My son loves superheroes. I often come home to see him in costume running, jumping, and climbing all over the house. He details different heroes and catalogs each of their powers.
In between his analysis of The Avengers or The Justice League, I try to tell him the moral behind those stories: that if you have superpowers, then you must use them for good.
If I had one message for today’s fintech entrepreneurs and investors, it’s that they have superpowers.
Fintech entrepreneurs and fintech investors are reshaping financial services, the economy, and maybe even the world itself. We can now cross once insurmountable distances in seconds. We can easily and inexpensively track transactions that were once thought to be too small to be commercially viable. We can use data and data analytics to see trends and patterns in peoples’ behavior that were previously invisible.
We’re living in the golden age of fintech. The explosion of new innovations, efficiencies, and solutions allow us to create better, faster, cheaper, and safer financial services than anything we’ve ever seen before. It’s an exciting, important moment – one that could bring us closer to a financially inclusive world than we’ve ever been before if we act on it.
So my question to the world’s fintech investors and entrepreneurs is: will you use your superpowers for good?
Three billion people are left out of the global financial system
Today, the global financial system generally works well for billions of people around the world. In nearly every major city, we take for granted that there will be ATMs on each corner, credit cards, debit cards, and the ability to pay our bills easily and efficiently. We can get a mortgage or a loan to finance our children’s education and build businesses. We can purchase insurance to protect ourselves, families, and assets in the event of an emergency. We’re paid monthly, and our bills come in monthly as well. That’s convenient, but together these services represent more than just convenience: they help us manage our day-to-day, seize opportunities, and weather storms that may arise. That’s essentially financial inclusion.
And yet for three billion people, the global financial system is a failure. It might as well not exist. Three billion people are left out of this system. And their lives are so much harder because of that.
Think about the Mexican farmer who may get paid once a year at the harvest. She has to make that income last the full year, but she lacks a safe place to save. If there’s a hurricane or a medical emergency, she could be wiped out, but there’s no one willing to sell her insurance. If she wants to grow her business, there’s no one who will lend to her.
And she uses cash for every transaction – cash that is easily stolen or lost. And cash leaves no record, so she remains invisible. She has no credit history and that makes it much harder to figure out the financial products and services that are right for her.
That’s the reality for three billion people. They live in or near poverty, and they lack access to – or only have very poor access to – the global financial system. Because they are excluded, their lives, and those of their families, are much, much harder.
We need to change this. We can change this. And if fintech entrepreneurs and innovators use their superpowers, we will change this.
For more than 50 years, Accion has worked to solve this problem
So how will we create a financially inclusive world?
For more than 50 years, Accion has worked to address this challenge. We began in 1961 in Venezuela as a private sector Peace Corps. That’s particularly remarkable because the Peace Corps hadn’t even been invented yet.
In the early ‘70s, we realized that the people who we were trying to help needed more than community development; they needed capital. We began making very small loans to the poor in Recife, Brazil and we found that our clients repaid these loans 97% of the time – a statistic that has held up for decades. At that time, Accion was working in Latin America, Dr. Muhamed Yunus was working in Bangladesh, and others were working in Southeast Asia – and modern microfinance was born.
In the 80’s and 90’s, Accion helped to create non-profit microfinance institutions in nearly every Latin American country.
In 1992, this movement recorded a significant milestone. In Bolivia, we helped create the world’s first for-profit bank to serve the poor. Until that moment, all microfinance around the world had been provided by non-profits. By creating a for-profit structure, BancoSol could tap the debt and equity markets, hire top talent, and answered to a different set of regulations. Later, BancoSol started taking deposits, making it easier for it to raise and loan money to their clients. BancoSol had already been doing well as a non-profit, but as a for-profit, it took off.
We then returned to those not-for-profits and recreated them as for-profits. While that transformation was taking shape, we became an early equity investor in and helped build some of Latin America’s great microfinance institutions, including Peru’s MiBanco and Mexico’s Compartamos.
Ten years ago, another seminal event occurred in our field. In 2007, Compartamos had the first IPO for a microfinance institution. It was extraordinarily successful. The entire world watched the Compartamos IPO unfold, and it inspired many more to get involved with this movement.
Over the years, we came to see the power of harnessing the capital markets to help achieve financial inclusion. Today this is obvious, but back then it was revolutionary – and even controversial.
With the success from the Compartamos IPO, Accion expanded our work into a half a dozen countries in Africa, India, China, the Philippines, and most recently Myanmar. Over our history, Accion has helped build 65 microfinance institutions in 34 countries that today serve millions. And the commercial model we pioneered is now the world’s standard.
Microfinance makes a direct impact for millions of clients and businesses. But it does more than that. I believe that microfinance has made two great, indirect contributions to the world:
First, I think microfinance has helped to change the way we view the base of the pyramid; instead of appealing to charity to end poverty, we now think of enormous market opportunity and potential.
And second, today’s notion of social entrepreneurship and impact investing owes a great debt to microfinance, which showed the world that you could have a great social impact – and a great financial return.
Accion catalyzes progress by supporting fintech innovations
Accion has applied those lessons about the capital markets to the new technologies emerging today. We’ve begun working as a venture capital investor, supporting the innovative companies finding new ways to meet the financial needs of those left out.
We’ve created two impact investing vehicles to provide entrepreneurs with the support and capital that they need. The first is Accion Venture Lab, the leading seed-stage fintech investor for inclusion.
The second is the world’s first global fintech fund for the underserved, the Accion Frontier Inclusion Fund, managed by Quona Capital. We raised more than $140 million from an impressive array of banks, payment and insurance companies, foundations, and family offices to drive the Fund’s work.
Between these two vehicles, we have reviewed more than 2,000 fintech companies and made more than 40 investments around the world. We see an incredible pipeline of innovation across the globe that allows us to identify the key trends and great companies which can help the world’s three billion financially underserved people.
Here are some highlights from our portfolios by innovation or service that we believe have tremendous potential to help create a more financially inclusive world:
Mobile payments and remittances
- Azimo is cutting the costs of remittances from Europe to Africa by more than 80% compared to what incumbents charge.
- Coins which uses the blockchain to help parents in the Philippines pay their children’s school fees and other bills digitally, rather than wasting hours traveling and waiting in line.
- NOW Money which helps migrant workers in the United Arab Emirates move from cash to digital payments. By receiving direct deposits and sending money home digitally rather than in cash, workers can send their wages back home faster, cheaper, and safer than before.
- Yoco which helps small mom-and-pop shops in South Africa convert from cash to digital payments, provides tools to help their owners manage their businesses better, and ultimately provides them with working capital loans.
Alternative data credit analysis
- Apollo Agriculture is using global satellite imagery to assess the needs and repayment capacity of small-holder farmers in rural Kenya. This is particularly exciting because so many of the world’s poor are farmers.
- CreditMantri is helping to empower people in India with little or no credit histories to take control of their credit profiles and improve their access to the products and services that they need.
- Destacame which empowers consumers in Chile and Mexico to improve their own credit histories. The Chilean credit bureau only tracks negative information, and many consumers across Latin America have no credit history; lenders typically reject these ‘thin-file’ clients for loans. But if users turn to Destacame, they can create an alternative credit score based on utility payments, school fees, and other alternative credit information. You control and build what’s on your Facebook page: shouldn’t you control and build your credit history?
- First Access uses the data from people’s cell phones to advise microfinance loan officers in real-time on the appropriate loan size and rate in Tanzania.
- Konfio has found new ways to use data to provide working capital to help small businesses grow. Konfio provides a suite of tools to help its clients better manage their finances. In a short amount of time, Konfio has emerged as Mexico’s leading online lending platform for small businesses. Konfio analyzes thousands of data points – including biographical information, financial history, electronic invoicing, and social media usage – to make lending decisions. Its loan sizes are typically $3,000-$4,000 and it is the only company we know of in the world using this degree of information to track and predict cash-flows for small businesses.
- Tienda Pago leverages distributors to find new ways to lend to small mom-and-pop stores. When Coca-Cola, makes a delivery, they want to be paid immediately, but the small shop may not have the cash until after the Coke is sold. Tienda Pago lends digitally to small businesses in Peru and Mexico to pay the distributor at the time of the delivery; Tienda Pago is then repaid when the Coke is sold. And by building up a digital credit history through Tienda Pago, the small business can borrow larger amounts down the road.
- AllLife, the first company in the world to provide insurance to people who have been diagnosed with HIV. Their proprietary model of tech-driven perpetual underwriting and patient care allows them to serve the needs of an extremely excluded population in South Africa. More recently, they’re using the same technology to cover people with diabetes.
- ESCALA is helping to make higher education affordable in Colombia. ESCALA encourages parents to make automatic deductions from their payrolls to a savings account that earns interest and is matched up to 100% by their employer. They also work with colleges to offer discounted tuition.
- Eseye is using machine-to-machine technology and the Internet of Things to provide rural Kenyans with pay-as-you-go options for water pumps and solar lamps.
Fintech leaders face real challenges
The innovation that we see around the world is stunning: data, data analytics, supply-chain finance, blockchain, global satellite imagery, digital remittances, machine-to-machine technology, the Internet of Things, micro-insurance, psychometrics, chatbots, artificial intelligence: today’s pace of innovation is thrilling!
Accion’s portfolio companies have many differences, but they also face some common challenges. In June, we gathered more than 40 of our partners together in The Hague for the CEO Forum and Fintech for Inclusion Global Summit 2017 to talk about the issues that they must overcome to create thriving businesses and promote financial inclusion.
As start-ups, each of them must overcome similar issues: they target the base of the pyramid and work in emerging markets. Those communities often lack reliable electricity, Wi-Fi coverage, or roads. They’re typically far away from major urban centers. And in addition to infrastructure challenges, many of these communities distrust financial or governmental institutions.
Our portfolio companies also work in the financial services sector – the most regulated industry in the world. I was a regulator for years, and regulators generally don’t like innovation. That’s a challenge for these companies because they’re doing something that’s never been done before!
So, this is hard. As a non-profit with decades of experience, we’re willing to take informed risks earlier and do what it takes to help these companies succeed.
Some of these companies may fail – but some may change the world!
Accion protects clients and guides the industry
In addition to investing in early-stage disruptive fintech companies, Accion also works with existing financial institutions to help embrace these new digital tools like big data to increase their efficiency, expand their scale, and improve their products and services. Most established financial service providers are desperately looking for help and advice to figure out how these new technologies may make sense for them. We help them.
Last, a key part of our strategy to create a financially inclusive world is by doing research and influencing policy. We created the Center for Financial Inclusion (CFI) at Accion, an industry-wide think tank that seeks to protect and empower consumers – and engage and challenge the industry.
For example, the CFI has created the Smart Campaign, the world’s first global consumer protection campaign for the poor. More than 90 of the world’s best microfinance institutions have been certified by rating agencies as compliant with the Smart Campaign’s seven Client Protection Principles. Those microfinance institutions cover more than 40 million clients and set standards in their countries.
CFI also produces high-quality research on the big unanswered questions we need to understand in order to create a financially inclusive world. Recently, its research has evaluated big data’s strength and weaknesses; whether government-to-person payments are a catalyst for financial inclusion; and the opportunities and limitations of mobile technology.
CFI and the Institute of International Finance just published a great report on the best ways for fintechs and financial service providers to partner together to accelerate inclusive finance. Partnerships work, but they’re hard. If we can combine fintech’s creativity with the scale of established institutions, then we can accelerate the future. Until recently, most thought it was fintech versus incumbents, but now people recognize that the path forward is based on partnerships. This report looks at where partnerships can do the most good and some of the early lessons partners have learned through their work together.
CFI also partners with the Economist Intelligence Unit to create the annual Microscope, which ranks more than 50 countries on the quality of their inclusive finance regulations and the depth of each market. It’s a powerful ranking system that uses transparency to name and shame regulators and identify who is doing what well – and who’s not.
We also have worked with the Harvard Business School for more than a decade to create an amazing course for global leaders in inclusive finance. More than 900 CEOs and entrepreneurs from over 100 countries have spent a week in Boston for a course with Harvard Business School’s top professors; there they learn what works and what doesn’t when doing business with the world’s most vulnerable people.
Use your superpowers to create a financially inclusive world
That’s what Accion is doing to create a financially inclusive world. And, importantly, we’re just one organization. Around the world, commercial banks, regulators, academics, venture capitalists, entrepreneurs, mobile network operators, and other nonprofits are all working together to help the world’s three billion financially underserved.
Still, we’re all just getting started. We have so much more to do.
And that’s why we need fintech’s entrepreneurs and investors to recognize the amazing superpowers that they have – to see that they have the ability to transform every aspect of financial services for the better.
More than recognize their powers, I hope these communities will use them to make the world a little better; to help build a more inclusive world where everyone has the tools they need to help themselves; to create a world where everyone has a chance to reach their potential. I hope they will use their powers for good – and help us create a financially inclusive world.
This piece is based on Accion President and CEO Michael Schlein’s remarks during the opening keynote at FINNOSUMMIT, the top fintech conference in Mexico and Latin America. FINNOSUMMIT brought together hundreds of innovators and entrepreneurs to discuss how digital innovations will affect financial services and how these new changes will shift the industry.