Risk and Credit Analysis

Amit Gupta

Senior Manager

Amy Stewart

Senior Manager, Customer Strategy and Digital Products

Archana Kejriwal

Lead specialist

Dandan Wang

Senior Project Manager, China Management

Emma Morse

Manager, Strategic Projects

Andrea Horak

Coryell Stout

Kathleen Yaworsky

Melissa Baez

Nancy Widjaja

Paul Lamont

Prateek Shrivastava

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Scott Stefanski

Tahira Dosani

Yanina Seltzer

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Equity Investing

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Impact Investing

Initial Public Offering

Insurance Companies

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Policy, Regulation and Government Initiatives

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Article

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In today’s digital age, everyone knows we’re creating more data than ever before, but not everyone knows what to do with that data — including financial service providers (FSPs). With improved connectivity and increasing smartphone penetration, formerly anonymous and unserved market segments now have valuable <a href="https://www.accion.org/how-alternative-data-can-promote-financial-inclusion">‘digital data’ identities</a>. For customers, this data can lead to more relevant, affordable products that better address their needs, and for financial institutions, when used <a href="https://www.centerforfinancialinclusion.org/digital-finance-and-data-security-2">responsibly</a>, it opens access to new market segments and can be used to deepen customer engagement. However, too many institutions lose out on this win-win opportunity due to information overload, inefficient processes, and legacy systems.
To address this <a href="https://www.accion.org/implementing-big-data-10-tips-fsps">data divide</a>, Accion in partnership with <a href="https://www.opml.co.uk/">Oxford Policy Management</a> and <a href="https://www.masterdata.co.za/">Master Data Management (MDM)</a>, is implementing a new data-driven approach to product development through the <a href="https://www.opml.co.uk/projects/deepening-financial-inclusion-in-sub-saharan-africa">Data Management and Analytics Capabilities (DMAC)</a> project. Initiated by <a title="https://www.fsdafrica.org/" href="https://www.fsdafrica.org/">Financial Sector Deepening (FSD Africa)</a> and <a href="https://www.idrc.ca/">International Development Research Center (IDRC)</a>, in partnership with <a href="http://www.fsdt.or.tz/">FSDT</a> and <a href="https://www.fsdzambia.org/">FSDZ</a>, DMAC (known as ‘DataDisrupt’ in Tanzania) is a two-year program that uses data-driven evidence to help FSPs in sub-Saharan Africa to design inclusive and affordable products and services that respond to the needs of unserved and underserved adults, with a particular focus on women and youth.  In this project, we are working closely with partner institutions to enhance their capabilities to manage and analyze data, develop and innovate new business models and reflect and share the lessons about what they have found works and what doesn’t. The program is operating across three different markets of varying digital maturity — Sierra Leone, Zambia, and Tanzania — and with three different types of FSPs: insurers, fintechs, and commercial banks.

<h2 class="gmail-MsoCommentText">What does it mean to take a data-driven approach to product development?</h2>
What makes the DMAC approach unique is being intentional — thinking about and taking deliberate actions — when using data in the product development process. Particularly as ‘<a href="https://www.accion.org/unlocking-the-promise-of-big-data-to-promote-financial-inclusion/">big data</a>’ is touted as a winning strategy for financial service providers, many institutions often collect data for data’s sake without a clear plan of why and how they intend to use it.  Yet there are several publicly available external data sets like the <a href="https://globalfindex.worldbank.org/">Global Findex</a>, census data, and telecom data which can provide important market insights to inform product design. For example, census data coupled with hospital incidence rates can provide insurers with a much more sophisticated and accurate picture of risk. This enables insurance companies to offer more competitive pricing—pricing that works within their target customers’ budgets, allowing them to reach a wider market.
FSPs are often sitting on a wealth of internal data generated and captured through their operations and feedback provided by customers as they engage with products.  To unleash the full potential of this data, we advise our partners to ‘look through the data lens’ at every step of the process. For example, in developing product concepts with our DMAC partners, we looked at the customer journey from a data perspective — mapping the inflows and outflows of data at each step. During this exercise, institutions identified areas where data collection and use could be improved. For one institution, this meant examining whether they were using data to ensure their radio marketing campaign was reaching their target customer segment — but they had no data collection in place for this campaign. They were missing out on the opportunity to better understand their customers and the effectiveness of their marketing.


[caption id="attachment_18809" align="aligncenter" width="700"]<img class="wp-image-18809" src="https://content.accion.org/wp-content/uploads/2019/06/19_DMACData.png" alt="Mapping data flows" width="700" height="270" /> This example illustrates one exercise where FSPs mapped the data inflows and outflows for each step in the customer journey.[/caption]
For all, the mapping of data inflows and outflows led to several ‘aha moments’ as the institutions saw hundreds of data points that could be leveraged along the customer journey. While in some ways this was a bit overwhelming, there was an excitement about the magnitude of untapped possibilities. One institution realized their call center was a “data graveyard” of customer information, and another realized they were missing opportunities to connect with customers during critical moments in their lives — like marriage or having children — when they could build customer loyalty. For all institutions, having the systems and processes to enable the seamless flow of data was essential to creating an optimal customer experience.
With our partners, we emphasize that one data set or algorithm will not be the panacea to product success, nor will ‘big data,' without a clear strategy of how to use it. Instead, they must be aware of all available data — public surveys, primary research, customer transactional data, call center logs, etc. — and they must be strategic in how they mine, analyze, and apply information to create a winning value proposition for the customer. It’s like building a new habit — by being intentional with data in the product development process, financial service providers can transform how they develop products and serve customers, supporting a more sustainable business model and driving a social impact.

Are you unleashing the full potential of your data?

Financial Service Provider

Accion Global Advisory Solutions

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

<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.

Achieving financial health in Mexico and Chile

MetLife Foundation

Financial Inclusion Practitioner

Institutional Funder

Excel template helps financial institutions conduct a cost/benefit analysis of channels being planned. The purpose of this document is to help obtain board approval to proceed to the next step, to build a detailed business case and plan for piloting and implementation.

High level business case

<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

Citi Foundation

Supply chain finance

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

Tienda Pago

Financial service providers (FSPs) often want to incorporate technology into their systems and services, with the goal of enhancing efficiency, effectiveness, and profitability.  However, exactly what will be digitized and how is unique to every institution.  Accion’s Global Advisory Solutions team understands the challenges that come with navigating digital transformation, and works with institutions to develop and define their digital strategy. The most important part of this process is people—the staff of the institution, and the clients they serve. Digital solutions should make life better for clients and create efficiencies for staff, and both clients and staff must be part of developing these solutions.
<h2>Digital Strategy Workshops</h2>
As a first step in the digital transformation process, Accion conducts digital strategy workshops with FSPs, which allows the institution to evaluate where they are, where they want to go, and where they need to begin as they embark on their digital transformation journey. In preparation for the workshop, a team of Accion advisers comes in to work with the institution’s staff over the course of one to two weeks, hone in on the key challenges they’re facing and carry out an analysis of the client and market (existing infrastructure, current business model, customers to date, performance statistics, etc.).

Preparing Financial Service Providers for Digital Transformation

Acquiring new customers that are the right customers for your business is difficult. This is especially true in the world of financial services. Those who serve the underbanked are seeing increased competition as more companies are finding ways to serve customers more quickly and nimbly. To win over customers, financial institutions need to more clearly define their value proposition, increase the quality of their services, and lower costs.

A one-size-fits-all approach to customer acquisition that does not take the priorities, needs and wants of the individual customer into account will increasingly lose out. To stay relevant and competitive, institutions need to be dynamic and build targeted customer acquisition strategies that leverage customer understanding, digital innovations, new data sources, and smart partnerships. A well-designed approach should prioritize which groups to target and engage with customers in a way that adds value for both the client and the institution.
<h2>Steps for reaching new customers</h2>
<ol>
 	<li>
<h4>Determine customer segments</h4>
</li>
</ol>
The first step to creating a more targeted customer acquisition strategy is to <a href="https://www.accion.org/developing-a-targeted-customer-acquisition-strategy-an-interactive-elearning-module">segment the customer base</a> by shared needs, interests, and priorities. Customers can be grouped using a number of different variables, including demographics and business types, customer behavior, and customer needs and attitudes. Using data for segmentation increases the institution’s understanding of customers, helps identify and estimate market opportunities, and allows for client-specific tailoring of products, services, and customer experiences. When executed correctly, it benefits the client by addressing their needs and the institution by helping to acquire and retain the right customers.
<ol start="2">
 	<li>
<h4>Prioritize customer segments and think about viability</h4>
</li>
</ol>
The next step is to prioritize which customer segments to target. Once the customer segments are established, the institution should assess what makes a segment attractive to them. This includes not only profitability, but also location, demographics, and other factors. FSPs should prioritize those groups where they can offer greater value than competitors through differentiated products, services, and terms. This ultimately leads to a higher return on investment.
<ol start="3">
 	<li>
<h4>Define the value proposition for a customer-centric product or service</h4>
</li>
</ol>
Next, a financial service provider must focus on the customer. What do customers want and need? How does the product meet those needs? It’s critical to define a value proposition for each segment, based on the validated customer needs, and to communicate that value clearly via compelling marketing messages.
<ol start="4">
 	<li>
<h4>Optimize channel strategy and integrate digital</h4>
</li>
</ol>
After defining the value proposition, institutions should focus on optimizing their channel strategy. Are there new ways to reach the customers? Are there any viable partnership opportunities to better serve customers? Is the channel reaching the right customers? Then, identify and prioritize the channels (both non-digital and digital) to reach customers based on segment preferences and channel profitability.

When it comes to acquiring new customers, it’s critical that providers consider the advantages of integrating digital. Digital channels increase efficiency, lower costs, and provide a rich source of data that can be used to target customers with a whole range of customized products. Many fintech firms and digitally mature FSPs are acquiring (and retaining) customers using a mix of marketing tools and onboarding channels that are enhanced by strategically designed <a href="https://www.centerforfinancialinclusion.org/uniting-tech-and-touch-why-centaur-products-are-better-for-consumers-and-providers-evidence-from-kenya">digital and physical touch points</a>.
<ol start="5">
 	<li>
<h4>Execute Sales Plans</h4>
</li>
</ol>
An institution will only see the benefits of these efforts by efficiently executing sales plans for each channel. By leveraging automation and customer data, FSPs can monitor metrics along the way. These metrics are critical to inform adjustments that maximize profitability and ensure mission alignment.
<h2>Resources for building a customer acquisition strategy</h2>
Recognizing the current market need, Accion’s Global Advisory Solutions team has developed a free <a href="https://www.accion.org/developing-a-targeted-customer-acquisition-strategy-an-interactive-elearning-module">eModule</a> and <a href="https://www.accion.org/customer-acquisition-toolkit">corresponding toolkit</a> for managers that want to learn more about how to develop a targeted customer acquisition strategy at their financial institution.

<img class="graf-image alignleft" src="https://cdn-images-1.medium.com/max/1200/1*4TgGEHISBZCWlQWSBrnF4Q.png" alt="" width="408" height="306" />

Accion is also offering a facilitated online course, <a href="https://gateway.academy/static/marketing_docs/Course-Brochure.pdf">How to Reach the Right Customers in the Digital Age</a>, in partnership with CGAP’s <a href="https://gateway.academy/">Gateway Academy</a>, for institutions who are looking to develop a targeted customer acquisition strategy. We recommend that more than one person from each institution take this course. This will make the course more practical and provide more opportunities to connect learnings to the business.

In this 5-week facilitated course, the learner will explore each of the above steps in-depth and utilize tools for applying these concepts. The task for FSPs – whether fintech startups, microfinance institutions, or commercial banks – is to determine how to best balance tech and touch throughout the customer journey.

New tech and innovation entering the market is ripe for cultivation, and it can be leveraged for the benefit of customers and financial service providers alike. We’re excited to be working alongside our partners and clients to help them navigate these new opportunities, and we hope our latest online tools and resources will benefit the industry and underserved communities around the world.

Any questions or interested in learning more? We’d love to hear from you! <a href="mailto:GLASsupport@accion.org">Send us an email</a>.

How to reach the right customers in the digital age

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

Accion Microfinance Bank (Accion MfB), founded in 2006, is one of Nigeria’s most successful microfinance institutions. Headquartered in the capital city of Lagos and with more than 130 locations across the country, Accion MfB provides loans and savings products to low-income customers. Much of its clientele is made up of microentrepreneurs running small businesses, such as retail shops, in urban and peri-urban settings.

Accion Microfinance Bank adopts risk management systems in Nigeria

Accion Microfinance Bank

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

Swadhaar FinAccess was established in Mumbai, India in 2005 as a nonprofit entity offering microcredit. Since then, it has grown and expanded its offerings, and currently operates as a subsidiary of RBL Bank, an Indian commercial financial institution, providing loans and savings products to low-income households and entrepreneurs.

Swadhaar’s founder, Veena Mankar, remembers her parents often saying that she had “an obligation to open doors for those less fortunate.” After four decades of working in the financial services industry, she started Swadhaar to fulfill her dream of using her experience to expand financial inclusion. 

Swadhaar started by offering need-based loans with a group guarantee to women microentrepreneurs. In 2008 it sought to also serve the “missing middle,” businesses that are traditionally ignored by larger financial institutions, with a capacity-based individual loan product. 

This addition was not easy, as individual lending products were fairly new to the Indian microfinance market. The higher level of risk associated with underwriting individual loans increased transaction costs and interest rates. When a 2010 microfinance industry crisis in the Indian state of Andhra Pradesh led to increased regulation of interest rates, Swadhaar had to halt serving the “missing middle,” as the new requirements no longer made the product it offered viable. It needed to develop a new business model.   

Meanwhile, RBL Bank, wanting to build on its success in micro, small, and medium-sized enterprise (MSME) loans by expanding its reach into the microenterprise segment, turned to Swadhaar to form a strategic business correspondent relationship through which it could source microloans. 

Faced with so many changes, Swadhaar, which had a longstanding relationship with Accion, asked Accion’s advisory team to help evaluate institutional readiness. Before introducing new products and partnerships, Swadhaar needed to build capacity, standardize its appraisal methodology, and streamline labor-intensive procedures. Creating efficiencies in internal processes was key to lowering operational costs and offering new financial products.

&nbsp;

Swadhaar transforms its lending model in India

Swadhaar

Between 2014 and 2017, the percentage of people in the developing world who have accounts with financial institutions or mobile money providers but do not use them has <a href="https://www.centerforfinancialinclusion.org/storage/FI_Hype_vs_Reality_Deconstructing_2017_Findex_Results.pdf">grown from 12% to 13%</a>. What this tells us is that usage of financial products is not keeping up with access.

These hundreds of millions of dormant accounts are not useful or beneficial to the people that they are meant to serve, and neither are they good business for financial service providers (FSPs). It is clear that the financial inclusion industry must do a better job of designing and delivering products that people and small businesses really need to thrive.

Accion Global Advisory Solutions: Building and deploying user-centric products

This guide, Dialogue on Business, is an award-winning business skills training program that uses interactive games and role-playing to help participants solve real-life business challenges. Because the workshops are based on the real situations of participants, rather than textbook cases, Dialogue on Business is especially engaging for people with little formal education who may not learn effectively in a traditional classroom setting.

Dialogue on Business training program for entrepreneurs

How our advisory team helps financial service providers (FSPs) capitalize on the value of their data, leveraging technology and automation to transform their business processes and reach their target markets.

Global Advisory Solutions fact sheet

This template is meant to guide businesses through creating effective board decks.

Board deck template for startups

Entrepreneur

Accion Venture Lab

This guide highlights best practices and sample job descriptions for key roles in early-stage financial inclusion startups. It is intended to serve as a starting point for your hiring process.

Hiring best practices and sample job descriptions for startups

The Citi Foundation works to promote economic progress and improve the lives of people in low-income communities around the world. It supports efforts that advance financial inclusion, and is one of Accion’s longest-standing partners.

The Foundation supports our advisory work and allows us to communicate our learnings to the rest of the industry. It also has been a key supporter of the Center for Financial Inclusion at Accion (CFI) and its efforts to engage the industry to better serve, protect, and empower underserved clients.

The Citi Foundation and Accion: Expanding financial inclusion for the underserved

“We should go digital” is often proposed by financial service providers with the assumption that it will make life easier for everyone involved. But digital transformation is a challenging process, requiring both a strong structural and cultural foundation to be successful. To make the process as smooth as possible, lenders must take the crucial first steps of assessing and building their digital readiness, as we wrote in our recent publication <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/demystifying-digital-lending/" target="_blank" rel="noopener noreferrer">Demystifying Digital Lending</a>.

<h2 class="graf graf--h4">Build your digital readiness — and avoid a ‘digital mullet’</h2>
One of the most common mistakes financial service providers make when going digital is giving themselves a “digital mullet” — they look digital in the front, with fancy mobile applications or automated credit distributions, but they have a lot of labor-intensive work happening on the back-end, which fails to deliver on the expected benefit of greater operational efficiency.
Building digital readiness means putting in place the core processes and systems that will ultimately support end-to-end digitization of lending products and the customer experience as a whole. For example, to help streamline operations, reduce costs, and increase scale, financial service providers (FSPs) can deploy digital channels and tools, such as <a class="markup--anchor markup--p-anchor" href="https://www.centerforfinancialinclusion.org/new-case-study-provides-evidence-on-the-impact-of-digital-field-applications" target="_blank" rel="noopener noreferrer">digital field applications </a>(DFAs) or cloud-based core banking systems — but deploying such tools is just a small part of the broad range of activities required to build digital readiness.
A baseline of digital readiness can help mitigate common digital lending <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/5-key-principles-for-financial-service-providers-looking-to-go-digital-d9fb58b07816" target="_blank" rel="noopener noreferrer">implementation challenges</a>, including data quality and availability, building strong partnerships, and change management.

<h2 class="graf graf--h4">In digital lending, the whole is greater than the sum of its parts</h2>
To become a digital lender, a traditional financial service provider must undergo a comprehensive digital transformation to create an integrated digital product proposition that improves the customer experience. This draws a useful line in the sand — digital lending isn’t just doing the same thing better, but rather creating something new. It implies an end-to-end process of developing and delivering a data-driven financial product that is applied for, disbursed, and managed through digital channels, and ultimately improves the customer experience.
As we note in the report, FSPs should understand the distinction between digital readiness (the ability to offer existing products in a digital format, typically enabled by a number of digital tools) and a digital product proposition (the launch of an end-to-end digital product). Many FSPs plan to launch digital products <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/5-key-principles-for-financial-service-providers-looking-to-go-digital-d9fb58b07816" target="_blank" rel="noopener noreferrer">without realizing the time required to build their digital readiness first</a> — this often involves multi-year planning to develop systems and skills to enable the delivery of digital products before actual digital products are launched.
At its core, much of digital readiness is about building the institutional capacity to <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/implementing-big-data-10-tips-from-financial-service-providers-11b30dbee1a" target="_blank" rel="noopener noreferrer">use data effectively</a>, which is a prerequisite for launching a successful digital lending product. The diagram below, from our publication <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/unlocking-the-promise-of-big-data-to-promote-financial-inclusion/" target="_blank" rel="noopener noreferrer">Unlocking the Promise of (Big) Data to Promote Financial Inclusion</a>, depicts a simple diagnostic framework for understanding an institution’s data capacity.
<img class="alignnone size-large wp-image-8443" src="http://blogs.accion.org/wp-content/uploads/2018/07/Screen-Shot-2018-07-26-at-9.11.58-AM-1024x790.png" alt="Data continuum diagnostic framework for companies at different levels of data maturity and digitization." width="1024" height="790" />
As the diagram above illustrates, digital readiness can be broken down into three broad categories — people, systems, and strategy:

<ul class="postList">
 	<li class="graf graf--li">People — ensuring the business is ready for scale from an organizational culture and internal capacity perspective. This includes reviewing the skills, capacity, and commitment of the institution at all levels, and assessing whether existing team structures and individual incentives are suitable for delivering a digital proposition.</li>
 	<li class="graf graf--li">Systems — ensuring the core infrastructure is in place to scale the business, such that information flows smoothly and is used effectively across the organization. This includes an institution’s core banking system, electronic document management system (EDMS), data warehouse, middleware, and reporting dashboards. The systems required to offer digital lending are comparable to a CRM (customer relationship management) system in which the institution can disaggregate customer-level information from the lending process and ultimately build a comprehensive, 360-degree digital view of individual customers over time.</li>
 	<li class="graf graf--li">Strategy — ensuring the business is ready for scale from a strategic and operational perspective. This includes data and channels strategy, customer segmentation and understanding, and process reengineering. An essential step in building digital readiness is taking stock of current processes and identifying opportunities to streamline and leverage data.</li>
</ul>
To quote J.R.R. Tolkien — “the road goes ever on and on…” — but by keeping this framework in mind, combined with a Bezos-like <a class="markup--anchor markup--p-anchor" href="https://www.cnbc.com/2016/05/13/5-key-business-lessons-from-amazons-jeff-bezos.html" target="_blank" rel="noopener noreferrer">obsession</a> with customer needs, financial service providers can position themselves for a successful digital transformation.
This post is part of our series on digital lending.
Accion has developed many tools and resources to support FSPs in these first critical steps to build digital readiness, including a <a class="markup--anchor markup--p-anchor" href="https://www.accion.org/content/new-case-study-impact-digital-field-applications" target="_blank" rel="noopener noreferrer">case study</a> on the use of DFAs, <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/content/tool-and-resources" target="_blank" rel="noopener noreferrer">tools</a> on credit scoring and operational risk management, and a <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/implementing-big-data-10-tips-from-financial-service-providers-11b30dbee1a" target="_blank" rel="noopener noreferrer">guide</a> on developing the operational capability and infrastructure required for the strategic use of data.

The biggest mistakes lenders make when going digital

Demystifying digital lending

I am continually impressed by the innovation of digital financial services in emerging markets. This innovation is often assumed to be solely the work of fintechs, but we are increasingly seeing that regulated financial service providers (FSPs) are playing a pivotal role in driving financial inclusion through their own digital initiatives. This development is typically driven by their regulatory licensing, access to low-cost funding, and strong brand and distribution networks they have developed in their respective regions.
To help such institutions think about their digital strategy and plan a roadmap for digitization, my colleague <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/digital-maturity-financial-service-providers/" target="_blank" rel="nofollow nofollow noopener noreferrer">Amy Stewart recently discussed the Digital Maturity Matrix</a> (<a class="markup--anchor markup--p-anchor" href="https://www.surveymonkey.com/r/Y8N7F83" target="_blank" rel="nofollow nofollow noopener noreferrer">take the quiz</a> to see your institution’s digital maturity). Our latest paper <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/demystifying-digital-lending/" target="_blank" rel="nofollow nofollow noopener noreferrer">Demystifying Digital Lending</a> examines digital lending in detail and how financial institutions can implement their digital offering.
As FSPs look to digitize, the natural first question to ask when applying the Digital Maturity Matrix is How should we develop our digital maturity, and to what extent? The matrix speaks of three different levels of digital maturity — Early Stage, Base Level, and Digital Plus — and it is important that institutions aim to develop to a digital maturity that drives sustainable growth and is appropriate given their specific context.
It is our view that FSPs should not necessarily aim to develop their digital maturity to Digital Plus, the highest level on the matrix. Most can benefit significantly and compete in the changing lending landscape by reaching Base Level maturity and perhaps selecting elements of Digital Plus maturity.
But even reaching Base Level maturity requires FSPs to fundamentally change their products and the way they are offered to customers. This is no easy task, and it’s understandable that many FSPs may get overwhelmed with where to start. And so, I would like to introduce five fundamental principles that can help FSPs when applying the Digital Maturity Matrix as they develop their digital capability:

<h4 id="ccf3" class="graf graf--p graf-after--p">1. Digital happens throughout the organization — including the C-Suite</h4>
This one sounds obvious, but for digital transformation to be genuinely effective, digital initiatives must be able to integrate across all functional teams to deliver a fluid customer experience. A good example would be that if an applicant for a digital product needs to use a lender’s physical branch network to register Know Your Customer (KYC) details, this means that branch staff must be familiar with this new digital product to assist the customer as per the planned customer journey. In the pilot phase of launching a digital product, we have seen FSPs successfully silo the launch within a small team. While this can be effective to quickly prove commercial feasibility, ultimately scale cannot be achieved without full buy-in and collaboration across all functions.
To achieve this digital scale, full support from the CEO and C-suite are paramount. Ensuring that the C-suite has the requisite digital skills can significantly influence the execution of digital initiatives. The way the digital team is structured (for example — across functional teams, as a separate digital team, or even as a separate “fintech subsidiary”) also affects the capacity of the institution to digitize effectively.

<h4 id="d452" class="graf graf--p graf-after--p">2. Developing digital readiness is a prerequisite to digital lending</h4>
Before FSPs can offer digital products, they must ensure that their systems and processes can support a digital transformation. This includes building scalable and interoperable systems that can organize and visualize data, having intuitive and clearly defined and mapped business processes before they are digitized, and developing a deep understanding of existing and potential customer segments to allow lenders to design products to meet specific needs.
Without these in place, we often see FSPs with ambitious digital plans forced to delay product launches and revert back to the basics first.

<h4 id="5c6b" class="graf graf--p graf-after--p">3. Digital products can be varying levels of digital</h4>
Once FSPs have developed their Digital Readiness they can start digitizing their existing product range or developing new digital products with more personalized propositions. But these options can have very different demands for a lender:

<ul class="postList">
 	<li id="4cb4" class="graf graf--li graf-after--p">Digital Propositions speak to the use of digital tools to digitize an existing product range. This would include, for example, using USSD or a mobile app to enable digital application. This improves the customer experience in piecemeal additions, without offering a fundamentally different product.</li>
 	<li id="07b1" class="graf graf--li graf-after--li">Digital Products introduce fundamentally new business models enabled by digital tools, and allow lenders to offer new products to serve the specific needs of customers.</li>
</ul>
The reason why this is so important is that many FSPs think of the most digital version of a product and aim to go there first. However, there is often a more gradual path to offering a fully digital product which frequently involves digitizing parts of existing products first. This route also allows for quick wins which management teams are often in need of to show progress to the board before investing heavily in newer digital technologies.
In this sense, planning different types of products with varying levels of digital capability over time can be an easier and less complex way of building an FSP’s digital product offering. We encourage FSPs to develop multi-year digital roadmaps beyond 12-month budgetary cycles, to allow for momentum in planning key digital milestones.

<h4 id="a4b6" class="graf graf--p graf-after--p">4. Human touch will remain relevant in several markets when implementing digital lending</h4>
As discussed in a <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/human-touch-place-age-digital-financial-services/" target="_blank" rel="nofollow nofollow noopener noreferrer">recent Accion blog</a>, human touch will remain crucial for many FSPs given their legacy of high-touch customer acquisition as well factors such as customer preferences and sophistication, larger loan sizes, and to facilitate cash transactions in markets where this is preferred. This means that FSPs should not think that digital no longer requires investment in physical distribution; it will more likely require an explicit design of the customer journey to balance tech and touch points. Furthermore, the need to enable remote support to customers will naturally mean that decentralized touch points such as call centers and mobile-based platforms will require significant investment to support efficient scale. Institutions will need to start planning for these touch points in terms of skills and systems.
5. Partnerships are a key enabler of digital product launches
For FSPs, driving digital maturity can be a time-consuming and expensive process, and in some instances, they will not have the skills or systems to fully execute on a desired product offering. Partnerships with fintechs that have the technology and skills to execute a specific product or functionality can significantly reduce time-to-market and decrease the risk of failure for a digital product launch. A recent <a class="markup--anchor markup--p-anchor" href="http://www.centerforfinancialinclusion.org/storage/CFI_IIF_FI_Fintech_Partnerships_Report_2017.07.pdf" target="_blank" rel="nofollow nofollow noopener noreferrer">paper by the Center for Financial Inclusion</a> concluded that partnerships can be an effective strategy for FSPs to gain access to new market segments, create new offerings for existing customers, enable data collection and management, and deepen customer engagement and usage.
There is no guaranteed formula for digital transformation, but the above principles are a helpful start to promoting meaningful planning and collaboration within lending institutions (and externally, where required) as they look to transform their business models.
And to those FSPs out there already starting their journey — good luck, the future looks bright!
Looking for more guidance on how your institution can enable digital lending? <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/webinar-demystifying-digital-lending/" target="_blank" rel="nofollow nofollow noopener noreferrer">Watch our recent webinar.</a>

5 key principles for financial service providers looking to go digital

[embed]https://www.youtube.com/watch?v=yhdTyqjUMEI[/embed]

Iain Brougham, from the Accion Global Advisory Solutions team, leads a discussion with panelists Gift Mahubo and Mona Kapoor on issues of digital identity in Africa and India. This webinar identifies the key challenges faced by financial institutions looking to leverage identity technologies and analyze the privacy and commercial implications of promising solutions.

Digital identity for financial inclusion webinar