.org/wp-content/uploads/2021/11/Organizame-mobile-e1638375886753.png" alt="Organizame-mobile" width="210" height="380" srcset="https://content.accion.org/wp-content/uploads/2021/11/Organizame-mobile-e1638375886753.png 344w, https://content.accion.org/wp-content/uploads/2021/11/Organizame-mobile-e1638375886753-166x300.png 166w" sizes="(max-width: 210px) 100vw, 210px" />Caption: Organizame’s app gives microentrepreneurs a view of their overall month-end finances.</div>
<ul>
<li>An app-based tool that enables MSMEs to digitize their business operations. While most microentrepreneurs in Chile do not have a computer, they have smartphones that they actively use for personal purposes, and to reach their customers and suppliers. Organizame, Banigualdad, and Accion decided to leverage that existing usage to develop a mobile application that would enable MSMEs to track their sales and expenses, and even issue electronic invoices — a first step to business formalization. The app consolidates their business transactions and automatically calculates monthly profits.</li>
<li>In-app notifications that provide reminders and advice to ensure the tool is being used effectively. The app sends notifications and reminders to users at least once a week to remind them to keep track of their business transaction data in the app. In addition, the app monitors any inputted accounts receivable, and sends the user notifications when they come due. The app also sends reminders with key pieces of advice, such as keeping your family and business accounts separate.</li>
</ul>
<div id="attachment_25251" style="width: 266px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-25251" class=" wp-image-25251" src="https://content.accion.org/wp-content/uploads/2021/11/Organizme-gamified-tablet-e1638375917225.png" alt="Organizme-gamified-tablet" width="256" height="319" srcset="https://content.accion.org/wp-content/uploads/2021/11/Organizme-gamified-tablet-e1638375917225.png 473w, https://content.accion.org/wp-content/uploads/2021/11/Organizme-gamified-tablet-e1638375917225-241x300.png 241w" sizes="(max-width: 256px) 100vw, 256px" />Caption: The app’s gamified tutorials encourage and incentivize microentrepreneurs to record their daily transactions.</div>
<ul>
<li>Gamified tutorials that make learning how to record transactions digitally engaging and fun. Research has shown that simply educating entrepreneurs about the benefits of digital tracking is not effective in changing their behavior, but gamification of experiences can be more effective. The project team developed a gamified tutorial for microentrepreneurs to play within the application to encourage and incentivize them to register their daily sales and expenses in the platform. Immediately after downloading the application, users are introduced to a game that simulates a small fictional business. The user earns points as they complete tasks that help them learn how to use the app, like tracking the fictional business’ income and expenses. As users gain points, they can improve the virtual business. The game walks users through how to log sales by customer and how to keep track of what they owe their suppliers or what is owed to them.</li>
</ul>
<h2>Results</h2>
The Organizame app was launched in April 2021 and five months after launch, it has been downloaded 1,660 times and 543 users have completed the gamified tutorials. To measure the impact of the tool on overall well-being of the users, we surveyed a sub-segment of clients prior to the launch of the tool, and again three months later to assess their overall feelings of well-being, ability to manage their business, and ability to manage debt.
Among the 554 merchants that responded to the survey, 44 percent downloaded the application and among those who have the application, 33 percent have begun registering their sales into the platform. The following findings compare the financial well-being of those that have downloaded and are using the application with those who have not downloaded the application. The second group does not serve as a perfect control group because the team targeted more mature businesses to pilot app, suggesting that impact may be overestimated.
<hr />
<h2>Customer Spotlight: Rosita Corrotea</h2>
<img class="wp-image-25334 alignright" src="https://content.accion.org/wp-content/uploads/2021/12/Rosita-Corrotea-Screenshot.png" alt="The Interview with Rosita Corrotea - Screenshot" width="223" height="332" srcset="https://content.accion.org/wp-content/uploads/2021/12/Rosita-Corrotea-Screenshot.png 601w, https://content.accion.org/wp-content/uploads/2021/12/Rosita-Corrotea-Screenshot-201x300.png 201w" sizes="(max-width: 223px) 100vw, 223px" />
Rosita Corrotea is an entrepreneur from Coquimbo city in northern Chile who sells homemade cakes for birthdays and events. Her business is informal and she has been a Banigualdad client for almost four years. She knows how her business is going by the number of orders she receives but, before using the Organizame app, she didn’t really know how much money she earned per month. With the app, she can keep track of what she sells and what she spends on her business, and can calculate profits at the end of the month. Rosita has always been a person who likes to learn new things and found that using Organizame was very easy. She followed the tutorials and says that, “the application itself teaches her how to use it, it is easy to follow the instructions.”
<hr />
<h3>Overall well-being</h3>
Results of the survey show that overall feelings of well-being improved for both those that used the Organizame app, as well as those who did not, which may reflect that microentrepreneurs across Chile are slowly beginning to recover from the ravages of the pandemic. However, users of the platform reported a 17 percentage point increase in their satisfaction with their financial situation, while those that did not use the platform only reported a 5 percentage point increase.
<img class="size-large wp-image-25317 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/12/Accion-MetLife-report-graphics-EN-FINAL_Framework-Fundacio╠ün-Banigualdad-and-Organizame-1024x512.png" alt="Organizame-framework" width="1024" height="512" srcset="https://content.accion.org/wp-content/uploads/2021/12/Accion-MetLife-report-graphics-EN-FINAL_Framework-Fundacio╠ün-Banigualdad-and-Organizame-1024x512.png 1024w, https://content.accion.org/wp-content/uploads/2021/12/Accion-MetLife-report-graphics-EN-FINAL_Framework-Fundacio╠ün-Banigualdad-and-Organizame-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/12/Accion-MetLife-report-graphics-EN-FINAL_Framework-Fundacio╠ün-Banigualdad-and-Organizame-768x384.png 768w" sizes="(max-width: 1024px) 100vw, 1024px" />
<h3>Business management</h3>
Across all measures, users of the app noted an improved ability to manage their business when compared with those that did not use the application. Prior to use of the app, approximately 50 percent of merchants reported feeling their businesses were progressing well. Among those who used the app, that group grew by 16 percent whereas it stayed around 50 percent among those who didn’t access the app, suggested that those who used the app were more likely to report positive feelings about their businesses.
All businesses reported being better able to pay themselves a salary at the end of every month, but the change was greatest among those who registered for the app as compared with those who never registered for the app. Similarly, the number of merchants who reported that their businesses grew in the last year increased in all groups. But while that proportion only grew by 5 percent in the non-app group, it grew by 13 percent among merchants who used the Organizame app.
Finally, users of the app were also less likely to confuse their personal and business funds. While the group without the app reported a 3 percent decline in ‘mixing their business and personal expenses’ (perhaps an effect of the assessment process), the group using the application reported a 12 percent decline, suggesting the effectiveness of the application in helping people track their business and personal funds separately but also a slight overall trend in better organization of funds across both the control and user group.
<img class="wp-image-25255 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Organizame-1-300x162.png" alt="Business Confidence table" width="693" height="374" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Organizame-1-300x162.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Organizame-1-768x414.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Organizame-1-1024x552.png 1024w" sizes="(max-width: 693px) 100vw, 693px" />
<h3>Budget management</h3>
The primary objective of the Organizame application was to change microentrepreneur’s business record-keeping behaviors to help them better manage and grow their businesses. Results from the survey found that even for those using the application actively, a notebook continues to be the primary tool for monitoring and tracking daily income and expenses. However, both groups did report an increase in their use of digital tools when managing their businesses — likely a result of changing digital behaviors during the pandemic. Not surprisingly, those that started using the app to monitor their finances reported a 24 percentage-point increase in their use of applications and computers when monitoring their expenses. The group without the app saw a 15 percent increase in the use of applications and computers. It will be critical for the Organizame team to continue 
to find ways to motivate and incentivize users to continue recording their transactions digitally, as lasting behavior change takes time.
<img class="wp-image-25256 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Organizame-2-300x162.png" alt="Tools used to track and monitor finance table" width="689" height="372" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Organizame-2-300x162.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Organizame-2-768x414.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_Organizame-2-1024x552.png 1024w" sizes="(max-width: 689px) 100vw, 689px" />
<h3>Savings and long-term planning</h3>
Usage of the Organizame application is also correlated with greater resilience. The proportion of users of the app who reported that they could survive less than three weeks with their current savings decreased by 17 percent over the treatment period. In contrast, that proportion stayed more stable among those who didn’t use the app.
Overall, Organizame’s app seems to help microentrepreneurs gain greater control over their expenses and even helps them to prepare for months of low sales — a critically important task for them to stay resilient in uncertain times. The Organizame solution provides low-income entrepreneurs with better insights into their finances, organizes their operations, and helps them make more informed decisions to grow their businesses and re-invest in their households.
While the app has had some preliminary benefits, there is still room for improvement. Usage data shows that only 28 percent of users are inputting their sales into the app regularly (seven times a month or more). Others are consolidating their daily sales and inputting their expenses into the app at various points within the month. The notebook continues to be the most prevalent method of record keeping. Through user research, we found that it is onerous for microentrepreneurs to record every single transaction separately in a digital app, as they may sell a high volume of low-price items each day, which are easier to note down in a notebook and transfer to the digital app in batches a few times each month.

The market for financial health advice and support is vast. There are billions of people who are financially coping or vulnerable globally, and many need help. Organizations that support microentrepreneurs know this and realize that if they can help people overcome their financial challenges, they will win their loyalty. Visa recently approached Organizame to <a href="https://sr.visa.com/about-visa/newsroom/press-releases/fygaro-startup.html" target="_blank" rel="noopener">form a partnership</a> and will be offering this platform to the low-income small business segment across a number of financial service providers, as a free value-add service. In the next year, the partnership is expected to reach 300,000 clients.

Human touch is critical for delivering digital financial tools to low-income consumers and businesses. This is especially true among low-income people who are accustomed to working with trusted intermediaries like bank officers and require more support navigating digital tools.
Organizame found that adoption and use of the application were dependent on having their representatives walk users through how to download the Organizame application and explain the benefits of the application in simple terms. The team found that downloads of the app spiked only on the days that the loan officers sent a link to the application directly to their group members through WhatsApp.

Managing finances can be stressful and intimidating, but gamification — or the use of game design elements in a non-game context — can make certain tasks more fun and motivating. <a href="https://games.jmir.org/2013/1/e3/?utm_source=TrendMD&amp;utm_campaign=JMIR_TrendMD_0&amp;utm_co&amp;utm_medium=cpc" target="_blank" rel="noopener">Research has shown</a> that gamification can influence psychological and physical outcomes.
Organizame applied this principle to its app. In this case, users earn points after completing tutorials instructing users how to record their sales into the application. The team found that the use of these tutorials motivated registered users to create product categories in the app.

Case Study: RedCapital

Chilean banks and authorities have made critical advances to increase financial inclusion. Between agent networks, payment platforms, and the <a href="https://www.bis.org/ifc/publ/ifcb47i.pdf" target="_blank" rel="noopener">CuentaRUT account</a> — a simplified deposit account with a debit card that state-owned Banco Estado has made available to anyone with an identity card — Chile has nearly reached universal access to financial services.
Despite the advances, many small merchants in Chile cannot find financial tools to meet their needs. Micro, small, and medium enterprises (MSMEs) make up <a href="http://www.smefinanceforum.org/data-sites/msme-country-indicators" target="_blank" rel="noopener">98.5 percent of enterprises</a> in the country but <a href="https://www.smefinanceforum.org/data-sites/msme-finance-gap" target="_blank" rel="noopener">almost a quarter</a> face difficulty accessing financing in times of need. This has been especially true since COVID-19 infections <a href="https://www.npr.org/sections/goatsandsoda/2020/07/02/885207834/covid-19-exploits-cracks-in-chilean-society" target="_blank" rel="noopener">soared</a> last year, especially since nearly <a href="https://oecdecoscope.blog/2020/06/29/reaching-out-to-informal-workers-in-latin-america-lessons-from-covid-19/" target="_blank" rel="noopener">30 percent of the </a>population that works in the informal sector has no access to social protection.
RedCapital, a fintech and crowdfunding platform in Chile, was founded in 2014 to help formal small and medium enterprises (SMEs) get the funding they need. On RedCapital’s platform, individual investors lend money or provide factoring for SMEs, giving Chile’s small businesses the financing they need to expand, and investors are provided with attractive returns.
While the platform has served SMEs well, microentrepreneurs, especially informal ones, have been more difficult for RedCapital to serve for several reasons. They tend to prefer informal credit with simpler processes, lack the documentation required by the RedCapital’s original credit scoring system, and are often less comfortable using a digital platform to meet their financial needs. To continue growing the platform and address the credit gap faced by MSMEs in the country, the team needed to find a way to expand down market. By RedCapital’s estimations, there is a projected USD $10 billion market opportunity to be accessed by serving MSMEs that lack access to finance.

RedCapital and Accion partnered to conduct market research with Chilean microentrepreneurs and found that MSMEs are eager to grow their businesses but need support to understand how to use short-term credit to control their levels of inventory, manage their debt, and to deploy simple strategies for setting and meeting growth goals. Many informal entrepreneurs said they were uncomfortable taking out loans from a digital platform, and preferred to speak with a person when sharing personal information or addressing key questions. These findings made it clear to the team that, in addition to simply redesigning their platform for MSMEs, they would also need to adapt the customer experience to provide microentrepreneurs with a way to grow their businesses and help them to understand and improve their financial health in the process.
<h2>The Solution</h2>
To create such a product, Accion helped RedCapital completely redesign their platform and digital customer experience to better serve microenterprises. The team adapted the platform’s processes, credit-scoring methodology, pricing, and the customer experience to provide greater transparency and support to microentrepreneurs. And they created a low-cost, easy to access credit product, coupled with business management lessons, to build the financial health of microentrepreneur users of the RedCapital platform.
The lending product was adjusted to better serve microentrepreneurs and support their financial well-being through the following features:
<ul>
<li>A credit scoring model more appropriate for the MSME segment. As a fintech, RedCapital’s business model leveraged technology and a proprietary credit scoring system utilizing publicly-available tax and utility data. However, the model excluded MSMEs, which did not meet the credit-underwriting criteria. With this project, the team developed a new scoring model, <a href="https://www.accion.org/risk-management-tool-guide-credit-scoring" target="_blank" rel="noopener">using Accion’s credit risk methodology</a>, to provide credit to MSMEs that exhibit an entrepreneurial spirit and growth mindset, profit potential, and some level of tech usage.</li>
<li>A chatbot to mimic human interactions. The research found that users were not comfortable inputting their personal information into a website. The team created a chatbot to mimic an interaction that users trusted and felt more comfortable with. Customers can get ongoing support through the intelligent chatbot at every step of the journey — and there is also the option to connect to customer service if additional hand holding is required, balancing tech and touch in the digital journey.</li>
<li>Financial-health focused exercises that help MSMEs grow their businesses. To address the key pain points that MSMEs face in growing their businesses, the team created video and blog content to help their customers spend, save, borrow, and plan better by: (1) organizing their finances, (2) controlling costs, (3) planning for their future, and (4) managing debt. The content was designed to help entrepreneurs gain skills as their businesses became more established.</li>
</ul>
Each blog and video ends with key calls to action that encourage customers to take steps that, over time, can build their financial health. For example, in one activity, users are asked to develop a concrete plan for managing their current debt, which <a href="https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2016/05/09212818/Consumer-FinHealth-Metrics-FINAL_May.pdf" target="_blank" rel="noopener">evidence shows can lead to better outcomes</a>. To encourage the completion of these calls to action, the platform rewards users with dynamic rewards. As users complete more activities, they unlock benefits, such as higher loan amounts. These rewards are intended to keep users motivated and engaged over time.
<div id="attachment_25261" style="width: 549px" class="wp-caption aligncenter"><img aria-describedby="caption-attachment-25261" class="wp-image-25261 " src="https://content.accion.org/wp-content/uploads/2021/11/redcapital3-768x237.png" alt="RedCapital customers are rewarded as they complete calls to action, like these in the “Manage your Debt” blog: Calculate the percentage of Debt, Credit Financing, Credit Rules (from left to right)." width="539" height="186" srcset="https://content.accion.org/wp-content/uploads/2021/11/redcapital3-768x237.png 472w, https://content.accion.org/wp-content/uploads/2021/11/redcapital3-768x237-300x104.png 300w" sizes="(max-width: 539px) 100vw, 539px" />Caption: RedCapital customers are rewarded as they complete calls to action, like these in the “Manage your Debt” blog: Calculate the percentage of Debt, Credit Financing, Credit Rules (from left to right).</div>
<ul>
<li>Digital support tools to address customer needs. A simple simulator, built into the product flow, gives customers a better idea of the breakdown of their loan. It also allows customers who are hesitant to apply to better understand the process and terms they might potentially qualify for, which helps demystify the process and build trust and confidence.</li>
</ul>
<div id="attachment_25262" style="width: 606px" class="wp-caption aligncenter"><img aria-describedby="caption-attachment-25262" class=" wp-image-25262" src="https://content.accion.org/wp-content/uploads/2021/11/RedCapital-credit-simulator-tablet-e1638323383269.png" alt="RedCapital’s credit simulator helps customers better understand their loan terms and demystifies the loan application process for those who are hesitant to apply." width="596" height="451" srcset="https://content.accion.org/wp-content/uploads/2021/11/RedCapital-credit-simulator-tablet-e1638323383269.png 724w, https://content.accion.org/wp-content/uploads/2021/11/RedCapital-credit-simulator-tablet-e1638323383269-300x227.png 300w" sizes="(max-width: 596px) 100vw, 596px" />Caption: RedCapital’s credit simulator helps customers better understand their loan terms and demystifies the loan application process for those who are hesitant to apply.</div>
With this additional support, RedCapital helps Chile’s micro-entrepreneurs achieve their personal and professional goals — whether it is to expand their business or to buy a home for their family.
<h2>Results</h2>
To date, 305 MSMEs have received financing through RedCapital, and over 2,600 are registered on the RedCapital platform. Of those registered, 650 users have visited the financial health blogs and 394 users have viewed the financial capability videos on YouTube, averaging nearly 100 views per topic. The most popular topics included, “<a href="https://www.youtube.com/watch?v=nyCGrvyN8NY" target="_blank" rel="noopener">Controlling your expenses</a>” and “<a href="https://www.youtube.com/watch?v=u697gWHaj7A" target="_blank" rel="noopener">Plan for your future</a>,” while “<a href="https://www.youtube.com/watch?v=w1QPcJdzSRc" target="_blank" rel="noopener">Manage your debt</a>” generated the least interest. Interestingly, those whose initial credit applications were not approved reported greater use and consultation of the blog content on the RedCapital website than those who did take out credit.
To better understand the impact of credit and corresponding financial health content, the team asked both those who received credit as well as some who did not, a series of questions about their financial health. Given small sample sizes, the team also conducted several interviews with product users to better understand their experience using the product.
<hr />
<h2>Customer Spotlight: Karolayn Opazo</h2>
<img class="alignnone size-large wp-image-25310" src="https://content.accion.org/wp-content/uploads/2021/11/DSF3773-e1638326290457-1024x738.jpg" alt="KAROLAYN OPAZO" width="1024" height="738" />
Karolayn’s business, Don Beño, sources avocados from small producers, sorts and packages them, and then delivers them to consumers across Chile. The business is now stable and established, but it started slow and faced challenges along the way. For example, when she needed investment for a bigger office and warehouse space two years ago, she was not sure where to turn. At that time, Karolayn was introduced to RedCapital. She remembers she didn’t have records or sales receipts, but the loan officers recognized her drive and smarts. She says, “They believed in our business but, more than that, they believed in us as people.” RedCapital issued Karolayn her first credit and now she is in her third loan.
<hr />
<h3> Overall financial well-being</h3>
Customers who received credit from RedCapital were more likely to be satisfied with their current financial situation. Among platform users, the proportion who reported satisfaction with their financial life increased by15 percentage points, whereas among those that did not take out credit, the group reporting satisfaction decreased by 14 percent over the evaluation period. However, since the baseline was taken pre-pandemic, those experiencing financial stress increased in both groups over the course of the evaluation (nine percent in the group that did not receive credit, and six percent in the group that did).
<img class="wp-image-25264 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_RedCapital-300x162.png" alt="Accion-MetLife-Graphs-RedCapital-financial situation satisfaction" width="691" height="373" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_RedCapital-300x162.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_RedCapital-768x414.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-Graphs_EN_FINAL_RedCapital-1024x552.png 1024w" sizes="(max-width: 691px) 100vw, 691px" />
In a series of interviews held with customers that had taken out credit, the respondents emphasized that despite how difficult it has been to sustain their businesses during the pandemic, the loan helped them to maintain their business and reactivate economically, even though strict quarantines negatively affected their businesses. One customer told us, “We are currently financially satisfied, we have achieved a lot with the business, although we still aspire to many more things and to continue growing. Our goals are getting bigger and bigger!”
Of course, other microentrepreneurs continue to feel financially stressed and dissatisfied with their current financial situation. Many businesses have not been able to fully recover from the pandemic, and uncertainty about the volume of sales they may have on any given day remains for many.
<h3>Business management</h3>
The group that received credit saw an increase in those reporting business growth over the last year (4 percent increase), whereas the control group reported no change in business growth. Customers told the team that the credit has allowed them to “capitalize and grow their business”, hire more staff, and expand their product and service offering.
In a survey, 100 percent of the respondents that did not take out any credit told us that they lost opportunities over the last 12 months due to a lack of business liquidity. For those that did receive credit, only 89 percent reported losing opportunities due to lack of liquidity — still a high number due to the pandemic, but not quite as stark as the group that received no credit. Finally, those that did receive credit reported less confusion between their personal finances and those of their business.
<h3>Debt management</h3>
Overall, users of the RedCapital credit product reported improved attitudes towards taking out credit with formal financial institutions over time. As expected, when asked how they relate to the statement, “I have access to timely and affordable credit to meet the needs of my business,” non-credit holders perceived fewer opportunities to access credit to meet the needs of their business (20 percent agreed with the statement) as compared to credit-holders (55 percent agreed). Finally, those who received credit demonstrated better debt practices; they felt they were better able to pay debt on time, and that their level of debt was appropriate. While 65 percent of RedCapital credit customers were able to pay their debt on time over the last six months, only 55 percent of non-credit clients were able to do the same. Finally, survey results showed that those that took out a loan with RedCapital are 30 percent more likely to recommend RedCapital to family and friends.
<img class="wp-image-25265 aligncenter" src="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-RedCapital-300x150.png" alt="" width="692" height="346" srcset="https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-RedCapital-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-RedCapital-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Accion-MetLife-report-graphics-EN-FINAL_Framework-RedCapital-1024x512.png 1024w" sizes="(max-width: 692px) 100vw, 692px" />

Many RedCapital clients report that, since taking out credit through the platform, they have learned how to better manage their finances, including ways to boost their capital and buy inventory based on current demands. They stated that RedCapital 
has supported them with training materials via email, and although they do not always have time to read the blogs or watch the videos, they consider the content valuable. Some interviewees stated that beyond learning ways to better manage their business, they have learned to better predict their customers’ needs and ensure that they have products on hand to respond to current demands.
All customers of RedCapital’s new credit product for microentrepreneurs have expressed gratitude for the significant benefits they have accrued through RedCapital. Customers mentioned that the benefits extend beyond the economic and are grateful for a user experience that has allowed them to not only access a loan, but also receive information on how to use credit to 
grow their business.
RedCapital has already seen significant repeat usage among the microentrepreneurs onboarded to their platform, demonstrating that a focus on the financial health can lead to better engagement. And as shared above, those that took out a loan with RedCapital are much more likely to recommend RedCapital to family and friends.

Given that there was significantly more use of the blog and videos among non-customers than customers, the team is currently working to reposition the use of this financial capability-building content. Rather than sending these to existing customers through email, where they are likely to get lost, they will begin posting the videos on social media to serve as a customer acquisition tool, to proactively build capacity to be able to qualify for credit approval. Results from this project indicate that these business management topics are critical to growth for microentrepreneurs and can serve as an effective onboarding ramp for new customers.

As RedCapital expanded their crowd-funding platform for micro and small businesses, their priority is to build MSME capacity to manage their debt more effectively, better control their business finances, and plan for the future. These measures will not only help the clients improve their credit scores, have less financial stress, and greater satisfaction with their finances, but are also aligned with RedCapital’s business model — to enable micro businesses to grow with the company.

Conclusion

With the right financial products, we believe that entrepreneurs will be better able to hire more employees, parents can more easily save for the future, and communities everywhere will be able to accelerate social and economic progress. However, for these benefits to take shape, we must develop financial health-centric products that are rooted in the behaviors, knowledge, skills, and attitudes of the target segment, to ensure that people can trust, use, and benefit from them.
Financial service providers are at the frontlines of engaging and serving customers on a daily basis and have an important role to play in supporting positive financial health outcomes of their users. However, such providers don’t always have the resources or skills to conduct in-depth user research and human-centered design experiments to develop innovative new products. In partnership with MetLife Foundation, Accion worked closely with five financial service providers to design and launch behaviorally informed and financial health focused products. The resulting products span the range from a gamified savings app to a loan origination process to an expense-tracking solution for small businesses. While the products are diverse, the approach to design is what unites them. In each case, the Accion team helped the providers connect with users to understand their needs, preference, and habits. Insights from these conversations guided critical aspects of product design, from product naming to onboarding requirements to chatbot interfaces. Though these aspects may seem like details relative to product features or even pricing, they are critical to promoting uptake and usage.
The value of this attention to detail and to users is evident in the initial response to the products. While these products are still early days in terms of customer uptake and traction, preliminary results reveal significant and positive improvements across all the dimensions of financial health we aimed to influence, including overall feeling of financial well-being, budget management, debt management, savings and long-term planning, and budget management. In all, users report higher levels of financial confidence and comfort, less stress about debt, and greater optimism about their futures.
Measures like these help the financial service to go beyond just inclusion figures and income and revenue measures, to consider a more holistic picture of financial health.
Moreover, a financial health approach demonstrated meaningful impact in attracting customers to FSPs, in improving loyalty and customer lifetime value, and greater willingness to refer the provider to family and friends. Over time, we expect to see increases in product adoption and opportunities to better serve these users with a wider breadth of financial products, as their financial lives become more fruitful.
Key takeaways for financial service providers looking to develop a financial health approach, include:
<ul>
<li>Financial health interventions need to be as easy and effortless as possible for users.</li>
<li>Behavior change requires frequent interaction with the user, and integration into their daily lives.</li>
<li>Human touchpoints are critical to influencing financial health, especially for low-income and underserved customers.</li>
<li>A focus on financial health is attractive to customers and potential business partners.</li>
<li>Centering on financial health can improve customer lifetime value by creating more resilient, more loyal customers and opening other opportunities.</li>
</ul>
Through this project, we confirmed that a sure way to develop impactful financial services is to start with user-centric design and research — by gaining a deep understanding of customer behaviors and capabilities. After all, true financial inclusion is about behavior change, which must start with a profound understanding of users’ preferences, needs, and routines. Such understandings, when fed into creating feasible and viable solutions, strong change management, and rigorous monitoring processes, can position financial service providers to deliver the financial well-being they articulate in their mission and vision statements. As demonstrated through these case studies, this approach can reliably deliver benefits to overall feelings of well-being and resiliency, as well as business and debt management.
Delivering such benefits is especially important for small businesses — which are the backbone of emerging economies around the world but are extremely vulnerable to financial shocks and macro volatility. These businesses serve as the primary source of income for many low-income households so reinforcing them can have benefits throughout the economy. By giving microentrepreneurs the tools they need to manage their businesses day-to-day, and individuals the tools to plan for financial shocks and to take advantage of opportunities, we can help ensure they are better prepared during unexpected challenges and can access a path to a better future.

Acknowledgements

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<img class="alignnone size-medium wp-image-25269" src="https://content.accion.org/wp-content/uploads/2021/11/Metlife_Logo_2016-300x64.png" alt="Metlife logo" width="300" height="64" srcset="https://content.accion.org/wp-content/uploads/2021/11/Metlife_Logo_2016-300x64.png 300w, https://content.accion.org/wp-content/uploads/2021/11/Metlife_Logo_2016-768x165.png 768w, https://content.accion.org/wp-content/uploads/2021/11/Metlife_Logo_2016-1024x220.png 1024w" sizes="(max-width: 300px) 100vw, 300px" />
<h2>MetLife Foundation</h2>
In 2018, Accion announced a new partnership with MetLife Foundation in Latin America to work alongside financial service providers (FSPs) to develop customer-centric and behaviorally informed products and services that reach underserved clients and improve their financial health. This partnership — <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion" target="_blank" rel="noopener">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> — aims to equip regional FSPs with the skills to listen to what their customers need, design best-in-class digital products that are easy to use, and help customers build healthy financial habits. Accion would like to thank the following organizations for sharing their expertise and learnings for this paper: Caja Bienestar (Mexico), Caja Popular Cerano (Mexico), Destácame (Chile), Fundacíon Banigualdad (Chile), Organizame (Chile), and RedCapital (Chile).
Accion could not have tracked and monitored the financial outcomes outlined in this paper without the help of the user experience research firm, <a href="https://www.sensata.io/" target="_blank" rel="noopener">Sensata SAS</a>. The author is also grateful to the many contributors to this publication, including all team members involved in this project: Sandra Calderon, Maria Belen Garrett, Liza Guzmán, Yanina Seltzer, Amy Stewart, Leonardo Tibaquira, Kathleen Yaworsky, Tannaz Daruwalla, and Malika Anand.
The opinions expressed in this report are those of the author(s) and do not necessarily represent the views of MetLife Foundation.

Report

<h1>Foreword</h1>
<a href="https://www.accion.org/finding-a-path-to-financial-health-in-chile-one-step-at-a-time" target="_blank" rel="noopener noreferrer">Karen</a> 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 has tried to put together a plan to pay off her debt, but it is difficult to figure out the total amount she owes or identify the right person to call. Thinking about money makes her feel stressed, overwhelmed, and alone.

To achieve their goals and build financial health, people like Karen need products and services that can help them to better track their finances, manage shocks (like global pandemics) and pursue financial goals. 

Unfortunately, most low-income individuals and small businesses currently lack access to formal financial services; <a href="https://databank.worldbank.org/reports.aspx?source=global-financial-inclusion" target="_blank" rel="noopener noreferrer">nearly half of adults</a> in Latin America do not have a formal bank account, and those with accounts use them <a href="https://publications.iadb.org/en/converting-dormant-bank-accounts-dynamic-force-latin-america" target="_blank" rel="noopener noreferrer">infrequently</a>. This suggests that most of the financial products available to users in Latin America may be expensive, inconvenient, inappropriate, or all three. 

This is because developing relevant financial services for low-income households and small businesses — that can have a meaningful impact on their financial health — is not straightforward. Low-income customers often lack formal financial records, operate informally, and have little experience with formal financial services, making it difficult for providers to pinpoint their needs. Moreover, many of these customers distrust formal financial services and hold negative beliefs around account ownership and credit. To craft relevant financial products, providers must acquire a deep understanding of their customer’s financial behaviors, pain points, ambitions, attitudes, and capabilities. 

To help them develop financial services that can deliver financial health, Accion Global Advisory Solutions along with <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html" target="_blank" rel="noopener noreferrer">MetLife Foundation</a> partnered with fintechs, cooperatives, and traditional financial service providers (FSPs) in Chile and Mexico to develop products to better serve their low-income customers. Accion worked with these FSP partners to design and launch viable digital products and services to reach underserved clients and improve their financial health, to help them maintain resilience against adversity and take advantage of opportunities. 

This paper shares five case studies about Accion’s work with Chilean and Mexican partners over the past three and a half years. In Chile, we used human-centered design and behavioral economics to launch a business management application for microbusinesses with <a href="https://www.accion.org/this-new-app-is-helping-small-business-owners-build-financial-health-and-resilience" target="_blank" rel="noopener noreferrer">Organizame and Banigualdad</a>, revamped a financial health portal with <a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health" target="_blank" rel="noopener noreferrer">Destácame</a>, and deployed a crowd-funding platform for microentrepreneurs with <a href="https://redcapital.cl/" target="_blank" rel="noopener noreferrer">RedCapital</a>. In Mexico, we developed a savings product for youth with <a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener noreferrer">Caja Popular Cerano</a> and launched a supply chain finance product with <a href="https://www.ahorrosbienestar.com/" target="_blank" rel="noopener noreferrer">Caja Bienestar</a>. In this paper, we share our key challenges, learnings, and overall results from this project — uncovering best practices on how to design for and influence financial health along the way. 

To date, most financial health efforts have focused on measurement and monitoring, but little guidance has been provided to financial service providers that are at the frontlines of engaging and serving customers on a daily basis. This paper is a first effort in that direction, giving providers actionable lessons for how to support positive financial health outcomes among their users. Moreover, the case studies within demonstrate the positive impact that a financial health-focused approach has on loyalty, customer lifetime value, and in creating new customer acquisition opportunities.

In the midst of enormous financial uncertainty sparked by COVID-19, our efforts to help underserved families and businesses improve their financial capabilities and develop healthy financial behaviors are critical. Our hope is that this paper will help financial service providers develop and optimize financial health-centric products that will lead to meaningful changes in the financial lives of their customers. This will require a more holistic approach to designing products for underserved individuals that includes consideration of their financial capabilities and historic behaviors. We believe that such an approach will result in better products with greater uptake and engagement. 

&nbsp;

Liza Guzman

Vice President and Program Manager, Customer Strategy

How providers can build products that improve financial health: Examples from Mexico and Chile

Combatting the digital divide on multiple fronts is crucial to scaling financial inclusion

Article

This article is the first of a six-part series on scaling financial inclusion to accompany our <a href="/the-digital-transformation-guide-six-strategies-to-scale-financial-inclusion">digital transformation guide</a>.

During India’s first strict COVID-19 lockdown, <a href="/women-entrepreneurs-get-back-to-business-in-india">Papina Das, a dairy business owner in Odisha</a>, faced plummeting sales and an unstable income when people in her village avoided visiting the local market and stopped buying her cows’ milk. In the face of unpredictable challenges, digital financial tools can help micro, small, and medium enterprises (MSMEs) owners like Papina build resilience by giving them access to credit, payments, insurance, and business management advice. However, low-income individuals and small business owners don’t always have the digital skills, attitudes, and behaviors they need to use such tools. While some people are comfortable using technology in their daily lives, many lack access to smartphones or stable internet connections, and others simply do not trust or feel comfortable using unfamiliar digital financial services. With customers spanning many different levels of digital awareness, how do financial service providers effectively bridge the <a href="https://stats.oecd.org/glossary/detail.asp?ID=4719" target="_blank" rel="noopener noreferrer">digital divide</a> to support their clients and reach the most vulnerable?

<a href="/institutional_partnerships/mastercard-center-for-inclusive-growth" target="_blank" rel="noopener noreferrer">In partnership with the Mastercard Center for Inclusive Growth</a>, Accion recently published a guide to help financial providers (FSPs) navigate the complexities of <a href="https://www.accion.org/the-digital-transformation-guide-six-strategies-to-scale-financial-inclusion">digital transformation</a>. We uncovered three key strategies to combat the digital divide that prevents FSPs from reaching clients in need of financial services.
<h3>1. Communicate how digital products help customers improve their businesses</h3>
<blockquote class="pullquote--right">“Our digital transformation goes hand-in-hand with our clients’ digital transformation.” - Verónica Gavilanes, General Manager, Microfinance, Banco Pichincha in Ecuador</blockquote>
For small business customers accustomed to using cash, the value proposition of switching to digital payments can be difficult to understand — particularly when customers perceive cash to be free and more secure. Communicating the benefits of digital products by using clear messages that resonate with small merchants can help them overcome their initial hesitation.

<a href="/helping-small-businesses-build-resilience-in-ecuador" target="_blank" rel="noopener noreferrer">Banco Pichincha</a> is the largest financial institution in Ecuador. As the bank undergoes a complete, large-scale digital transformation, they recently launched <a href="https://www.pichincha.com/portal/canales-de-atencion/deuna" target="_blank" rel="noopener noreferrer">Billetera deUna!</a>, a mobile wallet that supports secure, real-time payments for their customers. While the application has been downloaded more than 118,000 times, this is concentrated among high-income segments, with much lower uptake at the base of the pyramid.

<a href="https://datatopics.worldbank.org/g20fidata/country/ecuador" target="_blank" rel="noopener noreferrer">Nearly eight in 10 Ecuadorians have mobile phones</a>, but only <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Ecuador.pdf" target="_blank" rel="noopener noreferrer">32 percent of those with phones are currently using them to make digital payments</a>. Cash still accounts for about <a href="https://blogs.worldbank.org/jobs/why-digital-payments-are-key-entrepreneurs-success" target="_blank" rel="noopener noreferrer">40 percent of payments</a>, with cash being particularly prevalent in rural communities. Using insights into their customers’ adoption barriers, Banco Pichincha has redesigned the user experience for underserved microbusinesses with a clear and compelling value proposition. In parallel, the bank is using Accion’s edtech platform, <a href="/clients/ovante" target="_blank" rel="noopener noreferrer">Ovante</a>, to help their microfinance customers gain the digital literacy and skills they need to use the platform.
<h3>2. Design for both sides of the digital divide</h3>
FSPs that serve low-income people and businesses face the challenging reality that some of their customers do not yet have access to digital devices and will continue to depend on high-touch services offered through the traditional microfinance model. At the same time, they have client segments that prefer the accessibility, convenience, and speed that digital financial services can provide.

<img class="aligncenter size-full wp-image-24060" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide.png" alt="The digital divide" width="2000" height="1000" />

India’s <a href="/expanding-the-benefits-of-a-growing-digital-economy-in-indonesia-and-india" target="_blank" rel="noopener noreferrer">Annapurna Finance Limited</a> serves 1.9 million group lending customers who would otherwise lack access to high-quality, affordable financial services. When pandemic-induced lockdowns effectively ended group meetings, members found themselves without much-needed finance at a time when economic vulnerability skyrocketed.

While only 10 percent of Annapurna’s group lending customers currently own a smartphone, a greater percentage has access to less advanced feature phones. To address the digital divide, Accion worked with Annapurna to create an SMS-based, digitally accessible emergency loan product that incorporates both tech and touch. For example, interested customers can provide details directly to their loan officer for their application and receive an emergency loan limit if qualified. Once deployed, a customer can access the funds at any time without interacting with a person by sending a simple SMS to a dedicated phone number, which then disburses the money to the customer’s loan account.

We designed the solution to easily upgrade to a smartphone version so that customers can grow with the platform as they gain digital skills. For the more digitally savvy segment of Annapurna’s MSME clients, we are supporting the bank in developing an end-to-end digital loan that allows clients to apply without needing to speak directly to a loan officer and make all repayments remotely.
<h3>3. Balance tech and touch strategies</h3>
Human interaction continues to be critical in delivering financial services to the poor as personal interactions <a href="/the-tech-touch-balance" target="_blank" rel="noopener noreferrer">build trust, establish relationships, and engage customers</a>. For customers with low digital maturity, FSPs should think strategically about hybrid models that leverage digital to automate manual processes while still maintaining the human touch that customers value.
<blockquote class="pullquote--right">“Our approach is to first understand our customers, understand the segment that we want to serve, understand how digitally mature they are, and then reach out to them [in a way that is uniquely suited to the circumstances].” - Taiwo Joda, Managing Director and CEO, Accion Microfinance Bank in Nigeria</blockquote>
<a href="https://www.accionmfb.com/" target="_blank" rel="noopener noreferrer">Accion Microfinance Bank</a> (Accion MfB), one of Nigeria’s most successful microfinance institutions, aims to make digital their new norm and encourages digital behaviors in their client base. As part of this goal, they made the end-to-end application process for their new digital loan accessible only through a mobile app or web portal. But Accion MfB knew that not all their customers are ready for a fully digital process, so they designed the product to allow customers to initiate the digital loan application process through several different channels. Using USSD mobile codes, customers can submit a request for digital assistance, which prompts the call center to reach out to the client and understand their characteristics and comfort level with digital applications. The call center agent may then direct applicants to one of the self-service channels to complete an application online or may refer applicants to a branch where a staff member can assist with a loan application.

Finally, after noticing discrepancies between customers who were initially denied online but later approved after visiting a physical branch, Accion MfB also made several changes to the digital loan application to more closely resemble how an account officer would ask questions. They also integrated more customer support, examples, and tips.

To bring useful financial tools to underserved MSMEs in a way that promotes trust and comfort, financial providers need to tailor their digital approach to their customers’ varying levels of digital skill and access. FSPs should be deliberate and thoughtful about how they reach clients on both sides of the digital divide: leaning into digital channels, while continuing to leverage physical networks like branches, loan officers, and groups. Meeting clients where they are will promote greater digital adoption and <a href="/the-digital-transformation-guide-six-strategies-to-scale-financial-inclusion" target="_blank" rel="noopener noreferrer">ultimately fuels the digital transformation of low-income individuals and small businesses.</a>

Malavika Krishnan contributed to this article.

Three ways to bridge disparities and close digital gaps for MSMEs

Kathleen Yaworsky

Financially underserved individuals and businesses have varying levels of digital maturity, attitudes, and behaviors. Some segments may not have internet or smartphones, or simply do not trust digital financial services due to unfamiliarity or privacy concerns. Other segments may be early adopters of technology-enabled services and conduct their lives through their phones. FSPs can use their digital transformation efforts to reduce, rather than exacerbate, the existing digital divide by developing clear value propositions to help customers run their businesses better. FSPs can more effectively attract and retain clients by designing for both sides of the digital divide and balancing tech and touch strategies.

Traditional microfinance institutions are radically different than digitally native financial companies in their ethos, culture, and organizational design. The digital transformation of microfinance institutions requires developing a plan and implementing it simultaneously, and therefore also requires careful thought about how to integrate two very different operating models, one digital and one not, under one roof. There is no one right way to organize for digital transformation, and how an institution decides to organize depends on their starting point, their digital maturity, and their desired end state. Organizations can choose one of three paths: (1) a fully integrated holistic digital transformation where all departments have collective responsibility for transformation; (2) a digital center of excellence that sits within the organization and is responsible for driving digital solutions; and (3) setting up a stand-alone unit that builds, tests, learns and launches products outside the FSP’s existing business operations.

Many financial institutions tend to focus on short term goals and quarterly targets. Typically, key performance indicators (KPIs) are not designed to encourage risk and innovation. However, digital transformation requires a culture that is willing to experiment, learn what works, and innovate. This requires institutions to seek alignment and buy-in on organizational priorities across the organization: the board, C-suite, management, and field staff. The development of a safe space to fail encourages a test-and-learn approach that is essential to growth as an organization.

Data strategies are often implemented in isolation from the business and analysis is not articulated in a way that empowers and enables the core initiatives of the business — including creating greater customer value, creating process efficiencies, or making meaningful product updates. But when aligned with the core business, having a data plan and fleshed-out data capabilities are key to creating business value through greater understanding, alignment, and actioning of both digital and offline data. Institutions can harness the power of data in their digital transformation by deriving greater value from the data they already have, taking action based on insights, and prioritizing the management and governance of data to ensure it is used effectively and responsibly.

Microfinance organizations often struggle with legacy technological systems, which have monolithic designs and are written in dated programming languages. These systems are inflexible, unable to support innovation, and can introduce security concerns. Digital transformation must be built on solid technological foundations. The more digital an organization becomes, the more it needs to invest in building future-proof and resilient platforms that can easily connect to cloud and open APIs. This requires balancing their long-term vision and short-term agility and ensuring backup and disaster recovery on the cloud, where possible. Cybersecurity will increasingly be a key area for investment to prevent attacks on the digital channels and systems.

Potential partnerships that can support financial institutions’ business goals often fall through due to a lack of a clear business case that aligns the goals of all parties, as well as questions that arise regarding ownership of the customer relationship. But partnerships with institutions such as telecommunication providers, ecommerce players, digital payment providers, or fintechs can enable new ways to leverage data, evaluate risk, and reach new customers at scale. Partnerships expand financial inclusion by building a digital ecosystem and a deeper integration with the formal financial services industry. To realize these benefits, FSPs should seek win-win partnerships and expand their definition of a partner.

This paper unpacks each strategy through real examples of our implementation experiences across FSP partners.

Digitizing swiftly and effectively is vital for FSPs to successfully and responsibly serve their customers at scale and to remain competitive in the face of many digital challengers entering the market. But most FSPs face challenges that make transformation difficult, including a lack of resources, heavy reliance on manual processes, difficulty attracting technical expertise, and poorly organized customer data. This leaves many organizations asking: is our organization ready to undergo a digital transformation? What are the drawbacks or risks to consider before we dive in? Where do we start?
To help FSPs navigate these questions and enable millions of underserved micro, small, and medium enterprises (MSMEs) to enter the digital economy, <a href="https://bit.ly/3adofG3" target="_blank" rel="noopener">Mastercard and Accion launched a first-of-its-kind partnership in 2018</a> that unites our worldwide networks and resources to support the digital transformation of FSPs around the world, as well as the millions of customers they serve. In our first two years of work, we have guided FSPs’ progress on digital transformation and helped them develop digital tools to reach more small businesses and individuals and serve them more effectively. In 2020, as COVID-19 first spread across the world, we helped our partners leverage digital tools to respond to the crisis. This included reimagining group and individual lending for a no-contact world, enhancing digital channels, and rapidly implementing remote customer service. As digital platforms become more pervasive, accessible, and affordable, MSMEs can leverage digital tools and products to rebuild and relaunch their businesses — and in some cases, digitally transform themselves.
<img class="aligncenter wp-image-24059" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map.png" alt="Digital transformation map" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_1-Map-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
We recognize that digital transformation is a journey, not a destination. Our partners have travelled far, but their journeys are not complete — and will likely include some obstacles ahead. In this paper, we share learnings from the first two years of working with institutions to navigate their digital transformation efforts, across every aspect of their business: the customer, processes, partnerships, people, platforms, and products, to achieve a fully digitally enabled business model.
<blockquote class="pullquote--right">There is no single path to digital transformation, nor is it a one-off endeavor.</blockquote>
This paper shares our challenges, frustrations, and successes, and also builds on lessons from other ongoing digital transformation efforts around the world. Going forward, we will continue to share lessons as our partners digitally transform and begin to realize the return on their investments.
We hope that the initial lessons shared here will help FSPs start their digital transformation journeys and maintain the momentum needed to succeed. We also hope this paper will demonstrate to the financial services industry at-large the impact that digital transformation can have in supporting the resilience of low-income people.
<img class="aligncenter wp-image-24121" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3.png" alt="Digital transformation is multi-faceted" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_2-Dig-transform-circle-5-3-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
An oft-repeated point that bears repeating here: digital transformation is a massive exercise in culture change. It is complex and multi-faceted and requires solid commitment to evolve the core business model from the board all the way down to loan officers. There is no single path to digital transformation, nor is it a one-off endeavor. We believe the goal of digital transformation is not to achieve the same status as a digital-first company, but rather adaptability and an enduring culture of innovation and learning, so that institutions can respond rapidly to changes, challenges, and opportunities as they arise. As Charles Darwin argued, “survival of the fittest” refers not to being the strongest or fastest but being most adaptable to change.

Combat the digital divide on multiple fronts

The COVID-19 pandemic has catalyzed the digital transformation of FSPs, especially those reliant on high degree of face-to-face interaction, like microfinance institutions — and expanded digital financial services holds the promise of greater financial inclusion. But with all the enthusiasm around digital transformation, there is little attention paid to the ways this can lead to financial exclusion. Financially underserved and excluded individuals and businesses represent a diverse set of digital maturities, attitudes, and behaviors. For example, some customers may not have access to the internet even if they own smartphones, others may not feel comfortable conducting financial transactions on a mobile device, and yet others may simply prefer to work directly with a person when conducting financial transactions. FSPs must be careful to ensure that digital transformation is not exacerbating an already pervasive digital divide. For example, the digitization of many government cash transfers during the pandemic has been particularly useful to reduce in-person contact while still providing critical economic relief. However, some reports have highlighted the exclusion of beneficiaries, especially women, who often lack access to the digital and financial tools needed to navigate the system of government to person (G2P) payments.
<img class="aligncenter wp-image-24060" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide.png" alt="The digital divide" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_3-Digital-divide-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
Therefore, we consider two aspects of the <a href="https://stats.oecd.org/glossary/detail.asp?ID=4719" target="_blank" rel="noopener">digital divide</a>: first, the gulf between those without access to computers, smartphones, and the internet, and those with access, and second, the spectrum of varying digital maturities in terms of trust and comfort with, usage of, and capability to fully enjoy the benefits of digital inclusion. <a href="https://www.gsma.com/mobilefordevelopment/blog/does-just-being-a-woman-reduce-the-likelihood-of-using-mobile/" target="_blank" rel="noopener">Based on recent analysis conducted by GSMA</a>, in low-and-middle income countries, demographics play a key role in determining access to smartphones and usage of mobile internet. Individuals in rural areas, those with lower incomes, and those that have only completed primary education are less likely to own a smartphone or use mobile internet. On top of this, women are less likely than men to own a mobile phone or use mobile internet, even when other relevant socioeconomic and demographic factors are controlled for. For those that do have access to digital tools, results from an <a href="https://www.accion.org/msme-digital-maturity-assessment" target="_blank" rel="noopener">Accion survey of Annapurna clients</a> demonstrated that there are several determinants of how comfortable a person feels using these tools. This includes both trust in digital channels and simply whether they are in the habit of using digital tools.
<img class="alignnone size-full wp-image-24122" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3.png" alt="Customers with digital habits are more confident using digital technology but are more distrustful of information found online" width="2000" height="1300" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3-300x195.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3-768x499.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_4-Confidence-graphs-5-3-1024x666.png 1024w" sizes="(max-width: 2000px) 100vw, 2000px" />
Digital channels offer some of the most effective ways to reach those that are financially excluded, especially while social distancing orders and lockdowns remain in force. We are already seeing that <a href="https://www.euromoney.com/article/284dqornsk694nkeruz28/treasury/latam-payments-payu-enjoys-e-commerce-boom-during-pandemic">COVID-19 has accelerated digital adoption</a> and has forced some previously reluctant consumers to overcome barriers around trust and tech-savviness because they have few other options. Among our partners, we’ve seen acceptance of digital payments increase 106 percent from December 2019 to September 2020 as microbusinesses move online. However, growth has been concentrated among partners who had digital infrastructure in place prior to the pandemic.
This underscores the pervasive digital divide among low-income people and businesses. Clearly, an undifferentiated focus on digital channels alone is not sufficient to bring useful financial tools to the underserved in a way that promotes trust and comfort. Accion Venture Lab’s 2018 report on the “<a href="https://www.accion.org/the-tech-touch-balance">Tech Touch Balance</a>” demonstrates the importance of continued human interaction in delivering financial services to the poor to build trust, establish relationships, and engage customers. Especially now, in the wake of COVID-19, low-income and vulnerable segments need the support of FSPs to navigate the new normal, restart their businesses, and build financial health so that they can build resilience to future crises and ensure they are not left behind again.
FSPs should be deliberate and thoughtful about how they reach clients on both sides of the digital divide. While they should lean into digital channels when undergoing digital transformation, they should also continue to leverage physical networks (branches, loan officers, groups) to promote greater digital adoption. The percentage of women actively using the digital products and services supported through Accion’s partnership with Mastercard has increased over one percentage point between September 2020 and December 2020, which illustrates the effectiveness of the combined recommendations below in moving us in the right direction to address the persistent gender gaps in digital financial services.

<h5>FSPS CAN ADDRESS THE DIGITAL DIVIDE IN MANY WAYS</h5>
<h2>Build a value proposition for digital products </h2>
<a href="https://www.accion.org/helping-small-businesses-build-resilience-in-ecuador" target="_blank" rel="noopener">Banco Pichincha</a> is the largest financial institution in Ecuador, with a 115-year history and a deep commitment to its customers.  The bank is undergoing a complete, large-scale digital transformation, not only to build their own technological capabilities, but to improve its relationship with its customers and to be better able to respond to their needs during tough times. The COVID-19 pandemic has accelerated their digital transformation and improved the uptake of digital channels among their entire client base. In 2020, Banco Pichincha’s mobile app went from having 650 thousand to 1.1 million customers and 50 thousand customers managed the disbursement of their loans entirely through digital channels.  Their recently launched <a href="https://www.pichincha.com/portal/canales-de-atencion/deuna" target="_blank" rel="noopener">Billetera deUna!</a> application, a mobile wallet that supports secure, real time payments for their customers, has been downloaded more than 118 thousand times. While they have seen significant adoption of digital channels, it has primarily been among high-income segments, while uptake has been much lower among merchants and consumers at the base of the pyramid.
<blockquote class="pullquote--right">For customers accustomed to using cash and that enjoy the tangibility it offers, the value proposition of digital is difficult to communicate – particularly when relying on cash is perceived as free and more secure.</blockquote>
Accion and Banco Pichincha are working together to promote financial and digital inclusion in Ecuador, and one of the first key actions of the project was to identify the key adoption barriers for the Billetera deUna! mobile wallet through an analysis of the payments ecosystem and conversations with clients and field staff. <a href="https://globalfindex.worldbank.org/archdownload/chapter/11" target="_blank" rel="noopener">Nearly eight in 10 Ecuadorians have mobile phones</a>, but only <a href="https://globalfindex.worldbank.org/sites/globalfindex/files/countrybook/Ecuador.pdf" target="_blank" rel="noopener">32 percent of those with mobile phones are currently using their phones to make digital payments</a>, and cash still accounts for about <a href="https://blogs.worldbank.org/jobs/why-digital-payments-are-key-entrepreneurs-success" target="_blank" rel="noopener">40 percent of payments</a>, particularly in rural communities. The use of digital payments can help small merchants gain more access to credit, formalize, grow their business, reduce time required for reconciliation and risk of theft, and save them multiple trips to the bank to deposit cash. However, for customers accustomed to using cash and that enjoy the tangibility it offers, the value proposition of digital is difficult to communicate – particularly when relying on cash is perceived as free and more secure.
Using this information, Banco Pichincha has reimagined the user experience for underserved microbusinesses by addressing the barriers to adoption with a clear and compelling value proposition. In parallel, the bank is using Accion’s EdTech platform, Ovante, to support their microfinance customers’ digital literacy.
A wallet that can be used for payments and that clearly meets the needs of a small merchant will enable them to build financial resilience, operate digitally where social distancing is still required, and participate in an increasingly digital ecosystem. Being clear about how digital will benefit small merchants specifically, in messages that resonate with them, can thus help overcome any initial barriers to adoption.Using this information, Banco Pichincha has reimagined the user experience for underserved microbusinesses by addressing the barriers to adoption with a clear and compelling value proposition. In parallel, the bank is using Accion’s EdTech platform, Ovante, to support their microfinance customers’ digital literacy.
<h2>Design for both sides of the digital divide </h2>
<a href="https://www.accion.org/expanding-the-benefits-of-a-growing-digital-economy-in-indonesia-and-india" target="_blank" rel="noopener">Annapurna Finance Limited</a>, headquartered in Odisha, India, serves 1.9 million individuals in eastern India who would otherwise lack access to high-quality financial services. More than 99 percent of these individuals are group lending customers. When lockdowns due to the pandemic put an end to group meetings, this created a challenge for the members that depended on meetings to access much needed finance, especially during one of their most difficult times of need. Responding quickly to the crisis, Accion worked with Annapurna to reimagine their group lending process and supported the creation of a new digitally accessible emergency loan product for clients to help them manage liquidity constraints or any other financial emergency.
Though Annapurna is interested in developing more smartphone-based lending solutions, only 10 percent of their group lending customers currently own a smartphone. However, a greater percentage had access to less advanced feature phones. To address the digital divide, we created an SMS-based digital loan product that incorporated both tech and touch. Interested customers can provide a few details to their loan officer to ensure they meet the qualifications. If qualified, the loan officer can make an emergency loan limit available to them up to a pre-defined amount. Once this limit is created, a customer can access the funds at any time by simply sending an SMS to a dedicated phone number, which would result in the money being disbursed to the customer’s loan account.
We designed the solution to enable an easy upgrade to a smartphone version when relevant for their customers. Accion’s <a href="https://www.accion.org/msme-digital-maturity-assessment">digital maturity assessment</a> of Annapurna’s customers found that customers who use a digital device more than once per day are more than three times as likely to feel confident in using technology for different purposes and exhibit a greater willingness to try new products in the future. Therefore, Annapurna’s feature-to-smartphone product roadmap will allow customers to increase their digital maturity over time.
<h3><img class="aligncenter wp-image-24123" src="https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3.jpg" alt="Getting back to business: Rosina Das's story" width="1000" height="1278" srcset="https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3.jpg 2000w, https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3-235x300.jpg 235w, https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3-768x982.jpg 768w, https://content.accion.org/wp-content/uploads/2021/04/Customer-story-stacked-r3-5-3-801x1024.jpg 801w" sizes="(max-width: 1000px) 100vw, 1000px" /></h3>
On the opposite side of the digital divide, Annapurna found that the more digitally mature segment of their MSME clients that have individual rather than group loans were interested in greater convenience and wanted to be able to move away from having to visit physical branches. Annapurna knows that they need to digitize even faster for this segment and we are supporting the bank to develop an end-to-end digital loan that clients can apply for without needing to speak directly to a loan officer and through which all repayments can be made remotely.
<h2>Balance tech and touch to bridge the digital divide </h2>
<a href="https://www.accion.org/in-a-no-touch-world-tech-cant-leave-low-income-people-behind" target="_blank" rel="noopener">FSPs can do many things</a> to ensure that customers get the human touchpoints they need to feel supported and engaged. For customers with low digital maturity, such as group lending clients who traditionally rely on high-touch models of interaction, institutions should think strategically about hybrid models that leverage digital to automate manual processes while still maintaining the human touch that customers value.
<a href="https://www.accionmfb.com/" target="_blank" rel="noopener">Accion Microfinance Bank</a> (Accion MfB), one of Nigeria’s most successful microfinance institutions, is seeking to make digital the new norm and encourage digital behaviors in their client base. As part of this goal, they made the end-to-end application process for their new digital loan accessible only through mobile app or the web portal. But Accion MfB knew that not all their customers are ready for a fully digital process end-to-end, so the product was designed so that customers can initiate the digital loan application process with Accion MfB through several different channels. Customers can submit a request for a digital loan application via USSD mobile codes, which prompts the call center to reach out to better understand their characteristics: Do you have the documentation needed to apply digitally? What is your comfort in completing the application form online? Based on answers to these questions, the call center agent may direct applicants to one of the self-service channels to complete an application, or may refer applicants to a branch where a staff member can assist with a loan application.
<img class="alignnone size-full wp-image-24125" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3.png" alt="Accion Microfinance Bank digital loan" width="2000" height="1400" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3-300x210.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3-768x538.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_5-AMFB-digital-loan-5-3-1024x717.png 1024w" sizes="(max-width: 2000px) 100vw, 2000px" />
Customers who completed the digital loan application but were denied were redirected to a branch so that they could reapply using the traditional application process. Interestingly, the Accion MfB team found that some of the customers who were denied a loan using the digital process were approved using the in-person process for the same loan amount. After digging into the data, they found that customers were responding to questions on the digital loan application differently than they did in the in-person loan application process. It seemed that some customers were misinterpreting the questions on the digital loan application. When they were face to face with someone who could ask the same questions in several different ways, offer clarifications, or suggestions, the number of errors greatly reduced. For example, when asked about their revenues, they may have entered revenue for the day rather than the month. Given this finding, Accion MfB made several changes to the digital loan application to incorporate this human element. They changed how many questions were phrased to more closely resemble how an account officer would ask them, and made more help, examples, and tips available.

Optimize organizational design

Most microfinance institutions were built to be high-touch businesses, focused on meeting the needs of their customers through replicable processes conducted face-to-face and mostly in cash. Technology has helped automate some processes, such as field staff tools and credit risk decisioning. While this model worked well in ensuring that some underserved populations get access to the responsible finance they need, the heavy reliance on loan officers and physical branches results in higher costs and limits scalability.
<blockquote class="pullquote--right">The digital transformation of financial service providers requires careful thought about how two very different operating models, one current and one future state, should be integrated, under the same roof.</blockquote>
A purely digital financial services model — with remote application, application processing, approval, and digital transactions — is very different than the high-touch model of traditional microfinance institutions. When a microfinance institution is restricted only by a customer’s access to the right type of device and access to a mobile network, the potential for scale is massive. However, this newer model is diametrically opposite to the historical one in terms of ethos, culture, and style.
The reality for FSPs serving the underserved is that some of their customers do not yet have access to digital devices or a mobile network and will continue to require the high-touch service offered through the traditional microfinance model. Other customers, becoming more accustomed to transacting digitally in other areas of their life, are demanding the accessibility, convenience, and speed of service that digital financial services can provide. Therefore, the digital transformation of financial service providers requires careful thought about how two very different operating models, one current and one future state, should be integrated, under the same roof.
There’s no one right way to organize for digital transformation, and what it looks like can be very different from one organization to the next. A lot depends on the starting point — the as-is digital maturity of the institution — as well as the desired end state.
<ol>
<li>Some companies may want to integrate digital processes across all departments from the start.</li>
<li>Others may create a digital center of excellence, like an innovation lab, within the organization that is tasked with creating products that serve the institution’s client base.</li>
<li>And finally, others may decide to create a separate unit or even a wholly owned subsidiary to experiment in a controlled environment and ensure little or no impact on business as usual.</li>
</ol>
<img class="aligncenter wp-image-24065" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview.png" alt="Companies should carefully select an organizational design that will enable them to digitally transform. " width="1000" height="590" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview-300x177.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview-768x453.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_6-Org-design-overview-1024x604.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
<h3>For an organization to determine the best model to start with, they should consider the following dimensions:</h3>
<ul>
<li>Target customer segment: An institution should determine whether they are primarily focused on creating new products for new market segments to expand their reach, or on transforming existing products for existing market segments in order to serve them more efficiently. Those looking to serve new customer segments should look to create some separation between their existing and digital operating model.</li>
<li>Macro-level factors: Factors such as access to talent, potential for partnerships, level of digital readiness in the country, level of investment in digital transformation, and competitive landscape play a role in determining organizational design.</li>
<li>The level of disruption faced by the business: Often, a fully integrated digital transformation model takes more time and can create major distractions for business as usual. The higher the potential for disruption, the better to keep the digital unit separate until a point of maturity.</li>
<li>The level of digital maturity: The earlier a company is in its digital evolution — including digitally enabled processes, skills, and infrastructure — the more likely it is to need a bit of separation from standard operations to concentrate digital skills and move quickly.</li>
<li>Openness to change: Companies that have a more resistant or traditional culture usually fare better with a separate unit that is solely focused on digital evolution.</li>
</ul>
It is important to remember that organizational design can and should change over time. For most companies, having the dedicated focus of a separate or semi-integrated digital unit may make sense when starting on the journey — but over the longer term, they may want to ensure that digital capabilities become embedded across business lines. We took variations of the fully integrated digital transformation and digital center of excellence approaches with each of the FSPs we worked with as demonstrated by the examples below.
<img class="aligncenter wp-image-24066" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated.png" alt="Fully integrated digital transformation" width="1000" height="590" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated-300x177.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated-768x453.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_7-Org-design-fully-integrated-1024x604.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
In a fully integrated digital transformation model, digital capabilities and processes are integrated across business lines and all business lines have a responsibility to drive business agility, growth, and innovation.
Sub-K IMPACT Solutions Ltd., a banking correspondent company focused on reaching underserved populations in India, started their digital transformation journey from a relatively high level of digital maturity, and with a clear understanding of where they wanted to go with a digitally enabled model.
The team socialized digital transformation across the entire organization, utilizing town hall meetings with those at headquarters and in the field to discuss the importance of digital. They trained nearly all staff to adopt a digital-first approach to customer acquisition, application processing, account servicing and collections and put in place KPIs to drive forward a digital operating model. They also created several working groups with members from product, data strategy, training, compliance, marketing, call center, and agent networks to ensure that the existing assets and infrastructure of the institution could be completely leveraged to offer a distribution model for digital products. These cross-functional teams work together to develop and implement digitally enabled, customer-centric products and services, and to ensure a successful digital transformation at Sub-K.

Aligning around this model enabled Sub-K to launch the <a href="https://www.accion.org/banking-goes-digital-to-reach-rural-entrepreneurs" target="_blank" rel="noopener">SARTHI fintech platform</a> in August 2020. This platform currently offers their customers products such as MSME credit, digital micro-loans, gold loans, health insurance and micro-investments. The platform is integrated with multiple banks and third-party partners. Customers can access the marketplace on their own mobile devices or with the assistance from Sub-K’s staff and agents.
<img class="aligncenter wp-image-24068" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center.png" alt="Building a digital center of excellence" width="1000" height="590" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center-300x177.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center-768x453.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_8-Org-design-digital-center-1024x604.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
A center of excellence within FSPs can take a variety of forms. The center could have their own profit and loss (P&amp;L) responsibility for products that they develop and take to market, or they could emerge as an internal service that is responsible for working with existing P&amp;L owners to drive new and innovative solutions. As FSPs decide what model is right for them, it is important to consider which existing assets within the business will be leveraged in new digital initiatives. Usually, this model requires a significant shift in how departments such as IT, marketing, audit, and compliance, will operate, plan, and resource themselves to support the new venture, making clear agreements about how to share resources to achieve the organization’s priorities critical.
BancoSol is a financial institution serving more than one million low-income clients in Bolivia. As BancoSol embarked on their digital transformation journey, the bank opted to develop a digital center of excellence – an innovation hub – that would be responsible for leading the digital transformation of the bank. This group would enable BancoSol to better serve current customers and to explore what the future of the bank looks like. To encourage experimentation, the innovation hub was not configured to have P&amp;L responsibility immediately. It was given the freedom to develop a digitally native identity and culture, and the responsibility to work closely with the other business lines to deliver new products and services. This structure enables the innovation hub to leverage the existing capabilities of the bank, including the tech stack,marketing, and operational staff.
The innovation hub also serves as an incubator for new skills for the bank. Currently the hub is focused on building capabilities in three areas: human-centered design, data analytics, and open innovation. As these mature, they will be embedded within the business units — moving the organization closer and closer to a fully integrated digital transformation model. As the digital maturity of the organization grows through this process, the innovation hub will continue to foster cutting edge capabilities.
In the long run, as the capabilities of the innovation hub grow, the vision is to transition to a standalone digital unit that has its own P&amp;L responsibility, and that acts as a service provider for the bank, charging for its services. This bank-led innovation hub model has shown to be successful with <a href="https://www.dbs.com/innovation/dbs-innovates/spaces.html" target="_blank" rel="noopener">DBS Asia</a> X (DAX) and the <a href="http://innovation.brac.net/" target="_blank" rel="noopener">BRAC</a> Social Innovation Lab. Both these innovation hubs were developed by banks to create a space where ideas could be generated, developed, and implemented. The innovation hubs continue to bring internal innovation capability to the bank.
<img class="alignnone size-full wp-image-24069" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit.png" alt="Building a standalone digital unit" width="2000" height="1000" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_9-Org-design-standalone-unit-1024x512.png 1024w" sizes="(max-width: 2000px) 100vw, 2000px" />
A standalone digital unit is a powerful idea for many innovators in the industry. The allure of being able to build, test, learn, and launch products without having to worry about the FSP’s existing business operations is strong. One notable example is ALAT, Nigeria’s first fully digital bank, which is a child of the country’s oldest bank, Wema Bank. ALAT was built from the ground up to provide a branchless customer experience. Today, <a href="https://www.wemabank.com/alat-is-to-nigerian-banking-what-technology-is-to-humanity/" target="_blank" rel="noopener">ALAT has over 200,000 active clients</a>, is Wema Bank’s primary banking platform, and is bringing significant transformation to the Nigerian banking industry. In order to set up a stand-alone unit, the strategy, focus, investment requirement, and management structure of the new unit need to be absolutely clear.
Under the Mastercard and Accion partnership, we have opted not to work with any institutions to create a stand-alone digital unit. Rather, we remain focused on the transformation of the microfinance operating model in order to help existing and new clients access credit faster, make payments digitally, save remotely, purchase insurance, and access other benefits.

Build (and rebuild) a culture of experimentation

Culture is a key determinant of a successful digital transformation. An institution can upgrade technologies, infrastructure, and processes, but without addressing the human element, lasting change will not happen. Many microfinance organizations struggle to build digital capabilities internally, as employees prize their deep relationships with customers, and fear that digital tools such as mobile apps or chatbots may diminish their value and have a negative impact on the customer experience. In some cases, effective digital transformation will require bringing in new talent that has different experiences and exposure outside of the organization.
Likewise, the norm in many financial service providers, is that management tends to be focused on the short term and in reaching quarterly targets, and key performance indicators (KPIs) are not designed to encourage risk and innovation for incumbents in such a heavily regulated industry. But digital transformation requires innovation — or reimagining how to respond quickly to market challenges and opportunities. And this requires KPIs, protocols, and a collective learning mindset that supports a culture of experimentation.
Institutions that adopt a culture of experimentation are invested in learning, rather than expecting a product to turn a profit from day one. DBS Bank for example, <a href="https://bankingfrontiers.com/dbs-bank-innovation-is-part-of-the-culture/">runs over 1,000 experiments every year</a> —they strive to understand the needs of their customer, rapidly come up with ideas to solve their most pressing problems, and then take them back to the customer to test those ideas. While many of these experiments fail, it is the iterated version of those failures that leads to success. We find that many institutions will try something once, and it will fail, and the organization will never take the opportunity to learn from the failure and get past the initial iteration. Realizing the transformative power of experimentation is a commitment and over time, experiments yield thousands of small and not-so-small changes that can collectively result in huge benefits.

<h5>TO BUILD THIS CULTURE OF EXPERIMENTATION, THERE ARE SEVERAL STEPS FSPS SHOULD TAKE</h5>
<h2>Focus on alignment before getting started</h2>
Many FSPs have a perceived need to get new products out the door quickly to demonstrate progress on digital transformation initiatives. However, it can be counterproductive to shortchange the time and effort required to build alignment and a shared understanding of the roles and responsibilities expected of each team member in a new way of working together. Setting norms, from the Board down to each level of the organization, is the first step in defining the rules of engagement when creating and implementing digital transformation initiatives. In practice, key activities for digital transformation initiatives often fall on already over-burdened shoulders, which underscores how essential it is to ensure the incentives are right and that everyone has a shared understanding of the organizational priorities and their role in the strategy execution.
Sub-K’s CEO, Sasidhar Thumuluri, approached the challenge by first aligning with all teams on organizational goals and priorities. He held several strategy-setting workshops with relevant teams to identify gaps within the organizational design and process flows and to identify where concrete adjustments needed to be made. One opportunity area identified was a need to streamline hand-offs between the product and technology teams, which would be increasingly important to support the technological developments in the pipeline. Based on the workshop outcomes, the product and technology teams are working together to ensure hand-offs and configurations between the two teams are seamless.
Sasidhar also appointed subcommittees composed of senior-level staff to determine which activities best supported the organization’s priorities. Over time, this has made the organization much more amenable to running experiments. Their attitude has changed from “we can’t” to “we have challenges, let’s address them.” They have recently started evaluating use cases to implement conversational artificial intelligence and are running surveys to better understand the features and functionalities that their customers would find useful for their new customer-facing mobile application.
<h2>A culture of experimentation requires a test-and-learn approach — and a safe space to fail</h2>
<img class="aligncenter wp-image-24077" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation.png" alt="Culture of experimentation in digital transformation" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_10-Culture-of-experimentation-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
With Accion MfB in Lagos, Nigeria, we began the digital transformation process with the awareness that the organization was in very early stages of thinking about digitization. Leadership was excited and motivated to digitize, and they assumed that the organization could just hire a few staff members with key digital capabilities to develop a new digital unit, and that would be enough to move the organization forward. However, we quickly learned that we did not have the buy-in or support from other departments that would be required for the digital team to be effective. The HR, IT, marketing, and risk teams simply hadn’t bought in to the mission of the digital unit, and the KPIs they were asked to meet remained aligned with business as usual rather than the bank’s new digital ambitions. This created a disincentive to take any risks aligned with the digital teams’ ambitions.
Even though the organization’s board and CEO were pushing digital transformation, this trickle-down approach was not sufficient to drive a culture where the shared services of the bank were able to support the needs of a team using a test-and-learn approach. For example, the operational teams had certain risk and compliance measures they had to adhere to and were skeptical of large-scale digital changes where the outcomes had not yet been proven.
<h3>To address these challenges, the organization embedded the desired changes within the day-to-day operations of staff at every level by taking the following actions:</h3>
<ol>
<li>Encouraging management to take risks. One of the key challenges was to get the management to feel comfortable with learning by doing. They were worried about the impact of failed projects on the profitability numbers of the bank. The board approved an innovation budget and noted that any losses would not be counted against the bank’s profitability or performance-related pay. At the same time, the board held the management team accountable to demonstrate progress against their goals within an agreed timeframe.</li>
<li>Prioritizing a Chief Digital Officer (CDO) with the necessary people skills to drive digital adoption within the bank. The bank’s new CDO encouraged his team to take risks and learn from failure. It was more important to have someone who could set a vision and evangelize digital transformation than someone with deep technical and digital skills.</li>
<li>Developing digital KPIs and embedding them into the entire organization’s DNA. For example, the Human Resources team took on KPIs such as speed of recruitment of talent with digital skills, which were aligned around the needed competencies of recruits. The commercial team and branch managers were also given the mandate to contribute 15 to 20 percent of their time to digital support. This helped all teams understand their role in supporting initiatives sponsored by the digital unit.</li>
<li>Implementing several interdepartmental service level agreements (SLAs). For example, they ensured that audit and compliance will conduct timely assessments of digitally enabled products, marketing would respond to the needs of the new products being produced, risk team would support the needs of digital product innovation. This has been particularly important to ensure that departments develop budgets and plans that support experimentation requirements.</li>
<li>Creating a safe space to fail and encourage experimentation in a sandbox-like environment. They ringfenced potential risks by creating limits in terms of the maximum number of customers and the total amount to lend during the pilot to quantify the upfront costs needed for the experiment to achieve its learning objectives. The key was to provide a digital unit with autonomy and decision-making power and to frame the new digital loan as a low-risk experiment, rather than a fully fledged product launch. By doing this, the team was able to take a more flexible approach within the bank’s risk management framework for new product launches, to build up enough lending history for the digital loan pilot to validate the alternative scoring model.</li>
</ol>
<h2>Ultimately, digital transformation requires comfort with radical experimentation</h2>
A vital ingredient of any digital transformation strategy is experimentation. To be able to develop new offerings in a digital world, FSPs need the flexibility to experiment safely and effectively. This means that teams need the freedom to fail, all while ensuring that any inevitable failures occur in a secure environment. Leadership teams can create a safe environment for promoting innovation by mastering six skills: be approachable, compassionate, composed, manage conflict, direct others, and listen. Leadership teams that embody these characteristics open surprising doors that create differentiated offerings and innovative solutions to better serve financially excluded populations.
<div id="attachment_24078" style="width: 339px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-24078" class=" wp-image-24078" src="https://content.accion.org/wp-content/uploads/2021/04/civico-phone.png" alt="CÍVICO’s digital loan application provides MSMEs with just in time credit and flexible conditions so MSME’s can continue growing their businesses." width="329" height="558" srcset="https://content.accion.org/wp-content/uploads/2021/04/civico-phone.png 984w, https://content.accion.org/wp-content/uploads/2021/04/civico-phone-177x300.png 177w, https://content.accion.org/wp-content/uploads/2021/04/civico-phone-768x1303.png 768w, https://content.accion.org/wp-content/uploads/2021/04/civico-phone-604x1024.png 604w" sizes="(max-width: 329px) 100vw, 329px" />CÍVICO’s digital loan application provides MSMEs with just in time credit and flexible conditions so MSME’s can continue growing their businesses.</div>
CÍVICO is a digital ecosystem that has geolocated hundreds of thousands of small merchants and corner stores across Latin America to make it easier for citizens to find what they need in their local environment. CÍVICO is not a traditional financial service provider, but many of the merchants in their network expressed a need for financial services to help them to grow their businesses. Seeing the opportunity to better serve their customers and grow their business, CÍVICO set out to develop an end-to-end digital loan product for underserved businesses to help communities thrive. Because CÍVICO did not have the financial services infrastructure in place, they were initially solely considering partnering with external vendors to develop a digital lending platform. However, due to uncertainty caused by the COVID-19 pandemic, many of the partnerships they had been considering failed to materialize due to perceived elevated risks in lending.
Rather than continue to wait for the perfect partner to come along, especially when they knew that their users needed capital immediately to sustain their businesses, CÍVICO made the bold decision to start lending directly. They launched a low-fidelity product, lending very small amounts and limiting their total investment to just $15,000 USD so that they could conduct tests and learn quickly. This low-fidelity product has enabled CÍVICO to make several adjustments to their processes and product. For example, the team found that they needed to develop a filtering process to determine the specific needs of the MSMEs in their network. They deployed a survey that evolved into a merchant assessment tool. When they cross-referenced these profiles with CÍVICO’s existing data, it helped them to better understand the entrepreneur’s behaviors, their biggest pain points in recovering from the pandemic, and the state of their financial health. With this data, CÍVICO was more easily able to target the merchants most in need of credit and recommend specific educational modules, available on the CÍVICO platform, that would be most useful for the business. This is also helping them identify how to better use alternative data for credit scoring. After six months of running the pilot, they have been able to reach 1000 customers, and they are constantly incorporating learnings into their processes. CÍVICO has also identified several partners with which to scale the digital loan offering and is working toward building a multi-partner flexible product. By launching the pilot early with a small group of customers, they were able to finetune which customers to target and reduce risks for themselves and their partner lending institutions.

Have a clear data strategy

<blockquote class="pullquote--right">Any digital customer experience requires quality and curated data that is readily consumable as close to real-time 
as possible.</blockquote>
Data capabilities play an essential role in an organization’s digital transformation. Data can inform optimization strategies that increase efficiency and revenue. Data itself can also be monetized creating entirely new business models where data assets become products. Especially today, when FSPs must make unprecedented and rapid decisions, adjust business strategies, segment customers to understand portfolio risks, rethink credit models, and enable remote engagement with customers and staff, data capabilities go hand-in-hand with digital.
For the unbanked and underbanked and the financial providers that serve them, the explosion of available data, data-analytics services, and a growing digital ecosystem <a href="https://www.centerforfinancialinclusion.org/data-for-inclusive-finance-delivering-on-the-promise-for-consumers" target="_blank" rel="noopener">creates unprecedented potential</a>. The possibilities to unlock inclusion, <a href="https://www.centerforfinancialinclusion.org/data-for-inclusive-finance-delivering-on-the-promise-for-consumers" target="_blank" rel="noopener">greater financial health</a>, and opportunity for the underserved are extraordinary, from prospecting and credit scoring for thin-file consumers to well-timed nudges for saving,  to intelligent chatbots, to personalized recommendations, to remote client onboarding, to access to online platforms. Any digital customer experience requires quality and curated data that is readily consumable as close to real-time as possible.
<img class="aligncenter wp-image-24081" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data.png" alt="Using data to drive financial inclusion (examples)" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_11-Using-data-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
Despite the proliferation of data, the challenges of obtaining and converting raw information into actionable insights are immense. Many organizations become overwhelmed with the possible use cases for data and lose alignment and focus when it comes to creating a data strategy. Some institutions end up creating a parallel siloed data strategy rather than an integrated strategy which acts as a key enabler to their core strategic initiatives. However, microfinance organizations can take several key steps to harness the power of data in their digital transformation. These steps amount to a plan for how to align and prioritize data and analytics activities with key digital transformation priorities, goals, and objectives.
<h2>Derive value first from the data you have</h2>
In the early stages of developing a digital loan product, Accion MfB explored potential data-sharing partnerships with several entities, which would enable them to build a robust scoring model that would leverage alternative data. However, it was challenging to assess the value-add from potential third-party data providers and agree on how best to structure a commercial partnership. This challenge prompted the bank to take a long hard look at their own data. The organization has an arsenal of over 10 years of lending data that has been under-utilized, and the team realized that they could do a lot more with their own data if they got creative and looked at it in a different way. For example, they were able to use what they already know about customers’ willingness to pay and capacity to pay to design the pilot digital loan product. They leveraged historical data collected from existing bank customers and used this to create a benchmark profile against which to compare incoming data from new customers. As the use of their own internal data involved fewer operational and commercial complications, it helped the bank launch a viable pilot quickly even as it continues to explore other collaborations.
<h2>Be practical with how to get from insights to action</h2>
Similarly, BancoSol in Bolivia has been in operation for over 30 years and today serves 1 million clients, making it one of the nation’s largest banks. Mindful that they have a lot of untapped data under their noses, BancoSol wanted to leverage this data to uncover insights that could help to address four key challenges for the bank: drive digital adoption and improve usage, increase cross-product usage, increase savings balances, and maintain customer relationships. Accion and Mastercard supported BancoSol by convening a 36-hour “datathon” during which 40 Mastercard volunteer data scientists collaborated to tackle these key challenges.
<h3>Three key recommendations came from this exercise:</h3>
<ol>
<li>Start by understanding your typical digital customer. Analyzing customer demographic data and banking patterns can help identify and nudge those customers who are most likely to go digital. In BancoSol’s case, the datathon revealed that its typical digital app customer was more likely to be female and more likely to be younger compared to the average BancoSol client. By understanding the typical digital customer, BancoSol can prioritize those who may be most-inclined toward digital adoption.</li>
<li>Equip loan officers with insights to match customers with products that meet their needs. The datathon analysis revealed that app users made nearly twice as many deposits as other users — linking digital adoption with increased use. As <a href="https://www.centerforfinancialinclusion.org/data-for-inclusive-finance-delivering-on-the-promise-for-consumers" target="_blank" rel="noopener">research has shown</a>, greater use of financial products, whether that’s insurance, savings, or credit, makes small businesses more resilient to shocks like COVID-19 and also ensures the bank’s own sustainability. Equipped with these kinds of insights, loan officers can better communicate key benefits of going digital and identify when unexpected hurdles might be steering potential users away, like privacy or information security concerns or bad online experiences elsewhere. With insights from users, BancoSol was able to develop clear messaging for loan officers about privacy and security, and continually test and streamline the app experience for customers so it matched expectations.</li>
<li>Retain customers by being proactive, not reactive. The datathon offered insights on customer retention. When a customer stopped saving or communicating with the bank, for example, his or her risk for a loan default rose. Based on those factors, the data analysts created a risk propensity score, which the bank can use to intervene before a customer begins to disengage. The datathon also revealed that a digital connection can improve retention in the absence of an in-person connection, critical in an era of social distancing. Customers who use digital channels maintain consistent relationships with the bank and have more consistent differentiators between high and low retention risk.</li>
</ol>
Based on the experience of the datathon and seeing the value that could come from the data already in their arsenal, BancoSol has hired a full-time data analyst to join the team and plans to add on additional data experts over time. They know that having dedicated resources skilled in data analytics embedded within the product innovation team will help jumpstart a virtuous cycle of data-driven design.

<h2>Prioritize data management and governance</h2>
To derive value from existing data, microfinance institutions need to invest in structuring their data appropriately and be deliberate in the governance and management of their datasets to ensure their usefulness and adherence to data responsibility principles. Data governance establishes policies and procedures around data and must involve key business stakeholders. Data management comprises the set of activities and logistics involved to enact those policies and procedures with regards to how data is compiled and used for decision-making. FSPs should be proactive in adhering to global best-in-class customer data protection and privacy regulations, even if they are not (yet) required in their country.
Many institutions know they possess valuable data, but it is stored in various places and in multiple formats. They often ignore complicated archives and only manage the limited data that they are required to — or that is easily accessible. Many are preoccupied by fulfilling regulatory reporting requirements or consumed by responding to urgent ad hoc data requests, leaving little time and bandwidth to step back and organize their data. They acknowledge the importance of, but defer investing in, proper data management solutions to a later date, yet as data accumulates, this becomes harder. Annapurna Finance Limited wanted to address this challenge and has recently invested heavily in data management solutions that will improve data reporting, data migration, and data storage for new digital platforms and products from day one, such as the loan origination system, which will expedite credit scoring and origination of new digital lending and other products.
Nearly every financial institution struggles with maintaining accurate customer contact information, a simple yet critical example of data management. For microfinance institutions with high-touch models, having a current phone number on file can seem low priority, since the loan officer regularly visits customers in person. However, when lockdowns were first implemented due to the COVID-19 pandemic, the ability for loan officers to communicate directly with their group lending customers became almost impossible without up-to-date contact information. Annapurna needed to communicate critical loan information, including payment dates, updates on moratoriums, and even introduce new loan offers via SMS, as many of their clients only have access to feature phones.
<blockquote class="pullquote--left">Many institutions know they possess valuable data, but it is stored in various places and in multiple formats.</blockquote>
However, they found that their database of phone numbers was outdated, with many numbers  no longer working or belonging to a new individual. Annapurna introduced a standard process to ensure that at every customer touch point — whether during a field visit from a loan officer or a customer visit to a branch — bank staff would confirm the customer’s phone number to ensure a high-quality database. In parallel, they implemented a new communication system, which required them to integrate their SMS messaging system with their loan origination system. These two initiatives helped to standardize communications with customers, create greater engagement, and ensure a more transparent flow of information

Future-proof your transformation

While an institution’s technology infrastructure can be a springboard to leap forward, it can also be an obstacle. Today’s social distancing measures have made technology maturity even more crucial, as technology determines whether the institution can quickly deliver the critical digital functionality its staff and customers need. Underlying all of this is a need to build more flexible core IT and data management systems, which have traditionally been a weakness for MFIs. The ability to evolve and adapt business models, dependent on agile and adaptable IT systems, is increasingly a <a href="https://www.cgap.org/blog/after-storm-how-microfinance-can-adapt-and-thrive" target="_blank" rel="noopener">defining factor in the digital age</a>.
A key to digital transformation, and what makes it so difficult, is balancing both the necessary planning required to transform the organization and the agility needed to innovate quickly. In a <a href="https://hbr.org/2016/10/make-your-strategy-more-agile" target="_blank" rel="noopener">Harvard Business Review article titled “Make your strategy more agile</a>,” Tim Leberecht highlights the union of vision and improvisation:
<blockquote class="blockquote">“Vision incorporates the long-term, if not permanent, purpose and principles of an organization, which serves as the north star for all its actions. Improvisation suggests a fundamental openness and flexibility at the tactical level — the willingness to explore, experiment, and iterate.”</blockquote>
Perhaps nowhere do the conflicts inherent in these two opposing concepts come more starkly into contrast than in the technology stack and IT functions of an organization undertaking digital transformation. The fact is, technology decisions made today will impact what’s possible tomorrow, so organizations need to design for the future while understanding the constraints they face today due to legacy systems. Following these key design principles can help your organization balance conflicting priorities and opposing forces to build its future state architecture.

<h2>Balance vision and improvisation</h2>
Balancing infrastructure planning (or vision) with agility (improvisation) often requires a phased approach, with work around solutions enabling products to get to market quickly, while parallel tracking more long-term strategic investments in future-proofing your technology infrastructure. BancoSol was able to effectively take such a parallel approach. At the onset of their digital transformation journey, senior leadership articulated a vision and an implementation plan for the technology stack and analytics platform capabilities which would be required to execute the bank’s digital strategy for the next five years and beyond. The organization committed to ambitious digital adoption targets to set a north star toward which the team should set its sights. Yet, the team also recognized that it was equally important to start somewhere, to commit to improvising an agile approach to innovation rather than wait for the entire technology infrastructure to be deployed before beginning development of their first digital minimum viable product (MVP). Instead, the MVP was designed to function within the existing technology systems with the minimum modifications necessary in terms of API connections, etc., while planning to rollout additional functionality in line with the broader technology roadmap.
Balancing vision and improvisation also requires careful consideration of what to build in house versus what to outsource. As technology evolves, that question becomes increasingly complex. It may be easier to outsource key functions, but institutions need to be careful about protecting their core value-add to the market and not concentrating risk by relying too heavily on one vendor. Sub-K’s digital marketplace, <a href="https://www.accion.org/banking-goes-digital-to-reach-rural-entrepreneurs" target="_blank" rel="noopener">SARTHI</a>, was initially planned for in-house development, as they felt their IT team had the needed capabilities. However, after some deliberation, they realized that it would not be worth the time or effort to develop all of the capabilities needed internally, especially solutions that have already been commoditized in India. The organization decided to partner with several vendors to get access to their existing solutions, with necessary customizations. Sub-K knew that their core value-add was their unique methodology and agility to add new products and partners to the platform, so they needed to work with a technology partner to build a platform that enabled this flexibility.
Finally, a strong and coherent technology team is critical to delivering on the vision. The challenge confronting this team during a digital transformation is: how do we balance new digital initiatives with the tasks of business as usual? And how should we determine what to focus on?  Digital transformation requires that IT departments are clear on the organization’s transformation priorities and can effectively prioritize incoming projects. Sub-K, for example, has established a “change control board” tasked with assessing the business value of each request to prioritize the change requests. This board governs the process for required sign-offs and cross-checks with all affected product owners when a change is requested to the IT work stack. This helps IT manage delivery by prioritizing feasibility and strategic importance of various initiatives and continually reevaluating the current backlog.
Likewise, our partner Bina Artha Ventura in Indonesia had three standalone initiatives they wanted to pursue at the outset of their digital transformation journey: ecommerce, digital identity, and digital lending. In an effort to combine all three into a logical technical architecture, they made the strategic decision to prioritize development of an overarching customer engagement platform, which would support and ultimately be able to deliver their other key initiatives.
<img class="aligncenter wp-image-24082" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process.png" alt="Digital transformation: Prioritization process" width="1000" height="550" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process-300x165.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process-768x422.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_12-Prioritization-process-1024x563.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />
<h2>Think strategically about APIs to modernize legacy systems</h2>
The movement toward open-banking, or the system of allowing access and control of consumer banking and financial accounts through third-party applications, has generated a need for FSPs to be able to consume and produce data for third parties to reap the benefits that partnerships can provide. APIs play an important role in ensuring that a company can access, interact, and engage with a third party’s data and functions. They can also be an effective tool to modernize legacy systems in a way that is low-cost, efficient, and does not require a complete (and expensive) upheaval of the existing core system.
At Accion Microfinance Bank, for example, the team needed to find the right partner to support their ambitions to create a digital loan product. After finding the right partner, the organization quickly realized that to deliver the digital loan capability, it would need to build APIs to connect with the partner’s systems. To evaluate the feasibility of this, the team conducted an API inventory — or an evaluation of how various systems should connect and where vulnerabilities may lie.
<h3>Though this process, they examined:</h3>
<ul>
<li>the various integration points required for the organization’s systems to be able to communicate with various partners or vendors to meet the requirements of the digital lending product,</li>
<li>whether these integration points already existed,</li>
<li>whether they had the capabilities needed to manage the data, and</li>
<li>handoffs that may be required between the technology and operations teams.</li>
</ul>
This inventory helped them to understand the steps they would need to take to develop the capabilities required to manage the data exchanged through the new APIs.
<h2>As you go digital, ensure you are resilient</h2>
<img class="aligncenter wp-image-24094" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency.png" alt="Digital transformation resiliency" width="1000" height="500" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency-300x150.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency-768x384.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_13-Digital-resiliency-1024x512.png 1024w" sizes="(max-width: 1000px) 100vw, 1000px" />Digital transformation requires great reliance on the external and internal technological environment. The external environment includes the availability of mobile connectivity in the region, the ability to connect with others over the internet, and the technological readiness of potential partners. The internal environment includes the systems such as the core banking system, data warehouses, document management systems, and office automation systems. As an FSP begins to digitize, through greater process automation or through new business models, the more vulnerable their systems may be to system failures or cyber-attacks, and the more resilient its internal environment needs to be to avoid these challenges.
<div id="attachment_19099" style="width: 501px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-19099" class=" wp-image-19099" src="https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950.jpg" alt="Accion Microfinance Bank loan officer uses a tablet to serve client Ezeh at his workshop" width="491" height="433" srcset="https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950.jpg 1450w, https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950-300x265.jpg 300w, https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950-768x677.jpg 768w, https://content.accion.org/wp-content/uploads/2019/07/Accion_Clients_0002-1-e1619557888950-1024x903.jpg 1024w" sizes="(max-width: 491px) 100vw, 491px" />Ezeh, a client of Accion Microfinance Bank in Lagos, Nigeria</div>
To build resiliency, it is important to have well thought out and structured disaster recovery plans with remote disaster recovery sites set up with the appropriate failover and switch back parameters in place. These can include both on-premises (in physical server rooms) and on-cloud architecture. Cloud technologies, particularly, can improve technology resilience through greater regional autonomy (not dependent on other regions to run), data backups, and automated insights for decision-making.
However, regulators often perceive cloud infrastructure for financial services to be risky in terms of its suitability to safeguard customer’s personal and financial information. Financial regulators have a more comfortable view of carefully designed cloud-based architecture held within the country&#8217;s borders. Given the low cost of using cloud architecture and the benefits they offer, institutions can and should explore their use.
Finally, as FSPs digitize, cybersecurity is critical to ensure that the organization can reach its digital vision and the technology stack continues to be future proof. Cyber threats and attacks have increased since the start of the pandemic, particularly ransomware and COVID-themed phishing attacks, and organizations in the midst of digital transformation are very vulnerable. Effective mitigation against cyber risks requires developing layers of governance, accountability, policies, and procedures, all while creating and adhering to new norms of data protection and guidelines.
We worked with Accion AMfB, Sub-K, BancoSol, and Annapurna to recommend the necessary systems for greater resilience. This included suggestions for finetuning their disaster recovery plans, assessing cyber-risk solutions, regular testing, and the cultural changes needed for staff and partners to proactively address cyber risks and ensure business resilience and continuity planning.

Form partnerships to achieve scale

Partnerships are key to success in digital transformation. They can enable new ways to leverage data, evaluate risk, reach new customers, develop new products and services, and strengthen customer touch points. FSPs need to carefully consider when, how, and with whom to partner. The right partners will help accelerate your transformation agenda, bringing in agility and expertise that are beyond the core competencies of the FSP. As FSPs grow and evolve digitally, they are better able to integrate with formal players in the financial services ecosystem, such as payment providers and credit bureaus.
Partnerships are critical to expanding the reach and uptake of financial products among underserved people by supporting the development of a 360-degree digital financial ecosystem. We know that providing customers with digital financial products is only useful in so far that the financial ecosystem in which the customer operates has digital capabilities across the value chain, including merchants being able to accept digital payments, customers willing to pay digitally, and suppliers to small merchants accepting digital payments for inventory. Lacking any of these crucial elements can generate a bottleneck within digital financial transactions that will slow the adoption of digital financial services. To address this, many partnerships are emerging between FSPs and other enabling actors to drive this ecosystem. For example, FSP partnerships with mobile network operators (MNOs) are focused on enhancing mobile payments and increasing the usability of payment-related technologies — and have transformed how people complete financial transactions in many markets. As the density of digital services available within an ecosystem grows, so too will the digital comfort of end-customers.
<div class="mceTemp"></div>
<img class="alignnone size-full wp-image-24124" src="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3.png" alt="Digitizing the ecosystem to support the MSME" width="2000" height="1300" srcset="https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3.png 2000w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3-300x195.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3-768x499.png 768w, https://content.accion.org/wp-content/uploads/2021/04/Accion-MAP-report-graphics-WEB_14-Digitizing-the-ecosystem-5-3-1024x666.png 1024w" sizes="(max-width: 2000px) 100vw, 2000px" />
Some FSPs, however, tend to view partnerships through the narrow lens of a vendor relationship, rather than seeking to create something that is greater than the sum of its parts. The sticking point for many partnerships is a question of who owns the customer relationship and their data and a lack of a clear business case that aligns the goals of all parties. However, there are many ways to address these issues and build partnerships that work.

<h2>Establish win-win partnerships</h2>
<div id="attachment_17004" style="width: 423px" class="wp-caption alignleft"><img aria-describedby="caption-attachment-17004" class=" wp-image-17004" src="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308.jpg" alt="Our partners, including the team at BancoSol, are" width="413" height="328" srcset="https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308.jpg 1190w, https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308-300x238.jpg 300w, https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308-768x609.jpg 768w, https://content.accion.org/wp-content/uploads/2019/01/2018_Accion_BancoSol_Day3_0049-e1619577127308-1024x812.jpg 1024w" sizes="(max-width: 413px) 100vw, 413px" />Our partners, including the team at BancoSol, are developing innovative products to help small businesses to succeed.</div>
BancoSol, as one of the leading financial institutions in Bolivia, has a first-class IT team. They were able to develop their latest customer mobile banking app completely in house, and high uptake of the product established them as a pioneer in the market. However, when they planned to upgrade to a 3.0 version, they wanted to find a partner that could help them get to market within 100 days. Partnering with fintech startup<a href="https://flourishsavings.com/"> Flourish</a> allowed them to layer the gamification functionality enabled by Flourish’s platform on top of the bank’s digital assets, as a tactic to drive engagement — in this case, increased savings deposits — within the revamped customer app. The partnership was successful because it went beyond a mere vendor-bank relationship, with both entities collaborating on how to reach shared goals. Flourish was able to bring its knowledge of behavioral science together with BancoSol’s strong understanding of their customer to develop a captivating customer engagement strategy. The partnership was win-win for both entities: Flourish was able to enter the Bolivian market and BancoSol was able to get to market faster.
Partnerships can serve as a mutually beneficial go-to-market accelerator. For example, a good partnership can benefit both an FSP looking to scale their digital offerings and an ecommerce platform looking to grow their customer base. That’s why Accion MfB teamed up with African ecommerce giant <a href="https://www.jumia.com.ng/">Jumia</a> to help onboard their MSME customers onto the Jumia platform to boost sales through ecommerce and increase MSMEs’ comfort and trust in using digitally enabled tools to run their businesses. Jumia customers benefit through access to Accion MfB’s credit offering. Through this partnership, Jumia will be able to grow its customer base, and Accion MfB will be able to leverage ecommerce sales data to underwrite digital working capital loans.
<h2>Expand your definition of partner</h2>
When most people think of partnerships, the first thought that comes to mind is an alliance between two independent entities. However, CÍVICO’s founders are not ones to let traditional concepts define the realm of what’s possible, having invented a crowdsourcing model for citizens to map their own cities by posting missions and offering points and rewards to those who complete tasks, such as confirming the products or services offered at a specific location. In this way, they were able to build out the most comprehensive picture of local small businesses and other civic services available in cities like Bogotá, Colombia, and gain a better understanding of what financial services those small businesses might need.
<div id="attachment_24099" style="width: 544px" class="wp-caption alignright"><img aria-describedby="caption-attachment-24099" class="wp-image-24099" src="https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot.png" alt="The screen shot above is from CÍVICO’s website and describes how everyday citizens can collaborate with CÍVICO to map small businesses in their city, by taking the following steps: Step 1: “Tour the neighborhoods in your city,” Step 2: “Send us information from each place you are able to share,” Step 3: “We will provide you with points that you can later exchange for customer vouchers.” On this page, citizens can upload information about a business or look for other missions to complete. " width="534" height="427" srcset="https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot.png 1160w, https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot-300x240.png 300w, https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot-768x615.png 768w, https://content.accion.org/wp-content/uploads/2021/04/civico-screenshot-1024x820.png 1024w" sizes="(max-width: 534px) 100vw, 534px" />The screen shot above is from CÍVICO’s website and describes how everyday citizens can collaborate with CÍVICO to map small businesses in their city, by taking the following steps: Step 1: “Tour the neighborhoods in your city,” Step 2: “Send us information from each place you are able to share,” Step 3: “We will provide you with points that you can later exchange for customer vouchers.” On this page, citizens can upload information about a business or look for other missions to complete.</div>
But for CÍVICO’s new digital lending product to be viable, the company needed to find a cost-effective way to mitigate risk by verifying the business location of their online applicants. Rather than deploying CÍVICO staff to visit every potential customer — as a loan officer would do in the traditional microfinance model, and which would be expensive and time consuming for the start-up — CÍVICO turned again to their crowd-sourcing platform. They created new missions where individual citizens were asked to verify the location of the business by taking a picture of it and collect information related to perceived sales activity.
In the few cases where the business could not be verified in this way, CÍVICO would then deploy other more resource-intensive channels to verify the customer, either by phone or by conducting the visit themselves. This crowdsourcing-by-default design enabled an OPEX light business model by leaning on the existing relationships the company had created through their gamified crowdsourcing platform.

Conclusion and next steps

The global pandemic has taken an especially devastating toll on low-income people and small businesses. These vulnerable populations need access to financial tools that can help them rebuild their livelihoods and gain access to the increasingly digital economy, and they need financial services that are convenient, easy to use, and affordable. Digitizing swiftly and effectively is vital for FSPs to meet their customer’s evolving needs responsibly and at scale.
<blockquote class="pullquote--right">Much remains to be done, both by our partners and the industry at large.</blockquote>
Our global partnership with Mastercard has laid a solid foundation toward our goal of helping millions of people and small businesses fully participate in and benefit from the digital economy. While digital transformation is a continual and never-ending process, our partners have already accomplished so much. Beyond the digital products and services our partners are launching, what we hope sticks is the transformation process itself: the willingness and ability of everyone — through the culture of innovation and learning they create — to continue on the journey so that they can be responsive to the needs of their customers and meet challenges and opportunities as they arise.
The digital transformation of FSPs can also encourage more people to embrace the use of digital tools and spur the digital transformation of MSMEs. Individuals that are able and comfortable transacting digitally can connect more easily online and participate more fully in an inclusive digital economy. To date, 1.3 million microbusinesses are actively using digital products on a monthly basis as a result of this program. One notable example is 26-year-old Rosina Das, who with the help of Annapurna’s digital emergency loan, was able to reopen her small grocery shop in her village of Odisha, India. Similarly, millions of other MSMEs around the world can benefit from digital financial services to build resilience and seize opportunities.
Yet much remains to be done, both by our partners and the industry at large. Donors should play the important role of catalyzing the digital transformation of microbusinesses through strategic investments in microfinance organizations. Governments and regulators can take steps to reduce the demand for cash through carefully crafted regulations that incentivize digital transactions.  Finally, development finance institutions and multilateral institutions should further embrace digital transformation through technical support that is backed with investment funding.
We hope the learnings, insights, and strategies we share here inspire others to collectively contribute to the building of an inclusive digital economy. We are also hopeful that these examples of how our partners are addressing key challenges, while celebrating milestones achieved along the way, can inform the approaches of other institutions as they evolve and grow in our increasingly digital world.
Now that many of our partners have launched digital products and have others in the pipeline, our focus going forward is on driving uptake and usage, so that low-income individuals and merchants can reap the benefits of digital financial services. To enable greater prosperity and resilience for millions of underserved across the globe, we will support our partners to identify, prioritize, and execute on the key activities that will support and accelerate the digital transformation of the end customer. Ultimately, these efforts have the power to help vulnerable people rebuild from a devastating crisis and create an economy with opportunity for all.
<hr />
<a href="https://bit.ly/3adofG3" target="_blank" rel="noopener"><img class="wp-image-24105 alignleft" src="https://content.accion.org/wp-content/uploads/2021/04/Mastercard-e1619578679836.png" alt="Mastercard Center for Inclusive Growth logo" width="274" height="92" srcset="https://content.accion.org/wp-content/uploads/2021/04/Mastercard-e1619578679836.png 1000w, https://content.accion.org/wp-content/uploads/2021/04/Mastercard-e1619578679836-300x101.png 300w, https://content.accion.org/wp-content/uploads/2021/04/Mastercard-e1619578679836-768x257.png 768w" sizes="(max-width: 274px) 100vw, 274px" /></a>
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<a href="https://www.accion.org/mastercard-and-accion-partnering-for-inclusive-growth" target="_blank" rel="noopener">This paper is supported by the Mastercard Center for Inclusive Growth.</a>
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Contributions from digital transformation experts Vishal Ajmera, Debdoot Banerjee, Iain Brougham, Laura Glenny, Maria Camila Gomez, Mona Kapoor, Gift Mahubo, Balaji Parthasarathi, Prateek Shrivastava, Amy Stewart, Raliat Sunmonu, Victoria White, and Jose Wolff.

<a href="https://www.accion.org/how-to-empower-small-businesses-to-go-digital-and-rebuild/" target="_blank" rel="noopener noreferrer">Read the foreword for this report, co-authored by Accion and the Mastercard Center for Inclusive Growth, here.</a>
<h1>Executive summary</h1>
As the recovery from COVID-19 begins, financial inclusion has never been more urgent. Low-income people around the world have lost their jobs or businesses, and the World Bank projects that the pandemic will push <a href="https://www.worldbank.org/en/publication/global-economic-prospects" target="_blank" rel="noopener noreferrer">100 million people into extreme poverty</a>. Vulnerable populations direly need financial tools like savings, credit, and insurance to rebuild their livelihoods and build resilience to the challenges of today and those to come. Financial institutions have a critical role to play in supporting the most vulnerable and equipping them with the tools they need to enter the digital economy.

The pandemic and social distancing have dramatically increased the urgency for innovative and relevant digital solutions to meet the new and evolving needs of vulnerable populations. For many people visiting their local bank branch was unsafe or not feasible during lockdowns, and as economies begin to open, many people have begun to expect the convenience, speed, and affordability digital transactions can bring. To effectively support their clients and reach new populations in an increasingly digital environment, financial service providers (FSPs) need to digitally transform. Many microfinance institutions are built on low-tech, high-touch models designed decades ago to reach millions of low-income clients. Now, these FSPs must find digital ways to reach and interact with their customers efficiently and at scale, use their client data for more efficient credit management and product design, and build more flexible core systems that support adaptability. This requires FSPs to coordinate across every aspect of their business to achieve a fully digitally enabled business model.
<blockquote class="blockquote">FSPs must find digital ways to reach and interact with their customers efficiently and at scale, use their client data for more efficient credit management and product design, and build more flexible core systems that support adaptability.</blockquote>
&nbsp;

Through our work with FSPs and their clients, we uncovered six key strategies that financial inclusion-focused institutions need to keep in mind as they progress down the path of digital transformation:

The digital transformation guide: Six strategies to scale financial inclusion

Spanish

En foto: Margarita Viverzca Gomez aprendió cómo mejorar el negocio familiar mediante la plataforma Ovante de Accion
Las micro, pequeñas y medianas empresas (MIPYME) de todo el mundo se encuentran en una precaria situación financiera. Luego de más de un año lidiando con la crisis económica del COVID-19, muchos propietarios de pequeñas empresas siguen sin poder cubrir todos sus gastos del mes.  Se enfrentan a una disminución de las ventas, deudas abrumadoras y ahorros agotados. <a href="https://www.centerforfinancialinclusion.org/cautious-optimism-msmes-are-rebounding-from-the-impacts-of-covid-19" target="_blank" rel="noopener">Aunque estamos observando señales de una tendencia ascendente</a> después de la devastación económica inicial causada por la pandemia —las empresas han abierto, comienzan a contratar personal y los niveles de ganancias están empezando a estabilizarse— muchas MIPYME  aún siguen frágiles. Estos microempresarios necesitan apoyo para mantener sus negocios funcionando en un mundo cada vez más digital como el actual.
<div id="attachment_23942" style="width: 326px" class="wp-caption alignright"><img aria-describedby="caption-attachment-23942" class="wp-image-23942 " src="https://content.accion.org/wp-content/uploads/2021/04/ovante-blog-certification-e1618420801242.png" alt="Ovante certification of completion" width="316" height="448" srcset="https://content.accion.org/wp-content/uploads/2021/04/ovante-blog-certification-e1618420801242.png 536w, https://content.accion.org/wp-content/uploads/2021/04/ovante-blog-certification-e1618420801242-212x300.png 212w" sizes="(max-width: 316px) 100vw, 316px" />Después de completar cada uno de los planes de acción de Ovante, el usuario recibe un certificado de finalización que podrá compartir en sus redes en WhatsApp o Facebook.</div>
Con el objeto de proporcionar a las MIPYME las herramientas que necesitan para restablecer su resiliencia ante esta crisis, y enfrentar los desafíos futuros, Accion ha lanzado un kit de herramientas de recuperación de COVID-19 en nuestra plataforma edtech Ovante.  Gracias a los aportes de nuestro donante <a href="https://www.metlife.com/sustainability/MetLife-sustainability/MetLife-Foundation/" target="_blank" rel="noopener">MetLife Foundation</a>, así como al patrocinio de <a href="https://www.spglobal.com/en/foundation" target="_blank" rel="noopener">S&amp;P Global Foundation</a> y de <a href="https://fedexcares.com/">FedEx</a>, el kit de herramientas está disponible sin costo alguno.  Diseñamos este kit para ayudar a los pequeños emprendedores a administrar sus negocios en momentos de dificultad, ofreciendo una guía sobre cómo mejorar sus finanzas y lograr que sus empresas se pongan en línea rápidamente. Los propietarios de pequeñas empresas pueden acceder al <a href="https://ovante.org/es/adaptar-mi-negocio/" target="_blank" rel="noopener">kit de herramientas de recuperación de COVID-19</a> en <a href="https://ovante.org/es/" target="_blank" rel="noopener">Ovante.org</a> Está disponible en tres idiomas: inglés, español e hindi. Cada plan de acción del kit tarda entre 8 y 15 minutos en ser completado, y está diseñado para ser altamente interactivo, práctico y ameno. Animamos a los proveedores de servicios financieros a compartir este kit de herramientas con sus clientes para ayudar a que los microempresarios de todo el mundo desarrollen mejores comportamientos financieros, y fortalezcan sus capacidades gerenciales y digitales.
El kit de herramientas aborda tres preguntas principales que escuchamos de los propietarios de pequeñas empresas en su objetivo de recuperarse de la crisis del Covid-19 ¿Cómo puedo sentir mayor seguridad financiera? ¿Cómo puedo adaptar mi negocio para sobrevivir y prosperar? ¿Cómo puedo llevar mi empresa al mundo digital?
<h2>¿Cómo puedo sentir mayor seguridad financiera?</h2>
Para muchos microempresarios, el llegar a fin de mes durante una crisis parece imposible. Acción encuestó a microempresarios en Chile, México, India y Nigeria en octubre de 2020 —seis meses después de la pandemia— y se enteró de que los microempresarios de estas regiones seguían luchando para cubrir sus gastos esenciales. Casi el 60 por ciento de los encuestados nos dijeron que no habían podido pagar sus facturas a tiempo, y el 50 por ciento respondió que ha tenido que pedir dinero prestado para cubrir sus gastos. El kit de herramientas proporciona planes de acción que ayudan a los microempresarios a tener confianza en sus finanzas aprendiendo a:
<ul>
<li>Salir de las deudas Se pide a los microempresarios clasificar sus deudas de menor a mayor, y reciben recomendaciones sobre qué deuda pagar primero en función de si están garantizadas o no, y de las consecuencias de pagar con retraso.</li>
<li>Crear un plan de gastos: los usuarios priorizan sus gastos y crean un plan para reducir los gastos. Luego se les pide que desarrollen un presupuesto basado en sus ingresos, y reciben estrategias para cumplir con este plan de gastos recién creado.</li>
<li>Utilizar la banca digital: Los microempresarios aprenden los beneficios de los servicios financieros digitales para su negocio, incluyendo equilibrar el flujo de efectivo, llevar un registro digital de facturas, realizar pagos de forma segura y acceder rápidamente al financiamiento. También aprenden paso a paso cómo abrir una cuenta digital segura.</li>
</ul>
<h2>¿Cómo puedo adaptar mi negocio para sobrevivir y prosperar?</h2>
El 19% de las microempresas encuestadas en el sector de servicios habían dejado de operar debido al COVID-19. Además, la pandemia ha tenido un <a href="https://www.accion.org/5-ways-to-help-women-entrepreneurs-adapt-during-covid-19" target="_blank" rel="noopener">impacto desproporcionado en las mujeres</a>. Ellas informan haber sufrido mayor estrés financiero, sentirse más cansadas y estar en general en peor estado anímico que los hombres. Para hacer frente a estos desafíos, más del 30 por ciento de los encuestados en México dijeron que buscan otra fuente de ingresos. En Chile, Nigeria e India más de un 40% dijo que deseaba encontrar alguna manera de hacer crecer y expandir su negocio actual, pero que no sabe cómo hacerlo. La caja de herramientas les ayuda a sortear estas dificultades al proveerles instrucciones concretas:
<ul>
<li>Mantener la rentabilidad durante la crisis: una actividad guiada conduce a los microempresarios a determinar su rentabilidad actual y a evaluar cuáles gastos directos e indirectos podrían ser reducidos para mejorarla. También aprenden a fijar el precio de sus productos dependiendo de si su negocio es de tipo esencial o no.</li>
<li>Solicitar crédito digital: Los usuarios aprenden cuándo es apropiado solicitar un crédito digital y reciben instrucciones paso a paso para hacerlo. Al final del módulo, los usuarios tendrán mayor confianza en su capacidad de protegerse contra el riesgo de fraude.</li>
<li>Adapte su negocio: Se pide a los microempresarios que respondan a una serie de preguntas para determinar la urgencia de emprender cambios. En función de sus respuestas, los usuarios pueden explorar oportunidades potenciales para adaptar su negocio, tales como vender nuevos productos o servicios, o dejar de ofrecer ítems de baja demanda, o <a href="https://www.accion.org/how-the-pandemic-is-spurring-microentrepreneurs-to-go-digital" target="_blank" rel="noopener">encontrar nuevas formas de atender a los clientes</a>.</li>
</ul>
<h2>¿Cómo puedo llevar mi negocio al mundo digital?</h2>
A medida que la economía moderna se vuelve cada vez más digital, las MIPYME que pueden vender en línea y operar digitalmente tienen más probabilidades de sobrellevar esta crisis y prosperar en el largo plazo. Con menos clientes que se desplazan físicamente a comprar, muchas empresas sienten la urgencia de poner su negocio en línea, pero no están seguros sobre dónde comenzar. Nuestra encuesta mostró que un 33% de las MIPYME en los cuatro países abrieron una nueva cuenta empresarial en redes sociales, durante los primeros 6 meses de la pandemia. Y el 30 por ciento de los encuestados nos dijo que siente que debe comenzar cuanto antes a vender productos a través de Internet. El <a href="https://ovante.org/adapt-my-business/">kit de herramientas de recuperación de COVID-19</a> explica la importancia  de poner a las empresas en línea y muestra a los emprendedores cómo hacerlo:
<ul>
<li>Comenzar a operar en línea: los usuarios aprenden sobre plataformas en línea que pueden ayudarles a promocionar y operar mejor sus negocios, como Facebook, Instagram, WhatsApp y Google. Evalúan cuál es la plataforma donde tiene más sentido anunciar su negocio, y aprenden formas fáciles de comenzar a construir su presencia en línea.</li>
<li>Aceptar pagos digitales: esta lección ayuda a las MIPYME a evaluar las ventajas de aceptar pagos en línea, identificar la plataforma más adecuada para sus negocios, y reciben consejos y aprenden trucos para comenzar de inmediato.</li>
<li>Promocionar el negocio en línea: se pide a los usuarios que definan por qué necesitan anunciarse en línea, decidir quiénes son sus clientes objetivo y aprender las mejores prácticas para publicitar en redes sociales. Aprenden cómo las promociones en línea pueden expandir su base de clientes y mejorar su rentabilidad.</li>
<li>Ofrecer entregas online: En tiempos de crisis, resulta un reto mantener el vínculo con los clientes cuando ya no visitan la tienda. Los usuarios aprenden sobre los servicios de entrega y cómo seleccionar el mejor para su negocio.</li>
</ul>
Una vez que las MIPYME completan estos planes de acción, dispondrán de las herramientas, la capacidad y la confianza que requieren para aprovechar el Internet para continuar operando al vender productos y servicios en línea, aceptar pagos digitales, o promover el negocio en las redes sociales. Hasta la fecha, el 90 por ciento de las MIPYME que completaron todos los módulos comenzaron a usar Internet para sus necesidades empresariales, y el 69 por ciento abrió cuentas en redes sociales para su negocio. Al utilizar ejemplos sencillos y herramientas fáciles de usar, Ovante facilita que los microempresarios pongan en práctica los conocimientos adquiridos, y sigan la ruta hacia una mayor salud financiera.
Animamos a los proveedores de servicios financieros a apoyar la recuperación de sus clientes y el desarrollo de su resiliencia ante futuras crisis al compartir los planes de acción gratuitos del <a href="https://ovante.org/es/adaptar-mi-negocio/" target="_blank" rel="noopener">kit de herramientas de recuperación Ovante COVID-19</a> con sus clientes.

Accion’s Ovante edtech platform launches a new COVID-19 recovery toolkit to help microentrepreneurs rebuild

Micro, small, and medium enterprises (MSMEs) around the world are in a precarious financial position. After over a year of struggling through COVID-19's economic crisis, many small business owners still can’t make ends meet. They’re facing decreased sales, overwhelming debt, and depleted savings. <a href="https://www.centerforfinancialinclusion.org/cautious-optimism-msmes-are-rebounding-from-the-impacts-of-covid-19" target="_blank" rel="noopener noreferrer">Though we’re seeing signs of an upward trajectory</a> after the initial economic devastation caused by the pandemic — businesses have opened, profit levels are starting to stabilize, and hiring has started up again — many MSMEs remain in a fragile place. These microentrepreneurs need support to keep their businesses running in today’s more digital world.

[caption id="attachment_23942" align="alignright" width="316"]<img class="wp-image-23942 " src="https://content.accion.org/wp-content/uploads/2021/04/ovante-blog-certification-e1618420801242.png" alt="Ovante certification of completion" width="316" height="448" /> After completing each of the Ovante action plans, the user receives a certificate of completion to share with their networks on WhatsApp or Facebook.[/caption]

To provide MSMEs with the tools they need to rebuild their resiliency in the face of this crisis and future challenges, Accion has launched a COVID-19 recovery toolkit on our <a href="https://ovante.org/" target="_blank" rel="noopener noreferrer">edtech platform Ovante</a>.  With funding made flexible by our donor, <a href="https://www.metlife.com/sustainability/MetLife-sustainability/MetLife-Foundation/" target="_blank" rel="noopener noreferrer">MetLife Foundation</a>, as well as sponsorship from <a href="https://www.spglobal.com/en/foundation" target="_blank" rel="noopener noreferrer">S&amp;P Global Foundation</a> and <a href="https://fedexcares.com/" target="_blank" rel="noopener noreferrer">FedEx</a>, the toolkit is available at no cost.  We designed the recovery toolkit to help small entrepreneurs manage their businesses through tough times by offering guidance on improving their finances and getting their businesses online fast. Small business owners can access the COVID-19 recovery toolkit on <a href="https://ovante.org/" target="_blank" rel="noopener noreferrer">Ovante.org</a> in three languages: English, Spanish, and Hindi. Each action plan in the toolkit takes between 8 to 15 minutes to complete and is designed to be highly interactive, actionable, and fun. We encourage financial service providers to share this toolkit with their clients to help microentrepreneurs around the world build better financial behaviors and strengthen their managerial and digital capabilities.

The toolkit addresses three primary questions we hear from small business owners as they aim to recover from the COVID-19 crisis: How can I feel more confident about my finances? How can I adapt my business to survive and thrive? How can I bring my business online?
<h2>How can I feel more confident about my finances?</h2>
For many microentrepreneurs, making ends meet during a crisis feels impossible. Accion surveyed microentrepreneurs in Chile, Mexico, India, and Nigeria in October 2020 — six months into the pandemic — and learned that microentrepreneurs in these regions were still struggling to cover their essential expenses. Nearly 60 percent of those surveyed told us that they have not been able to pay their bills on time, and 50 percent said they have had to borrow money to cover their expenses. The toolkit provides action plans to help microentrepreneurs gain confidence in their finances by learning to:
<ul>
 	<li>Get out of debt: Microentrepreneurs are encouraged to list their debts from smallest to largest and receive recommendations on which debt to pay off first based on whether they are secured or unsecured and the consequences for late payment.</li>
 	<li>Create a spending plan: Users prioritize their expenses and create a plan to reduce spending. They are then prompted to develop a budget based on their income and receive strategies to stick to their newly created spending plan.</li>
 	<li>Utilize digital banking: Microentrepreneurs learn the benefits of digital financial services for their business, including cash flow smoothing, keeping a digital record of records and bills, securely sending payments, and quick access to financing. They also learn step-by-step how to set up a secure digital account.</li>
</ul>
<h2>How can I adapt my business to survive and thrive?</h2>
Fifteen percent of microenterprises in the services industry we surveyed had completely closed due to COVID-19. Furthermore, the pandemic has had a <a href="https://www.accion.org/5-ways-to-help-women-entrepreneurs-adapt-during-covid-19" target="_blank" rel="noopener noreferrer">disproportionate impact on women</a>. Women reported experiencing greater financial stress, feeling more tired, and being in an overall worse mental state than men. To cope with these challenges, over 30 percent of respondents in Mexico said they are seeking another source of income. In Chile, Nigeria, and India, over 40 percent said they want to find a way to grow and expand their current business but are not clear on how to do so. The toolkit helps them navigate these difficulties by providing instruction on how to:
<ul>
 	<li>Stay profitable during a crisis: A guided activity leads microentrepreneurs to determine their current profits and consider what direct and indirect costs can be reduced to increase profitability. They also learn how to price their goods depending on whether they are an essential or non-essential business.</li>
 	<li>Apply for digital credit: Users learn when it is appropriate to seek digital credit and receive step-by-step instructions on obtaining a digital loan. At the end of this module, users will have greater confidence in their ability to safeguard themselves against the threat of fraud.</li>
 	<li>Adapt your business: Microentrepreneurs are asked to answer a series of questions to assess their urgency for change. Based on their responses, users can explore potential opportunities for adapting their business, like selling a new product or service, taking other low-demand items off their shelves, or <a href="https://www.accion.org/how-the-pandemic-is-spurring-microentrepreneurs-to-go-digital" target="_blank" rel="noopener noreferrer">finding a new way to serve their customers</a>.</li>
</ul>
<h2>How can I bring my business online? </h2>
As the modern economy becomes more and more synonymous with the digital economy, MSMEs that can sell online and operate digitally are more likely to weather this crisis and thrive in the long run. With fewer customers physically walking in the door, many business owners feel the urgency to shift their business online but are not sure where to start. Our survey showed that 33 percent of MSMEs across the four countries opened a new social media account for their business in the first 6 months of the pandemic. And 30 percent of respondents told us that they feel they must urgently begin selling products over the internet. The <a href="https://ovante.org/adapt-my-business/" target="_blank" rel="noopener noreferrer">COVID-19 recovery toolkit</a> explains the value of bringing businesses online and shows entrepreneurs how to:
<ul>
 	<li>Get started online: Users learn about online platforms that can help them better promote and operate their businesses, like Facebook, Instagram, WhatsApp, and Google. They evaluate which of these platforms makes the most sense to advertise their business and learn easy ways to start building their online presence.</li>
 	<li>Accept digital payments: This lesson helps MSMEs consider the advantages of accepting online payments, determine which platform is right for their business, and learn tips and tricks for getting started immediately.</li>
 	<li>Promote your business online: Users are prompted to define why they need to advertise online, decide who their target customers are, and learn best practices for social media advertising. They learn how online promotions can expand their customer base and grow their profits.</li>
 	<li>Offer online delivery: In times of crisis, it is challenging to stay connected with clients when they are no longer visiting the business. Users will learn about delivery services and how to best select a delivery service for their business.</li>
</ul>
Once MSMEs complete these action plans, they will gain the tools, capacity, and confidence needed to leverage the internet to stay in business by selling their products or services online, accepting digital payments, or promoting their business on social media. To date, 90 percent of MSMEs that completed all modules started using the internet for their business needs, and 69 percent opened social media accounts for their business. Using simple examples and user-friendly tools, Ovante enables microentrepreneurs to put their acquired knowledge into practice and take steps towards greater financial health.

We encourage financial service providers to support their customers’ recovery from the pandemic and build their resilience to future crises by sharing the free <a href="https://ovante.org/adapt-my-business/" target="_blank" rel="noopener noreferrer">Ovante COVID-19 recovery toolkit action plans</a> with their clients.

A guide to pandemic recovery for microentrepreneurs

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 is 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

Amy Stewart

After conducting user research, interviewers document observations, facts, quotes, and impressions shared by customers. As the information grows, key themes, patterns, and relationships start to emerge. We learned that people often feel stressed and alone in managing their finances and financial challenges, and that <a href="https://www.accion.org/five-reasons-small-merchants-arent-using-financial-services-in-chile" target="_blank" rel="noopener noreferrer">microentrepreneurs tend to keep track of their finances mentally</a>. These insights highlight the drivers of customer behavior and were used to guide the product concepts.
With Caja Popular Cerano, we conducted a co-creation session with potential users, empowering them as active participants in the design process. Typically, co-creation works the best when you have a very narrow problem you are trying to solve. In this instance we worked with small groups of youth to explore how financial service providers could build better trust relationships with young customers. Through co-creation sessions, participants discussed how trust emerges from healthy relationships, and developed a marketing campaign with the hashtag #FinancialLoveExists.
<h3>Test products with customers in the field to see how they really react</h3>
Speaking with customers will only get you so far in developing a sustainable product. Institutions should quickly move to translate insights into prototypes, giving form to product ideas so that they can move out of the office and into the reality of customers’ lives. Initial prototypes should be “quick and dirty,” allowing teams to explore and get feedback on many options before investing in detailed design and development. Prototyping is an opportunity to gather customer feedback and to assess their behavior. Beyond asking for reactions, likes, and dislikes, we also ask customers to share how, when, and where they would use the prototyped product.
As opposed to early prototypes, which are usually drawn or presented on paper, later-stage ‘usability’ prototypes are close to final fidelity and allow customers to interact with and explore the product flows. Ideally, these prototypes are hosted on the final technology platform and can be tested in a user’s environment. Interviewers simply provide the customer with the prototype and see how they interact – this helps the team get a sense of whether the product is intuitive, how long it takes to complete certain tasks, and what additional features might be required.
For example, microentrepreneurs reviewing the Organizame mobile application told us that when inputting the price of their products into the application, it would be useful to have the option to choose whether that particular product is sold with VAT (value added tax) or not. The development team is now working to build out this option.

Brief

Photo caption: By keeping desirability, feasibility, and viability in mind in product innovation, Accion worked with institutions across Latin America to develop scalable and sustainable products, including a financial health portal with <a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health" target="_blank" rel="noopener noreferrer">Destácame</a> in Chile. 

The financial services landscape is crowded with a wide array of offerings, but vulnerable and low-income people across the globe still struggle to find products that are designed to meet their needs. This gap has been amplified though the economic fallout from COVID-19, which has disproportionately affected those without the access, resources, or network to weather the storm. Now more than ever, low-income populations need customized and responsive financial products and services to recover from the crisis and restart in the new normal.

To address this gap, in recent years many financial service providers have turned to human-centered design (HCD) methodologies to better understand their clients’ wants, needs and aspirations, hoping to update their product offering and drive usage. While many organizations have this goal, very few have been able to deliver on it. Many human-centered products are based on thoughtfully designed and innovative ideas, but ultimately do not end up gaining traction with customers or are disbanded when institutional priorities shift. Sometimes institutions focus on customer needs but overlook real operational and business constraints. Others design from the board room, without taking into account the customer’s life and the complexities around financial decision making and end up solving for the wrong problem. To be sustainable, innovative digital products must balance the customer’s needs with organizational capacity and should be built upon a solid business case to ensure that the product is supported in the long term.

Accion, <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion" target="_blank" rel="noopener noreferrer">in partnership with MetLife Foundation</a>, is committed to delivering high quality, affordable solutions for the billions of individuals who are still underserved by the financial sector. We do this by working alongside financial institutions to design, build, launch and optimize innovative products, services, and experiences for low-income customers that are desirable (wanted by and useful for clients), feasible (achievable given the institution’s operations, technology and resources), and viable (make business sense)—so that the products make it from concept to commerce.

<img class="wp-image-22353 alignleft" src="https://content.accion.org/wp-content/uploads/2020/09/accionGraphics_Aug26_Key-Tenets.png" alt="Key tenets of innovation: feasibility, desirability, and viability" width="436" height="314" />

This paper outlines how financial institutions can develop innovative and sustainable financial solutions. It draws on our recent experiences working with financial services providers and fintechs in <a href="https://www.accion.org/achieving-financial-health-in-mexico-and-chile">Chile and Mexico</a> over the last two years to design and launch behaviorally-informed products that build customers’ financial capabilities and ultimately improve their financial health. While the products were not specifically designed to respond to the impacts of COVID-19, they aim to build resiliency to financial shocks and enable users to pursue opportunities over time.

This paper will cover how we leverage human-centered design and a strong focus on behavior to create more desirable products, how we evaluate institutional capacity to ensure feasibility, and how we get the business model and KPIs right to ensure the product is viable and justifiable for the business for the long term—even during economic shocks. For customers, this approach translates to more intuitive financial products and services that are aligned with their behaviors and help build their financial health. For financial service providers, this approach leads to innovative products that are sustainable, use internal resources efficiently, and achieve business goals.

Using this approach in Chile, we developed a business management application with <a href="https://www.accion.org/this-new-app-is-helping-small-business-owners-build-financial-health-and-resilience" target="_blank" rel="noopener noreferrer">Organizame and Banigualdad</a>, a financial health portal with <a href="https://www.accion.org/fintech-founders-have-a-formula-for-building-financial-health" target="_blank" rel="noopener noreferrer">Destácame</a>, and a crowd-funding platform for microentrepreneurs with <a href="https://redcapital.cl/" target="_blank" rel="noopener noreferrer">RedCapital</a>. In Mexico, we developed a savings product for youth with <a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener noreferrer">Caja Popular Cerano</a>, and a supply chain finance product with <a href="https://www.ahorrosbienestar.com/" target="_blank" rel="noopener noreferrer">Caja Bienestar</a>. 
<h2>Desirability — are we solving customer problems?</h2>
To combat the persistent issue of dormant accounts, financial service providers must design desirable products that people will want to use, that are intuitive, and that will generate value. Desirable products solve customer problems, and to identify the right problem, institutions need to go to the customer. HCD methodologies stress talking to and observing potential customers to gain perspective and empathy for their lives. We’ve found it just as important to analyze how customers make decisions — both consciously and subconsciously — and how they behave, using qualitative and quantitative data.
<h2>How can we ensure products are desirable?</h2>
<h3>Conduct client-centric user research that seeks to understand customer behavior</h3>
We begin every design process by conducting user research to understand what customers want and why they act the way they do. Interviewers are trained to take note of physical and emotional reactions, feelings, and expressions as well as customer surroundings, observing their daily lives and understanding their broader context.

While social distancing measures make in-person interviews difficult, we found that this can also be done remotely.  In Mexico, the team conducted remote video interviews with youth customers, and found that they were still able to capture non-verbal cues and build trust. Questions explore underlying attitudes that inform client decision-making. We listen closely to understand when participant behavior may have been affected by emotion, stress, or biases. This process helps us to ensure that we are building products that accommodate client realities, will align with how customers actually behave, and will make their lives easier.

To succeed, innovative financial products must be desirable, feasible, and viable

Yanina Seltzer

<h3>Using data, behavior, and design to build clients’ financial health</h3>
Creating products that build underserved customers’ financial health requires that providers become more familiar with their customers’ financial goals and behaviors. This means that financial institutions need to move away from product-centric approaches to become customer-centric.
Providers can become customer-centric by combining these three areas:
<ol>
<li>Data: Examine available transactional, market, and business data to reveal user patterns and behavior and build solutions that leverage that knowledge,</li>
<li>Behavioral Science: Use principles of behavioral science to better understand customer decision-making and overcome barriers to action, and</li>
<li>Design Thinking: Employ design thinking to build empathy with customers, and understand the context of their lives, needs, preferences and habits.</li>
</ol>
These three ways of developing products and services are independently valuable and can achieve even greater success when leveraged together.
<h2>Data</h2>
<blockquote>Institutions need to store data responsibly and protect client information.</blockquote>
Most providers have a wealth of internal and market data that they can leverage to better understand their customers. For example, transactional data can reveal how seasonal patterns and demographic characteristics relate to product use, repayment, churn, and retention. Providers can use this data to better target and schedule service promotions, reminders, and support interventions. For example, <a href="https://www.accion.org/after-immigrating-to-chile-she-built-a-new-life-for-herself" target="_blank" rel="noopener">Destácame</a> — a digital platform that financially empowers its users by raising their awareness of their financial data and improving their access to financial products — uses customer data to target product offers.

Using data to inform services and products can result in a variety of business benefits. A <a href="https://www.slideshare.net/CGAP/projecting-impact-of-nontraditional-data-and-advanced-analytics-on-delivery-costs" target="_blank" rel="noopener">Consultative Group to Assist the Poor (CGAP) study</a> found that using digital data to explore more scalable delivery methods could reduce the marginal costs of delivering a small loan by up to 30 percent. Accion noted in <a href="https://content.accion.org/wp-content/uploads/2018/09/Big_Data_Paper_R07_Spreads-6.pdf" target="_blank" rel="noopener">Unlocking the Promise of (Big) Data to Promote Financial Inclusion</a>, organizations with greater access to data are more likely to succeed. Investing in the use of data during initial product design can also help organizations save over time. <a href="https://www.youtube.com/watch?v=O94kYyzqvTc&amp;feature=youtu.be" target="_blank" rel="noopener">Design</a><a href="https://www.youtube.com/watch?v=O94kYyzqvTc&amp;feature=youtu.be" target="_blank" rel="noopener"> expert</a><a href="https://www.youtube.com/watch?v=O94kYyzqvTc&amp;feature=youtu.be" target="_blank" rel="noopener"> Susan Weinschenk</a> claimed that “fixing an error after development is up to 100 times as expensive as it would have been before development.”
Furthermore, data can also be used to predict future behavior. Amazon uses predictive analytics to restock inventory and <a href="https://hbr.org/2016/11/how-predictive-ai-will-change-shopping" target="_blank" rel="noopener">predict customer purchases</a>, which reduces costs and delivers value to customers. Similar approaches to data analytics are allowing financial service providers to predict when users might need credit or a repayment pause, or when they could benefit from a savings product. In these instances, offering the right product at the right time can help build customers’ financial health.
Moreover, data analytics can inform providers on what to consider in developing new products or features when targeting new customer segments. In Tanzania, <a href="https://www.accion.org/how-to-use-data-to-transform-financial-services" target="_blank" rel="noopener">an Accion partner wanted to refine an existing product that had not been performing well</a>. By analyzing its transactional data, our partner was able to re-segment its customer base and identify a large sub-segment that had not being adequately served by either the partner or their competitors. The provider then tailored the product specifically for this newly identified sub-segment. Providers must invest in information storage and mining capabilities in order to reap these benefits.
Another institution, <a href="https://www.accion.org/expanding-the-benefits-of-a-growing-digital-economy-in-indonesia-and-india" target="_blank" rel="noopener">Annapurna Finance Pvt. Ltd.</a> (AFPL), uses geographic information systems (GIS) around each of its branches to highlight the density of the population as well as economic activity. They also use a credit bureau report at the pin code level to understand the rates of indebtedness and delinquency in the regions that AFPL serves. Cross-referencing this data helps AFPL to better understand the needs of potential customers and to identify products and services to best serve them. For example, AFPL can then provide more targeted financial and technical support to these clients to strengthen their entrepreneurial skills.

Analytics can be supplemented by qualitative research to uncover meaning behind the data. Increasingly, designers are working with businesses to discover and leverage their findings regarding customers’ motivations, habits, and preferences to inform product and operational decisions.
<h4>Table 1. The business case for data</h4>
<img class="alignnone wp-image-22273" src="https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588.png" alt="" width="900" height="675" srcset="https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588.png 1438w, https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588-300x225.png 300w, https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588-768x576.png 768w, https://content.accion.org/wp-content/uploads/2020/09/FHtable1-e1599082660588-1024x768.png 1024w" sizes="(max-width: 900px) 100vw, 900px" />
<h2>Behavioral science</h2>
Behavioral science is being applied across the world to help individuals and organizations achieve their goals and organizational outcomes. Behavioral science emphasizes that humans are not robots. We are impacted by the environment and context in which we make decisions. How information is presented and phrased (and who delivers it) impacts how customers make decisions and behave.
According to the Organization for Economic Co-operation and Development (OECD), there are <a href="https://www.oecd.org/gov/regulatory-policy/behavioural-insights.htm" target="_blank" rel="noopener">200+ institutions globally applying behavioral science</a>. These institutions help individuals and organizations achieve their desired goals and outcomes, including enabling people to make better financial health decisions. Many organizations have developed frameworks on how to apply behavioral science principles. One widely used framework from the <a href="https://www.bi.team/" target="_blank" rel="noopener">Behavioral Insights Team (BIT)</a>, encourages organizations to make things: easy, attractive, simple, and timely (EAST).
Behavioral science seeks to understand how humans actually behave, rather than exclusively listening to how they want to behave or how they would behave in a perfect context. For example, behavioral science suggests that people are more likely to save when they set aside small <a href="http://journal.sjdm.org/12/12327/jdm12327.html" target="_blank" rel="noopener">amounts over time for specific goals.</a> By developing products that account for and design for these behavioral principles, providers can positively influence financial behaviors while building customers’ financial health. For example, when <a href="https://www.ideas42.org/" target="_blank" rel="noopener">Ideas42</a> and <a href="https://www.womensworldbanking.org/" target="_blank" rel="noopener">Women’s World Banking</a> used behaviorally framed SMS messages to recruit women, <a href="http://www.ideas42.org/wp-content/uploads/2018/04/ideas42_ImpactReport2018_digital.pdf" target="_blank" rel="noopener">female customer sign-ups increased by 64 percent</a>.

One famous example of applied behavioral science in the financial industry is the use of defaults for U.S. employer-sponsored <a href="https://www.jstor.org/stable/10.1086/380085?seq=1" target="_blank" rel="noopener">retirement plan (401(k))</a> contributions. By setting an automatic annual increase of income contribution to an individual’s 401(k), employees were able to increase their savings rate over 40 months compared to employees who had not set up auto-contributions. This default design helped earn <a href="https://www.nobelprize.org/prizes/economic-sciences/2017/thaler/facts/" target="_blank" rel="noopener">Richard Thaler</a> the Nobel Prize in Economics. Behavioral scientists have embraced this as the concept of “set it and forget it.”
Similarly, Accion is applying these principles to help <a href="https://www.accion.org/young-people-in-mexico-need-finance-that-fits-their-lives" target="_blank" rel="noopener">Caja Alianza Cerano</a> — a small financial cooperative in Guanajuato, Mexico – develop a goal-based application that allows youth to save or take out a small credit-building loan for a specific goal. The app is designed to harness the power of automation through an AutoPay feature that makes credit payments and automatic savings easy and frictionless for customers. Even though it seems like a simple switch, this allows more seamless movements of money into the system and provides less friction for users.
<h4>Table 2. The business case for behavioral science</h4>
<img class="alignnone wp-image-22274" src="https://content.accion.org/wp-content/uploads/2020/09/FHtable2-e1599082793549.png" alt="" width="900" height="585" />
<h2>Design thinking</h2>
As explained by <a href="https://www.ideou.com/pages/design-thinking" target="_blank" rel="noopener">Tim Brown</a>, the CEO of IDEO, Design Thinking “is a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Delving deep into understanding the needs and realities of individuals allows providers to design better products, services or experiences that build trust and the financial health of customers. In some cases, it demands that providers embrace a longer-term horizon centered on customer-lifetime value.
Successful instances of human-centered design bring a balance of desirability, viability, and feasibility to the product; which allows an institution to not only design with its end user in mind — to develop an intuitive, engaging, and painless user experience to meet the customer’s goals—but also, to ensure that the design is grounded in technical and business reality. The testing of prototypes, whether they are simple drawings on sticky notes, or more sophisticated prototypes that look like an application, ensures that bad ideas fail rapidly and inexpensively, and good ideas are consistently improved upon. By doing this, institutions can save huge upfront investments in technology developments until they have developed a product or experience that fully resonates with end users.
Design thinking requires that financial service providers invest in understanding who their customers are and what they need. Staff need to meet the customers who have traditionally been left out of the financial sector and spend time in their communities, homes, and businesses. By getting to know their customers’ lives and realities, providers can understand, empathize with, and design for their pain points, habits, priorities, and aspirations, even as these shift over the course of their financial health journey.
<a href="https://www.accion.org/fintech-helps-small-businesses-thrive-in-india" target="_blank" rel="noopener">Accion worked with Aye Finance</a> to help their clients build a digital transaction history, which would give them more convenient and frictionless access to Aye’s financial services. Rather than entering the project with a predefined idea of how they were going to deliver value to the target market, the organization conducted one-on-one interviews with customers to understand the pain points that they face in running and growing their businesses. They found that business owners needed a more convenient means of recording and consolidating income and expenses and a simplified way to manage inventory. Given this finding, Accion and Aye Finance set out to design a mobile app that encourages Indian entrepreneurs to digitize their bookkeeping to give them more control and oversight over their businesses. Aye Finance developed a dedicated team for this project to ensure that the product was not only centered on the user’s reality, but technological and operational realities as well, and built upon a solid business case, based on projections. In just three-months after launch, the app was downloaded more than 1000 times, despite the pilot operating across only 4 branches. Aye Finance has integrated learnings from the development of the app into subsequent tools and products.

The business value of design has been well documented. McKinsey &amp; Company found that retail banking firms that scored better on the <a href="https://solutions.mckinsey.com/design-index/" target="_blank" rel="noopener">McKinsey Design Index </a>(an online diagnostic tool that benchmarks companies’ design maturity) earned <a href="https://www.mckinsey.com/business-functions/mckinsey-design/our-insights/the-business-value-of-design" target="_blank" rel="noopener">27 percentage points higher revenue growth and 18 percentage points greater total returns for shareholders over five years</a> when compared to their peers.
<img class="alignnone wp-image-22270" src="https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565.png" alt="" width="800" height="415" srcset="https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565.png 1332w, https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565-300x156.png 300w, https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565-768x398.png 768w, https://content.accion.org/wp-content/uploads/2020/08/FH-brief-chart-e1599060172565-1024x531.png 1024w" sizes="(max-width: 800px) 100vw, 800px" />
<h4>Table 3. The business case for design thinking</h4>
<img class="alignnone wp-image-22275" src="https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993.png" alt="" width="900" height="506" srcset="https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993.png 1439w, https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993-300x169.png 300w, https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993-768x432.png 768w, https://content.accion.org/wp-content/uploads/2020/09/FHtable3-e1599082949993-1024x576.png 1024w" sizes="(max-width: 900px) 100vw, 900px" />
<h3>How can data + behavior + design help financial service providers? </h3>
Successfully using data, behavioral science, and design thinking approaches, requires a shift in business’ operations and an organization-wide adjustment. The <a href="https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2019/04/25202818/CFSI_OmidyarNetwork-Report-Final.pdf" target="_blank" rel="noopener">Financial Health Network</a> noted that orienting a business around its customers requires deploying a comprehensive strategy across the organization, one that addresses policies, processes, products, and fosters a culture that supports customers’ financial health. Furthermore, starting with the customer is just the first step. Institutions also need leaders who will stand by those insights and team members with the systematic and operational creativity to design for customer needs.
To pursue these approaches successfully, providers need to engage human-centered designers, interaction designers, behavioral scientists, and data scientists, as well as invest in field research, and conduct experiments to assess the efficacy of interventions and changes. Providers can invest internally or outsource some of these functions and expertise. Business benefits include increased customer lifetime value, enhanced reputational and brand value, larger deposit balances, decreased acquisition costs, increased loyalty and retention, and improved credit access for customers.
Businesses prosper when their customers are successful. People don’t want a bank account just to have a bank account. Instead, they use financial services that work for their purposes: to pay for their children’s education, own a home, launch a business, or recover from both economic and natural disasters. By placing financial health at the heart of the institution, using data, behavioral science, and design thinking, we can make these goals attainable for a greater number of individuals. Understanding these needs and designing for them drives financial health, advances social progress, and creates better, more successful, and more resilient businesses.
<img class="wp-image-22178" src="https://content.accion.org/wp-content/uploads/2020/08/mc4g_logo-300x104.png" alt="" width="196" height="68" srcset="https://content.accion.org/wp-content/uploads/2020/08/mc4g_logo-300x104.png 300w, https://content.accion.org/wp-content/uploads/2020/08/mc4g_logo-768x267.png 768w, https://content.accion.org/wp-content/uploads/2020/08/mc4g_logo.png 1000w" sizes="(max-width: 196px) 100vw, 196px" />
This brief is supported by the Mastercard Center for Inclusive Growth.
Contributions from: Malika Anand, John Won, Arisha Salman, Sarah Kovar, Megan Skaggs

Financial health has never been more important for financial service providers 

The pandemic has spurred a global economic downturn and widespread uncertainty about the future. The <a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses">3</a> <a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses">billion</a><a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses" target="_blank" rel="noopener noreferrer"> peopl</a><a href="https://www.accion.org/four-ways-we-can-empower-financially-underserved-people-and-businesses">e</a> who are still left out or poorly served by the global financial system are uniquely vulnerable to the effects of COVID-19. They typically rely on daily, in-person interactions to get paid or buy food for their families and the unexpected loss of income for many families has made financial services and a focus on financial health more important than ever.

Financial health assesses whether people are spending, saving, borrowing, and planning in a way that will enable them to be resilient and pursue opportunities over time, as stated by <a href="https://finhealthnetwork.org/research/eight-ways-to-measure-financial-health/" target="_blank" rel="noopener noreferrer">The Financial Health Network</a>.

A person’s financial health is determined by their:
<ol>
 	<li>ability to manage day-to-day expenses,</li>
 	<li>resilience against shocks and risks, and</li>
 	<li>effective planning for the future and upward mobility.</li>
</ol>
As economies fluctuate, individuals are turning to financial institutions for added support and security in their lives. Having financial services can enable people to better manage their finances as they navigate the current crisis, save money for a brighter future, protect their families from future shocks, and rebuild their businesses—promoting resilience in the face of crisis.

However, according to a <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener noreferrer">Gallup Global Financial Health</a> study, access to traditional financial products does not automatically result in improved financial stability, resilience, and access to opportunity. Many traditional financial products were not developed with these pragmatic goals in mind. As a result, they are often poorly suited to helping people, especially low-income individuals, achieve their financial goals. To serve customers as they seek to recover from the economic fallout caused by COVID-19, financial service providers have an opportunity to better utilize customer data, behavioral science, and design thinking to create products and services that support households through shocks, that build resilience and enable them to better manage their financial lives. Well-designed products relevant to customers’ lives can lead to feelings of stability, peace of mind, and hope.

To do this, financial service providers should expand their financial inclusion strategy to focus on financial health. This goes beyond traditional access to services, in order to support people’s lived experiences and aspirations. These lived experiences are influenced by several aspects, including but not limited to age, sex, gender, occupation, marital status, dependents, household responsibilities, financial standing, physical and mental health, and emotional characteristics. Financial health is a perpetual journey — not just a snapshot in time. By developing personalized financial products, services, and experiences that better meet users’ needs and preferences, providers can ultimately create more meaningful change in people’s lives.

Financial products and services that truly work for users and fit their lives will ultimately drive more (and better) business for financial service providers. A business strategy oriented around consumer financial health offers <a href="https://finhealthnetwork.org/research/building-your-business-case-for-financial-health-providing-guidance-and-support-to-increase-customer-well-being/" target="_blank" rel="noopener noreferrer">providers an avenue for growth, organizational resilience, and profitability</a>. In addition, it will offer financial service providers better opportunities to differentiate from the competition, especially today, when users are more and more sophisticated and demanding better interfaces that enable faster ways to interact with their financial reality.

The World Economic Forum <a href="http://www3.weforum.org/docs/WEF_White_Paper_Advancing_Financial_Inclusion_Metrics.pdf" target="_blank" rel="noopener noreferrer">noted</a> that “[b]y aligning the success of their business with the success of their customers, financial providers have seen that the future of financial services is one in which the industry will thrive when their customers prosper.”
<h3>Designing services for the people who need them</h3>
To ensure that financial services deliver greater benefits to customers and that our aspirations for achieving financial health are attainable, Accion’s Global Advisory Solutions is advocating for a new approach to product design that combines data science, behavioral science, and design thinking. Together these three disciplines put the customer, rather than the product or the service provider, at the center of product or service design. These methods give providers better visibility into household cash flow fluctuations and customer pain points to design products, services, or experiences that are more useful, convenient, and beneficial. These methods can also help providers reach new market segments, retain customers, and improve customer lifetime value across their business.

Despite increasing access to financial services, <a href="https://www.findevgateway.org/blog/2018/may/new-global-findex-what-you-need-know" target="_blank" rel="noopener noreferrer">use of formal financial products continues to lag</a>, particularly in emerging markets. There are many reasons for this lack of uptake. Accion investigated this lag through hundreds of customer interviews globally in the last few years. The interviews revealed that customers do not find the few formal services available to them valuable or trustworthy, and that they are difficult to understand and cumbersome to use. What people really want is to pay tuition, expand or repair their homes, and to be prepared in case of weather or health emergencies. For this, many rely on informal services, like rotating credit groups and store credit, which are embedded in their communities, and are convenient, flexible, and available when and where people need them.

Data, behavioral science, and design thinking can serve as a starting point for financial service providers as they build greater trust with their customers and incorporate a financial health approach, while articulating the business reasons for doing so.

Placing financial health at the heart of financial institutions to create business and customer value

We can improve financial health for more people by incorporating data, behavioral insights, and human-centered design into financial products

Access to financial products alone does not automatically equip people to improve their finances, build resilience, and seize opportunities. A <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx" target="_blank" rel="noopener noreferrer">Gallup Global Financial Health study</a> found that having a bank account does not guarantee a sense of financial control or security in emerging markets. In the U.S., where financial access is widespread, <a href="https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf" target="_blank" rel="noopener noreferrer">nearly half of Americans do</a><a href="https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf"> not</a><a href="https://www.federalreserve.gov/2015-report-economic-well-being-us-households-201605.pdf"> have $400 in savings</a> and <a href="https://s3.amazonaws.com/cfsi-innovation-files/wp-content/uploads/2017/01/24183123/Understanding-and-Improving-Consumer-Financial-Health-in-America.pdf" target="_blank" rel="noopener noreferrer">almost half have trouble paying bills every month</a>.

That’s why organizations are focusing on the concept of financial health as a means to develop financial ecosystems that go beyond just access and usage of products and ultimately create meaningful change in people’s lives. Financial health assesses whether people are spending, saving, borrowing, and planning in a way that will enable them to be resilient and pursue opportunities over time, as stated by <a href="https://finhealthnetwork.org/research/eight-ways-to-measure-financial-health/" target="_blank" rel="noopener noreferrer">The Financial Health Network</a>.

During the COVID-19 pandemic, it is more critical than ever to find innovative ways to support those disproportionately affected by an economic downfall outside of their control. A more holistic understanding of financial health will help financial service providers to support and maintain their client base, even in times of uncertainty.
<blockquote>People want to pay tuition, maintain their homes, and be able to weather health emergencies.</blockquote>
As consumer protection bureaus and financial authorities focus on systemic change, they’ve dedicated less attention to developing products that improve financial health, especially in emerging markets. People want to pay tuition, maintain their homes, and be able to weather health emergencies. They need financial products that help them achieve these goals and empower them to make good decisions through both economic upturns and hardships.

Unfortunately, many traditional financial products were not developed with these pragmatic goals in mind. As a result, they are often poorly suited to helping people, especially low-income individuals, achieve their financial goals. It is not always obvious how providers can design more appropriate products, but we recommend that they analyze available data, draw on behavioral insights, and employ design thinking to uncover ways forward.
<h2>Expanding the concept of financial health</h2>
Despite the number of financial institutions that view financial health as core to their mission, many financial health strategies have not thoroughly considered customers’ needs, aspirations, or behaviors in their product innovation. In fact, financial health efforts have primarily focused on what can be tracked and measured, like maximizing profitability or savings balances rather than strategies that allow customers to meet their personal financial goals.

The financial lives of low-income people do not follow the linear pathway of “earn, save, invest, grow, and repay” implied by traditional financial products. Instead, their lives are more turbulent, and the categories may be far more blurred. For example, a typical microfinance customer may accept payment in the form of construction materials like bricks or cement. These materials function as both savings and investment. They are illiquid so cannot easily be spent like savings can, but they may be liquidated at reduced prices at times of emergencies. These materials can also be considered the first step towards future physical improvements, however, they are also likely to deteriorate with exposure to weather and are subject to value fluctuations, so they’re not as secure as traditional savings. Today’s financial products do not reflect the unique ways in which low-income individuals manage their assets and liquidity.

Moreover, current products do not accurately reflect the diversity of low-income individuals’ needs. A young student who depends on cash injections from his family to make ends meet will use a microfinance loan very differently than an established entrepreneur who is trying to expand her business. Most providers currently offer both customers a fundamentally identical credit product without considering their different needs.
<h2>Approaches to adapting financial products</h2>
Financial health strategies must encourage innovation to create financial products that improve customers’ lives — in health, education, and overall well-being. They should also consider emotional dimensions — such as feelings of stability, peace of mind, and hope — as these are closely intertwined with our perception of our own financial health. The sector needs to reimagine traditional financial products, rethink our approach, and start designing more appropriate products. Fortunately, the growth of digital finance and advances in human-centered design have given us data, methods, and theories that can power analysis of users’ needs to improve the products we offer. New innovative approaches will also allow financial institutions to introduce new business models and serve customers in a way that adds value not only to the individual but to the institution itself.

To ensure that financial services deliver greater benefits and that our aspirations for achieving financial health come into reach, Accion’s Global Advisory Solutions team is advocating for a <a href="/placing-financial-health-at-the-heart-of-financial-institutions-to-create-business-and-customer-value">new approach to product development that combines design thinking, behavioral science, and data science</a>. Together these three disciplines put the customer at the center of product design. These approaches apply insights from psychology, economics, statistics, and data science to design products that are better connected to customers’ behaviors, ambitions, and aspirations — empowering them to achieve their goals. The key to this approach is to grounding good design within the business and operational reality of the financial service provider so that the product is sustainable over the long-term.

To learn more about these strategies for product development, read our latest brief developed in partnership with Mastercard Center for Inclusive Growth: “<a href="/placing-financial-health-at-the-heart-of-financial-institutions-to-create-business-and-customer-value">Placing financial health at the heart of financial institutions to create business and customer value.</a>”

Products that truly work for users will ultimately drive more and better business for financial service providers. A business strategy oriented around consumer financial health offers providers an avenue for <a href="https://finhealthnetwork.org/research/building-your-business-case-for-financial-health-providing-guidance-and-support-to-increase-customer-well-being/" target="_blank" rel="noopener noreferrer">growth, organizational resilience, and profitability</a>.

The ultimate goal of financial inclusion should be ensuring everyone has access to financial tools that improve their lives. By making financial health the central principle of product design, we can make this goal attainable and better serve a greater number of individuals.

The crucial but overlooked factor for financial health? Humans.

Moving the financial health conversation toward action and business impact in emerging markets 

<a href="https://www.linkedin.com/in/johnwon/" target="_blank" rel="noopener noreferrer">John Won</a> contributed to this article.

When people are financially healthy, they can manage their day-to-day expenses and be more resilient to shocks, like the global pandemic we’re facing now. Of course, financial health does not exist in a vacuum — a person’s financial health is inextricably linked to their physical health, the local economy, education, employment, equity, and freedom. But a person’s access, knowledge, and use of financial services also plays a role. That’s why responsible financial service providers must take financial health into account in their products and services. Beyond the social imperative, financially healthy customers are likely better customers. Even so, the industry has been not been able to provide clear direction on how to influence the financial health of customers in emerging markets.

We organized a workshop a few months ago centered around the experiences of providers who are thinking about the financial health of their customers. We convened more than 30 financial service providers, designers, consultants, and researchers to discuss how we can make the existing body of financial health research more actionable and relevant, particularly in emerging markets.
<h2>Circling up around provider perspectives</h2>
During one panel, U.S.-based providers shared how they operate in a market where access to financial services is high and where financial health has become an industry mantra. Panelists discussed how fintech trends in microcredit, earned-wage access, and gig-economy jobs have become popular. While these trends offer more credit choices to U.S. customers, they come with questions and concerns for people’s long-term financial health. There are fewer innovations in the retirement, insurance, and emergency savings space, partly because of the upfront cost of providing such products.

<img class="alignnone wp-image-20792 size-full" src="https://content.accion.org/wp-content/uploads/2020/04/Accion-fin-health-event.png" alt="Accion financial health event" width="849" height="477" />

In a second panel, providers focused on emerging markets discussed how many low-income people are seeing a dizzying pace of change, from economic shifts like rising income levels to disruptions in livelihoods due to climate change and gig work. There’s a massive need for businesses focused on financial health. A <a href="https://www.weforum.org/agenda/2019/07/pay-as-you-go-africas-solar-energy/" target="_blank" rel="noopener noreferrer">pay-as-you-go solar</a> provider shared how they’re often the first financial service provider a rural, low-income customer engages within, so they feel that they have an enormous responsibility to instill positive financial habits. A global provider shared how a regulatory change meant they could no longer operate in a country they once served, leaving small merchants cut off from a service they’d come to rely upon. Panelists discussed how regulation and policy can play a powerful role in advancing financial health or stymying innovation. And in markets where serving customers that have been left out can be much more challenging and expensive, the business case of offering customer-centric financial services, much less promoting financial health, is much harder to prove out for for-profit providers.
<h2>From insights to action</h2>
At the end of the day, we worked in small groups to develop actionable and realistic solutions to broader questions that many providers have when they think about financial health. These included, “How do we redefine the value of financial health within business models and design for customer growth?” and “How can we develop products that result in less financially stressed and more resilient customers?” One team suggested that by encouraging businesses to consider long-term measures, such as customer lifetime value, rather than short-term measures, such as sales, this would generate an incentive to develop measurements focused on financial health. Another team took a more macro-approach suggesting the development of an industry challenge to identify and reward a champion that could help to develop a documented business case for a financial health-focused company.

We closed out by asking attendees to reflect on the day and any commitments they’re inspired to take forward. Several attendees expressed intent to better apply or integrate measurement and tracking of financial health metrics. Other attendees noted they would initiate more research activities, conduct a public-facing discussion, integrate financial health into the business model, and make improvements to product design. All attendees agreed that financial inclusion should be measured by more than number of accounts and dormancy rates, we should be working towards our true goal — improving people’s lives.

<img class="wp-image-20791 alignleft" src="https://content.accion.org/wp-content/uploads/2020/04/Accion-fin-health-event-postcard.png" alt="Lessons learned from Accion financial health event" width="450" height="333" />

After a full day of engaging with providers, practitioners, and thought leaders in financial inclusion, we saw progress in making financial health better understood and more actionable for emerging market providers. Lines of communication opened among practitioners who had never collaborated before, and we saw a surge of interest in sharing learnings between the U.S. market and emerging markets. While there is <a href="https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2018/04/27001545/Making-the-Business-Case-for-Financial-Health-2018.02.28-2.pdf" target="_blank" rel="noopener noreferrer">early evidence of a business case for financial health</a>, the day underscored the importance of continued studies to measure and track customer outcomes and better understand the linkages between financially healthy customers and business outcomes.

We look forward to continuing to contribute to this conversation. As we continue to focus on how inclusive finance can build resilience, the Accion Global Advisory Solutions team will share learnings from the experience of our many partners and show how providers can use data, design, and an understanding of behavior to implement financial health principles into their organizational culture and product design. As we face the tremendous financial health impact of the COVID-19 outbreak and its economic fallout, this work will be critical to help the most vulnerable customers build a more secure future.

How can we get businesses to focus on financial health in emerging markets?

Emma Morse

As the effects of the COVID-19 pandemic continue to worsen, the financial inclusion industry must take swift action 

The humanitarian and economic toll of the COVID-19 pandemic presents unprecedented challenges for leaders in all industries. Businesses are grappling with how to respond to a situation that is constantly changing. While everyone will feel the impacts of the pandemic, low-income communities and microbusinesses are especially vulnerable to the business interruptions likely to result from COVID-19. They are less likely to have adequate savings, insurance, or credit that can help them to weather this downturn. Given the speed at which the virus has spread, a passive response is not an option. Financial service providers, particularly those serving low-income individuals and underserved micro, small, and medium enterprises (MSMEs), need to act now to ensure that individuals and communities are supported.
<h2>A myriad of challenges for businesses</h2>
For small and growing businesses, the impact of COVID-19 cannot be understated. As economic growth comes to a near standstill and prices for basic supplies increase, MSMEs are facing severe financial hardships. Those that depend on global supply chains can’t purchase new inventory. Businesses in industries deemed “non-essential” — such as travel, restaurants, schools, salons, and garment production — have been forced to close. MSMEs that provide essential products, like agricultural goods and sanitation supplies, have been less impacted.

Building strong bonds between clients and relationship officers has been a mainstay of the financial inclusion industry. The inability to hold physical meetings during this time, especially for group lending clients who are used to transacting in cash and interacting directly with staff, will make receiving or paying back credit challenging. Even where digital channels are in place, these are not always widely accepted or understood.

Financial service providers are feeling significant pressure on their loan portfolios as disrupted supply chains and drops in business lead to a lack of demand for credit and ability to repay — especially where digital channels are not available. This affects the portfolio quality of financial institutions worldwide, making it difficult to deal with reduced revenues, stagnant costs, and delayed funding. Many governments and regulators have not yet reached consensus on what policies they will use to provide support to the sector while others have moved ahead with repayment holidays and tax breaks. It’s still too early to tell what approach will be the most impactful in reducing economic losses.
<h2>An action plan for financial service providers</h2>
With all these challenges to consider, it can be difficult for leaders of financial service providers to determine how to respond and what initiatives to prioritize. To support these efforts, we created a plan that explains what actions leaders should be taking now across four key priorities: clients, staff, business continuity, and financial readiness. These recommendations draw on the experience of financial service providers globally, acknowledging that differences exist in economic, political, and social structures, as well as digital penetration, across regions.

As a first step in the immediate response, institutions should set up a senior, cross-functional COVID-19 task force team to create a plan that considers the entire organizational footprint with a view of all stakeholders.
<h2>Supporting clients: identify acutely impacted segments and build trust in digital channels</h2>
Financial service providers need to continue to serve clients in ways that support their wellbeing, families, and businesses during this trying time. Given that some clients may be disproportionately affected, institutions should develop different response and support plans specific to the segmentation of their existing clients’ businesses and take a customer-centric approach that focuses on maintaining trust with clients. As much as possible, institutions should encourage clients to use digital channels that reduce their dependence on cash. In China, the <a href="/five-crucial-insights-from-china-for-facing-the-pandemic">robust digital ecosystem</a> enabled repayments to continue while the country was in lockdown and allowed loan disbursements to restart quickly after the outbreak’s peak. However, in-person transactions may be difficult to avoid for some regions and segments. In-branch assistance should prioritize elderly or at-risk clients to ensure that they feel safe and their needs are met. In cases where digital channels are limited, some institutions have granted grace periods to minimize in-person transactions.
<h2>Enabling staff: Build morale and enable remote work</h2>
To support staff who may feel uncomfortable coming into work or who are experiencing declining morale due to uncertainty, institutions must demonstrate their commitment to staff safety and security. Institutions should take measures to ensure that staff salaries will continue to be paid and revisit any performance targets that exist considering travel and in-person meeting limitations. Where possible, institutions should enable staff to work remotely by offering secure access through tools such as VPN, data plans, and laptops.
<h2>Continuing business operations: Test disaster plans and support digital channels</h2>
To best support business operations in this uncertain environment, companies should go through the exercise of testing their operations for possible worst-case situations and determine action plans for these scenarios. These should be based on a range of expectations for the progression of the pandemic, government response, and supply and demand shifts. To ensure business continuity, institutions should ensure that all digital channels are operational and continually test the ability of channels to handle increasing volumes of transactions as in-person transactions switch to digital.
<h2>Building financial readiness: Recalibrate risk limits</h2>
Finally, as financial institution performance will be affected across all dimensions— including, interest and fee revenue, loan losses, and operational expenses — institutions should conserve cash and recalibrate risk limits to focus on loan disbursement to known geographies and client segments.

This crisis is likely to reinforce significant shifts in customer routines and expectations, both in terms of digital savviness and expectations for proactive communication. Business operations continuity and financial readiness will continue to be critical to the future capacity of institutions to weather crises as the risks of pandemics, geopolitical tensions, and climate change escalate.

For more guidance, see the toolkit: <a href="/responding-to-the-pandemic-guidance-for-financial-service-providers">Responding to the COVID-19 pandemic</a> and view a recording of our webinar: <a href="/webinar-leadership-in-the-time-of-covid-19">Leadership in the time of COVID-19: Guidance for FSPs</a>.

If your company is experiencing challenges related to the COVID-19 global pandemic and needs personalized support from our team of experienced advisors and investors, please <a href="mailto:GLASSupport@accion.org">contact us</a> to determine how we can support your COVID-19 response efforts.

We must act now to prepare for challenges arising from COVID-19

New toolkit helps financial service providers use internal and external data to grow their business

While most businesses want to use data to serve their customers better, they don't always know where and how to get started. They understand the promise of data: data-driven risk management means lower prices for the customer and better margins for the provider. Processes that produce data can increase transparency for the customer and support efficiency. Partnerships between organizations have a better chance of succeeding if they are built on a solid base of external and internal data. And data on customers can be used to inform market segmentation and design products relevant to people’s lives.

For all of these benefits, some financial service providers (FSPs) believe that it's too expensive to use data — worrying that this will require expensive IT systems and new staff. However, the business case shows that <a href="https://www.accion.org/are-you-unleashing-the-full-potential-of-your-data">FSPs cannot afford not to use data —</a> especially those that work with low-income customers.

[caption id="" align="alignnone" width="790"]<img class="" src="https://content.accion.org/wp-content/uploads/2020/02/DMAC.jpg" alt="" width="790" height="403" /> Building data management and analytics capabilities can address many business problems.[/caption]

The <a href="https://www.opml.co.uk/projects/deepening-financial-inclusion-in-sub-saharan-africa">Data Management and Analytics Capabilities</a> (DMAC) program aimed to address this important need head-on by building the capacity of FSPs in sub-Saharan Africa so they can use data more effectively. DMAC worked closely with seven partner institutions to enhance their capabilities to manage and analyze data, develop and innovate new business models, and <a href="https://www.accion.org/helping-families-in-zambia-cope-with-a-health-crisis">design inclusive and affordable financial products and services</a> that meet the needs of unserved and underserved adults. Through this project, the DMAC team helped fintechs, banks, and insurance providers develop new or enhanced products — including four digital microinsurance products and three savings products — that aim to reach over 1.2 million clients at scale.

To share what we learned with providers around the globe, the team developed a toolkit, <a href="https://www.accion.org/data-management-and-analytics-capabilities">Unleashing the power of data to transform your business.</a> This guide will help FSPs understand the different data sources available to them and how they can use this information to serve their clients better, improve their business, and potentially reach new markets. It will also be useful for organizations that work with FSPs and want these institutions to make more and better use of data.

The toolkit has three parts:
<ol>
 	<li>The case for using data: The guide explores the business case for using data. It explains how a provider can ensure that their organization has the requirements in place to effectively use data to improve product design and service delivery. This includes a useful data readiness checklist to assess your organization’s capacity.</li>
 	<li>Data-driven product design and delivery: Product development serves as a use case for how data can be integrated into one area of a business. The second section of the toolkit takes users through each step of the product development cycle, highlighting where they can use data to enhance product development. We've included resources to support this process, including a template to help FSPs set key performance indicators and tools that can be used for monitoring product performance.</li>
 	<li>Data management and partnerships for better data analytics: In the final section, the toolkit explores broader data management and how data analytics can help move an organization for It also discusses the possibilities and pitfalls of working in partnership with others to move towards greater data-centricity.</li>
</ol>
The <a href="https://www.accion.org/data-management-and-analytics-capabilities">toolkit</a> includes many practical examples of how we worked with our DMAC partners, within their respective country contexts, and the lessons learned. We also included many of the easy-to-use tools we used throughout the program. As users will be at different stages in their data journey and have various needs, readers should focus on the areas where they need to build capacity or have limited understanding.

After exploring this toolkit, your organization should have the information and tools needed to understand how to use data well, and even how to make an internal case for data-driven changes. Accion’s Global Advisory Solutions knows that data has an essential role in making digital financial services more accessible and useful for people around the world. We work with providers globally to enhance their data capabilities in all aspects of their business to enable them to reach the 3 billion people that are still underserved by the financial sector. We hope this toolkit proves useful and would <a href="mailto:GLASsupport@accion.org">welcome any feedback</a> you have on the toolkit and your experience of using it.

&nbsp;

<hr />

DMAC was designed by <a href="https://www.fsdafrica.org/">Financial Sector Deepening Africa</a> (FSDA) and the <a href="https://www.idrc.ca/">International Development Research Centre</a> (IDRC) in partnership with <a href="http://www.fsdt.or.tz/">FSDT</a> and <a href="https://www.fsdzambia.org/">FSDZ</a> and was implemented in Sierra Leone, Tanzania, and Zambia by <a href="https://www.opml.co.uk/">Oxford Policy Management</a> (OPM), in collaboration with <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions">Accion Global Advisory Solutions</a> and <a href="https://www.masterdata.co.za/">Master Data Management Ltd</a> (MDM). 

&nbsp;

&nbsp;

How to use data to transform financial services

<div style="width: 391px" class="wp-caption alignright"><img src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/05/IMG_0825.jpg" alt="" width="381" height="508" />Azucena, a stay at home mom and former bank teller in Mexico</div>
Although Mexico and Chile are different markets, underserved consumers face similar problems improving their financial health. People and businesses rely on informal means to manage money, including storing cash in lockboxes and borrowing from family and friends. These methods are familiar and convenient, but they don’t provide the guidance, tools, and information people need to better manage their income and expenses, build reserves, and plan for the future.
In Chile, <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx">nearly half of the population</a> feels unsure about how they would cover their basic needs for more than a month if they lost their income. Following several financial crises, consumers are hesitant to trust<a href="https://www.accion.org/five-reasons-small-merchants-arent-using-financial-services-in-chile/"> financial institutions</a>, and many see working with banks as a last resort. One business owner in Santiago expressed a sentiment that we heard from many Chileans: “I would prefer to be indebted to my family than to a bank.”
We’ve seen similar patterns in Mexico, where, over the last three years, the percentage of adults who save at financial institutions declined from 15 percent to 10 percent. In an interview, Azucena, a stay-at-home mom who previously worked as a bank teller, told us that she and her husband prefer to <a href="https://www.accion.org/people-saving-money-mexico">save cash </a>in lockboxes in order to have money at home for unexpected emergencies. When it comes to credit, many people told us that they often hear negative stories about defaults, rather than positive stories about people using credit to improve their lives.
These behaviors indicate that FSPs could do more to better understand their clients’ needs and goals, build greater trust, and deliver more valuable products and services.
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<div style="width: 4938px" class="wp-caption alignleft"><img src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/05/DSC_0388.jpg" alt="" width="4928" height="3264" />FSP employees participate in a <a href="https://www.accion.org/building-and-deploying-user-centric-products">human-centered design exercise</a> in Chile</div>
For decades, Accion has worked around the world to help FSPs deliver the products that underserved clients need to access, use, and benefit from the formal financial sector. Our hybrid approach combines human-centered design, insights into emerging technologies, and effective business models to create financial services that accelerate social and economic progress.
Over the next 18 months, Accion, <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">in partnership with MetLife Foundation</a>, will apply this approach with five FSPs in Mexico and Chile. We’ll work alongside these institutions to develop viable products and services that reach underserved clients and improve their financial health. This process will include building the business case for customer-centric products; managing organizational change; and designing, testing, and implementing product innovations.
We’ll begin by using human-centered design, which links product and service design to customers’ needs and lives. By first understanding the challenges that low-income clients face and the goals they want to achieve, FSPs can create products and experiences that are available at the right moments, provide visibility into users’ finances, and take into account customers’ aspirations. Such products can lead to improved financial health, better decision-making, and more informed financial management.
While considering our clients’ needs and their goals, we’ll integrate behavioral science to create products and experiences that support healthy financial behaviors and habits. For example, behavioral scientists know that people tend to prioritize the present over the future and put off tasks that feel stressful, like budgeting, saving, and long-term planning. By taking this tendency into account and creating products that balance the management of day-to-day finances with future planning, we can promote clients’ financial health.
Ultimately, our understanding of low-income clients’ needs, the application of behavioral insights, and our focus on business considerations will inform the creation and deployment of new products that improve underserved clients’ financial health and that are sustainable in the market.
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To qualify for the program, FSPs developed product proposals that addressed low-income client needs using a customer-centric lens; each of their proposed solutions is tailored to improve clients’ financial health and advance the organization’s strategic business objectives. Our partners will adapt their proposals through several rounds of user research and ongoing support from Accion.
Below is a list of our five partners, their product concepts, and goals for improving the financial health of their customers.
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<a href="https://cajasalianza.coop/map_location_categories/alianza-caja-popular-cerano/">Caja Popular Cerano</a> is a savings and credit cooperative headquartered in Cerano, Guanajuato, Mexico. It serves more than 100,000 clients across its branches and 3 customer service centers. The Caja is committed to providing specialized savings and loans services to middle- and low-income segments, as well as micro, small and medium enterprises (MSMEs).
Product concept:  Caja Popular Cerano’s customers are aging, and the institution is interested in attracting a younger clientele. Caja Popular Cerano will design a new product to retain and attract youth clients. The bank currently provides young customers with savings, but has identified the broader suite of products this segment seeks in order to pay for college, open businesses, and plan for the future.
Influence on financial health: Caja Popular Cerano will ‘gamify’ the banking experience to incentivize younger customers to improve their financial health through better planning and prioritization. It will develop new products and tools that encourage young clients to save more, borrow when needed, plan for their future, and learn how to use financial services responsibly. By cultivating financial health in younger clients, Caja Popular Cerano will help its customers thrive throughout their lives.
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With over 23 years of experience and almost 80,000 active clients, <a href="https://www.ahorrosbienestar.com/">Caja Bienestar</a> is one of the largest deposit-taking financial institutions in Mexico.  Since its inception, Caja Bienestar has offered a variety of low-cost, quality financial services to families and MSMEs. It continues to be one of the most affordable credit options for small businesses and families in Central Mexico.  
Product concept:  Many micro-entrepreneurs in Mexico lack access to the capital they need to purchase inventory or expand. Using information and recommendations from third-party wholesale suppliers and vendors to assess risk, Caja Bienestar will develop a revolving credit line for MSMEs, providing them with lines of credit at attractive and competitive rates – even if the borrowers lack a credit score. This new MSME lending product will help Caja Bienestar better understand MSMEs generally and ultimately help it make more informed decisions regarding the borrowers’ debt, reserves, business inventory, and operations.
Influence on financial health:  Micro-entrepreneurs are responsible for much more than just their businesses: their employees and families rely on the business to help them put food on the table, send their children to school, and plan for the future. By providing micro-entrepreneurs with financial and business counseling and the business loans they need to keep products on the shelves and remain competitive, Bienestar will help micro-entrepreneurs and the people who depend on them realize their economic potential.
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<a href="https://www.destacame.cl/">Destácame</a> is a digital platform that seeks to financially empower individuals by raising their awareness of their own financial data and uses this to improve their access to financial products. Using the platform, a user can generate their ‘Destácame Score’, an alternative credit score which leverages user payment behavior and credit bureau data. They can also review their credit bureau report free of charge, access discounted options to pay off debt, review credit offers from different entities, and learn tips to build a good financial history through education tools. Destácame operates in Mexico and Chile, has over 1 million registered users, and partners with over 30 FSPs.
Product concept: Destácame’s market research shows that many of its users take a short-term view of their financial lives.  They feel significant stress over financial well-being, lack the confidence to interact with the formal financial sector and have difficulty identifying how products and services can help them achieve their financial goals. Destácame will revamp and expand its platform to create a fully customized customer experience that allows users to set, visualize, and work toward their financial goals, through tools, advice, and new financial products. Customized nudges, tips, and incentives will be used to spur progress.
Influence on financial health: Destácame’s new platform will include a financial health dashboard that clearly assesses the user’s financial health and sets a roadmap to help them achieve their long-term plans. The platform will also recommend additional products, services, and tools to help the user pay down debt, generate a credit history, save for school, or meet their goals; these recommendations will evolve along with the user’s financial situation. Destácame will also integrate targeted financial knowledge tools, tips, and resources that will help users make timely, informed decisions.
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<a href="https://www.banigualdad.cl/">Banigualdad</a> is a nonprofit foundation that helps low-income micro-entrepreneurs access traditional financial services to enable greater economic mobility in Chile. Banigualdad provides group microloans paired with mentorships and training in basic finance, marketing, sustainability, and business strategy. Today, they have just over 49,000 clients. <a href="https://www.organizame.cl/">Organizame</a>, a Chilean fintech, has developed an online financial health tool that keeps track of the merchants’ sales and expenses and allows the user to issue electronic invoices and tickets to their customers. It captures significant data on merchant income flows; FSPs can use that information to assess credit capacity, enabling larger credit lines at better prices.
Product concept: When entrepreneurs understand their business’ cash flows, they can make effective, strategic, and long-term business decisions. Banigualdad and Organizame’s joint proposal will integrate improvements to Organizame’s online financial management tool for Banigualidad’s low-income micro-entrepreneur clients. The two organizations are working to launch a mobile app to digitize business operations, including cash flow management, bill payment, and loan applications. The app will also help consolidate business transactions, send electronic documents, and provide real-time support.
Influence on financial health: The Banigualdad/Organizame solution will provide low-income entrepreneurs better insights into their finances, organize their operations, and help them make more informed decisions. By providing micro-entrepreneurs with a clearer view into their income and expenses, tools to manage their debts, and nudges to help work toward their long-term financial goals, the app will help customers build healthy financial behaviors, grow their businesses, and re-invest in their households.
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In Chile, many micro-entrepreneurs can’t meet the requirements to obtain funding or choose not to work with traditional banks. <a href="https://www.redcapital.cl/">RedCapital</a>, Chile’s first crowdfunding platform to exclusively support small and medium enterprises (SMEs), is helping more entrepreneurs get the funding they need. Its platform allows individual investors to lend to SMEs, providing both Chile’s mom-and-pop shops with financing to expand, and investors with attractive returns. To date, investors have funded nearly 3,800 projects.
Product concept: Many of the micro-entrepreneurs who apply through RedCapital’s platform do not meet the target risk profile. RedCapital will adapt its crowdfunding platform for these smaller applicants in order to provide micro-entrepreneurs with affordable access to capital and business management information. RedCapital plans to use machine learning to control risk and will build entrepreneurs’ business acumen through tailored advice to help them to spend, save, borrow, and plan better.
Influence on financial health: RedCapital’s product will provide micro-entrepreneurs with the credit they need and insights into their financial situations. The solution will provide underserved micro-entrepreneurs with the formal funding they typically can’t receive, allowing them to grow their businesses; moreover, RedCapital’s business education will help micro-entrepreneurs manage their financial accounts and plan for the future. RedCapital will personalize and automate messaging and information so that its micro-entrepreneur clients can make more informed decisions about relevant financial services at the right time. This product will help Chile’s entrepreneurs achieve their personal and professional goals—whether it is to expand their business or to buy a home for their family.
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We’ll work alongside our partners to refine their initial concepts into customer-centric, market-ready products and services that help underserved families and small businesses improve their financial health.
Over the next 18 months, Accion and our partners will be working closely with customers, and with the FSP teams responsible for interface, application, operations, marketing and customer engagement to deliver an excellent customer experience. While we will focus on client behavior change, Accion and our partners understand that institutional change management is the real starting point.
For these solutions to promote clients’ financial health over the long-term, we will work with our partners to consider the business case for each product and the organizational changes needed to implement them. It’s only by combining our unique insights into client needs and our understanding of inclusive business models that our partners will be successful. It’s critical to look at longer-term profitability and customer lifetime value to ensure that our partners’ new products advance their long-term strategic goals; we’ll test customers’ willingness to pay for new services throughout their development and adjust product design to increase value to the customer.
These products represent significant new investments that will demand structural support, so we’ll also work to ensure that our partners have the right people, processes, and systems in place to launch and sustain the new products, helping with upskilling or capacity building as needed.
To create a financially inclusive world – to provide entrepreneurs with the means of hiring more employees, parents with the ability to save for the future, and communities everywhere with the tools they need to accelerate social and economic progress – we must develop financial products that clients trust, use, and benefit from. We’ll work alongside our Mexican and Chilean partners to create new solutions and services that help underserved families and businesses improve their financial health, and that realize the vision of a financially inclusive world. Follow us here as we keep you updated on our progress and process with our partners.
<img class="alignnone" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2018/08/MetLife-Foundation.png" width="247" height="115" />This brief is a part of our <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</a>, supported by MetLife Foundation.
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“Financial health is achieved when an individual’s daily systems help build the financial resilience to weather shocks, and the ability to pursue financial goals.” Financial Health Network

<h2>The path to financial health</h2>
People around the world are continually aiming to improve their financial lives – they do so with whatever tools are available, whether formal or informal, and with whatever knowledge they have gathered. Every day, people work hard to grow their businesses, send their children to school, save, make ends meet, and troubleshoot during tough moments. Ultimately, they aspire for greater financial health and a better life for themselves and their families.
<img class="aligncenter" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/02/CFSI-1.png" /><a href="https://cfsinnovation.org/">The Financial Health Network</a>, the  <a href="https://www.centerforfinancialinclusion.org/">Center for Financial Inclusion at Accion</a> and <a href="http://www.dalbergdesign.com/">Dalberg's Design Impact Group</a> developed a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2017/03/FinHealthGlobal-FINAL.2017.04.11.pdf">framework of six indicators</a> for financial health in the developing world.
In order to help consumers improve their financial health, financial service providers (FSPs) can design products, tools and services that empower consumers to better understand and manage their finances and encourage them to improve financial habits. Focusing on financial health also has the potential to impact the FSP’s bottom-line: Gallup found that when customers feel that their bank <a href="https://news.gallup.com/opinion/gallup/176534/looking-customers-financial-table-stakes-banks.aspx">looks out for their financial well-being</a>, they are much more likely to be fully engaged with the bank.

However, in order for FSPs to successfully promote financial health, they first need to understand customers’ opportunities and obstacles to improving it.

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Achieving financial health in Mexico and Chile

Prateek Shrivastava

Scott Stefanski

Tech-enabled lenders are closing the MSME credit gap

Emerging <a href="https://www.accion.org/rapidly-changing-landscape-digital-lending">innovative digital lenders</a> are using alternative sources of data to offer a viable solution to address the merchant financing gap.  Their models are delivering higher-quality, faster, and more convenient finance to small merchants. These lenders connect with and understand their MSME clients in ways that allow them to better assess risk and manage cost.
One way that some new lenders are gaining better insights into this client base is by leveraging the existing relationships between merchants and their suppliers. Inventory suppliers who already know merchants well can provide valuable data, like inventory purchases, goods sold, and payments made, that FSPs can use to quickly assess merchants’ creditworthiness to get them credit when needed. These relationships form the basis of SCF.
This new way of assessing MSMEs’ creditworthiness follows on the success of e-commerce platforms like Amazon and Alibaba, which have been providing credit to small merchants for several years and demonstrate the significant market opportunity of creating an SCF solution. Ant Financial and MYBank, both affiliates of Alibaba, have used digital payment transaction data to underwrite more than <a href="https://www.betterthancash.org/tools-research/reports/igniting-sdg-progress-through-digital-financial-inclusion">$70 billion in cumulative loans</a> to 5 million small businesses, microenterprises, and entrepreneurs. This lending market has grown so rapidly due in large part to technological advances like cloud services, new data footprints, and e-invoicing, which allow lenders to quickly and accurately assess merchants’ creditworthiness.

SCF leverages relationships and data flows

SCF leverages commitments in the form of payables and receivables as well as data generated by the movement of goods along the supply chain to provide merchants with just-in-time credit. Lenders use SCF to finance inventory purchases, alleviating the financial bottlenecks that occur due to the delay between the acquisition of inventory and its sale.  This reduces risks for the lender because they know exactly how the credit is being used. To enable SCF, it is important to have an integrated approach with four key actors: the merchant, the FMCG company, their supplier, and the FSP. Each of these plays a critical role in exchanging inventory management and financial transaction data that can be used to underwrite financing for the merchant.
Platform models (such as Amazon, Alibaba and others) have created the digital infrastructure that enables all participants to interact with each other; these models are particularly well-suited to provide SCF services, as they facilitate the sharing of timely information and coordinated decision-making that enables merchant financing and ultimately closes the MSME financing gap.
Several innovative lenders are already using platform models to identify, assess, serve, and support small merchants, including Jaza Duka, Sokowatch, and Tienda Pago. While all of these are providing SCF, they use different strategies: each relies on different types of partnerships, varying degrees of mobile tech, and their proprietary algorithms for credit scoring. Each of these solutions free merchants from the constraint of needing cash on hand to purchase inventory, which ultimately allows them to sell more and increase their revenue over time.
Jaza Duka, Sokowatch, and Tienda Pago are making strides as viable alternatives to the traditional lenders that have been unable to cater to small businesses cost-effectively. Their success has helped MSMEs benefit from the formal financial sector.

Strategic partnerships use data to optimize sales

Jaza Duka is currently a partnership between Unilever, Kenya Commercial Bank (KCB), and Mastercard. The platform tracks how much Unilever product a store owner has purchased over time and combines that data with a credit analysis by Mastercard; KCB then receives that score and can use it to provide an interest-free credit line for the merchant to buy more Unilever products.

E-commerce facilitates same-day inventory deliveries

Sokowatch aims to provide informal retailers with the power of e-commerce through mobile ordering of goods. By aggregating merchants’ demand for FMCG products, Sokowatch increases suppliers’ efficiency when fulfilling merchants’ orders. By leveraging historic purchasing data, the company provides merchants in Kenya and Tanzania with a ‘pay later’ option to keep products they want in stock. Merchants order goods using a mobile phone-based inventory management system and receive same-day deliveries from Sokowatch drivers.

Distributor relationships enable access to capital  

Tienda Pago leverages relationships between FMCGs and small merchants across Peru and Mexico to inform its vetting process. It applies a proprietary screening algorithm across transaction and supply chain data to generate a credit score for each MSME retailer. Their mobile-based platform model not only helps close a funding gap for small stores but also enables distributors to increase their operational efficiency by reducing cash handling.

There are incentives for all actors to use SCF

FMCGs benefit from SCF through greater sales, since merchants can use financing to place larger orders. They also benefit from increased visibility into merchants’ sales, inventory levels, and demand at the end of the supply chain when an inventory ordering system is used. This information enables more accurate demand forecasting and more efficient distribution of goods.
SCF also offers an attractive proposition to the suppliers that deliver to merchants. When merchants purchase greater quantities of inventory, it ultimately increases suppliers’ sales. While suppliers may offer merchants credit themselves, this is not part of their core business, and they face significant risk in collecting cash and managing delinquency. Usually, suppliers are more than willing to pass on the provision of credit to another party. Ultimately, being part of an SCF solution will free up a supplier’s working capital for investment.
Similarly, SCF enables FSPs to use data collected from small merchants’ transactions along the supply chain to streamline underwriting and create new technology-enabled and data-driven products and services. Merchants benefit from SCF in many ways:
<ul>
<li>A customized, low-cost credit line, available based on order activity and payment history</li>
<li>Freedom from cash limitations when buying inventory, which can lead to:
<ul>
<li>Diversified product offerings</li>
<li>Fewer instances of out-of-stock inventory</li>
<li>Increased market share</li>
<li>Increased revenue</li>
<li>Increased customer loyalty</li>
</ul>
</li>
<li>Deeper relationships with suppliers, resulting in preferred selection and inventory pricing</li>
<li>Over time, merchants may develop formal credit histories that allow them to access more credit</li>
</ul>
Given that so much of the world’s economic and trade activity is driven by small merchants, an SCF solution that brings down the cost of financing and meets their needs will help promote sustained, inclusive, and sustainable economic growth.

Partnerships are key to providing SCF

Unlike direct lending, SCF demands effective collaboration and data sharing among multiple actors to ensure the sustainability and scalability of the solution. Suppliers must maintain close relationships with small merchants to understand merchants’ ability to sell. Small merchants need to offer proof of purchase and inventory demand so FSPs can conduct underwriting and approve the SCF credit. The success of the arrangement also hinges on the FSP’s relationship with the supplier, as the supplier will provide the FSPs with the merchant’s purchase and repayment history.  When all parties work together collaboratively, the result is an integrated approach that drives adoption and usage of financial services, and therefore meaningful financial inclusion.

A clear value proposition for merchants is needed

The success of an SCF solution is largely dependent on whether the product is easy to use, affordable, and accessible to merchants. SCF providers will need to ensure that they build trust with merchants and meet them where they are, clearly explaining the product in a way that addresses any new requirements expected of the merchant.
To encourage the active usage of an SCF product, it should include suppliers of high-demand goods that are hard to substitute (such as the top local brands) and a growing catalog of products available to order. Strong FMCG product champions based on the ground, loyalty rewards, and discounts can help promote the solution. Value-add services, such as business education, financial tools, or supplemental financial products that can be tailored to merchant needs will also help incentivize continued use and ensure that an SCF solution is valuable to the merchant.

An integrated approach to developing a platform

Building a fully-operational and interoperable SCF platform will take time, but the key first steps are to strengthen internal knowledge and initial relationships for a successful SCF offering that can later open up platform possibilities.
Any actor in the supply chain can lead the development of a platform-based SCF solution; however, FSPs and FMCGs are particularly well positioned to do so.  Regardless of who takes a lead in developing an SCF platform, it is important to align incentives for all actors to take part in the supply chain solution.
FSPs have an incentive to lead, as SCF creates an opportunity to reach a new segment with a new product line. Since FSPs are not involved in the movement of goods within the supply chain and are only involved in providing financing to the merchant, they are also well-positioned to play the impartial role needed to aggregate competing FMCGs, suppliers, and merchants.

Key steps an FSP can take to get started

<ul>
<li>Begin building a network: Build relationships with influential supply chain actors. This could be done by taking on any debt owed to suppliers from merchants in exchange for knowledge of the distribution network.</li>
<li>Build a risk model: Leverage relationships with influential supply chain actors to vet initial financing candidates, and use the data collected to further build the credit methodology.</li>
<li>Consider disbursement, repayment, and collections: Assess payment network options available for repayment, and assess value to suppliers for performing collections on their behalf.</li>
</ul>
FMCGs are also well-positioned to lead an SCF platform. They typically own and manage inventory management systems that can collect data throughout the supply chain. FMCGs have an incentive to improve supply chain stability and increase their sales and turnover

Key steps an FMCG can take to get started

<ul>
<li>Begin building a network: Implement an inventory management system that is flexible enough to enable delivery drivers to record sales and delivery transactions.</li>
<li>Partner with an FSP for a credit product: Build a relationship with an FSP that can develop a risk model based on delivery receipts or invoices, and link the inventory management system with the FSP systems.</li>
<li>Consider disbursement, repayment, and collections: Assess payment network options available for repayment, and work with the FSP to enable digital disbursement of funds.</li>
</ul>
Regardless of which actor takes the lead, it is important to get ‘the equation right’ between merchants and others along the supply chain in order to create a scalable and inclusive solution. Each merchant has unique needs, and understanding these needs is essential for the design, launch, and optimization of an SCF platform.

Common challenges to scaling an SCF solution

As more FMCGs, suppliers, FSPs, and merchants participate on the platform, the network effect will take hold, increasing the amount of available data that the scoring model can use to assess creditworthiness and improving the value to the merchant through greater diversity of goods and competitive pricing. While competitors may be hesitant to participate in a joint solution, there are benefits to cooperate in a platform, such as aggregating small merchant demand that may be too disbursed and costly for any one actor to undertake themselves.
To scale, an SCF solution must also manage the costs related to onboarding merchants; however, suppliers’ distribution networks should offset those costs. Likewise, managing default risk is a key competency requiring effective partnerships with FSPs.
Finally, customer delinquency and retention has been a challenge for existing SCF solutions, as many customers do not fully understand or trust new digital products. This has led to poor repayment rates and high percentages of inactive clients. Making SCF work for merchants requires a well-designed and clearly articulated value proposition.

SCF will support financial inclusion 

Ultimately, an SCF platform solution can collect formal digital sales records, track demand, and provide small merchants with the credit they need to keep their shelves stocked and grow their businesses. For the merchant, stable inventory levels and fewer instances of out-of-stock inventory will increase their reliability in the eyes of their end-customer.
SCF can be a useful tool to close the credit gap faced by small merchants. It can help many FSPs reach new or expanded customer segments with high-quality, low-risk financial services. With nearly <a href="https://www.smefinanceforum.org/sites/default/files/Data%20Sites%20downloads/MSME%20Report.pdf">141 million microenterprises</a> in developing countries, digitized SCF represents a scalable solution to drive inclusive growth throughout the world.
<a href="https://content.accion.org/wp-content/uploads/2019/01/SCF-Deck.pdf">To learn more about SCF platforms, read Accion’s Global Advisory Solutions recent in-depth guide</a>, which illustrates the enormous potential that digitized SCF offers to small merchants. The guide articulates the advantages that FSPs, FMCGs, and their suppliers in emerging markets can expect when joining and participating in an integrated, more inclusive financial system. It also offers a ‘playbook’ for how an organization could get started, expanding on the critical first steps and key considerations outlined here.
<img class="aligncenter" src="https://content.accion.org/wp-content/uploads/2018/09/Citi-Foundation.png" width="240" height="162" />
Accion would like to thank the Citi Foundation for supporting this report. The Citi Foundation works to promote economic progress and improve the lives of people in low-income communities around the world. The Citi Foundation invests in efforts that increase financial inclusion, catalyze job opportunities for youth, and reimagine approaches to building economically vibrant cities.

Building the value proposition for an integrated approach for supply chain actors and financial institutions to serve small merchants in emerging markets

How digitized supply chain finance can help small merchants grow 

We partner with financial service providers around the globe to better meet the needs of underserved individuals & small businesses. 

Learn more about Accion's advisory services

Related resources

How digital supply chains support merchants while driving financial inclusion 

<h3>Executive Summary</h3>
Supply chain finance (SCF) offers high-quality, low-risk financing to the small merchants that tend to be underserved by traditional lenders. These microentrepreneurs often lack the credit data traditional lenders need and are seen as too costly to serve at scale. SCF leverages data generated by businesses when they buy from suppliers and sell to customers, using this information to evaluate the creditworthiness of small merchants. It is a useful tool to expand financial inclusion for the 141 million microenterprises in developing countries and to promote inclusive economic growth globally.  

SCF benefits merchants with timely access to credit; it also benefits merchants, suppliers, and fast-moving consumer goods companies (FMCGs) with higher sales, faster turnover, and more efficient operations. Lenders benefit as well: SCF reduces risk and costs, allowing financial service providers (FSPs) to cater to new markets.

We believe that platform-based models, those that consolidate data produced by the movement of money and goods in the supply chain, are best suited to deliver SCF. Platform-based SCF models can satisfy the interdependent needs of multiple stakeholders simultaneously and facilitate coordinated decision-making. FSPs and FMCGs are well positioned to develop SCF platforms. 

This brief discusses how SCF platforms can help small merchants, FMCGs, suppliers, and FSPs realize their economic potential. For institutions interested in developing an SCF solution, access our recent in-depth guide and playbook, <a href="https://www.accion.org/how-digitized-supply-chain-finance-can-help-small-merchants-grow/">How digitized supply chain finance can help small merchants grow.</a>

&nbsp;

Small merchants such as grocery shops, corner stores, and other micro-retailers employ <a href="https://www.smefinanceforum.org/sites/default/files/analysis%20note.pdf">more than half</a> of the world’s labor force and contribute significantly to global GDP. These merchants rely on personal savings, family and friends, and sometimes personal credit to meet cash flow needs, but collectively these businesses face an <a href="https://www.smefinanceforum.org/sites/default/files/Data%20Sites%20downloads/MSME%20Report.pdf">$8.1 trillion credit gap</a>, creating a significant barrier to inclusive growth.  This global credit gap is almost entirely a supply-side problem, as micro, small, and medium entrepreneurs’ (MSMEs’) demand for financing is significant. Serving this market is challenging for lenders. Small merchants have little to no business documentation, are often unable to provide high-quality collateral, operate primarily in cash, and require loan sizes that are not always worth the operational cost of serving them, making it difficult to assess credit risk and sustainably offer products that meet small merchants’ needs.

By addressing this problem and helping MSMEs obtain the financing they need when they need it, we help microentrepreneurs restock their shelves, expand operations, and hire more employees. By addressing this credit gap, we can help more people around the world realize their economic potential.

The supply chain finance opportunity

Toolkits and Guides

This guide is for institutions interested in developing a supply chain finance solution. For those interested in better understanding how supply chain finance can help small merchants, fast moving consumer goods companies (FMCGs), suppliers, and financial service providers (FSPs) realize their economic potential, access our report, the  <a href="https://www.accion.org/the-supply-chain-finance-opportunity">Supply Chain Finance Opportunity.</a>
<h3>Executive Summary</h3>
Supply chain finance (SCF) is the use of financing mechanisms that can optimize the management of liquidity tied up in supply chain processes. SCF solutions have long been offered by big banks to large corporations, such as fast moving consumer goods (FMCG) companies and manufacturers, to support trade.

However, today SCF techniques are being transformed by technology, expanding the addressable market to include micro, small, and medium size enterprises. Improved connectivity, increasingly available customer data, and new technologies lower the cost and make it possible to extend digital SCF solutions to the small merchants at the end of global supply chains.

By tying credit to the flow of goods, SCF facilitates more efficient business operations and cash flow management for all actors along the chain – resulting in higher sales, faster turnover – and ultimately, increased profitability and growth.

A platform-based model that satisfies the interdependent needs of multiple stakeholders simultaneously using digital innovations is well suited to provide SCF solutions. Platform models consolidate digitized data produced by the flows of goods and money throughout the supply chain, building trust and facilitating coordinated decision-making. The net effect is to provide deeper insights into merchant and consumer behavior.

We believe independent third-party technology providers are best positioned to mediate between multiple stakeholders and take the lead in operating a flexible and scalable SCF solution. We also see a major opportunity, particularly for FSPs and FMCGs, to lay the groundwork for such a platform approach to succeed.  A digitized SCF solution will not only help merchants to grow their business but will drive meaningful financial inclusion for the millions left un- or underserved by the status quo. With nearly 141 million microenterprises in developing countries, digitized supply chain finance represents a scalable solution to drive greater sales through the supply chain, which will propel inclusive growth.

<img class="aligncenter" src="https://content.accion.org/wp-content/uploads/2018/09/Citi-Foundation.png" width="240" height="162" />

Accion would like to thank the Citi Foundation for supporting this report. The Citi Foundation works to promote economic progress and improve the lives of people in low-income communities around the world. The Citi Foundation invests in efforts that increase financial inclusion, catalyze job opportunities for youth, and reimagine approaches to building economically vibrant cities.

&nbsp;

How digitized supply chain finance can help small merchants grow

Insights from Chilean micro-entrepreneurs can encourage better product design for financial service providers 

Chilean banks have made critical advances to drive greater financial inclusion in recent years. From agent networks to payment platforms to the CuentaRUT account — a simplified deposit account with a debit card that the state-owned Banco Estado made available to anyone in Chile with an identity card, Chile has nearly reached universal access to financial services.

However, despite these advances, many small merchants in Chile still aren’t finding financial tools that meet their needs. Micro, small, and medium enterprises (MSMEs) make up <a href="http://www.smefinanceforum.org/data-sites/msme-country-indicators">98.5 percent of enterprises</a> in the country and are a significant driver of economic growth; however, <a href="https://www.smefinanceforum.org/data-sites/msme-finance-gap">almost a quarter</a> of these enterprises have faced difficulty in accessing financing in times of need. Compounding this problem are high levels of financial insecurity among Chileans. <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx">Nearly half of the population</a> feels unsure about how they would cover their basic needs if they lost their income. For merchants whose personal and business lives are closely intertwined, this lack of financial security in their day-to-day lives translates to lack of security in their businesses as well.

Our Customer Strategy team traveled to Santiago to talk to micro-entrepreneurs so we could better understand how they are currently using their financial services. MetLife Foundation supported this research as part of our <a href="https://www.accion.org/accion-metlife-foundation-improve-financial-inclusion-in-latam">joint effort to boost the financial capability of customers</a>. Just as we <a href="https://www.accion.org/people-saving-money-mexico/">did in Mexico,</a> we conducted interviews with a wide variety of small merchants to understand their motivations, goals, and feelings toward financial services, and to hear about the strategies they use to stay financially healthy.

Here’s what we learned:
<h3>1. Significant barriers block entrepreneurs from using business accounts. </h3>
Every microentrepreneur we spoke with had a CuentaRUT card, but for many, that was the extent of their relationship with formal financial services. All of them cited high fees, interest rates, and long application processes to access business accounts and credit as barriers to usage. Margarita, the owner of a travel agency and a small bookstore, told us that the most challenging part of starting her business was opening a business bank account, which required numerous documents and costly fees. Therefore, many use their CuentaRUT account for both personal and business purposes, making it difficult to manage their business and personal financial lives separately.
<h3>2. Chileans perceive taking credit from banks as risky.</h3>
Gianfranco, the owner of a small restaurant, wants to expand his business, but he has no interest in taking out a loan. He fears losing everything he has worked for by putting his business up as collateral. He told us, “I don’t like the idea of being indebted or dependent on anyone.” Maritza, the owner of a mini-market, shared a similar sentiment: “I don’t have confidence in financial institutions; they don’t worry or care about their smaller clients.” Many of the merchants we spoke to prefer to borrow from friends and family.
<h3>3. Blacklisting deters participation in the formal financial system. </h3>
Dicom, the national credit agency, records negative credit information such as payment delays and defaults. However, the agency does not offer a clear path to resolve negative reports and as a result, many small businesses avoid deepening their relationship with lenders. Many major retail stores offer <a href="https://www.america-retail.com/weekly/falabella-cencosud-y-ripley-concentran-el-86-del-negocio-de-las-multitiendas-en-chile/">consumer credit cards,</a> and in the past, they did so without proper credit assessment and did not inform customers of the <a href="https://www.nytimes.com/2011/07/24/business/global/abuses-by-credit-issuers-in-chile-and-brazil-snare-consumers.html">consequences of default</a>. As a result, many people, unable to pay or unaware of the lasting nature of default, were reported to Dicom, and remain on that blacklist. Today, nearly <a href="https://www.publimetro.cl/cl/noticias/2017/12/15/dicom-explicado-manzanitas.html">900,000 people</a> are recorded as delinquent.

[caption id="attachment_16514" align="alignleft" width="501"]<img class=" wp-image-16514" src="https://content.accion.org/wp-content/uploads/2018/12/IMG_8047-1024x768.jpg" alt="Jaime sits at a table at his restaurant" width="501" height="376" /> Don Jaime, the owner of a restaurant in Santiago.[/caption]

Jaime, a restaurant owner in Santiago, is 74 and has been an entrepreneur all his life. He was reported to Dicom over 30 years ago and has no way to resolve the black mark on his account. In fact, he doesn’t know what caused him to be listed in the first place, despite his efforts to find out. He has upgraded his business several times, but always with his savings, as he has no access to credit. Today, he hopes to buy a car so that he can purchase supplies directly for his restaurant, without paying for transport. However, he cannot make such a large purchase until he builds up enough savings. Jaime needs information to help him better understand why he was blacklisted and concrete steps to help him improve his credit score.
<h3>4. Informal savings remain more comfortable and familiar for people. </h3>
Findex data tells us that only 21 percent of the population in Chile saves money at formal financial institutions. Many interviewees told us that they have difficulty putting money away, often finding it overwhelming just to meet their fixed expenses. When they do set money aside, they prefer to save informally, either in inventory or through investment in assets that will produce income later. Many told us that opening a savings account seems difficult, but everyone wanted to increase their resources so that they could take more time off and work less.
<h3>5. Merchants prefer to learn about financial products from people, not websites.</h3>
Several merchants mentioned that they are hesitant to make financial decisions based on digital information. Lorena de Diaz, the owner of a house cleaning business, told us that she prefers to learn about new products in person, as she can’t verify the accuracy of information provided through a website or mobile application. She likes to be able to ask questions at the branch and feels that she better understands financial products when a person can explain it.

The microentrepreneurs we spoke to need tools tailored to their needs, from working capital to finance their inventory to inexpensive business saving and checking accounts, delivered with transparent and trustworthy communication from their providers. As we continue working with fintechs and financial service providers of all sizes, we hope that better understanding customers’ pain points, aspirations, and desires will lead to better communication on how to use financial products, or even entirely new products that truly improve people’s financial health. Over the next two years, Accion will be working with financial service providers in Mexico and Chile to use customer research to design, test, and implement product innovations that will drive usage and improve financial health.

This research was conducted by Accion as part of our part of our <a href="http://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> project, supported by MetLife Foundation.

&nbsp;

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Five reasons small merchants aren’t using financial services in Chile

From institution-centered to user-centered design for financial service providers

Too often we hear questions from some of our financial service provider clients such as, “How can we gain market share and beat out our competition?” This isn’t inherently a bad question — it’s important to think strategically about competitors. But this question focuses only on the supply side. To get the full picture, an institution should also ask, “How can we better understand the challenges that our customers face, and how can we help them tackle these issues through our services?” While many financial service providers have made considerable strides in developing customer-centric products, most could be doing more to better understand their customers’ wants, needs, behaviors, and habits.
For these institutions that lag behind in customer centricity, it is not that they are unconcerned for their customers and only worried about the bottom line, but they often perceive this to be expensive and can be reluctant to invest in market research. Instead, they rely on anecdotal customer stories from their sales force. Unfortunately, this approach to the collection of customer information often leads these institutions to misunderstand the real problems their customers face. For instance, they may miss how technology is changing customers’ preferences for accessing information and the social groups they are part of.
Conventional market research methods rely on focus groups and expensive customer surveys, which don’t always deliver relevant insights. In contrast, a customer-centric design methodology focuses on listening to and observing people in their daily lives and works within market and technological constraints. One particular area of focus is product touch-points. A customer-centric approach regards each touch-point as an opportunity to surprise, delight, and deliver benefits to users. When done well, this approach provides experiences that resonate with the intended customers — driving their engagement and, ultimately, growth for the institution. With a customer-centric design methodology, rapid prototyping and real-world tests with customers are used to validate (or invalidate) early designs and improve the solution.
With the aim of teaching financial service providers how to apply Accion’s user-centric design methodology, we hosted a workshop in Queretaro, Mexico, <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/accion-metlife-foundation-improve-financial-inclusion-in-latam" target="_blank" rel="noopener noreferrer">with the support of MetLife Foundation</a>. This 2-day workshop brought together ten financial institutions, including microfinance organizations, cooperatives, and fintechs, to learn our methodology for designing and developing user-centric products, based on a deep understanding of customers’ behavior, with a high potential for adoption. Participants learned how to reframe their business challenges from a customer-perspective, conduct efficient and useful user research, and use their understanding of their customers’ financial behaviors, capabilities, needs, and desires to conceive and prototype a new product.


[caption id="" align="alignleft" width="1200"]<img class="graf-image" src="https://cdn-images-1.medium.com/max/1200/1*sWmRTbJstsSZrG734Hbjqw.jpeg" alt="Financial service provider presenting poster of potential product to customer." width="1200" height="972" /> A workshop participant shares her prototype travel debit card with a potential user. This product would include a digital application geared to address millennials’ need for saving as well as financial and business coaching.[/caption]
After designing prototypes, the participants shared their ideas with potential users and engaged in a conversation about their lives, desires, and fears. By walking the users through each touch point in the proposed customer journey, the participants empathized with the customers’ thoughts, feelings and experiences at each moment. These conversations brought up questions about the usefulness and complexity of many of the products and forced participating institutions to adjust their concepts to make their prototype more customer-centric — ultimately promoting greater adoption and supporting the <a class="markup--anchor markup--p-anchor" href="https://www.centerforfinancialinclusion.org/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans" target="_blank" rel="noopener noreferrer">financial health</a> of the customer. When financial service providers watched potential users struggle with digital tools or have trouble navigating through non-intuitive wireframe mock-ups, they gained insight in designing user-centered products. The providers told us this was the most influential part of the workshop.

<figure class="graf graf--figure graf--layoutOutsetLeft">

[caption id="" align="alignleft" width="464"]<img class="graf-image" src="https://cdn-images-1.medium.com/max/1200/1*3ExPWEXxHIZOT_zW4PnQfg.png" alt="Poster showing customer journey" width="464" height="327" /> One bank conceptualized a flexible product that will address customer distress in paying their hospital bills. This bank visualizes the customer experience at every touch point with the bank. The visualized product allows the customer to customize their experience by choosing where to open their account, pick the date and portion of the bill they want to pay.[/caption]</figure>
Both traditional institutions and fintechs found the user-centric design methodology useful. While many fintechs claim to be more customer-centric than incumbent financial providers, several of the fintech participants admitted that they do not have a process to ensure that their existing products evolve to match the dynamic needs of their clients. Upon reflection, many found that their services were disconnected from client realities.
The workshop participants were eager to return to their institutions to share their new product prototypes. As one attendee put it, they were looking forward to using this methodology to, “not only help us to improve our products and services, but to create a more enriching experience for our customers.”
However, participants know that the path from prototyping customer-centric products to product deployment is not an easy one. Within an organization, a willingness to embrace change and focus on customers requires a shift in mindset. As one participant said, “it will be difficult to convince others to center their focus on our clients.”
Over the next two years, with the support of MetLife Foundation, Accion will continue working with select financial service providers to ensure that they are asking more strategic questions as they apply this user-centric design methodology to develop a product, service, or experience. And we will help the institutions tackle the challenge of internal alignment and cultural change, while ensuring that designs resonate with customers, use innovations in technology, and contribute to the financial health of the low-income population in Mexico.

To help customers, you have to ask the right questions

Taking stock of the top seven emerging digital lending models

Last year, Amazon grabbed headlines by giving <a class="markup--anchor markup--p-anchor" href="https://www.reuters.com/article/us-amazon-com-loans/amazon-lent-1-billion-to-merchants-to-boost-sales-on-its-marketplace-idUSKBN18Z0DY">$1 billion in small-business loans</a> to over 20,000 merchants in the United States, Japan, and the U.K. Their near real-time data on sellers’ businesses and access to customer reviews allow Amazon to evaluate customers and manage the risk of lending to small merchants. WeChat also made waves when it entered the game in 2015. As China’s largest social network, it’s been able to <a class="markup--anchor markup--p-anchor" href="https://www.kapronasia.com/china-banking-research-category/item/889-wechat-loan-blows-retail-banking-with-rmb100-billion-loans-in-two-years.html">deploy more than US$14.7 billion in funds</a> in just two short years. Like Amazon, WeChat benefits from access to data and the ability to offer convenience and efficiency for the customer — it only takes 0.3 seconds to approve a loan application.
These tech giants have joined a host of other players in a continually evolving digital lending ecosystem. Other prominent digital lenders include <a class="markup--anchor markup--p-anchor" href="https://konfio.mx/">Konfío</a> in Mexico and Kenya-based <a class="markup--anchor markup--p-anchor" href="http://kopokopo.co.ke/">Kopo Kopo</a>. Each platform in this space leverages technology to offer loans that are faster, more cost-efficient, and more straightforward for the customer.
Digital lending is proving to be a potent force for reaching people who haven’t been able to access financial services in the past. Innovative products can overcome the challenges of geography, reduce transaction costs, and increase transparency. But distinct market structures, regulatory environments, and customer needs have led to a wide variety of digital lending models that are each tackling financial inclusion in different ways.
When we evaluated the current state of play, we identified seven primary digital lending models:

<ul class="postList">
 	<li class="graf graf--li">Online lenders. These lenders offer full end-to-end digital lending products online or via mobile applications. In this model, customer acquisition, loan distribution, and customer engagement are entirely digital. This process is specially designed with no need for face-to-face contact or even for customers to phone a call center. Fintech companies like <a class="markup--anchor markup--li-anchor" href="https://www.lidya.co/">Lidya</a>, <a class="markup--anchor markup--li-anchor" href="https://branch.co/">Branch</a>, and <a class="markup--anchor markup--li-anchor" href="https://tala.co/">Tala</a> are online lenders that help entrepreneurs access funding in emerging markets, including <a class="markup--anchor markup--li-anchor" href="http://www.accion.org/new-venturekast-episode-lidya-building-future-small-businesses-nigeria/">Nigeria</a>, Kenya, and the Philippines.</li>
 	<li class="graf graf--li">P2P platforms. P2P platforms are purely digital platforms that match a borrower with an institutional or individual lender and facilitate the digital transaction. The platform typically plays an ongoing central role in the relationship between these parties. In this model, P2P lenders like <a class="markup--anchor markup--li-anchor" href="http://english.creditease.cn/about/Overview.html">CreditEase</a> and <a class="markup--anchor markup--li-anchor" href="https://www.kwikcashonline.com/">KwikCash</a> often design the product, score the borrower, and may support repayment and collection processes.</li>
 	<li class="graf graf--li">E-commerce and social platforms. These platforms include the likes of Amazon and WeChat. These are digital platforms where credit is not their core business, but they leverage their digital distribution, strong brand, and rich customer data to offer credit products to their customer base.</li>
 	<li class="graf graf--li">Marketplace platforms. Marketplaces, like <a class="markup--anchor markup--li-anchor" href="https://www.loanframe.com/">Loan Frame</a> in India, are digital platforms that use proprietary algorithms to match a borrower with the right lender. Lenders typically use these types of platforms to acquire new customers, and they pay an origination fee to the platform. Once funds are dispersed, the customer relationship is direct with the lender.</li>
 	<li class="graf graf--li">Supply chain lender. Firms such as <a class="markup--anchor markup--li-anchor" href="http://www.tiendapago.com/en/">Tienda Pago</a> and <a class="markup--anchor markup--li-anchor" href="http://www.m-kopa.com/">M-Kopa Solar</a> provide digital short-term working capital loans for microenterprises to purchase inventory from their distributors or for pay-as-you-go financing of an asset purchase. The distribution network enforces repayment through penalties if necessary. For example, suppliers might withhold deliveries of goods or turn off utilities in the case of late payment.</li>
 	<li class="graf graf--li">Mobile money lenders. Firms such as <a class="markup--anchor markup--li-anchor" href="http://www.accion.org/kopo-kopo-mobile-money-kenya/">Kopo Kopo</a> partner with mobile network operators to offer mobile money loans to their customer base, leveraging mobile phone data for credit scoring. In this model, physical agent networks where customers can go to complete cash-in/ cash-out transactions supplement the digital interface of the mobile phone.</li>
 	<li class="graf graf--li">Tech-enabled lenders. These are traditional lenders who have embraced technology to digitize part of their otherwise manual lending process. This digitization could include adding digital acquisition channels or digital repayment options. Tech-enabled lenders like <a class="markup--anchor markup--li-anchor" href="http://www.ayefin.com/">Aye Finance</a> in India and <a class="markup--anchor markup--li-anchor" href="http://www.accionmfb.com/Home.aspx">Accion Microfinance Bank</a> in Nigeria, supplement their physical distribution networks with technology — providing a <a class="markup--anchor markup--li-anchor" href="http://www.accion.org/human-touch-place-age-digital-financial-services/">‘tech and touch’</a> approach.</li>
</ul>
Adding to the complexity of the digital lending ecosystem is its dynamic nature, which makes strict categorization difficult. Key players continue to test, refine, and evolve their business models and value propositions based on customer needs and market experience.
For example, <a class="markup--anchor markup--p-anchor" href="https://www.creditas.com.br/">Creditas</a>, a digital lender in Brazil, started solely as a marketplace platform but has subsequently moved into credit scoring, customer engagement, and financing solutions for customers, to become an online lender. <a class="markup--anchor markup--p-anchor" href="https://www.jumo.world/">JUMO</a>, an online lender in Kenya, started as an end-to-end mobile money lender but is moving away from funding its own portfolio and becoming a marketplace platform.
Innovation and market expectations will continue to alter and refine the digital lending landscape. However, the similarities shared by today’s successful models are likely to remain prominent: they digitally source customer data, rely on hundreds, and even thousands, of data points to score customers, offer instant and remote approval, create data-driven mechanisms to drive repayment, and engage customers digitally. Advanced digital lenders have leapfrogged over traditional lenders to provide customers with a faster, more transparent, and convenient service. Traditional banks will have to give customers similar benefits if they hope to compete.
To learn more about the ways that digital lending is advancing financial inclusion and how financial service providers can evolve in today’s digital landscape, read Accion’s Global Advisory Solutions team’s publication on <a href="http://www.accion.org/demystifying-digital-lending/">Demystifying Digital Lending</a>.

The rapidly changing landscape of digital lending

Investigating identity as a building block for financial inclusion

Have you ever opened a savings account? Taken out a loan? Used a credit card? “I bank, therefore I am,” oversimplifies the connection, but your ability to prove you are who you say you are is a prerequisite for your ability to access the financial services you need to live a stable life, support your family, and follow your dreams.
Roughly 1.1 billion people have no formal identity, <a class="markup--anchor markup--p-anchor" href="http://blogs.worldbank.org/ic4d/counting-uncounted-11-billion-people-without-ids" target="_blank" rel="noopener noreferrer">according to the World Bank</a>. This can prevent people from getting an education, owning land, and even voting. In financial services, imposing regulations mandate providers to formally verify users to a high “level of assurance” which creates a lot of friction and costs. Fortunately, technology is opening up new pathways for people to more easily establish their identities and gain access to social benefits, education, and financial services. Advanced biometrics, blockchain-backed ID systems, and user-controlled ID are <a class="markup--anchor markup--p-anchor" href="https://www.usaid.gov/digital-development/digital-id/report" target="_blank" rel="noopener noreferrer">transforming the ID landscape</a>, but also raising important questions around privacy and control of personal information.
To understand the challenges and opportunities digital innovation brings to identity, we have to look first at the foundational concept of identity. What makes you, you? Each person is multi-faceted — you’re a composite of your biological, behavioral, personality, and character traits. In a publication titled “<a class="markup--anchor markup--p-anchor" href="https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2189989" target="_blank" rel="noopener noreferrer">Minding the Identity Gaps</a>,” authors Ignacio Mas and David Porteous take a two-pronged approach to identity:

<ol>
 	<li class="graf graf--p">Identity based on intrinsic uniqueness: This is the idea that you’re unique on a biological level, proven by your fingerprint, birth certificate, and other methods. This aspect of identity helps us differentiate one individual from another, and it’s the traditional basis of formal identity.</li>
 	<li class="graf graf--p">Identity based on behavior: This gets to the composite of actions and character traits that paint the full picture of who you are — even though you won’t find room for these qualities on a passport application. This aspect of identity is typically used to provide more information about you as an individual, but it doesn’t necessarily differentiate you from everyone else in the world.</li>
</ol>
Although these definitions are not mutually exclusive, they do serve to place the different aspects and applications of identity in a straightforward context. They also introduce some of the challenges financial service providers face when taking into account either of these aspects of identity.
For example, proving intrinsic uniqueness depends on the quality of the mechanism used to differentiate one individual from another. Financial service providers should carefully consider the methods by which they enable customers to establish, prove, and use their identity (we’ll dive deeper into the differences between these steps in a later post). For instance, while a thumbprint can be an efficient and secure way to establish and verify identity for mobile banking, it can present challenges for people who engage in manual labor, according to the <a class="markup--anchor markup--p-anchor" href="http://www.dematerialisedid.com/PDFs/role_of_biometric_technology_in_aadhaar_jan21_2012.pdf" target="_blank" rel="noopener noreferrer">Unique Identification Authority of India’s biometrics standards committee</a>. That’s because fingerprint readers may be inadequate if someone’s fingerprints are worn or otherwise affected.
In the case of identity based on behavior, context is everything. The extent to which we express certain character traits is often relative to immediate environmental, social, and cultural influences. For example, you behave differently at work than you do at home. This inconsistency can be a challenge for financial service providers, who might use this information to evaluate someone’s creditworthiness or tailor products and services to specific preferences and needs. While an individual’s Facebook data may flag them as someone unlikely to stick to a repayment schedule, it may not be representative of how likely they are to repay a loan arranged through <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/human-touch-place-age-digital-financial-services/" target="_blank" rel="noopener noreferrer">face-to-face interaction</a>.
No matter how you look at identity, it’s clear that innovative identification methods have the power to transform how individuals establish themselves and how financial services providers acquire and engage with their customers. In fact, a <a class="markup--anchor markup--p-anchor" href="http://cariboudigital.net/new-research-digital-identity-emerging-markets/" target="_blank" rel="noopener noreferrer">Caribou report</a> states that the most prominent use cases of digital identity are within financial services given the increasing complexity and range of financial products. As Iain Brougham, with <a href="https://www.accion.org/content/microfinance-services">Global Advisory Solutions at Accion</a>, puts it, “The capture and exchange of personal digital data for both intrinsic uniqueness and behavioral insight opens up prospects for reduced friction in the onboarding process and better customer acquisition through an enhanced understanding of customer wants and needs.” To properly explore the opportunities and challenges of digital identity in financial services, we’ll be diving deeper into this topic over the next few months. We hope by examining how financial service providers can approach digital identity, we can help bring high-quality, affordable financial services to more people around the globe.
Our next blog will explore why identity is critical to enabling greater financial inclusion and how financial providers should be thinking about identity.

Priya Punatar

Latest by Priya Punatar

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