Digital credit has emerged as a new and profitable service offering that has great potential to increase financial inclusion. Yet, if not carefully managed, digital credit also runs the risk of excluding, over-charging, and over-extending customers.

Seven years since the first digital credit product launched, the market in Kenya has grown exponentially and hosts a diverse ecosystem with more than 50 supply-side actors. The phenomenal expansion of digital credit in Kenya serves as a test-bed for the product and offers lessons for digital credit suppliers and regulators around the world.

SPTF and the Smart Campaign commissioned MicroSave Consulting (MSC) to study the dynamics of the digital credit sector on both demand and supply sides. The output of the study was a <a href="https://content.centerforfinancialinclusion.org/making-credit-truly-responsible-webinar/">comprehensive report on the current state of digital credit in Kenya</a>. It looked at the evolving challenges in digital credit and made recommendations for a more responsible and customer-centric delivery of the product.

With participation from Smart Campaign Senior Director Alexandra Rizzi, this webinar:
<ul>
 	<li>Helps participants understand the digital credit landscape in Kenya</li>
 	<li>Assesses the progress and challenges around making digital credit responsible and inclusive</li>
 	<li>Recommends steps towards a more responsible delivery of digital credit</li>
</ul>

Making Digital Credit Truly Responsible Webinar

SPTF

The Smart Campaign

Kenya

Sub-Saharan Africa

Consumer Protection

Credit

Credit Provision

Customer Centricity

Default

Delivery Channels

Digital Financial Services

Enabling Environment

Financial Service Providers

Interest Rates

Nano Loans

Over-indebtedness

Policy, Regulation and Government Initiatives

Product Pricing

Responsible Digital Finance

Webinar

All is not well in the country that pioneered mobile credit. A new <a href="/making-digital-credit-truly-responsible">report on digital credit in Kenya</a> from <a href="https://www.microsave.net/">MSC</a>, commissioned by <a href="/about/what-we-do/the-smart-campaign">the Smart Campaign</a> and the <a href="https://sptf.info/">SPTF</a>, shows that with continued dramatic growth rates, the sector also experiences cripplingly high default and delinquency, enabled by poor business practices and weaknesses in both the credit reporting infrastructure and regulatory jurisdiction.

Most notably, the report reveals very high rates of delinquency and default. Among active digital loans, more than a quarter are non-performing. About 2.2 million Kenyans are said to have delinquent loans. In some cases, liberal use of refinancing and rescheduling hides this level of delinquency in lender portfolios. At the same time, the report points out that about half of these non-performing loans are for amounts less than $10. These findings are broadly consistent with results cited by CGAP in 2016, which found that 50 percent of digital borrowers in Kenya repaid their loans late, and 12 percent defaulted.
<blockquote>Despite continued growth of digital credit in Kenya, high delinquency, default and interest rates persist in the market and credit bureaus haven't yet caught up with the digital age.</blockquote>
The report also details shortcomings in credit reporting, given that many digital lenders neither consult nor report to the credit reporting bureau as fully or regularly as they should. The credit reporting bureaus were clearly set up for a pre-mobile era, which suffer from issues related to inclusion of all types of lenders, frequency of uploading data (monthly, when daily is more relevant for today’s short term loans), and ease of connection among all the players in the credit reporting ecosystem. As a result, many lenders are not consistently using credit bureaus—neither ensuring that the information is updated and correct, nor fully consulting it prior to lending.

Pricing is also an issue. The market leader, M-Shwari, which accounts for about two-thirds of all digital loans, charges an annual percentage rate (APR) of 90 percent. The low-price option provided by Kenya Commercial Bank is a fairly reasonable 44 percent APR, but the high end of the price range includes providers charging APRs well into the hundreds. Granted that these are small, short term loans where interest payments are not expected to be sustained for an entire year. Nevertheless, the promise of digital to bring down prices does is not yet in sight.

Other issues noted in the report include non-transparency regarding portfolio quality, identity theft, misuse of client data, multiple borrowing and loan bicycling by clients, and client use of loan proceeds for sports betting.

The picture that emerges suggests that the still-exploding market of very small, “nano” loans needs to be brought into more orderly operation. Consumers and providers are operating in risky ways. The current state of the market is not beneficial for either.
<blockquote>Raising the bar for blacklisting customers and public awareness about defaulting on loans are among our recommendations for improving digital credit.</blockquote>
One issue specific to this nano-loan market concerns the reporting of very small non-performing loans to credit bureaus, with negative consequences, such as curtailing of access to credit, for hundreds of thousands of borrowers. MSC, the Smart Campaign and SPTF recommend that regulations be put in place such that delinquencies and defaults among loans below some fixed amount not be reported to the credit bureau (whether US$2, $5 or $10 – the report actually recommends a cutoff of 5% of the monthly per capita GDP). It also recommends that the government launch a public awareness campaign about how credit bureaus work and the consequences of default so consumers will better understand the risks involved in borrowing.

The regulators, credit reporting agencies and lenders in Kenya are aware of these concerns and working to improve the situation. A new association of digital lenders (Digital Lenders Association of Kenya) has been formed to create consumer protection standards and the central bank is exploring ways to upgrade the credit reporting ecosystem. The Smart Campaign recommends that both lenders and regulators consider adopting the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> and <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">model regulations</a> covering issues ranging from transparency, to the fair use of algorithms, to protection of customer data.

Kenya’s unprecedented dynamism in mobile money, digital credit and financial inclusion is envied across the world. If authorities and providers can bring the participants in these sectors into a better-functioning marketplace, Kenya will benefit greatly from the innovation the country continues to spawn.

Red Flags in Kenya’s Nano-Credit Market

Keeping Clients First

Digital Credit

Fintechs

Transparency

Blog Post

<span class="hotkey-layer ">Digital credit has emerged as a new and profitable service offering that has a great potential to increase financial inclusion. Yet, if it is not carefully managed, digital credit runs a great risk to exclude, over-charge, and create over-indebtedness.</span>

<span class="hotkey-layer ">During the first half of 2019, The Smart Campaign and the Social Performance Task Force (SPTF) commissioned Microsave Consulting (MSC) to study the current state of digital credit in Kenya and formulated recommendations for how to make digital credit delivery safer and more customer-centric. We propose that </span>regulations be put in place such that delinquencies and defaults among loans below some fixed amount not be reported to the credit bureau so as not to unduly burden consumers. We also call for increased public awareness campaigns about how credit bureaus work and the consequences of default so consumers will better understand the risks involved in borrowing.

More generally, the Smart Campaign recommends that both lenders and regulators consider adopting the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> and <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">model regulations</a> covering issues ranging from transparency, to the fair use of algorithms, to protection of customer data.

Making Digital Credit Truly Responsible

Agence Francaise de Developpement

Report

<strong>WASHINGTON, DC, August 27, 2019</strong> – The Center for Financial Inclusion at Accion (CFI) has launched an executive education program for financial service providers serving low-income communities in emerging markets. Through peer learning and exchange, the <a href="/about/what-we-do/board-leadership-for-impact-program">Board Leadership for Impact Program</a> will empower executives and board members to foster client centricity, lead digital transformation, sustain business growth and drive social impact. In partnership with the <a href="https://www.citigroup.com/citi/foundation/">Citi Foundation</a> and <a href="https://www.fmo.nl/">FMO</a>, the Dutch development bank, supporting program implementation and participant scholarships, the Board Leadership for Impact Program will offer multiple in-person workshops per year coupled with a robust virtual portal.

Derived from CFI’s five-year <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/africa-board-fellowship-program/">Africa Board Fellowship Program</a>, which fostered the growth and development of more than 300 executives and board members of financial service providers serving more than 10 million clients in Africa, the Board Leadership for Impact Program will now expand to include early stage to mature companies offering financial services to underserved customers that operate in emerging markets around the world.

“Our experience with leadership development through peer exchange will inform our efforts through this new program to cultivate a community of leaders who have the skills and the network to help their organizations thrive,“ said <a href="/bio/deborah-drake">Deborah Drake</a>, Vice President, Center for Financial Inclusion at Accion. “Tackling challenges like achieving sustainable growth or pursuing digital transformation, particularly as a mission-driven organization, takes strategic leadership at the board level.”

Through role play, simulations and facilitated discussion, participants will gain new perspectives, skills, and knowledge on topics critical to social enterprise growth and impact, including risk management, board dynamics, digital transformation and inclusive digital finance. They will join an active community of alumni of the Center for Financial Inclusion at Accion’s <a href="https://www.centerforfinancialinclusion.org/get-involved#fellow-exec-ed">executive education programs</a>.

“By developing and strengthening leadership skills that drive business growth and social impact, our partnership with the Center for Financial Inclusion at Accion will help accelerate financial inclusion and economic progress around the world,” said Florencia Spangaro, Director of Programs, Citi Foundation.

“FMO is a proud partner of Accion for over a decade and we realize that creating a lasting impact starts in the board room. Strengthening the management of financial service providers and enterprises will help ensure business longevity and commitment to underserved customers,” said Gerbrich Salverda, Capacity Development Officer at FMO.
<p style="text-align: center;"><strong>###</strong></p>
<strong>About the Center for Financial Inclusion at Accion</strong>

The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. We develop insights, advocate on behalf of clients, and collaborate with stakeholders to achieve a comprehensive vision for financial inclusion. We are dedicated to enabling 3 billion people who are left out of – or poorly served by – the financial sector to improve their lives.
<a href="http://www.centerforfinancialinclusion.org/">www.centerforfinancialinclusion.org</a>
<a href="https://twitter.com/CFI_Accion">@CFI_Accion</a>
<p style="text-align: center;"><strong>###</strong></p>
MEDIA CONTACT

Center for Financial Inclusion at Accion
<a href="/bio/virginia-moore">Virginia Moore</a>
<a href="mailto:vmoore@accion.org">vmoore@accion.org</a>
+1 202.393.5113

The Center for Financial Inclusion at Accion Launches Executive Education Program for Financial Service Providers to Enable Business Growth and Social Impact

Citi Foundation

Board Leadership for Impact Program

Agricultural and Rural Finance

Banks

Consumer Credit

Education Finance

Energy Finance

Governance

Housing Finance

Informal Credit

Insurance Companies

Microfinance

Microfinance Institutions

Neobanks

Partnerships

Risk Management

Underserved Groups

Press Release

<em>This post originally appeared on the <a href="http://www.accion.org">Accion</a> website.</em>

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.

[caption id="attachment_34130" align="alignright" width="550"]<img class="wp-image-34130 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-17-at-11.39.01-AM.png" alt="" width="550" height="448" /> <strong>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. </strong>[/caption]

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, with the support of MetLife Foundation. 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.

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 href="https://content.centerforfinancialinclusion.org/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">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.

[caption id="attachment_34131" align="alignleft" width="488"]<img class="size-full wp-image-34131" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-17-at-11.39.21-AM.png" alt="" width="488" height="346" /> <strong>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.</strong>[/caption]

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, Ask the Right Questions

Building Financial Capabilities and Strengthening Institutions Through Customer-Centered Innovations

Mexico

Financial Capability

Financial Health

Human Centered Design

“How much money do people typically imagine they should have when saving for emergency needs? Is that different from what they need for the children’s education? What kinds of conversations are field staff having?

These and similar questions are quite familiar to financial institutions trying to mobilize long-term savings from low-income clients through their field staff. In this blog post, we share the story of how mobile application usage data allowed <a href="http://www.sajidafoundation.org/">SAJIDA Foundation</a>, an <a href="https://optixproject.org/">OPTIX</a> partner from Bangladesh to gain insights into member-staff conversations without actually being there: a kind of virtual “fly on the wall”. They gained an unprecedented look into how financial planning really unfolds as they sought to tailor a term-deposit product to people’s needs.

In October 2017, <a href="https://nextbillion.net/cross-sell-done-well-how-one-finance-app-found-a-balance-between-digital-and-human-touch/">we introduced the Financial Advisory Services (FAS) mobile app</a> designed to allow field officers at SAJIDA Foundation to identify members (as SAJIDA calls its clients) with longer-term savings potential, structure conversations around life goals, and simulate scenarios to arrive at appropriate amounts and terms for the term-deposit savings account.

Built into the FAS app is the capability to collect detailed usage data, including when and where the app was used, what actions were undertaken, and what information was entered to simulate scenarios. Any interaction on the device, such as the click of a button, filling in a text field, or submitting a form, is recorded. More than 20 officers used the FAS in 2017 and undertook 11,793 actions on the app. By threading together consecutive actions, we can approximately reconstruct actual conversations.
<h3>FAS app frames conversations as intended…and then some</h3>
When starting a conversation, field officers mention most of the savings goals the FAS offers (Figure 1). Users were able to choose from a list of eight specific goals and one “other.” These goals are chosen based on qualitative research with members and staff, and appear to be a fairly accurate representation of member savings goals. “Emergency Needs” is the most common, featuring in 31 percent of the conversations. The icon “For Children” comes second, at 25 percent. “Livestock” features in only 1 percent of the conversations, leading us to question its permanence on the goal screen.

An App, a Conversation and a New Account: A Novel Approach to Term Deposits in Dhaka

Bangladesh

Data Analytics

Saving

The Smart Campaign is participating in the 2018 Microfinance Centre European Microfinance Week Annual Conference 2018 in Bilbao, Spain. Check out Leah Wardle, accreditation manager, The Smart Campaign, is speaking on the panel below:

<strong>Maintaining the Social Promise of Financial Inclusion in a Competitive Marketplace</strong>

<strong>October 4th, 4:15pm</strong>

Speakers:
<ul>
 	<li>Leah Wardle, <a href="https://content.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/">The Smart Campaign</a></li>
 	<li>Cameron Goldie-Scot, Musoni Systems</li>
 	<li style="text-align: left;">Joris Crisa, MicroFinanza Rating</li>
</ul>
Description: How can existing microfinance providers best compete in the digital era? How will the social promise of microfinance continue to thrive as the industry digitizes? This workshop will explore the important roles for traditional players in the digital area—namely, to stay relevant by reaching financially excluded people with a mix of “tech and touch.” Participants will discuss how to blend customer-centricity with technology in order to reach excluded clients and maintain a strong market position.

&nbsp;

&nbsp;

&nbsp;

MCF-EMN Annual Conference

Challenges and Crises

Telcos

Event

This blog from <a href="https://us.accion.org/">Accion in the U.S.</a> was originally posted on <a href="https://nextbillion.net/impact-of-small-business-lending/">NextBillion</a> and is re-published here with permission.

<em>By Gina Harman, CEO, Accion in the U.S., and Liz Urrutia, CEO, Opportunity International</em>

The field of microfinance arose to address a pressing problem in emerging markets: Billions of people around the globe were shut out of, or poorly served by, the financial sector. But while microfinance institutions grew rapidly around the globe, so too did economic inequality in developed countries. It was within this context that organizations like <a href="http://us.accion.org/" target="_blank" rel="noopener">Accion in the U.S.</a> and <a href="http://opportunityfund.org/" target="_blank" rel="noopener">Opportunity Fund</a> adapted the microlending model to the United States more than two decades ago, expanding access to economic opportunity for entrepreneurs who lacked the financing and resources they needed to start or grow their businesses. In the ensuing years, the mission-based lending industry has continued to expand its services across the country – <a href="https://ofn.org/sites/default/files/OFN_20_Years_Opportunity_Finance_Report.pdf" target="_blank" rel="noopener">even in times of economic recession</a>.
<h2>From Financial Inclusion to Financial Health</h2>
In the early days, progress toward our mission could be measured by portfolio numbers, such as number of loans disbursed and amount of capital deployed, as well as by evaluating how many of our clients were from traditionally underserved populations, such as people of color, women and low- to moderate-income individuals. However, we also understood that gaining access to financial services is only meaningful if that access places an individual on a path to greater financial stability and improved quality of life. In short, financial inclusion does not necessarily enable financial health.

Over time, with support from the <a href="https://microtracker.org/assets/documents/entrepreneurtracker-overview.pdf" target="_blank" rel="noopener">Aspen Institute’s EntrepreneurTracker</a> initiative, our organizations have been able to evaluate borrower outcomes such as business survival, revenue growth and job creation in the years following loan disbursement. Still, we knew that these numbers alone didn’t tell the full story. That’s why we kicked off a <a href="https://us.accion.org/impact-study/" target="_blank" rel="noopener">multi-year, mixed methods study</a> in 2015 to more fully understand the impact of our lending and advising services over a longer time horizon. This research, conducted by Harder+Company Community Research, was made possible through lead funding from the W.K. Kellogg Foundation and JPMorgan Chase &amp; Co., with additional support from S&amp;P Global.
<h2>How Are Our Clients Faring?</h2>
The results of this research revealed that, by and large, the entrepreneurs we serve are thriving, even two to three years after receiving their loan. Most businesses in the study increased sales (60 percent) and profit (57 percent). Forty percent of borrowers added employees during the study period, and entrepreneurs with employees significantly increased benefits provided to those employees. What’s more, the majority of study participants specifically attributed progress toward their business and personal goals to the services they received from Accion or Opportunity Fund.

This study also provided unprecedented insight into the emotional benefits of mission-based small business lending. At the end of the study, 63 percent of participants expressed that support from their lender had “a lot” of positive impact on their confidence. In follow-up interviews, entrepreneurs discussed the demoralizing effect of previous loan rejections, sharing that the approval from Accion or Opportunity Fund was a sign that someone believed in them. As one participant put it: “The biggest thing has been the confidence that I’ve gained in myself. I’m really proud of it.”

But the report also highlighted some ongoing challenges – among them, the fact that financial health remains a key need among the business owners we serve. For example, the majority of clients surveyed at the end of the study had not taken steps to prepare for a financial emergency (55 percent) and found finances to be a significant source of stress (58 percent). This was a statistically significant improvement from the beginning of the study, when only 36 percent of participants had prepared for a financial emergency and 71 percent reported significant anxiety about finances. Nevertheless, though these findings indicate that our clients are on the path to greater financial stability, they remain vulnerable to financial shocks.
<h2>Defining Success on Entrepreneurs' Terms</h2>
The multifaceted nature of the study findings illuminates the limitations of a “one-size-fits-all” definition of impact. For instance, as the mission-based lending field moves beyond measures of inclusion to focus on borrower outcomes, traditional metrics like revenue growth and job creation don’t necessarily align with entrepreneurs’ own definitions of success. That’s why the research employed a technique called cluster analysis, which revealed five distinct typologies of entrepreneurs, each with unique goals, challenges and successes.

For example, the <i>Focused and Growing</i> group (44 percent of the sample) sought to grow, and succeeded. By the end of the study, they had all moved into their businesses full-time, had successfully used their loans to expand their businesses, and were experiencing increased sales and profits.

In comparison, the <i>Stable and Strategic </i>group (12 percent of the sample) juggled multiple sources of income while carefully planning for long-term, safe business growth. They increased their financial stability over the study period, and they also reported increased quality of life.

For the <i>Off Balance and Seasonal</i> group (9 percent of the sample), unexpected hardships and seasonal cash flow meant that their main priority was keeping their business afloat. In follow-up interviews they expressed an appreciation for the tailored support and guidance they received from their lender to help them weather financial challenges.

Borrowers in the <em>Retrenching</em> group (19 percent of the sample), were most likely to have used their loan to start a new business. While most experienced business growth over the study period, very few reported taking a salary from the business. Nevertheless, they remained confident about their financial future at the end of the study and reported a significant decrease in financial stress.

For those in the Slowly Growing and Optimistic group (17 percent of the sample), key goals for business ownership included fulfilling a specific dream or becoming their own boss. Although the majority experienced increases in sales, most were not able to increase savings, and some had even drained their savings over the study period. Many of these entrepreneurs operated highly specialized businesses with unpredictable cash flows, and were looking for opportunities to diversify their offerings.

With the completion of this research, we have gained invaluable insights into the impact of our services – as defined by our clients. As our organizations look to expand access to high quality, transparent and affordable financial services, it will be crucial to continue to refine our definitions of success, and to iterate and design new products and services to best align with their needs.

&nbsp;

&nbsp;

Beyond Inclusion: How Mission-Based Small Business Lenders in the U.S. Are Evolving Their Definition of Impact

United States

Entrepreneurs of MSMEs

MSME/SME Finance

<span style="float: none;background-color: transparent;color: #333333;cursor: text;font-family: Georgia,'Times New Roman','Bitstream Charter',Times,serif;font-size: 16px;font-style: normal;font-variant: normal;font-weight: 400;letter-spacing: normal;text-align: left;text-decoration: none;text-indent: 0px">Despite the rise in mobile money in Africa, and globally, the gap between supply and demand for credit in the region remains. Surprisingly, in this milieu, start-ups are at risk of accelerating the pace of over-indebtedness in Africa. The number of start-ups reaching last mile clients is rising. The driver of this is fintechs taking advantage of a business opportunity, and the prospect that if you offer clients much-needed credit at a lower cost than the alternative, they will be better off.</span>

But is this necessarily true? Are these start-ups offering solutions to the credit needs that many small and medium African businesses have, and are clients better off with these solutions? Or is the fintech digital credit hype attracting lenders that offer credit in the wrong places – and for the wrong reasons? What is needed to ensure that digital credit is provided responsibly, for the benefit of clients?
<h4><strong>Start-ups are at risk of accelerating over-indebtedness by supplying credit to clients without conducting appropriate repayment capacity analysis.</strong></h4>
Some estimate that digital technologies have cut the cost of providing financial services by 80-90 percent (<a href="http://appgfintech.org.uk/wp-content/uploads/2016/11/MG-Digital-Finance-For-All-Full-report-September-2016.pdf">McKinsey Global Institute, 2016, PDF</a>). Africa is taking the lead in the rise of mobile technology, and the opportunities are promising. Start-ups in this space are making big strides. Those involved in digital credit either deliver digital credit directly or enable its delivery through downstream product servicing. The number of fintechs – startups offering these services – in Africa is growing daily (<a href="http://fintechranking.com/2016/12/15/63-companies-shaping-africas-fintech-ecosystem/">Mesropyan, 2016</a>).

Technology well used offers opportunities not previously available. However, two key issues need to be recognized and addressed in order to generate long-term benefits for both clients and providers.
<ol>
 	<li>Provider and client interests must be aligned. If providers profit while clients are experiencing stress in repaying, defaults will catch up with the client or the institution, and the client will no longer be able to borrow. Aligning interests requires providers to think of client benefits as well as their own, from the start.</li>
 	<li>A well-designed loan should match the ability to repay. Well-designed loans are a blessing, for example, helping a small business; yet loans that do not consider clients’ capacity to repay sets them up for failure. Even if they repay in the short term – which is often why default rates stay low – it can be at the cost of extreme hardship, making it a poor predictor of over-indebtedness. It may take some time before the debt stress of clients affects providers.</li>
</ol>
<h3><strong>"Instant": an Opportunity and a Risk for Consumers</strong></h3>
A key attribute digital lenders advertise is speed of access. Where traditional loans could take weeks for approval, with many requirements, this is a plus from the perspective of clients. But the automation and speed raises concerns: are decisions made too quickly, and are risks adequately measured and mitigated, especially from the clients' perspective?

Other aspects of digital credit lead to <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/916-smart-brief-tiny-loans-big-questions">new risks</a> compared with analog lending: start-to-finish digitization; the move from high to low touch processes; small credit amounts that grow; short-term loans; reliance on alternative data analytics; and decentralized support workforces.
<h3><strong>What Could Go Wrong?</strong></h3>
With analog credit, prevention of over-indebtedness centered on adequate repayment capacity, and on growth not taking place at the expense of quality.

In the digital context, the following major categories of risk have been identified (Center for Financial Inclusion, 2017/2018. See References):
<ul>
 	<li>Limited – if any – debt capacity analysis</li>
 	<li>Products that do not match client needs</li>
 	<li>Lack of credit reporting</li>
 	<li>Automatic renewals</li>
 	<li>Aggressive sales and marketing</li>
 	<li>Disproportionate consequences of late payments that lead to a cycle of debt.</li>
</ul>
<h4><strong>Algorithms are institution centric, not client centric. Over-indebtedness is not only reflected in default, it is first reflected by the extent of the sacrifices that the client endures to avoid defaulting.</strong></h4>
Alternative credit scoring methods – often using elaborate algorithms that predict the probability of repayment – help to include people who have thin credit files and who would otherwise have been excluded. However, these models are a poor replacement for the repayment capacity analysis previously conducted by lenders serving vulnerable excluded populations. While the algorithm may predict whether or not an institution will be repaid, it does not consider clients' situations and needs, and therefore, the sacrifices that clients might have to make in order to repay. Over-indebtedness is not only reflected in default, it is first reflected by the extent of the sacrifices that the client endures to avoid defaulting. Algorithms are institution centric, not client centric. They are meant to learn over time, becoming refined and better predictors; yet they do so at the expense of early clients who enabled the algorithm to become better fine-tuned, as they have a higher probability of defaulting and suffer dire consequences (<a href="https://www.businessdailyafrica.com/economy/Pain-of-Kenyans-blacklisted-for-amounts-as-small-as-Sh100/3946234-3374120-r0r2bfz/index.html">Ngigi, 2016</a>).

The promise of well-tuned algorithms saving costs and managing institutional risk is unfortunately skewing attention away from client risks. Over-indebtedness needs to be reframed from a client perspective: can clients afford the loan? Even if they can repay, what sacrifices are they making? Are they at risk of not being a client ever again in the future (which would hurt both the client and the provider)?
<h3><strong>Mitigating Over-Indebtedness in a Digital World</strong></h3>
Over-indebtedness is a multi-stakeholder issue, and is linked to the client protection issues summarized in the <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>. Prevention of over-indebtedness is a particularly tricky one, in that it requires the concerted effort of a wide range of stakeholders.

Providers have a responsibility to ensure that their practices do not lead to an oversupply of credit to clients who are unable to meet their payment obligations, and digital lenders will need to adopt a more client-centric approach to understand the risks of over-indebtedness from a client perspective. Algorithms need to evolve to take this into account.

Digital lenders need to understand the risks of over-indebtedness from a client perspective, and algorithms need to evolve to take this into account. Regulation also must guide good practice for fintech digital lenders<strong>.</strong>

Because only one irresponsible lender is needed in terms of over-indebtedness to negatively affect clients, it is necessary that financial consumer protection regulation evolves to guide the practices of otherwise unscrupulous digital lenders.

Investors can, and should, use their leverage to encourage good practices by digital lenders, as they have for analog lenders. They can reward digital lenders who design and deliver appropriate products, are transparent about terms and conditions, explain to clients the risks of over-indebtedness, adopt fair and responsible practices during repayments, and help clients who cannot, but want to, repay.

Importantly, digital providers can leverage the same technology used to deliver products to educate and empower clients. Clients have rights and responsibilities. Informed consumers are better able to protect themselves and avoid becoming victims of predatory lenders.
<h3><strong>Over-Indebtedness Is Multidimensional and Dynamic</strong></h3>
In the interest of long-term mutual benefits for both providers and clients, providers need to move away from a uni-dimensional definition of over-indebtedness that overly emphasizes repayment as the proxy for whether or not a client is indebted, towards <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/201-over-indebtedness-of-microborrowers-in-ghana-an-empirical-study-from-a-customer-protection-perspective">client-focused definitions of over-indebtedness</a>.

Digital credit providers need to complement credit bureau data with disbursement and repayment data on digital loans so that a fuller financial picture can emerge for digital borrowers.

Over-indebtedness is not a steady state. As the lives of vulnerable clients evolve, so do their needs and challenges. A client who may have received a loan from a responsible lender in the past may suddenly not be in a position to repay. We need to develop ways to monitor whether clients are showing signs of financial stress. Responsible institutions should be able to identify this, and work with clients until it is resolved.

The role of responsible providers goes beyond providing loans to ensuring that clients are supported, if needed. <a href="https://www.microfinanceopportunities.org/">Microfinance Opportunities</a>, in collaboration with <a href="http://socialperformance.net/">Social Performance Solutions</a>, has been developing a stress assessment tool that enables providers to monitor whether borrowers are incurring stress after having received a loan. Such tools are extremely important to have a full picture of over-indebtedness, and a broader suite of tools needs to be available to responsible providers.
<h3><strong>Fintech Protects Against Over-Indebtedness</strong></h3>
Fintech digital credit providers need to unite and agree to collective measures to tackle the problem of over-indebtedness. This will entail defining responsible digital underwriting, leveraging technology, while learning from the past, expanding credit bureau reporting, and agreeing on common practices for the benefit of clients. Some fintechs are already taking the lead, and through the Smart Campaign’s <a href="http://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>, they are working together to define and implement responsible practice. The body of evidence around risks is growing. Now is the time to define the guidelines of good practice for fintech digital lenders and identify solutions that work for clients.

<strong>References</strong>

McKinsey Global Institute, “<a href="http://appgfintech.org.uk/wp-content/uploads/2016/11/MG-Digital-Finance-For-All-Full-report-September-2016.pdf">Digital Finance for All: Powering Inclusive Growth in Emerging Economies</a>,” September 2016.

Elena Mesropyan, “<a href="http://fintechranking.com/2016/12/15/63-companies-shaping-africas-fintech-ecosystem/">63 Companies Shaping Africa’s FinTech Ecosystem</a>,” Fintech Ranking, December 2016.

Alexandra Rizzi, Isabelle Barrès, Elisabeth Rhyne, “<a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/916-smart-brief-tiny-loans-big-questions">Tiny Loans, Big Questions</a>,” Center for Financial Inclusion at Accion.

John Owens, “<a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/783">Responsible Digital Credit</a>,” Center for Financial Inclusion at Accion. Forthcoming, 2018.

George Ngigi, “<a href="https://www.businessdailyafrica.com/economy/Pain-of-Kenyans-blacklisted-for-amounts-as-small-as-Sh100/3946234-3374120-r0r2bfz/index.html">Pain of Kenyans Blacklisted for Amounts as Small Sh100</a>,” <em>Business Daily Africa</em>, September 2016.

&nbsp;

&nbsp;

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Start-Ups and Digital Innovation: Are Fintechs in Africa Over-Indebting their Customers?

<strong>New York, NY (February 26, 2018) </strong>— MetLife Foundation provides $5.4 million to Accion for programs in Latin America, Eastern Europe, and Asia to leverage digital solutions to enhance underserved customers' financial capabilities and engagement.

Accion and MetLife Foundation Announce Expanded Partnership to Advance Financial Inclusion

Advisory Services

Mayada  El-Zoghbi

Managing Director, Center for Financial Inclusion

Priya Punatar

Manager, Industry Engagement

Shannon Dwyer

Investment & Portfolio Associate

Shweta Pereira

Director, India Program Management

Amee Parbhoo

Andrea Horak

Coryell Stout

Michael Schlein

Rachel Morpeth

Robert Ongodia

Yanina Seltzer

Chile

Latin America and The Caribbean

Uganda

Appropriate Product Design and Delivery

Behavioral Insights

Financial Inclusion Strategy

Financial Technology

Human Touch

Impact Investing

Personal Financial Management

Refugees and Migrants

Resilience

Rural Populations

Smallholder Farmers

Trends

Women

Youth

Article

Brief

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.

<em> "I want to tell you this story, but I am embarrassed," Eileen* said. </em>

<em>"That's OK, I responded, you really don't need to share anything you don't want," I replied. </em>

<em>"No, no, I want to tell you...” </em>

<em>“So, my husband and I both save money at home. He puts his in a box in a drawer, like everyone. I have a special place, and my husband makes fun of it all the time.” </em>

<em>“One time, we had robbers at home. They found his box and stole all of his money.” </em>

<em>“My money is still there — they couldn't find it." She said with a smile. </em>

<em>"Wow, you must have a really smart place of hiding money," I responded. </em>

<em>"Well, I save money in my...,” she hesitates, “... pads, you know, my monthly ones."</em>

<em>*Name has been anonymized.</em>

<hr />

When I interview customers to inform user-centered design, I want to understand what they’re thinking, feeling, and doing. It is always the stories they tell me that provide the best inspiration. From Eileen’s short story, I learned that she’s proud of the money she puts away. She's worried about safety but creative enough to find a place where the money can't be found by others. I understand that she and her husband save separately, even though it is just the two of them in the household. I also see she has a bit of embarrassment — but mostly pride — in her innovative savings mechanism. I made sure to congratulate her for her creativity and for introducing me to a new hiding place for valuables!

Over the last 18 months, Accion’s <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions">Global Advisory Solutions</a> team has been working on designing products that will build financial health, <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion">in partnership with MetLife Foundation</a>. One of our partners, <a href="https://cpcerano.com.mx/alianza/">Caja Popular Cerano</a>, is a financial cooperative with more than 100,000 clients and 225 branches across Mexico. It was founded in 1965 and has a strong social mission to serve individuals who haven’t benefitted from financial services in the past. Despite being a well-established financial service provider, with decades of experience, the cooperative realized a need to attract young customers, particularly as their client base is aging. They approached Accion to help them find a solution to the challenge of reaching more Millennial and Generation Z clients.

Caja Popular Cerano isn’t the only institution having difficulty in attracting young clients. The inclusion of young individuals in the global financial system has always been a challenge. Institutions are launching youth-centered products that incorporate innovative methods to promote savings and encourage financial health best practices. But according to a <a href="https://www.wocculatam.com/">WOCCU</a> study conducted in 2015, only 23.19 percent of youth surveyed in Latin America were clients of a banking institution. The study concluded that we need to adapt offerings on smartphones and use social media to attract a highly digital generation that has very different behaviors from previous generations. The study also found that Millennials are looking for a financial institution that allows them to conduct transactions at any time.

Our team embarked on this project aware of the need to do things differently for youth. We want to create a product designed to attract and help as many young people as possible. By putting individuals and their concerns at the center of product design and development, we can come up with innovative concepts and ideas that will work. By carrying out in-depth interviews, co-creation sessions, and repeated interactions in a relaxed and open environment, we gathered insights and compiled an intimate picture of the youth in Mexico.

Our interviews confirmed and expanded on the findings of the WOCCU report. We found that young people in Mexico are reticent to take out loans but are very excited to save for specific projects. Even if they don’t make much money, they value saving a little bit each month. They like using mobile apps, as this is how they keep in touch with friends. They’d love to be able to shop online but often lack a credit card or mobile money account. In fact, most people told us that they don’t currently use formal financial services, but they would like to build a positive relationship with a bank or credit union.

<img class="alignright wp-image-20013" src="http://content.accion.org/wp-content/uploads/2019/10/Screen-Shot-2019-10-18-at-1.30.38-PM-1024x515.png" alt="Through client interviews, Caja Popular Cerano learned that in order to attract and engage young customers, they would need to: Help customers to save, Be available to customers 24/7, Be smartphone accessible, Provide credit building opportunities, Be savvy on social media, Prove that they are socially conscious" width="500" height="252" />

We recently finished a round of prototyping with young people in Mexico. We tested an application concept that encourages users to put a little bit of money aside each month. Over time, it offers loans to help build the individual’s credit history. We also tested marketing messaging and found that youth wanted to partner with a socially minded institution that cares about poverty and the environment.

By putting customers like Eileen at the center of the products that we create, we are ensuring that the services provided by Caja Popular Cerano and our other partners can cater to the youth population. When we provide products that meet their needs, we can empower young people to seize more opportunities and dream bigger than before.

<em> Gabriel Quiros Rubio contributed to this article.</em>

Young people in Mexico need finance that fits their lives

Caja Popular Cerano

MetLife Foundation

Financial Inclusion Practitioner

Institutional Funder

Accion Global Advisory Solutions

At Accion Venture Lab, we want to know we’re always investing in the most promising seed-stage fintech companies — startups with the power to transform communities and reach the underserved. That means we stay on top of <a href="https://medium.com/accion/7-fintech-trends-to-watch-in-2018-3fa96310732f">the trends in our dynamic industry and the markets we work in</a>, whether it’s the growth of neobanks in emerging markets, innovative models in insurtech, or renewed focus on financial health.

As we continue to track the forces shaping fintech for inclusion, we’ve seen that beneath innovations in products and services, the very tectonic plates of our industry are moving. As the world shifts, the landscape of fintech for inclusion will be affected — from the ecosystem startups work in, to the business models companies set up, to the customers they target. We’ve identified six fundamental factors driving these changes. As investors, these trends affect how we evaluate early-stage companies, but even as startups build and scale their businesses, they will need to adapt to succeed.
<ol>
 	<li><strong><em>Tech platforms take over. </em></strong>While traditional financial institutions continue to position themselves as digitally innovative, we’re seeing only incremental progress across the globe. Many banks in emerging markets haven’t figured out how to partner with fintech startups yet and have shown a limited ability to go at it alone. But outside of traditional finance, we’ve seen companies offering financial services in many of our markets — in particular, <a href="https://www.cgap.org/blog/series/platform-economy-what-it-means-financial-inclusion">large tech platforms</a> like Facebook, Google, Amazon, and Ant Financial. These companies will continue to expand into Africa, Asia, and Latin America. As they do, we expect that small business and consumer lenders, as well as digital payments companies, will have to explore ways to remain relevant in their markets. The threat of big tech is heightened as newer and more local platforms in sectors like ride-hailing or food delivery also get into financial services, which is already happening in <a href="https://www.forbes.com/sites/eladnatanson/2019/07/01/from-food-delivery-to-fintech-the-new-app-convergence-in-brazil/#7a2fdc9057cc">Brazil</a> and <a href="https://www.forbes.com/sites/eladnatanson/2019/05/14/indonesia-the-new-tiger-of-southeast-asia/#3996254876ce">Indonesia</a>. But fintech startups shouldn’t just look at tech platforms as a competitive risk. They also may offer an opportunity. As tech platforms enter new markets, existing fintech startups offer <a href="https://techcrunch.com/2019/01/18/gojek-coins-ph-philippines/">out of the box and locally relevant acquisition targets</a> for expanding platforms.</li>
 	<li><strong><em>Protecting customers matters more than ever. </em></strong>With more underserved individuals and businesses accessing fintech products, there’s a growing awareness of the need for <a href="https://www.accion.org/how-startups-can-both-empower-customers-and-protect-their-data">stronger consumer protection</a> — preventing overindebtedness, ensuring data privacy and security, communicating transparency in pricing, and much more. The introduction of GDPR has shifted data privacy laws in the EU, and while data protection remains <a href="https://qz.com/africa/1271756/africa-isnt-ready-to-protect-its-citizens-personal-data-even-as-eu-champions-digital-privacy/">a largely unregulated space</a> in many emerging markets, that <a href="https://www.standardmedia.co.ke/business/article/2001332615/no-crb-listing-for-loan-defaulters-before-6-months?__s=sebuus7a8bmixxhrbcir">is changing</a>. We will see consumers, investors, and regulators take a closer look at the issues, and fintech companies should be proactive in evaluating their consumer protection measures. The Center for Financial Inclusion at Accion’s Smart Campaign recently drafted <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">Client Protection Standards for digital credit</a>. Expectations for startups to protect customers will continue to grow, but we’ve already been working with our companies to build out responsible practices, particularly around data protection (see <a href="https://www.accion.org/data-protection">our resource for fintech startups here</a>).</li>
 	<li><strong><em>Customers have more fintech options.</em></strong> Fintech for inclusion startups are operating in an increasingly crowded space. Gone are the days when customers had limited options. As a result, it’s getting more <a href="https://liftoff.io/resources/report/mobile-finance-apps-2019/?__hstc=241307293.228d43615f0d5539896fac05c1a5f6ac.1561572502255.1561572502255.1561572502255.1&amp;__hssc=241307293.1.1561572502256&amp;submissionGuid=43ac8e38-041d-4a47-8ddf-1ad939e60778">expensive to acquire customers online</a> and getting more important for companies to focus on the right acquisition channels. This will involve finding win-win solutions with channel partners who have direct relationships with customers and are looking for their own ways to build a stronger value proposition. We’re scrutinizing the success of startups <a href="https://cfsinnovation.org/research/employee-financial-health/">working through the employer channel</a>. We’re also learning from what our own portfolio companies are doing working with retailers (like <a href="https://toffeeinsurance.com/">Toffee</a>, which sells ‘bite-sized’ insurance through retail partners in India), manufacturers (such as <a href="https://www.pula-advisors.com/">Pula</a>, which sells insurance to smallholder farmers through seed and fertilizer providers in Africa), and supply chain players (like <a href="https://www.tiendapago.com/">Tienda Pago</a>, which provides inventory finance for MSMEs through FMCG distributors).</li>
 	<li><strong><em>New customers aren’t enough. </em></strong>If there’s one metric that’s often overlooked in the pitch decks we see for early-stage fintech companies, it’s customer lifetime value. Companies are often more focused on new customer growth metrics. However, with an increasingly competitive landscape in many markets and the cost of new customer acquisition increasing, the focus is shifting to how well a company can retain customers. There are many strategies startups can take to improve retention — such as introducing better terms or new products — but a major part of it will be improving the customer experience for underserved customers.</li>
 	<li><strong><em>Fintech needs to do more. </em></strong>While the vision of fintech was an unbundled world where customers could pick and choose what they needed from an a la carte menu of apps and websites, <a href="https://www.pymnts.com/news/banking/2018/unbundled-banking/">many people</a> still have an appetite for an all-in-one solution. So, fintech companies are making moves to expand their offerings beyond their initial use cases — providing insurance on top of credit, business management tools along with payment solutions, etc. This rebundling creates challenges for fintech companies as they consider new strategic directions — when should they offer these new lines? How do they build the internal capabilities to offer these services? To whom do they offer them? But ultimately offering more comprehensive services may help solve the retention challenge fintechs face. We expect to continue to see new digital banks emerge, offering customers better services across all of their financial needs.</li>
 	<li><strong><em>All-digital isn’t always the answer.</em> </strong>Customers are changing as technology becomes cheaper, faster, and more readily available and as customer attitudes to this technology and financial services in general shifts. These changes present tremendous opportunities for fintech for inclusion startups to reach more of the underserved, but it will require startups to take a more nuanced look of their specific customers’ needs and preferences. While customers are becoming more comfortable with using technology, things are still slow to change. Nearly <a href="https://www.gsma.com/r/mobileeconomy/">2 billion of the 5 billion mobile subscribers remain offline</a>. Even where they have access to affordable handsets, reliable data connectivity, and stable power, many people find accessing digital financial services challenging. After all, these customers may not be familiar or comfortable with technology or financial products, and they may not have reason to trust financial service providers. The result is that fintech companies will need to continue <a href="https://www.accion.org/the-tech-touch-balance">balancing new digital technologies with appropriate human interactions</a> to engage, educate, and support their customers.</li>
</ol>
<em><a href="https://www.accion.org/bio/vikas-raj">Vikas Raj</a> also contributed to this piece.</em>

Six vital trends changing the future of fintech

Pula

Tienda Pago

Toffee Insurance

Business Leader

Financial Service Provider

Impact Investor

Accion Venture Lab

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

<a href="https://apolloagriculture.com/"><span style="font-weight: 400;">Apollo Agriculture</span></a><span style="font-weight: 400;">, based in Kenya, delivers customized packages of seed, fertilizer, and insurance on credit for smallholder farmers. The farmer customers also receive valuable guidance in farming techniques and information on weather conditions that may affect results. Accion Venture Lab was an early investor in the company and continues to work with Apollo in an advisory capacity.</span>

<span style="font-weight: 400;">Technology is at the center of Apollo’s model. Its founders, Eli Pollak and Earl St. Sauver, built on their experience at The Climate Corporation using data to help farmers make better-informed decisions. Apollo’s systems rely on remote sensing technology, data science, mobile money, and voice-based trainings to make them cost-effective and scalable.</span>

<span style="font-weight: 400;"><img class="alignleft wp-image-17740" src="http://content.accion.org/wp-content/uploads/2019/02/Kenya_Nakuru_0034-1-1-1024x684.jpg" alt="Apollo agents using mobile phone in Nakuru, Kenya" width="500" height="334" />At the same time, Apollo’s results-driven, customer-focused approach means it must stay in close contact with farmers and gather feedback on what works and what doesn’t. Some of its staff’s work is almost entirely out in the field. For example, Rebecca, a field associate, works with both farmers and with the Apollo agents that visit their farms and set them up with their accounts. She finds the opportunity to speak directly with customers very rewarding. She says, “I’m most satisfied when the farmers come to me and tell me how the quality of their harvest has gotten better. When you help that farmer come from nowhere, to know something, and he appreciates you, it gets you excited that you got to help. This inspires me to keep doing this.”</span>

<span style="font-weight: 400;">Other Apollo staffers focus more on the technical systems, like Nairobi-based operations designer Javin, who collaborates with the tech team to identify and address issues in various processes. Even so, keeping up with customers is a central part of his work, as he explains, “ We have a call center team that gets feedback from the field. I also deal with farmer communication, making sure that we are in touch with our farmers as often as we can, reminding them to check payments.” He also goes out into the field himself to see how processes are working and solve problems as they arise.</span>

<span style="font-weight: 400;">Says Javin, “The small farmers grow food that the country depends on, both for the community and their own family. I like work that impacts communities. It feels great.”</span>

Out in the field with the farmers

Apollo Agriculture

Social Good

<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.
<p style="text-align: left;"><img class="aligncenter" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/02/CFSI-1.png" /><em><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.</em></p>
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

Banigualdad

Caja Bienestar

Destacame

Organizame

RedCapital

In the heart of Kampala, along the bustling Bombo Road, sits the headquarters of UGAFODE Microfinance Limited (MDI). UGAFODE is a small but progressive microfinance institution (MFI) focused on serving peri-urban and rural Uganda, mainly in the agricultural sector. Under the guidance of CEO Shafi Nambobi, who joined in May 2017, UGAFODE has made sweeping transformations. The institution has gone from a primarily manual operation with lengthy loan approval processes, to being a competitive tech-enabled institution with a focus on digital channels and serving microentrepreneurs and “last mile” clients in the Ugandan market.

We recently called Shafi, and even though it was 6 pm in Kampala and he was gathering his bags to head home, he took the time to share his insights on the strategies that have turned the company around. “UGAFODE has always upheld a client-centric focus, and the company maintained this approach while implementing their new strategies,” he said. One of the first changes was bolstering their call center, which has been instrumental in attracting both new and former clients. This has proven to be a key component in maintaining the balance between <a href="https://www.accion.org/the-tech-touch-balance/">digitization and human touch</a>, as it allows customers to engage with a real person without having to make long journeys from rural areas to bank branches.

Most of UGAFODE’s clients are farmers, working in crop and livestock production. More than 80 percent of their clients live in rural areas, and some are as far as 40 kilometers from the nearest UGAFODE branch. Clients often struggled to make the long trips out to the bank when all they needed were simple banking services. To bring banking services to the people, UGAFODE has incorporated more digital products into its business plan. These products include:
<ol>
 	<li>Digital field applications (DFAs), which allow remote approval of loans</li>
 	<li>UGAFODE mobile app, which allows customers to move cash from their mobile wallets to their savings accounts</li>
 	<li>Digital document management for digital verification</li>
 	<li>Digital delinquency management for timely follow up on late payments</li>
</ol>
These new channels have improved customer interaction with UGAFODE’s products, allowing microentrepreneurs to cut costs and time to travel to the bank and spend more time developing their businesses.

The company is also working to improve its loan processing and renewal system. UGAFODE reduced processing time from more than 21 days down to less than a week to ensure that their clients can get their funding when they need it. Another issue in their previous process was that their loan repayment system would automatically prevent clients with delayed payments from applying for another loan. Shafi knows that life can throw curve balls that prevent clients from making payments on time — a family member falls ill, a bicycle part needs to be replaced, a home needs repair. As such, the company changed this policy and adopted more flexible considerations for loan repayment timelines.

Shafi is excited to continue the turn around and watch the company grow, and sees many opportunities for the future. As UGAFODE continues to digitize and expand into rural areas, they expect to onboard more women — currently about 60 percent of their client base. Additionally, Shafi indicated that Uganda has become a home to more than <a href="https://www.unocha.org/southern-and-eastern-africa-rosea/uganda">1.4 million refugees</a> from nearby countries, including Somalia, South Sudan, Burundi, and the DRC. These refugees have been neglected and excluded from financial services, which they need to establish their livelihoods and send remittances to friends and family members. UGAFODE is currently seeking approval to include refugees in their outreach offering.

As UGAFODE continues to find ways to bring more underserved clients financial services that meet their needs, they know that staying customer-centric is crucial. “When we listen to our customers, we are able to make suggestions to the board of what needs to change, and create a better customer experience,” said Shafi. And as UGAFODE’s digital transformation has shown: keeping customer needs in mind is good for business and financial inclusion.

Going digital to serve customers in Uganda

Ugafode

Accion Global Investments

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="http://www.smefinanceforum.org/data-sites/msme-finance-gap">more than a quarter</a> of these microenterprises 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><strong>1. Significant barriers block entrepreneurs from using business accounts. </strong></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><strong>2. Chileans perceive taking credit from banks as risky.</strong></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><strong>3. Blacklisting deters participation in the formal financial system. </strong></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="http://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" /> <em><strong>Don Jaime, the owner of a restaurant in Santiago.</strong></em>[/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><strong>4. Informal savings remain more comfortable and familiar for people. </strong></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><strong>5. Merchants prefer to learn about financial products from people, not websites</strong>.</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.

<em>This research was conducted by Accion as part of our part of our </em><em><strong><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></strong></em><em> project, supported by MetLife Foundation.</em>

&nbsp;

Five reasons small merchants aren’t using financial services in Chile

There are now more than <a href="https://www.gsma.com/mobileeconomy/wp-content/uploads/2018/02/The-Mobile-Economy-Global-2018.pdf" target="_blank" rel="nofollow noopener noreferrer">5 billion unique mobile subscribers</a> worldwide — 3.7 billion of them in developing markets. This growing connectivity is a positive sign that full financial inclusion is in reach since <a href="https://www.accion.org/digital-financial-services-advance-financial-inclusion" target="_blank" rel="nofollow noopener noreferrer">technology enables providers</a> to offer affordable and efficient products to more underserved clients.

But it’s also clear that technology isn’t a silver bullet for reaching and engaging new customers. Of those 5 billion mobile subscribers in the world, nearly 2 billion remain offline. And even where underserved customers have access to affordable phones, reliable data connectivity, and stable power, many customers find accessing digital financial services challenging.

For inclusive fintechs to make a meaningful difference in customers’ lives and address financial exclusion at scale, they have to understand customers’ preferences and needs. And as we explore in <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab/" target="_blank" rel="nofollow noopener noreferrer">Accion Venture Lab</a>’s new report, <a href="https://www.accion.org/the-tech-touch-balance/" target="_blank" rel="nofollow noopener noreferrer">The Tech Touch Balance</a>, often, what customers want from digital financial services is to talk to a real person.
<h3><strong>Why do customers seek out human interaction in digital financial services?</strong></h3>
There are many reasons customers prefer interacting with a business’s staff or representatives when using digital financial services. Apart from overall technical limitations that may motivate customers to prefer speaking with a representative rather than a chatbot (e.g., inadequate internet service), underserved customers tend to prefer touch because of the following factors:
<ul>
 	<li><strong>Low digital savviness</strong>: Lack of familiarity with using the internet, smartphones, or even basic mobile phones can deter customers from a digital experience.</li>
 	<li><strong>Limited product understanding</strong>: A customer who has never taken out a loan, opened a bank account, or bought an insurance policy will likely require some hands-on support before learning about and using a new product.</li>
 	<li><strong>Lack of trust in financial service providers</strong>: Lower-income and underserved customers tend to be more skeptical of the benefits of financial service providers. A face-to-face interaction can drive credibility, dissuade fears, and ultimately increase trust.</li>
 	<li><strong>Limited brand awareness</strong>: Fintech startups often lack the brand familiarity that larger, more established companies have. Human touch can build awareness and increase trust in a new company.</li>
 	<li><strong>Competitive differentiation</strong>: For some companies operating in a crowded market, building non-digital interactions in the customer experience can help that company stand out.</li>
</ul>
<h3><strong>Finding the right balance across the customer journey</strong></h3>
<div class="slate-resizable-image-embed slate-image-embed__resize-full-width"><img class="size-full wp-image-18771 alignnone" src="http://content.accion.org/wp-content/uploads/2018/11/techtouchjourney.png" alt="Customer journey" width="1013" height="328" /></div>
As we took a look at our portfolio companies, we identified a spectrum of ways inclusive fintech companies balance new digital technologies with appropriate human interactions to create a meaningful and effective customer journey — from leveraging technology to enable touch, to imitate touch, and to replace touch.

Customers have different needs and preferences throughout their lifetime with a financial service provider. In a <a href="https://www.centerforfinancialinclusion.org/uniting-tech-and-touch-why-centaur-products-are-better-for-consumers-and-providers-evidence-from-kenya" target="_blank" rel="nofollow noopener noreferrer">recent study, the Center for Financial Inclusion at Accion (CFI)</a> found that respondents across every demographic segment — men, women, urban, rural, smartphone, and feature phone users — preferred human interaction over technology at some point in their customer experience. For example, customers typically prefer human touch when learning more about a product and its benefits, enrolling, and trying to resolve complaints. Respondents also expressed a preference for using technology to interact with a product or service over human representatives at some points, especially when renewing a product, repaying a loan, or processing a transaction.
<h3><strong>How to design a balanced customer journey</strong></h3>
When designing a balanced customer journey, it’s critical to remember that it’s not up to the company to decide what the right balance is — it’s up to the customers. To calibrate tech and touch successfully, companies should do the following:
<ol>
 	<li><strong>Talk with your customers</strong>. Rather than spending time hypothesizing what you think customers need, go straight to them. It can be as simple as a survey or a focus group to ask customers what mode of engagement they prefer across the customer experience.</li>
 	<li><strong>Segment your customers.</strong> Not every customer is the same, so companies should identify different customer groups with similar attitudes, behaviors, and needs. As preferences vary across customer segments, you may find that some customers are more receptive to one approach of tech and touch over another. By understanding how to best reach each segment, you will drive trust among all of your customers.</li>
 	<li><strong>Trial, test, and iterate</strong>. Customer behavior is dynamic, and customer preferences change. Ensure that you continuously measure customer satisfaction levels across the customer journey. Use your findings to refine, adjust, and improve methods of engagement. Through simple A/B testing, you can identify opportunities to create a superior customer experience in a way that is manageable and cost-effective.</li>
</ol>
Listening to customers is critical for finding the right balance and maintaining it as people’s needs evolve. The ability to strike this balance determines whether a company can successfully acquire and retain its target customers and, ultimately, become profitable.

Companies can and should cater to customer preferences and balance innovative technologies with the need for human touch. That is true throughout the financial services sector, but it is especially important in providing financial services to underserved families and businesses.

What do customers need from inclusive fintech?

Mastercard Foundation

The tech touch balance

<p class="graf graf--p">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.</p>
<p class="graf graf--p">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.</p>
<p class="graf graf--p">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.</p>
<p class="graf graf--p">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.</p>


[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]
<p class="graf graf--p">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.</p>

<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>
<p class="graf graf--p">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.</p>
<p class="graf graf--p">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.”</p>
<p class="graf graf--p">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.”</p>
<p class="graf graf--p">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.</p>

To help customers, you have to ask the right questions

With three billion people left out of the formal financial sector, financial technology offers us a chance to reach greater scale than ever before. Entrepreneurs and financial institutions are all exploring new ways to use technology to reach more people. Data, analytics, machine-to-machine learning, the Internet of Things, blockchain, global satellite imagery – all offer the chance to help reach people who have so far been left out.

Though tech is critical, today, some human touch is still needed in almost every financial product, service, or market. This will continue to change as more people become increasingly comfortable moving from touch to tech – but that’s a journey that will take time, patience, and close attention to evolving customer preferences.

Every company is wrestling with this issue, including Accion and our portfolio partners. There’s no single answer to how to best balance tech and touch; moreover, today’s solutions will evolve in the future. Entrepreneurs must constantly re-evaluate and re-calibrate their solutions to keep up with customers’ preferences and the changing state of technology.

<a href="https://www.accion.org/how-we-work/invest/accion-venture-lab/">Accion Venture Lab’s</a> latest report, <a href="https://www.accion.org/the-tech-touch-balance/">The Tech Touch Balance</a>, explores how inclusive fintechs around the world are grappling with this issue. Pulling from our insights advising startups around the world and with the support of the <a href="https://mastercardfdn.org/">Mastercard Foundation</a>, our latest paper addresses a series of complex questions, helping entrepreneurs and investors think through:
<ol>
 	<li><strong> Why do some customers sometimes still prefer touch over tech?</strong> This question is especially important in underserved communities. Customers who are new to formal financial services may have low digital savviness, lack trust in financial service providers, or not fully understand the product. Technology alone can’t always address those concerns.</li>
 	<li><strong> How do fintech startups decide to use tech or touch?</strong> By listening carefully to their customers about their preferences. Asking for and listening to feedback up-front and during product design, then continuing to refine the product over time is essential.</li>
 	<li><strong> When should fintech startups use an algorithm, and when should they use a lending officer?</strong> There’s no one answer: the same organization might use technology to replace human agents during customer acquisition, then use it as a tool to enable representatives during collections. Fintechs must strategically adjust their use of tech and touch from one operation to the next.</li>
</ol>
There’s no single solution to balancing tech and touch to accelerate financial inclusion. We’re still working through this issue and helping our portfolio companies refine their operations.

Though evolving rapidly, entrepreneurs need to put a stake in the ground. And then, we’ll continue working at it and making adjustments along the way. But if we do – if we continually listen to our customers – then we can refine and improve savings, insurance, credits, and payments, reach more clients, and create a financially inclusive world.

Does human touch still have a place in a high-tech world?

Acquiring new customers that are the <em>right</em> 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 <em>right</em> 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.

<em>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>.</em>

How to reach the right customers in the digital age

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<p style="text-align: center"><em>MetLife Foundation provides $3.9 million for Accion to leverage digital solutions and customer-centered design to empower underserved consumers in Argentina, Chile, and Mexico—and disseminate learnings throughout the region</em></p>
<p style="text-align: left"><em>Mérida, Mexico, March 7, 2018 </em>– Global nonprofit Accion and MetLife Foundation have announced a new partnership in Latin America that will empower underserved consumers and enable financial service providers (FSPs) to better serve low-income Latin Americans. MetLife Foundation is providing $3.9 million in funding to support the three-year initiative.</p>
“MetLife Foundation is committed to advancing financial inclusion in Latin America,” said Tracy Garcia, Head of MetLife Foundation for Latin America. “Our partnership with Accion will help us improve the financial capabilities and health of low-income consumers throughout the region.”

“Nearly half of adults in Latin America do not have an account at a formal financial institution. Even among those with access, many use those services infrequently, indicating that the products available to them are of low quality, expensive, inconvenient, or all three,” said Michael Schlein, President and CEO of Accion. “Accion’s partnership with MetLife Foundation will allow us to build better digital financial products and services and delivery methods that are grounded in customer needs and benefit the underserved.”

Through initial workshops in Argentina, Chile, and Mexico, Accion will select six FSPs that will design, test, and implement innovations that drive usage and improve financial capabilities. Accion will then work with these partners, using human-centered design and behavioral economics principles, to help the FSPs offer products that truly reflect the needs and interests of their low-income clients. Ultimately, results should include better service, greater confidence, and progress toward increased financial capability for underserved consumers. FSPs should experience increased customer loyalty and satisfaction, fewer customer errors, and higher usage and balances.

“Throughout Latin America, and especially in our focus countries of Mexico, Chile, and Argentina, we see evidence that many consumers do not have their current financial needs met,” says María Camila Gómez, Vice President of Global Advisory Solutions at Accion. “With MetLife Foundation’s support, we will equip regional financial service providers with the skills to truly listen to what their customers need, design best-in-class digital products that are easy to use, and help customers build healthy financial habits.”

The project will be led by Accion’s Global Advisory Solutions and the Center for Financial Inclusion at Accion (CFI). Accion's Global Advisory Solutions team provides experienced operational and management support to strengthen and maximize FSPs’ impact on financial inclusion. CFI is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. Together, Accion and CFI will share lessons about product design, financial capabilities, and digital solutions throughout Latin America and globally.

The project in Latin America is part of a broader partnership – Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations – between Accion and MetLife Foundation that aims to enhance financial customer engagement by building their capabilities in markets around the world.
<p style="text-align: center"><strong>###</strong></p>
<strong>About Accion</strong>

Accion is a global nonprofit committed to creating a financially inclusive world, with a pioneering legacy in microfinance and fintech impact investing. We catalyze financial service providers to deliver high-quality, affordable solutions at scale for the three billion people who are left out of – or poorly served by – the financial sector. For more than 50 years, Accion has helped tens of millions of people through its work with more than 90 partners in 40 countries. More at <a href="http://www.accion.org/">http://www.accion.org</a>.

<strong>About MetLife Foundation</strong>

MetLife Foundation was created in 1976 to continue MetLife’s long tradition of corporate contributions and community involvement. Since its founding through the end of 2017, MetLife Foundation has provided more than $783 million in grants and $70 million in program-related investments to organizations addressing issues that have a positive impact in their communities. In 2013, the Foundation committed $200 million to financial inclusion, and our work to date has reached more than 3.5 million low-income individuals in 42 countries. To learn more about MetLife Foundation, visit <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">metlife.org</a>.

<strong>MEDIA CONTACT</strong>:

Accion:
Katie Mounts
<a href="mailto:kmounts@accion.org">kmounts@accion.org</a>
+1 202.280.5859

MetLife:
Nadya Ramírez
<a href="mailto:nadya.ramirez@edelman.com">nadya.ramirez@edelman.com</a>
5350 1500 ext. 5961

Laura Miranda
<a href="mailto:laura.mirandas@metlife.com.mx">laura.mirandas@metlife.com.mx</a>

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</div>
</div>

Accion and MetLife Foundation Announce Partnership to Advance Financial Inclusion in Latin America

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<p style="text-align: center"><em>MetLife Foundation provides $5.4 million to Accion for programs in Latin America, Eastern Europe, and Asia to leverage digital solutions to enhance underserved customers’ financial capabilities and engagement</em></p>
<p style="text-align: left"><em>New York, NY, February 26, 2018</em>– Global nonprofit Accion and MetLife Foundation announced today a new partnership to advance financial inclusion for underserved individuals around the world. The project – Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations – aims to enhance financial customer engagement by building their capabilities. MetLife Foundation is providing $5.4 million in funding to support the program.</p>
“In our work with partners around the world, Accion sees how new products and technologies can help transform financial inclusion for those who have been left out,” said Michael Schlein, President and CEO of Accion. “Our latest partnership with MetLife Foundation in Latin America, Eastern Europe, and Asia will allow us to leverage the power of digital financial services and design customer-centered products and services that enhance customers’ financial capabilities and engagement.”

Regional efforts in Latin America, Eastern Europe, and Asia include designing digital tools and services informed by human-centered design; incorporating behavioral principles that spur usage and empower clients; and enabling financial service providers (FSPs) to effectively leverage and utilize client data for continuous improvement. Ultimately, results should include better service, greater confidence, and progress toward increased financial capability for underserved consumers. FSPs should experience increased customer loyalty and satisfaction, fewer customer errors, and higher usage and balances.

“MetLife Foundation is committed to advancing financial inclusion around the world through our global projects and partnerships,” said Dennis White, President and CEO, MetLife Foundation. “Our continued partnership with Accion aims to improve financial capabilities and health by bringing financial services, expertise, and innovations to low-income individuals around the world.”

In Latin America, the program will focus on tackling challenges that keep low-income Latin Americans from fully utilizing financial services. After initial workshops in Argentina, Chile, and Mexico, Accion will select six FSPs to design, test, and implement innovations that drive usage and improve financial capabilities. In Eastern Europe, Accion will partner with <a href="http://www.mfc.org.pl/">Microfinance Centre</a>, a regional microfinance resource center and network of organizations in Europe and Central Asia, to develop and promote digital tools that FSPs can use to diagnose clients’ financial health, identify gaps, and develop actionable plans to improve financial well-being. Finally, the program will continue the Foundation’s support for Accion’s work with <a href="https://www.dawn.org.mm/">DAWN Microfinance</a>to empower entrepreneurs in Myanmar.

The project will be led by Accion’s Global Advisory Solutions and the Center for Financial Inclusion at Accion (CFI). Accion's Global Advisory Solutions team provides experienced operational and management support to strengthen and maximize FSPs’ impact on financial inclusion. CFI is an action-oriented think tank that engages and challenges the industry to better serve, protect, and empower clients. Together, Accion and CFI will share lessons about product design, financial capabilities, and digital solutions across the industry.
<p style="text-align: center">###</p>
<strong>About Accion</strong>
Accion is a global nonprofit committed to creating a financially inclusive world, with a pioneering legacy in microfinance and fintech impact investing. We catalyze financial service providers to deliver high-quality, affordable solutions at scale for the three billion people who are left out of – or poorly served by – the financial sector. For more than 50 years, Accion has helped tens of millions of people through its work with more than 90 partners in 40 countries. More a t<a href="http://www.accion.org">http://www.accion.org</a>.

<strong>About MetLife</strong>
MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates ("MetLife"), is one of the world's leading financial services companies, providing insurance, annuities, employee benefits and asset management to help its individual and institutional customers navigate their changing world. Founded in 1868, MetLife has operations in more than 40 countries and holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit <a href="https://www.metlife.com/">www.metlife.com</a>.

<strong>About MetLife Foundation</strong>
MetLife Foundation was created in 1976 to continue MetLife’s long tradition of corporate contributions and community involvement. Since its founding through the end of 2017, MetLife Foundation has provided more than $783 million in grants and $70 million in program-related investments to organizations addressing issues that have a positive impact in their communities. In 2013, the Foundation committed $200 million to financial inclusion, and our work to date has reached more than 3.5 million low-income individuals in 42 countries. To learn more about MetLife Foundation, visit <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">metlife.org</a>.

<strong>MEDIA CONTACT</strong>:
Katie Mounts
<a href="mailto:kmounts@accion.org">kmounts@accion.org</a>
+1 202.280.5859

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</div>
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Accion and MetLife Foundation Announce Partnership to Advance Financial Inclusion in Latin America

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