In November 2018, the Mastercard Center for Inclusive Growth and Accion launched the MSE accelerator program (MAP) to support millions of underserved micro and small enterprises (MSEs) around the world by digitally transforming their financial service providers (FSPs). Through the program, Accion worked with a cohort of 47 fintechs and nine FSPs across Asia, Latin America, and Africa — helping them design innovative digital products, financial services, digital tools, and infrastructure to better meet the needs of underserved people. The program enabled 12.8 million people to benefit from digital financial services, including 5.6 million micro and small businesses that used these services. Accion report: Exceeding our goals to reach more underserved clients

Accion report: Exceeding our goals to reach more underserved clients

As part of Accion’s commitment to outcomes-based impact measurement, we wanted to understand how digitizing FSPs contributed to changes in the quality of life, financial health, and business growth of microbusinesses. We conducted a 16-month longitudinal study over three survey periods with select program partners to understand the impact of digital transformation on the lives of MSE owners and the key socioeconomic outcomes that resulted from program initiatives. This brief serves as an extension to earlier findings and includes new data from a third round of surveys conducted with program partners in Ecuador, Guatemala, India, and Nigeria in Q1 2023. Insights from the previous two survey periods (Q3 2021 and Q3 2022) with aggregated data from Bolivia, Ecuador, Guatemala, India, and Nigeria are available in this report published in November 2022. Accion report: Survey findings

The aim of this research was to enable FSP partners’ customers to share the changes they experienced during the survey period with respect to financial health challenges, business growth opportunities, and access and usage of digital financial services (DFS), and to determine whether products produced under the program played a role in these changes. This study provides findings on the relationships observed between MAP digital product usage and financial health and business growth outcomes reported by product users. For the purposes of this survey, “improvements in financial health” and “improvements in business growth,” are defined as an increase in at least one of the outcomes listed below.

Financial Health

Ability to make loan repayments on time
Ability to pay operating expenses (including wages)
Ability to purchase inventory to meet demand
Access to credit
Ability to meet customer's savings goals

Business Growth

Conducting market research to help improve business
Diversifying products sold
Product sales/income
Expanding existing business
Starting additional business
Hiring additional paid employees

Throughout the longitudinal research, Accion collected 9,389 responses across five countries over a 16-month survey period. Accion report: world map of customers surveyed

Accion report: world map of customers surveyed

Accion’s MSE digital maturity assessment segments individuals into four different categories of digital maturity – nascent, experimenter, emerger and enabled – based on their level of access to, usage of, and perceptions toward digital tools (mobile phones, laptops, tablets) and digital financial services. Accion report: digital customer archetypes

Accion report: digital customer archetypes

Between the start of the survey and Q1 2023, people in the most digitally mature category (‘Enabled’) more than doubled from 19 to 39 percent. We also observed a significant increase in smartphone penetration and the way digital tools were being utilized to access financial services. Uptick in active, more frequent usage can symbolize increasing trust and confidence in digital tools amongst MSEs. By categorizing different types of users based on their digital adoption trends, MSE-serving institutions can benefit from understanding the different drivers behind ‘digital adoption’ and how to scale usage of their products, channels, and services. With increasing digital maturity and usage globally, micro and small business owners surveyed from Q3 2021 to Q1 2023 reported that digital products developed and enhanced through the partnership contributed to improvements in their business growth and financial health. These benefits are especially noticeable among women-owned businesses and frequent users of MAP products. Across the board, a majority of product users reported that they perceived these products to be better than available alternatives in their respective markets. New data from partners in Ecuador, Guatemala, India, and Nigeria shed additional light on these six key learnings about the benefits of well-designed, financially inclusive digital products:

1. Using digital products can build financial health

After 16 months of usage, 87 percent of users said that MAP products contributed to improved financial health outcomes. This is an increase from the 80 percent of users that attributed financial health benefits to MAP products at the end of the 12-month period. In India, 89 percent of MAP product users who reported improvements in financial health outcomes attributed improvements to the MAP products.

77 percent of SaveBrighta users reported that it helped them resolve financial challenges

In Nigeria, 77 percent of SaveBrighta (a digitally enabled savings product) users reported that it helped resolve financial challenges they had experienced over the previous 16 months. This included not being able to purchase inventory to meet demand and not being able to save as much as they would have liked. We observed that more digitally mature customers were 33 percent more likely to report a benefit than less digitally mature users. Overall, more digitally mature individuals reported better access to credit and savings. These early findings suggest that users with a digital maturity that improves over time may face fewer financial health challenges in the future, as they can better manage their expenses and respond to financial shocks.

2. Digital products can unlock business growth

In the past year, customers reported that using MAP products directly improved their ability to increase business growth activities and expand their businesses.

A total of 65 percent of MAP product users in this survey sample said they increased business growth activities in the last 16 months. 80 percent of these product users attributed this growth to the usage of MAP products, an increase from the 61 percent who had attributed benefits at the 12-month period. Beyond seeing improvements in business growth outcomes of their customers, FSPs have also benefitted directly from digital transformation. Digital channels for customer acquisition and servicing are more cost-effective and can drive significant operational efficiencies for FSPs.

3. Digital products can improve women’s financial health

While women microbusiness owners were particularly hard hit by the pandemic, we saw a refreshed outlook on women’s ability to adopt and benefit from digital products and services.

Female micro and small business owners that participated in the program reported significant improvements in their financial health in the previous 16 months, with more than 75 percent of product users reporting an improvement in financial health outcomes and 80 percent of those reporting these improvements came from using MAP digital products.

The majority of the 12.8 million clients reached through this program were women. The early stages of the program recorded digital uptake among FSP partners primarily consisting of male users, but by Q4 2022, over 70 percent of MAP digital product users were women, enabling us to gather large amounts of sex-disaggregated data on the benefits of the program for women-owned micro and small businesses. Dvara client spotlight

4. Frequent users can see more business value

On average, our partners grew their number of monthly active digital users since joining the program by more than eight times. Nearly 2 million MSEs began using MAP products and services on an active 30-day basis, a significant increase from the start of the program. Accion report: growth in MSE digital users

Accion report: growth in MSE digital users

People that used MAP digital products more frequently were more likely to report that the products contributed to improvements in business growth outcomes. More active digital product users (as defined by product activity in the last 30 days) were 30 percent more likely to report that MAP products contributed to improvements in business growth, compared to one-time or infrequent digital product users.

It is important to keep in mind, however, that more frequent users may also increase their expectations over time, requiring FSPs to “up their game” periodically to stay competitive and maintain market leadership. Institutions can take a more conscious and comprehensive effort to diversify the services and products being offered to respond to the evolving digital needs and capacities of consumers.

5. Digital payments are in demand

As customers of micro and small businesses adopt digital channels to buy goods, place orders, make payments, and more, these businesses start to appreciate the potential benefits in their own businesses, from increased revenue to efficiency, security, and cost savings. Overall, 65 percent of micro and small businesses reported it would be better for their businesses if they could accept digital payments more widely.

79 percent of product users reported that accepting digital payments would be better for their businesses

Between MAP product users and non-product users, there was nearly a 2x difference in demand for digital payments. A total of 79 percent of product users reported it would be better for their businesses if they could accept digital payments more widely, compared to only 41 percent of non-product users. Digital payments transactions are skyrocketing globally and rapidly transforming the way people pay, receive, and transfer money today. Over 2.8 billion people used mobile wallets in 2021, and it is expected that this will grow to nearly 60 percent of the world’s population by 2025. COVID-19, in part, proliferated the need for convenient, fast, and secure methods to make payments — 40 percent of adults in emerging markets (excluding China) made their first merchant payment using digital methods since the pandemic began. The demand for digital payments has led to innovations such as contactless payments, QR code-based payments, and cardless (biometric) payments, which have increased the adoption of digital payment methods by both merchants and consumers. Banks and FSPs must evaluate their digital payments business strategies to stay competitive in this fast-evolving industry, while ensuring protection against fraud.

6. Hybrid models of digital and human touchpoints deepen trust and confidence

Interestingly, an increase in digital maturity across micro and small businesses was met with a parallel shift in fear, misuse, and distrust of data and information found online.

Nearly 80 percent of MAP digital product users said they were confident in using their phones for online transactions

By the end of the program, nearly 80 percent of MAP digital product users said they were confident in using their phones to make online transactions; however, 45 percent reported concerns around misuse of identity and data theft. Most of these individuals came from more digitally advanced segments. As MSEs in our sample graduated into higher digital maturity segments, people’s reported confidence in navigating digital tools continued to increase, despite their concerns around security. Barriers dismantle when there is a need, and these trends suggest that although people may still distrust digital tools, they recognize the inherent value that ‘digital’ can bring to conveniently access the services they need. As organizations digitize and transition away from traditional brick-and-mortar models, it is important to ensure the new digital customer journey continues to focus on providing effective customer support and relationship management, as these components can sometimes get deprioritized in an end-to-end digital model. We design with a combination of physical and digital touchpoints, rather than digitizing all processes overnight, especially among segments that are only recently taking on digital ways of doing things. This year, Accion will publish a toolkit on how digital lenders can maintain effective customer engagement and manage relationships remotely while ensuring the right level of customer support is offered throughout the product lifecycle. [caption id="attachment_28320" align="aligncenter" width="1024"] Toyin at her store in Nigeria

Toyin Adejoke Olu-Ayeni, provisions store owner in Nigeria, Accion MfB client[/caption]

Conclusion

At the start of the program, we wanted to know: has the digitization of FSPs really helped micro and small businesses? Four years later, our findings suggest that digitizing FSPs and driving the adoption of well-designed digital products and services can benefit both FSPs and their micro and small business customers. Beyond the operational efficiencies and cost savings realized by both parties, it is promising to see that micro and small business owners, and especially women, were able to grow their businesses and improve their financial health using digital products and services developed or enhanced under the program.

Financial providers and other ecosystem players must work together proactively to encourage long-term behavior change among MSE customers

Despite these encouraging results, there is still much work to be done and much to learn. Sustained usage of digital financial services is not a given. FSPs and other ecosystem players must work proactively and together to encourage long-term behavior change among their micro and small business customers, if they want to convert them to regular active users and reap the benefits of digital adoption. As we have learned, access to digital and financial services alone is not sufficient to fully drive inclusivity within formal financial systems. Accion’s impact framework goes beyond the traditional conception of financial inclusion as simply access to finance and looks at how usage of innovative and responsible financial services, along with enhancing financial capabilities, can enable people to improve their livelihoods and increase resilience. Accion holds itself accountable to these outcomes by listening to customers and understanding their lived experiences. Through its partnership with 60 Decibels, Accion intends to build on this research and gain a better understanding of the drivers behind financial inclusion. In 2022, Accion was a founding partner of the inaugural financial inclusion index, which will expand in 2023 to include additional survey modules on savings and customer protection that align with Accion’s impact framework. This work will enable us to capture additional insights into the outcomes experienced by underserved individuals and to gauge the effectiveness of our efforts to equip micro and small business owners with the financial tools they need to thrive. Accion is also excited to renew its partnership with Mastercard and embark on the next digital transformation program that will build partnerships with digital platforms, fintechs and FSPs to connect an additional 10.5 million people globally, including 5 million MSEs, to digital financial services to improve their financial health. Contact us to learn more about this work and our approach to designing, building, and launching people-focused digital products.

Accion would like to thank all of our partners for participating in our research, particularly those who took part in the final round of surveys and contributed to the new findings presented in this brief: Accion Microfinance Bank (Nigeria), Annapurna Finance Pvt. Ltd. (India), Banco Pichincha (Ecuador), Dvara KGFS (India), Fundación Génesis Empresarial (Guatemala), and Sub-K IMPACT Solutions Ltd. (India). The authors are also grateful to everyone who contributed to the success of the program, including the program and transformation managers, all project team members, and the data analysis and survey implementation teams. The authors would also like to thank Iain Brougham, Chris Coxon, Charlene Navarra, Megan Peterson, and Victoria White for supporting the publication of this brief and especially the team members who supported the final round of surveys that made this brief possible: Aditya Agarwal, Varun Chitale, Dattatray Dhonde, María Belén Garrett, Archana Kejriwal, Siddardha Nelapudi, and Anjuna V K.

This brief is supported by the Mastercard Center for Inclusive Growth.

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