The following post was <a href="http://blogs.accion.org/features/7-fintech-trends-to-watch-in-2018/">originally published</a> on the Accion blog.
We’re in the middle of a fintech boom that <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/trends-that-may-change-the-world-c00f4e500a8c" target="_blank" rel="noopener noreferrer">could change the world</a>. As a seed-stage investor in fintech for the underserved, Accion Venture Lab continues to see innovative startups increasing access to, reducing the cost of, or improving the quality of financial services for underserved individuals and small businesses around the world.
As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.

<h4>Digital neobanks</h4>
[caption id="attachment_24930" align="aligncenter" width="616"]<img class="wp-image-24930" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/appsm_mockup2.jpg" alt="" width="616" height="411" /> SmartMEI is a digital neobank serving small businesses in Brazil[/caption]
In the last few years, we’ve seen the emergence of a number of digital neobanks. Neobanks offer a user-friendly digital interface and a platform for financial services without maintaining their own banking licenses. With a focus on user experience and digital applications, neobanks stand to offer faster and better service to the underserved. Moving forward, neobanks will need to provide both a compelling product for a targeted customer segment and a suite of offerings that go beyond basic accounts or credit cards to retain customers and improve unit economics. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="http://nowmoney.me/" target="_blank" rel="nofollow noopener noreferrer">NOW Money</a>, which offers migrant workers in the UAE a platform to more efficiently transfer remittances and access to other products and services over time, and <a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="nofollow noopener noreferrer">SmartMEI</a>, which offers small businesses in Brazil a free tax tool and access to a broader set of financial services.

<h4>Next gen small business finance solutions</h4>
Around the world, micro, small, and medium enterprises (MSMEs) struggle to access capital. Estimates suggest that <a class="markup--anchor markup--p-anchor" href="https://www.ifc.org/wps/wcm/connect/4d6e6400416896c09494b79e78015671/Closing+the+Credit+Gap+Report-FinalLatest.pdf?MOD=AJPERES" target="_blank" rel="nofollow noopener noreferrer">200 to 245 million formal and informal small businesses</a> either don’t have a loan or have one but are still constrained by their access to financing. Startups have been developing creative ways to acquire, underwrite, and fund these businesses. Some of the most innovative models today are embedding themselves into supply chains and working with a partner in that supply chain to identify MSMEs in need of financing and to obtain existing data that can support credit decision-making. These companies include <a class="markup--anchor markup--p-anchor" href="http://www.tiendapago.com/en/" target="_blank" rel="nofollow noopener noreferrer">Tienda Pago</a>, which partners with major consumer good distributors in Peru and Mexico to extend short-term working capital to small stores for inventory purchases, and <a class="markup--anchor markup--p-anchor" href="https://lidya.co/" target="_blank" rel="nofollow noopener noreferrer">Lidya</a>, which works through partners in Nigeria to provide invoice discounting and supply chain financing to small businesses.

<h4>Insurtech for the underserved</h4>
Low-income consumers in emerging markets need insurance products to manage and mitigate financial risks, but serving those customers poses significant challenges — from cost-effectively reaching and educating consumers, to accurately assessing and pricing risks, to efficiently managing claims. Startups can play a critical role in solving those challenges with products intended to address specific risks for underserved communities, new distribution channels to reach these populations, and new streams of data to more effectively assess and price risk. Insurtech innovators include <a class="markup--anchor markup--p-anchor" href="https://lumkani.com/" target="_blank" rel="nofollow noopener noreferrer">Lumkani</a>, which sells a low-cost heat detector bundled with insurance to households in South African informal settlements that protect against loss of life, shelter, and assets, and <a class="markup--anchor markup--p-anchor" href="https://togarantido.com.br/" target="_blank" rel="nofollow noopener noreferrer">Togarantido</a>, which serves as an online-based insurance broker focused on the underserved in Brazil.

<h4>Financial services for smallholder farmers</h4>
Smallholder farmers remain notoriously difficult to reach and are often considered high-risk clients since their incomes are tied to unpredictable harvests. An estimated <a class="markup--anchor markup--p-anchor" href="https://www.raflearning.org/post/inflection-point-unlocking-growth-era-farmer-finance" target="_blank" rel="nofollow noopener noreferrer">270 million smallholder farmers around the world face a financing gap of $170 billion</a>. Innovators addressing this need can provide real value — by helping farmers finance irrigation pumps, combat pests, or address climate risks. Startups in this space include <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/" target="_blank" rel="nofollow noopener noreferrer">Apollo Agriculture</a>, which leverages satellite imagery, data science, and mobile money to finance fertilizer and seeds needed to increase crop yields, and <a class="markup--anchor markup--p-anchor" href="https://www.pula-advisors.com/" target="_blank" rel="nofollow noopener noreferrer">Pula</a>, which works with large seed and fertilizer suppliers across Africa to bundle crop insurance in with product purchases.

<h4>Asset finance</h4>
[caption id="attachment_24931" align="aligncenter" width="615"]<img class="wp-image-24931" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/kn_pg_2016_25.jpg" alt="" width="615" height="410" /> The Paygo team at work on their smart meter for cooking gas[/caption]
Individuals and small businesses require financing for assets like medical equipment, smartphones, and solar home systems to increase efficiency and improve lives. One promising innovation in this space is pay-as-you-go financing, which allows consumers and business owners to make small upfront payments and regular “top-ups,” usually sent via mobile money. The model has already led to a rapid expansion in solar home systems across emerging markets. Other scalable models for asset financing leverage new distribution and payment approaches like layaway solutions, leasing models, and peer-to-peer transfers. <a class="markup--anchor markup--p-anchor" href="http://paygoenergy.org/" target="_blank" rel="nofollow noopener noreferrer">PayGo Energy</a> is a promising company in this space; its pay-as-you-go financing model enables low-income customers in Kenya to pre-pay for cleaner and more affordable cooking gas.

<h4>All-digital consumer lending</h4>
Recent years have seen digital consumer lenders emerge and scale by using simple apps to collect and analyze customer data to provide access to credit for underserved populations. The speed and accessibility of digital platforms enable credit access for consumers who are underserved by traditional lenders and who might otherwise be too costly to serve. Innovators could add value to the sector with new approaches to credit underwriting and consumer engagement that lower defaults and improve retention — two of the critical challenges to the app-based lending model. <a class="markup--anchor markup--p-anchor" href="http://smartcoin.co.in/" target="_blank" rel="nofollow noopener noreferrer">SmartCoin</a> offers new engagement tools alongside its mobile lending platform to better understand and serve its customers in India, and <a class="markup--anchor markup--p-anchor" href="https://www.tezfinancialservices.pk/" target="_blank" rel="nofollow noopener noreferrer">Tez</a> provides an all-digital banking platform with a full suite of products to low-income consumers in Pakistan.

<h4>Consumer financial health</h4>
In 2016, the Federal Reserve revealed a concerning statistic about financial health in the U.S.: 46 percent of Americans said they could not pull together <a class="markup--anchor markup--p-anchor" href="https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?utm_term=.893f79e72c4c" target="_blank" rel="nofollow noopener noreferrer">$400 to cover an emergency</a>. Startups are providing solutions that help consumers manage their day-to-day financial lives and rebound from shocks. There is significant potential for innovators to leverage behavioral science to design new solutions such as clever nudges, useful automation, gamification, or bundling across different financial products. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="https://www.lendstreet.com/" target="_blank" rel="nofollow noopener noreferrer">Lendstreet</a>, which focuses on financial health by providing U.S. consumers a platform to restructure and refinance their distressed debt and rebuild their credit, and <a class="markup--anchor markup--p-anchor" href="https://www.destacame.cl/" target="_blank" rel="nofollow noopener noreferrer">Destacame</a>, which empowers users in Mexico and Chile with control of their data to build their financial capabilities and access better financial products.
Each of these areas of startup-led innovation offers significant potential for both social impact for underserved consumers and financial profit in 2018. We’re excited to see what’s next.
Image credits: Accion

Have you read?

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Cataylst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

<a href="https://cfi-blog.org/2017/07/31/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines/">How Financial Institutions and Fintechs Are Partnering for Financial Inclusion: Lessons from the Frontlines</a>

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&nbsp;

&nbsp;

&nbsp;

&nbsp;

7 Fintech Trends to Watch in 2018

Apollo Agriculture

Lidya

Pula

Accion Venture Lab

Agent Banking

Alternative Data

Credit

Financial Health

Fintechs

Impact Investing

Insurance

Insurtech

MSME/SME Finance

Neobanks

PayGo

Refugees and Migrants

Remittances

Smallholder Farmers

Blog Post

<a href="https://www.antfin.com/index.htm?locale=en_US">Ant Financial</a><a href="https://www.flickr.com/photos/39160147@N03/26062114184/"><img class="alignright wp-image-23600" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/05/26062114184_d276b847e7_z.jpg" alt="" width="265" height="199" /></a>, the Chinese inclusive finance powerhouse founded by Alibaba Group, and <a href="http://www.euronetworldwide.com/our_company/businesses.cfm">Euronet Worldwide</a>, a U.S. giant in the money transfer game, are in a bidding war over <a href="https://secure.moneygram.com/">MoneyGram</a>. Financially, this makes sense as the global remittance market is estimated at about <a href="https://www.infosys.com/industries/cards-and-payments/resources/Documents/money-transfer-industry-2016.pdf">US$600B</a> and MoneyGram commands a market share of roughly <a href="http://ir.moneygram.com/releasedetail.cfm?releaseid=879586">13 percent</a> of the world’s largest remittance route, from the U.S. to Mexico.

When two large companies compete to acquire another large company you might <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">hear about it on CNN Money</a> and promptly move on to other thoughts. But this particular news struck me because it touches on three of the (many) insights about the future of financial inclusion that I took away from attending this year’s <a href="https://www.accion.org/hbs">Harvard Business School - Accion Program on Strategic Leadership in Inclusive Finance</a> just last month.

Big players will increasingly drive the financial inclusion sector moving forward while, in the past, only small companies served the financial needs of the low end market. Microfinance has shown the poor to be a commercially viable customer segment, and as competition heats up, many big financial players are looking for ways to better tap into the commercial potential of new clients at the base of the pyramid. These big players have the deep pockets to innovate, experiment, and take the risks required to figure out how best to serve the billions of people still financially excluded. In addition to Alibaba’s Ant Financial, China’s WeChat, the social messaging app which connects over 800 million people, now <a href="http://onestop.globaltimes.cn/how-to-transfer-money-to-your-wechat-wallet-contacts/">allows for money transfers</a>.

Political interests play a much bigger role in the financial inclusion industry than you might realize. This makes sense given that we are working at the nexus of finance and the poor. Still, I was surprised that almost every case we discussed at the HBS-Accion Program had an important regulatory angle which proved critical to the outcome. We discussed examples of regulation done well and also regulation gone wrong – with the latter often closely tied to political interference. The main take-away was that regulators can best allow for innovation by setting out their desired outcomes and then taking a hands-off approach on how financial institutions get there. Most of the regulatory examples discussed at the HBS-Accion Program took place in developing markets, but their learnings hold true in the MoneyGram bidding war. In an era of “America First” rhetoric, there is <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">political resistance</a> to allowing Ant Financial, in which the Chinese government has a 15 percent stake, to buy MoneyGram. Members of Congress have <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">spoken out</a> against the deal.

Data ownership was another hotly discussed issue at the HBS-Accion Program, and it may be an important reason for U.S. political concerns about a Chinese company owning a U.S. money transfer service. If Ant Financial were to buy MoneyGram, it’s reasonable to assume that the Chinese government would gain access to information on American consumers’ finances. At a minimum, such data has the potential to convey competitive advantage. More broadly, data is increasingly seen as power.

In March, Euronet offered to buy MoneyGram for $1 billion, and last month Ant countered with $1.2 billion. MoneyGram’s board unanimously approved the new deal from Ant, but U.S. regulatory approval still needs to be secured, including from the Committee on Foreign Investment, which is tasked with vetting foreign investments into the U.S. and discerning how they might affect national security.

It may seem the MoneyGram bidding war is pretty far away from a week-long program focused on financial inclusion, but the HBS-Accion Program provides a new lens for analyzing some of the most pressing issues facing the financial inclusion industry. It provides an opportunity to take a step back from the day-to-day and think more strategically about industry trends. This year’s HBS-Accion Program brought together 71 executives and other leaders in financial inclusion from leading institutions spanning 30 countries to engage in interactive case studies and peer exchange. Learning from this group of peers and world class facilitators proved immensely enriching.

Image credit: <a href="https://www.flickr.com/photos/39160147@N03/26062114184/">Mike Mozart via Flickr</a>

Have you read?

<a href="https://cfi-blog.org/2017/01/05/the-news-from-china-can-a-speeding-ticket-hurt-your-credit-score/">The News from China: Can a Speeding Ticket Hurt Your Credit Score?</a>

<a href="https://cfi-blog.org/2014/09/23/chinas-microfinance-landscape-nonprofits-microcredit-companies-rural-financers-and-alibaba/">China's Microfinance Landscape: Nonprofits, Microcredit Companies, Rural Financers, and Alibaba</a>

<a href="https://cfi-blog.org/2016/04/08/global-financial-inclusion-leaders-convene-for-hbs-accion-program/">Global Financial Inclusion Leaders Convene for HBS-Accion Program</a>

&nbsp;

MoneyGram Bidding War Heats Up: Financial Inclusion Take-Aways

HBS-Accion Program on Strategic Leadership for Inclusive Finance

Dominican Republic

Consumer Protection

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Payments

Saving

<a href="http://www.fi2020progressreport.org/technology/"><img class="wp-image-19609 alignright" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/fi2020-tech-section.png" alt="" width="615" height="336" /></a>The following post draws observations from the just-released FI2020 Progress Report on Technology. See the full report to explore other topics.

Technology innovation is dramatically changing the financial services landscape—and quickly. No longer are simple 2G/SMS-based payments the talk of the financial inclusion community. Instead, a range of platforms and products and services promise that as we move into the future, the costs of providing services will be lower, and the base of the pyramid will be within reach for mainstream financial services providers.

The world in which these innovations are mainstreamed is one where the agent network concerns we have today will be gone. In the cash-lite or cash-free world that technology providers are seeking, there will, in fact, be few to no agents, as people will receive money electronically and spend it electronically without ever converting it to cash. When is the last time you went to a banking agent?

Consider the following innovations that allow important financial transactions to take place without a detour through cash. (For a more comprehensive list of innovations, see the FI2020 Progress Report on Technology.)

Low-Fee Remittances: In 2014, the global average cost for transferring remittances was 8 percent – a burden for low-income families who rely on remittance income. But this may soon change. Start-ups such as TransferWise, WorldRemit, and Azimo have mobile apps through which users can send remittances at fees as low as 1 percent. Companies like PayPal are increasing their global consumer base, and charge 3–4 percent on international transfers. Customers who were recently offered mobile cross-border remittances in West Africa <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/04/2015_MMU_Mobile-money-crosses-borders_New-remittance-models-in-West-Africa.pdf">responded by rapidly</a> adopting the service. Orange Money offered transfers between its own customers across Cote d’Ivoire, Mali, and Senegal, while MTN and Airtel created a bilateral agreement to serve the Cote d’Ivoire–Burkina Faso corridor. With the emergence of these competing business models, established players such as Western Union and MoneyGram have reduced their fees. Cornelis Heesbeen, CEO of Auxfin, a remittance service, <a href="http://www.remittancesgateway.org/index.php?option=com_kunena&amp;view=topic&amp;catid=9&amp;id=12&amp;Itemid=151">predicts</a> that by 2020 there will be no fees for remittances. The big question is how and when the remittance industry will shift from one in which most transactions start and end in cash at a banking agent, to one in which most transfers are account to account.

Pay-As-You-Go Utilities: Large up-front costs make solar home systems too expensive for off-grid, low-income customers, unless they get a loan. To sidestep the need for credit, some companies are using pay-as-you-go leasing technology on top of mobile payments. For example, with M-Kopa in Kenya and Mobisol in Tanzania and Kenya, customers pay daily-use fees via M-Pesa. If payment is not received, the company can turn off the system remotely through the embedded pay-as-you-go device. <a href="https://www.cgap.org/sites/default/files/DigitallyFinancedEnergy%20_FINAL.pdf">According to CGAP</a>, as of 2014 there were at least 25 companies selling solar systems with this technology in Africa, Asia, and Latin America. And the technology is being tested for other utilities, too.

P2P Lending: P2P lending services <a href="http://www.wsj.com/articles/peer-to-peer-lending-takes-off-in-china-1433320681">have taken off</a> and expanded rapidly, particularly in China, led by CreditEase, Lufax, China Rapid Finance, and DianRong. At the end of 2014 there were an estimated 1,575 P2P platforms operating in China, up from only 50 in 2011, and 103.6 billion yuan (US$16.7 billion) in outstanding loans issued via online platforms.

Online ROSCAs: An estimated 1.5 billion people globally participate in rotating savings and credit associations (ROSCAs). They provide a simple, informal method for people to save money and receive loans, although traditional ROSCAs can be unreliable and subject to management problems. <a href="http://kitty10.io/">Kitty10</a> is a mobile app that offers a possible remedy, allowing ROSCAs to manage their finances, maintain an electronic history of transactions, and easily make decisions (such as those dealing with loan amounts and repayment terms). It gives financial tips and can even build credit histories for members. <a href="https://www.margadarsi.com/index.jsp">Magadarsi</a> is an Indian chit fund that uses the Internet to support ROSCA-like operations. Magadarsi allows users to sign up online and pay savings and loan installments through online banking on its website. This allows for much larger scale in membership.

These innovations exemplify the impressive progress that technology has made in the last few years—and will continue to make from now to 2020, when the financial inclusion industry is striving to achieve financial inclusion globally. Truly, of all of the lenses through which we explored progress made toward financial inclusion for the FI2020 Progress Report, technology was the most promising, and we gave it the highest score on progress (7/10).

&nbsp;

Have you read?

<a href="http://cfi-blog.org/2015/10/01/rating-progress-toward-financial-inclusion-on-a-scale-of-1-to-10/">Rating Progress on Financial Inclusion on a Scale of 1 to 10</a>

<a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/">The Twelve Days of Fintech</a>

<a href="http://cfi-blog.org/2015/04/24/fintech-for-fi2020-a-conversation-on-aligning-technology-and-partnerships-for-financial-inclusion/">Fintech for FI2020: A Conversation on Aligning Technology and Partnerships for Financial Inclusion</a>

&nbsp;

Toward an “Agent-Free” World

Financial Inclusion 2020

Financial Inclusion 2020 Progress Report

Credit Provision

Enabling Environment

Financial Technology

Informal Credit

P2P Lending

Trends

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18655" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/fi2020-issue-five.png" alt="fi2020 issue five" width="614" height="329" /></a>

Good afternoon! Freshly published is this week’s Financial Inclusion 2020 News Feed, sharing the big news in banking the unbanked. Among its stories are a new partnership between MetLife Foundation and Opportunity International to expand financing and skills training in rural China, the launch of a World Food Programme initiative that integrates climate risk reduction with financial services, and the release of the first annual Consumer Banking PACE Index, which gauges bank performance to consumer expectations. Here are a few more details:
<ul>
 	<li>MetLife Foundation and Opportunity International have embarked on a three-year partnership to support thousands of small businesses in rural China with financial services and business development training via banks, mobile vans, and rural service centers.</li>
 	<li>The World Food Programme launched the R4 Rural Resilience Initiative, which helps smallholder famers in Zambia navigate environmental demands using index-based agricultural insurance, improved natural resource management, credit, savings, and productive safety nets.</li>
 	<li>The new Consumer Banking PACE Index, drawing on input from over 9,000 consumers, examines bank performance in a handful of countries around the world to conclude that, among other findings, fair and transparent pricing falls below consumer expectations, and trust in banks remains an issue.</li>
</ul>
For more information on these and other stories, read the fifth issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to us at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

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Rural Finance in China, Climate Risk Reduction, Meeting Consumer Expectations – the Latest FI2020 News Feed

MetLife Foundation

Mapping the Invisible Market

Partnership for Responsible Financial Inclusion

The Smart Campaign

China

Colombia

Ghana

Guatemala

India

Mexico

Nigeria

Paraguay

Peru

Rwanda

Tanzania

United States

Zambia

Aging and Older Adults

Agricultural and Rural Finance

Financial Capability

Financial Inclusion Strategy

Housing Finance

Microfinance

Persons With Disabilities

Risk Management

Social Performance

Transparency

Women

Youth

&gt; Posted by Anne H. Hastings, Manager, Microfinance CEO Working Group

[getty src="165290027?et=QjzN8v2pS9xjJ97nhN4pJA&amp;viewMoreLink=off&amp;sig=TVc520TQ3jkLcODOcxJxSj1m9EUG67jq-0Mh_eWZOA4=" width="594" height="395"]

A few weeks ago, I attended the Global Forum on Remittances and Development sponsored by the International Fund for Agricultural Development (IFAD), the European Commission, and the World Bank. Much of the meeting was focused on two critically important questions:
<ol>
	<li>Are or could remittances be a major driver of financial inclusion?</li>
	<li>Is it possible (and desirable) for a greater percentage of remittances to be put to productive use as opposed to consumption once the funds arrive in the hands of the recipient?</li>
</ol>
First, a few facts to underscore why these discussions are so important:
<ul>
	<li>In 2014 there were at least <a href="http://www.remittancesgateway.org/doc/Provisional_Agenda_GFRD_2015.pdf">240 million international migrants</a>. That is a BIG number – bigger than the populations of all the countries of the world except China, India, the U.S., and Indonesia.</li>
	<li>This year these migrants will send back to their countries of origin more than 440 billion U.S. dollars! This amount is more than three times the amount of foreign aid. It is estimated that <a href="http://www.ifad.org/remittances/pub/fiveyears.pdf">$200 billion</a> of this amount goes directly to rural areas in developing countries where the most poverty is.</li>
	<li>Remittances can constitute up to <a href="http://www.migrationpolicy.org/programs/data-hub/global-remittances-guide">40 percent of GDP</a> or more in some countries, often the most fragile, most conflict-ridden countries in the world.</li>
	<li>Some 750 million people are estimated to receive remittances, the vast majority in developing countries. Forty percent live in rural areas.</li>
	<li>The global average cost of sending this money home is 8.6 percent of the amount sent, so the potential customer benefits to cost reduction are very important. (In July 2009 the G20 set a goal of reducing the average cost from 10 percent to five percent in five years. Despite failing to achieve the objective, it recently established a new goal of three percent by 2030!)</li>
</ul>
Are remittances a driver for financial inclusion? Could they be? In a moment of frustration, Fernando Jimenez-Ontiveros, the Acting General Manager of the Multilateral Investment Fund said at the conference, “We’ve been working on these issues for some 15 years, and estimates are that 60 percent of senders and recipients still don’t even have an account! We’ve got to do better!”

In fact, the senders of remittances are most often people who are excluded not only from the financial sector, they are also excluded from employment and economic opportunities in their countries, which is why they leave in the first place. IFAD, through its Financing Facility for Remittances (FFR) program, has been supporting pilots around the world to test different approaches for transitioning migrants and their families back home from financial exclusion to financial inclusion. A good number of these pilots have worked – when all the conditions are right.

I can help to enumerate these conditions based on 17 years of experience as CEO of Fonkoze, Haiti’s largest microfinance institution (MFI). In 1995, when I first met Fonkoze’s founder, Fr. Joseph Philippe, he explained his vision – he wanted to build a bank the poor could call their own. This wasn’t a project or a program – he was trying to build a national institution. However, he cautioned, success will be elusive unless we engage the Haitian Diaspora.

Once I figured out what a Diaspora was (the dispersion of people from their original homeland), I asked whether the Haitian Diaspora would be able to finance this start-up. He explained that that was naive – most of the Diaspora were poor Haitians sending money home to even poorer family members. So I asked how we could gain their support. He said, “We have to offer a reasonably priced, convenient, and secure service for them to get their money home.” This was in 1995 when microcredit supporters weren’t even thinking about remittances.

So from the first day, the idea was that this bank for the poor would offer both credit and money transfer services – but even that wasn’t enough. It also needed to offer savings and currency exchange (since so many U.S. dollars were circulating through the economy) and ultimately insurance. The founder was clear that Haitians needed a full range of financial services at their disposal.

So as we were building this institution, which today has 46 branches, over 200,000 savings accounts, and more than 60,000 borrowers (mostly women), we had to develop a money transfer service, along with all the other financial services. We succeeded in offering our own remittance service through an informal partnership with a bank in the U.S., but it wasn’t a perfect offering, and we wanted our clients to have a full range of options. So we also became agents for MoneyGram and other money transfer operators (MTOs), putting up their signs at all our locations and maintaining the liquidity needed to pay out transfers to any recipient.

Our own service required the recipient in Haiti who wanted to receive transfers to open savings accounts with us. The transfer was automatically deposited into their account when senders deposited it in our bank in the U.S. This had the added advantage of encouraging our clients to open and use savings accounts. On the other hand, for MTO transactions, we had to pay out in cash, and that had to be in U.S. dollars as required by Haitian law, unless the client specifically asked to exchange the money with us.

It quickly became clear that offering the service was not enough. We also needed to find mechanisms for helping our clients learn to use these services. We implemented a version of Paolo Freire’s theory of education as explained in Pedagogy of the Oppressed – a form of peer learning where we would train those clients who knew how to read and write to teach the other clients who didn’t. Included were basic literacy training, business skills, women’s health, children’s rights, and environmental protection.

All of this was designed to bring our clients in Haiti toward <a href="http://www.centerforfinancialinclusion.org/about">full financial inclusion</a>. I would say that the services we had designed accomplished that reasonably well. People coming to pick up their remittance would learn about the loan or savings program while standing in line and, when the cross-selling was done well, they would take up the additional service.

Pretty soon, we had women who had moved from using the money received from relatives abroad purely for consumption <a href="https://www.youtube.com/watch?v=ggDk3irXuf0">to using some of it to start a little business</a>. Then they would learn that they could get a loan to manage the expansion of their business and save the better part of the money transfer in a Fonkoze savings accounts. They became quite skilled at figuring out which service would work best for each need they had.

Of course, not everyone is a “natural entrepreneur.” So, again with the MIF’s support, we launched an educational program for individuals using the remittances purely for consumption to encourage them to consider alternatives. We listened to their reasons for not investing the money, and it became clear that they wanted to figure out a way to set up a business, but they simply didn’t know how. We went to rural branches, recruited clients directly from the lines of people waiting to receive remittances, and then brought them into a class to talk about how to set up a little business. The most successful part of this training program was identifying “businesses in a box” or “micro-franchising” opportunities that would allow the participant to easily launch a simple business. For example, one was to sell solar lighting where someone else was taking care of importing, distribution, and ensuring quality of the product.

But what about the members of the Diaspora? IFAD and the MIF ultimately helped us to demonstrate how we could organize them as well. We hired Katleen Felix, a woman with Haitian roots living in the U.S., to be our Diaspora Liaison. She was a godsend. We organized meetings in Boston, New York, Miami, and even Port-au-Prince to discuss the power of the remittances they were sending home and their potential as engines of development. We discovered that migrants did want to help in the development of their native countries.

It turns out that many of them wanted to invest a portion of the earnings in businesses, schools, or health care clinics in their home communities. So they asked Fonkoze to help them by “vetting” the businesses in the rural areas of Haiti that were “investment ready”. Ultimately, we set up one of the first Diaspora crowd-funding sites with the assistance of DePaul University and the Vincentian Family and hired business analysts in Haiti to identify enterprises that needed loans and were likely to be able and willing to repay.

Suddenly, the Haitian living abroad who wanted to do something for Haitians at home could make a loan of $25, that when combined with 100 other loans of $25, would allow a small honey producer in Haiti to receive a loan of $2,500. Ultimately we negotiated a partnership with Kiva that guaranteed virtually every loan request put up on the website would be fully funded. For Fonkoze, crowd funding through the website <a href="https://www.youtube.com/watch?v=vHPOucbJ918">Zafen</a> (Creole for “It’s our business”) and Kiva has offered a tremendous opportunity for migrants to have the satisfaction of helping in the development of their country without incurring too much risk.

All of this suggests that MFIs are, in many ways, ideally suited to making remittances on-ramps to financial inclusion if they indeed offer a range of services and if they are willing to take the time to help clients understand how to use them. In contrast to traditional financial institutions, MFIs often have a deep understanding of and interest in serving the excluded. The revenue they earn from facilitating remittances can contribute to their bottom line, and in the event that they can convert some of those remittances into savings, they can increase their capital for lending.

So why this isn’t occurring more often? Here are a few of the challenges:
<ul>
	<li>National regulators must allow MFIs to become payers of remittances, accept deposits, and provide loans. Not all countries do.</li>
	<li>MFIs must have the financial, technological, and human resources to offer these services.</li>
	<li>MFIs must be large enough and have the geographical coverage to make a real business out of remittances.</li>
	<li>They must be able to negotiate effectively with money transfer operators (MTOs) in order to ensure they receive enough fee to make the business sustainable.</li>
</ul>
The majority of MFIs are not able to effectively address these challenges. So why was Fonkoze able to do it? First, there was no regulation of MFIs in Haiti (not something we would recommend). Second, we probably didn’t have the capacity to offer these services at scale, though we could make a good point about their promise. We met the geographic coverage challenge above, but it took several years to get the reach and coverage needed. Finally, we were also able to negotiate reasonably well with the MTOs. We had a lot of help, of course, from our donors, investors, and a terrific board of directors always willing to assist in the negotiations. As Don Terry said at the Milan conference, “Fonkoze is a symbol of what is possible!”

What we never accomplished, however, was the scale needed to generate a sufficient return on investment. This has proven to be a challenge for most MFIs, which helps to explain why more MFIs have not entered this market.

Still, projects like Fonkoze’s have learned a lot. Let me summarize the lessons we took away:
<ul>
	<li>Remittances can be an on-ramp to financial inclusion, but it doesn’t happen automatically.</li>
	<li>The financially excluded do not suddenly become the financially included by taking a loan. They need access to a full range of financial services.</li>
	<li>The services will only be of benefit if the person fully understands how and when to use them. This is not something that can be easily taught in a classroom. The best learning is “in the moment” when the need becomes apparent. For example, when the person comes to pick up their transfer is the time to explain to them the options for their money: Wouldn’t they like to save a portion of it in a savings accounts? Is it a good time to exchange into the local currency or would it be better to save in USD? Would they be interested in learning how they might use a portion of it to set up an enterprise of their own?</li>
	<li>Once they’ve made their way onto the “on-ramp”, clients still need close support through continuing education and coaching.</li>
	<li>Development professionals spend a lot of effort trying to turn remittances used for consumption into remittances for productive use. But let’s remember that it’s THEIR money – and they have the right to spend it as they see fit and not as the development professional prefers. If it’s needed for consumption, let it be spent on consumption.</li>
	<li>That said, there are many in the Diaspora who want to invest in their home country but they need:
<ul>
	<li>Easy-to-use and safe investment vehicles</li>
	<li>Access to market information about investment-ready enterprises</li>
	<li>Management support and monitoring of the business they invest in</li>
	<li>Education on risks in the investments and how to mitigate them</li>
</ul>
</li>
</ul>
At the end of the conference, the conclusion was that we still have a long way to go to make remittances a major driver of financial inclusion and to turn remittances into a tool for development in the countries of origin. As Pedro Tigre De Vasconcelos remarked, “There are no silver bullets here, but there sure is a golden opportunity!” For all of us in the microfinance sector, let’s deliver on the promise. Let’s convince more MFIs of the opportunity that this rapidly growing segment of migrants and their families back home represent.

Have you read?

<a href="http://cfi-blog.org/2014/06/03/a-money-transfer-duopoly-that-fails-to-protect-clients/">Do African Remittances Services Providers Properly Protect Clients?</a>

<a href="http://cfi-blog.org/2014/05/07/walmart-joins-the-list-of-non-traditional-players-offering-remittances/">Walmart Joins the List of Non-Traditional Players Offering Remittances</a>

<a href="http://cfi-blog.org/2015/01/27/pathway-to-a-better-life-for-haitis-disabled/">Pathway to a Better Life for Haiti's Disabled</a>

Remittances as an On-Ramp to Financial Inclusion: Let’s Deliver on the Promise!

Haiti

&gt; Posted by Sonja Kelly, Fellow, CFI

<a href="http://www.worldbank.org/en/programs/globalfindex/infographics#2"><img class="alignright wp-image-17975" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/04/shareable_01.png?w=490" alt="" width="376" height="188" /></a>In 2013, Elisabeth Rhyne was asked what she was particularly excited about as she looked forward to the future of financial inclusion. Her response? “A second data point.”

Well, now we have that second data point. The 2014 Global Findex reports that <a href="http://cfi-blog.org/2015/04/15/sixty-two-percent-of-the-world-is-banked-the-new-global-findex-finds/">62 percent</a> of people in the world have a bank or mobile money account, up from 51 percent in 2011, and those two points describe a line. Simply projecting that line forward takes the world to about 83 percent of people with accounts by the year 2020. But of course, that’s not the whole story…

The Global Findex encouragingly articulates some concrete steps that governments and providers can take to accelerate progress toward financial access. I would venture to guess that these steps would bridge the gap between the projected 83 percent and the full 100 percent by 2020 (you can read about the World Bank’s goal of universal access by 2020 <a href="http://www.worldbank.org/en/news/press-release/2013/10/11/universal-financial-access-vital-reducing-poverty-innovation-jim-yong-kim">here</a>).

So let’s just assume that universal access will be a reality by 2020. We can envision a world in the near future where people receive wages, government payments, and remittances into their bank accounts. Businesses spend less on payroll and have fewer risks than if they paid out in cash. Governments avoid corruption associated with social benefit payments by having a cheaper G2P system that entails fewer human intermediaries. Remittances are cheap—or even free—and go directly into the recipient’s bank account. Cause for celebration, right?

Well, yes, but not so fast.

What’s missing from this world is a description of the quality of financial services for the customer. Financial access will mean a lot of good things for a lot of stakeholders—reduced corruption, lower cost of employment, and massive savings for government, to name a few. But financial access does not necessarily mean improved lives for the two billion people around the world who may have a new account by 2020.

<a href="http://www.centerforfinancialinclusion.org/about" target="_blank" rel="noopener">Full financial inclusion</a> is a lot more than access to a transaction account. Services will have to come with quality in order to be relevant to consumers. If products are well-designed to meet the needs of consumers, then we will have a great deal to celebrate by 2020. But if customers receive wages, government payments, and remittances into a bank account and then withdraw them right away, financial inclusion will have just created a different (but only marginally better) way for people at the base of the economic pyramid to interact with their money.

At our <a href="http://www.centerforfinancialinclusion.org/fi2020">FI2020</a> roundtable co-hosted with the Institute for International Finance (<a href="https://www.iif.com/">IIF</a>) this week, one of the themes that emerged was this difference between access and quality. You can give a person an account, but if the account sits unused, or if it serves the same function that a cash payment would serve, or if the owner of the account doesn’t even remember they have it, its use is minimal or even nil.

Instead of trying to fit people to existing products, financial inclusion has a responsibility to fit products to people’s needs. We have the tools to create products for the mother who wants to pay her child’s school fees without carrying a pile of cash to the school on the first day of the term, for the family who wants to create a new floor in their house but needs a loan, or for the older person who needs to receive her pension but cannot walk all the way to the post office to collect it. Financial inclusion is a vision for improved lives—and financial services are just a means to an end.

Getting back to the Findex, I was most excited this year by the question that started to address this “so what” issue of financial services. The questionnaire asks respondents, “Could you come up with [insert 1/20 of GNI per capita here] in the next month if you had to?” (In the US, 1/20 of GNI per capita is about $2,600 just to provide some perspective.) In developing countries, 26 percent of people reported they would be able to come up with the money from their own savings. But more than half of this group said that they do not save in a formal financial institution—and if they had the right product it is possible their answer wouldn’t be “no”. Now that we are well on our way to addressing the problem of lack of access to financial services, let’s start to turn the conversation to quality so that we can achieve not just access but full financial inclusion.

Have you read?

<a href="http://cfi-blog.org/2015/04/15/sixty-two-percent-of-the-world-is-banked-the-new-global-findex-finds/" target="_blank" rel="noopener">Sixty-Two Percent of the World Is Banked, the New Global Findex Finds</a>

<a href="http://cfi-blog.org/2015/04/21/global-leaders-issue-commitments-to-universal-financial-access-by-2020/">Global Leaders Issue Commitments to Universal Financial Access by 2020</a>

<a href="http://cfi-blog.org/2012/12/14/announcing-the-launch-of-the-global-financial-inclusion-global-findex-microdata/">Announcing the Launch of the Global Financial Inclusion (Global Findex) Microdata</a>

Financial Inclusion by 2020? It Depends.

Pensions and Retirement Saving

&gt; Posted by Paul Breloff and Jeff Bond, Accion Venture Lab

[getty src="53270050?et=_tSs6Bq9T9FSfNKHf337NA&amp;sig=3UViRGRb1qp_4H7OXpzAaUPJFhw_JiCZwp_orH3GGgA=" width="594" height="382"]

Remittances are big business. This year, customers will send <a href="http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief23.pdf">$454 billion</a> to developing countries through formal channels alone. Developing countries’ income from remittances is three times bigger than the global aid budget. If you exclude China, remittance flows even outweigh foreign direct investment.

However, remittance services have never been known for great customer experience. Here’s why:

First, they’re expensive. At the end of 2014, the global average cost of sending remittances was <a href="http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief23.pdf">just under 8 percent of the value sent</a>. For less popular remittance corridors, rates climb well into the double digits and can reach over 20 percent.

Second, they’re inconvenient. Coordination between senders/receivers, locating branches to send and receive cash, paperwork and red tape, and long lines – these and other factors often make the experience of sending remittances pretty miserable.

But the world is changing. A convergence of forces offers the opportunity to rethink the traditional remittance model, promising more money, time, and peace of mind for customers. What’s new?
 

<ul>
	<li>New technology. Cell phone penetration, mobile money, and the internet permit remote digital access to financial products in a way never before possible.</li>
	<li>New money. Cryptocurrencies like Bitcoin and related protocols like <a href="https://ripple.com/">Ripple</a> offer instant, point-to-point value transmission. This opens new possibilities for customers as well as alternative payment channels for providers, who have traditionally had to work through a highly intermediated correspondent bank network.</li>
	<li>New distribution. On the sending side, customers can manage transfers from their phone or PC without ever leaving their seats; on the receiving side, customers can have transfers land in mobile money accounts or as gift cards to be spent locally, as well as simply having their bills or purchases paid for directly. Cash is still important, but there are alternatives. Many recipients never need to actually hold currency in their hands.</li>
	<li>New players. The game is not dominated just by Western Union and Moneygram anymore. Incumbents are being challenged by a range of high-growth, well-funded new players, like <a href="http://www.xoom.com/">Xoom</a> (which went public in 2013), <a href="http://www.transferwise.com/">Transferwise</a>, <a href="http://www.worldremit.com/">WorldRemit</a>, <a href="http://www.azimo.com/">Azimo</a>, and others.</li>
</ul>
The opportunity to “disrupt remittances” has become fintech’s honey pot, luring entrepreneurs of all kinds to join the party and see if they can offer better pricing, better service, better experience, better everything. In the last couple of years we’ve learned about dozens of new entrants, including (alphabetically): <a href="http://www.goabra.com/">Abra</a>, <a href="http://www.bitpesa.co/">BitPesa</a>, <a href="http://www.bitx.co">BitX</a>, <a href="http://www.michapulin.com/">Chapulin</a>, <a href="http://www.hellobit.com/">Hellobit</a>, <a href="http://www.instarem.com/">Instarem</a>, <a href="http://www.isend.com/">iSend</a>, <a href="http://www.kipochi.com/">Kipochi</a>, <a href="http://www.kitiwa.com/">Kitiwa</a>, <a href="http://www.kwanji.com/">Kwanji</a>, <a href="http://www.kwikremit.com/">Kwikremit</a>, <a href="http://www.mergims.com/">Mergims</a>, <a href="http://www.getneema.com/">Neema</a>, <a href="http://www.niokobok.com/">Niokobok</a>, <a href="http://www.quippi.com/">Quippi</a>, <a href="http://www.regalii.com/">Regalii</a>, <a href="http://www.remit.ug/">Remit.ug</a>, <a href="http://www.remitix.com/">Remitix</a>, <a href="http://www.remitly.com/">Remitly</a>, <a href="http://www.saldo.mx/">Saldo.mx</a>, <a href="http://www.sikacash.com/">SikaCash</a>, <a href="http://www.simbapay.com/">SimbaPay</a>, <a href="http://www.tawipay.com/">Tawipay</a>, <a href="http://www.volabit.com/">Volabit</a>, <a href="http://www.sendwave.com/">Wave</a>, <a href="http://www.willstream.com">Willstream</a>. No doubt, there are others as well.

As investors, we’ve looked at dozens of pitch decks from these and other companies. Most of them start the same: “Western Union is gouging customers! Prices can be, will be lowered!” Yes, we agree – and most exciting, all of this promises benefits for the global poor and underserved (many of whom are active money transfer users), who will have options that are cheaper, better, faster, nicer, and more transparent.

But as investors, we’re finding it hard to back any of these opportunities – at least at the seed or startup stage.

Why?
<ul>
	<li>Remittance companies are all about trust; trust is all about brand; and brands are expensive. It’s not that remittances can’t be disrupted, but that’s already happening, with some very deep-pocketed challengers already out in the lead.</li>
	<li>Winning at remittances requires winning at customer acquisition: s/he with the customer wins. But at the startup stage, companies have very few customers and are not sufficiently established to allow an investor to determine who has legit customer acquisition prowess.</li>
	<li>A lower price is no longer a sustainable competitive advantage. Pricing is a race to the bottom. This is great for humanity, but bad for remittance companies who claim price as their primary differentiator. Startups may undercut traditional players now, but that’s probably not defensible long-term. An established player like Western Union can simply cut prices when specific markets, like the U.S. – Philippines corridor, grow crowded. The battle will likely be won on better customer experience, convenience, and brand – in addition to a great price.</li>
	<li>Cryptocurrencies like bitcoin may benefit the well-funded challengers more than startups. Traditional companies like Western Union and Moneygram may not easily figure out how to use these new currencies, given their legacy systems, but the more established among the newer players, like Transferwise, Xoom, and Azimo, are poised to take advantage of the cost and speed advantages of cryptocurrencies on the back-end, regardless of whether they choose to make them a direct part of the customer experience. Startups can do this too, of course, but we doubt a startup can create sustainable competitive differentiation on the use of cryptocurrencies alone.</li>
	<li>Similarly, user experience and design is very important, and we’re seeing great examples, but it’s not clear this can be a source of long-term competitive edge without brand and distribution.</li>
	<li>Finally, many of the strategies we’re seeing will be hard to scale (a pre-requisite in a high volume, low margin business like remittances):
<ul>
	<li>“Directed remittances” (e.g., remote bill pay, airtime purchasing, gift cards) may not get to scale quickly enough to result in viable businesses, because of reliance on local retailer, utility, and/or product distributor partnerships.</li>
	<li>Players focused on sending remittances to mobile money accounts will only be able to expand in those markets with robust mobile money ecosystems. However, few markets outside Kenya and Tanzania are ready for this, so scale will come slowly.</li>
	<li>Overall, remittance concepts with limited use cases or specialized corridors may never achieve escape velocity. The very things that make remittance startups valuable in specific markets make them less scalable and transferable: signing on local vendors, integrating with local partners, targeting local users or customers who are part of a specific diaspora. And nothing prevents competitors from doing the exact same thing.</li>
</ul>
</li>
</ul>
There will no doubt be some sizable winners in remittances – companies who break through the clutter and customers who benefit from superior products and lower prices. Capturing even a small slice of the remittance market could be very lucrative indeed. Ultimately, though, the winners will likely be the ones to break through on brand, customer acquisition (and how this compares to repeat usage and lifetime value), customer experience, and execution, not just price. These can be very hard to predict at a startup stage (when we at Venture Lab invest), before the real work has begun.

Paul Breloff and Jeff Bond work with <a href="https://www.accion.org/venturelab">Accion Venture Lab</a>, investing in innovative financial inclusion startups globally.

Have you read?

<a href="http://cfi-blog.org/2014/06/03/a-money-transfer-duopoly-that-fails-to-protect-clients/">Do African Remittances Services Providers Properly Protect Clients?</a>

<a href="http://cfi-blog.org/2014/05/07/walmart-joins-the-list-of-non-traditional-players-offering-remittances/">Walmart Joins the List of Non-Traditional Players Offering Remittances</a>

<a href="http://cfi-blog.org/2015/04/10/digital-financial-inclusion-in-india-taking-off-in-2015/">Digital Financial Inclusion in India - Taking off in 2015</a>

Picking Winners in the Great Remittance Disruption

Blockchain and Cryptocurrency

Mobile Banking

<img class="alignright wp-image-17429" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/02/cgdlogo.png?w=300" alt="" width="249" height="117" />&gt; Posted by Matt Collin, Research Fellow, the Center for Global Development

The following post was <a href="http://www.cgdev.org/blog/and-then-there-were-none-banks-are-de-banking-grand-scale" target="_blank">originally published</a> on the Center for Global Development blog.

In a few weeks’ time Australia’s Westpac bank will start closing down the accounts of money transfer organizations used by immigrants to send money home. Westpac is the last major Australian bank still offering services to organizations in the country’s US$25 billion remittance sector.

Two weeks ago, Merchant’s Bank of California also decided to close the accounts of all money transfer organizations (MTOs) sending money to Somalia. The source of Merchant’s decision appears to have been a <a href="http://www.occ.gov/static/enforcement-actions/ea2014-084.pdf">cease-and-desist order</a> issued by the Office of the Comptroller of Currency (OCC) in June, purportedly due to the bank’s failure to appropriately monitor the destination of remitted funds.

Unfortunately, we’re seeing a trend here. In 2013, Barclays’ closed the accounts of <a href="http://www.bailii.org/ew/cases/EWHC/Ch/2013/3379.html">nearly 90 percent</a> of its U.K.-based MTOs, despite being the last large bank in the country willing to do business with remitters. HSBC made the same decision the previous year, following a nearly US$2 billion penalty handed down by U.S. regulators.

Regulators gone wild

This 'de-banking' is a response to growing pressure from national and international regulators to comply with rules on anti-money laundering and combating the financing of terrorism (AML/CFT). Since 2010, the Financial Action Task Force (FATF) has placed 23 countries on its '<a href="http://en.wikipedia.org/wiki/FATF_blacklist">blacklist</a>' of nations seen as high risk for money laundering or terrorist financing, or as not doing enough to comply with international standards. That’s more than double the number from the previous five years.

Local regulators have responded by drastically increasing the fines they hand out. In the U.K. data shows the size of fines issued by the Financial Conduct Authority (formerly the FSA) skyrocketed in 2011, up to almost £10 million in some years. That might not seem like a lot of money, but it highlights a trend in which banks now increasingly run the risk of large penalties. Last year, South Africa’s Reserve Bank <a href="http://www.amlabc.com/aml-category/aml-sanctions-fines/south-africa-fines-top-four-banks-over-anti-money-laundering-controls/">fined its top four banks</a> approximately $10 million for AML violations. Just last week, the U.S. Financial Crimes Enforcement Network (FinCEN) handed down a $20 million fine to Oppenheimer &amp; Co. for similar problems with compliance.

To read the rest of this post, visit <a href="http://www.cgdev.org/blog/and-then-there-were-none-banks-are-de-banking-grand-scale" target="_blank">the Center for Global Development blog</a>. 

Have you read?

<a href="http://cfi-blog.org/2014/07/15/somalia-facing-drought-with-fewer-remittance-lifelines/" target="_blank">Somalia: Facing Drought with Fewer Remittance Lifelines</a>

<a href="http://cfi-blog.org/2014/06/03/a-money-transfer-duopoly-that-fails-to-protect-clients/" target="_blank">Do African Remittances Services Providers Properly Protect Clients?</a>

<a href="http://cfi-blog.org/2014/05/23/not-just-migrants-but-their-families-too/" target="_blank">Not Just Migrants, but Their Families Too</a>

And Then There Were None? Banks Are De-Banking on a Grand Scale

Australia

Somalia

United Kingdom

Policy, Regulation and Government Initiatives

<h4>The most exciting trends and startups in inclusive finance this year</h4>
&gt; Posted by Vikas Raj, Director of Investments, Accion Venture Lab

[getty src="179161271?et=SaXnrWglS9Z4A-d6AKfJDA&amp;sig=KQBmEgFacOXs27RHFvRrKGt2_1QabjRCyRuQRET5oOA=" width="640" height="399"]
There has been a lot of buzz in the financial technology (FinTech) space over the last several months, with a <a href="http://www.bloomberg.com/news/2014-12-10/lendingclub-poised-for-cash-infusion-of-its-own-to-fund-growth.html">high-profile IPO, several more apparently on the way</a>, and more and more venture funding flowing into FinTech startups. Bold ideas for financial services innovation are getting more visibility - just this month, Australian Wealth Index (AWI) listed the <a href="http://fintechinnovators.com/about-awi" target="_blank">50 Best FinTech Innovators</a>, and CFI’s Elisabeth Rhyne <a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/#more-16946" target="_blank">conveniently categorized</a> the list so it’s easy to see at a glance where the innovations are.
At <a href="https://www.accion.org/venturelab">Venture Lab</a>, we found the AWI list interesting but also felt it missed something significant: namely, that one of the biggest opportunities for FinTech is figuring out new solutions to include the billions of lower-income people who are today excluded from formal financial services. And it’s not charity that compels us to reach these customers – it’s good business. These customers represent a big market. In fact, they’re such a significant part of any emerging market’s customer base that any global providers with dreams of international expansion must cater to them if they want to succeed. 
It’s a particularly exciting time because the traditional bottlenecks to reaching these customers – the need for high-touch models and small value transactions, the need for cost-effective means of education and engagement – are exactly the kind of barriers that technological advances can help tackle. As Elisabeth Rhyne <a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/#more-16946" target="_blank">laid out</a> in her challenge recently, what about the “top 50 financial inclusion innovators?” What about the new business models and technologies that are impacting the underserved? 
At Venture Lab, we are focused on investing in businesses that are innovating in big ways to get consumers and small businesses a wider range of financial products and services, and therefore giving them the tools they need to manage and improve their lives. The breadth of this challenge is so large, and the ways to chip away at it so varied, that we don’t think it makes a lot of sense to try to force rank the “best” financial inclusion companies.
Instead, we lay out below some of the key groundbreaking trends we see in the financial inclusion space right now, and some of the seed stage companies that are leading the charge. This is by no means an exhaustive list – of trends, and especially not of companies. However, from our seat as seed stage investors, these are some of the most exciting things happening in financial inclusion right now.
Digital Remittances – Companies are figuring out new ways to send money across international borders, dramatically improving the value proposition to senders and recipients, using mobile wallets to get money directly into recipients’ pockets and cryptocurrencies to execute transactions faster and cheaper.
<ul>
	<li>Coins.ph (the Philippines) – A Bitcoin mobile wallet that cuts transaction costs for Filipinos working abroad and sending money home. Also offers direct ATM withdrawal via partnerships with banks as well as merchant integration for e-commerce.</li>
	<li class="List_0020Paragraph">SimbaPay (U.K.) – Mobile app that allows Kenyans abroad to deposit money into Kenyan bank accounts instantly.</li>
	<li class="List_0020Paragraph">Send WAVE (Kenya) – Cuts transaction costs for Kenyans via software that automates remittances, only charging a foreign exchange rate fee. Users can instantly send funds via a mobile application.</li>
	<li class="List_0020Paragraph">Hellobit (San Francisco) – Uses Bitcoin to cut transaction costs for remittances by allowing anyone with a mobile phone to act as Bitcoin exchanger or delivery agent.</li>
	<li class="List_0020Paragraph">BitPesa (Kenya) – Uses Bitcoin to cut transactions costs for Kenyans working abroad and sending money home.</li>
	<li class="List_0020Paragraph">Volabit (Mexico) - Uses a Bitcoin backend for consumers to send money, shop online, and invest in Bitcoins via peer to peer lending.</li>
</ul>
Marketplace Lending 2.0 – With the Lending Club IPO starting 2015 off with a bang, we expect businesses that build online platforms that stand between borrowers and lenders to continue to be a core innovation area in 2015, particularly as new business models leverage motivated alternative capital sources to serve specific customers sets (small business, customers working through credit issues) with more relevant products.
<ul>
	<li>LendStreet (U.S.) – Using marketplace lending capital to allow distressed borrowers to refinance their debt and rebuild their lives.</li>
	<li class="List_0020Paragraph">StreetShares (U.S.) – Connecting small businesses to marketplace lending-sourced capital, with a focus on veteran-owned businesses and investors.</li>
	<li class="List_0020Paragraph">Bolstr (U.S.) – Expansion capital for small businesses with a focus on community support – revenue share-based repayments.</li>
	<li class="List_0020Paragraph">Intoo (Brazil) – Receivables financing for small and medium-sized businesses through FIDCs and other alternative financers.</li>
</ul>
New Data for Credit Scoring – We are more excited than ever about companies that identify and exploit new or never-before-used data pools to enhance lenders’ decision-making and allow them to expand their loan books downmarket.
<ul>
	<li>First Access (East Africa) – Leveraging cell phone data to more reliably gauge credit risk for borrowers in informal markets.</li>
	<li class="List_0020Paragraph">Destacame (Chile) – Uses individuals’ utilities and cell phone data to create and manage alternative credit scores and influence current credit scoring models.</li>
	<li class="List_0020Paragraph">AIRE (U.K.) - Alternative credit score for consumers who have no existing credit data.</li>
	<li class="List_0020Paragraph">Kopo Kopo (East Africa) – Using mobile money merchant data to provide financing to merchants that fits within their cash flow cycles.</li>
</ul>
eCommerce Merchant Lending – This could be seen as a sub-set of the category above, but we are particularly excited about companies that partner with existing eCommerce sites to gather crucial data and provide loans and other financial services to online merchants.
<ul>
	<li>Lendingkart (India) – Partnering with India’s eCommerce players to provide unsecured term loans to online merchants.</li>
	<li class="List_0020Paragraph">Mr Presta (South America) – Partnering with the largest eCommerce players in Mexico and Argentina to lend to small and medium-sized online businesses.</li>
	<li class="List_0020Paragraph">NeoGrowth (India) – Financing via online partners based around merchant cash advance.</li>
</ul>
Customer Engagement – Finally, we love the new breed of companies that are allowing lenders, and others, to better engage with their customers by helping them to better understand products and giving them core insights about customer behavior and risk. These companies run the gamut between financial literacy and credit enhancement tools, but they are connected by their core innovation around bringing customers into the financial system by engaging directly in new ways.
<ul>
	<li>Juntos (Global) – Mobile-based personal finance tools for cash-based households.</li>
	<li class="List_0020Paragraph">Revolution Credit (U.S.) – Online courses and videos that allow consumers to increase financial IQ and access better financial products.</li>
</ul>
This is hardly a complete inventory of all the cool stuff happening, but certainly enough to get excited about.
Have you read?

<a href="http://cfi-blog.org/2014/10/30/fueling-the-economic-engine-global-experiments-in-small-enterprise-lending/" target="_blank">Fueling the Economic Engine: Global Experiments in Small Enterprise Lending</a>

<a href="http://cfi-blog.org/2014/12/05/the-role-of-peer-to-peer-lending-in-financial-inclusion/" target="_blank">The Role of Peer-to-Peer Lending in Financial Inclusion</a>

<a href="http://cfi-blog.org/2014/11/05/accion-venture-lab-responds-to-the-great-competition-and-innovation-deficit/" target="_blank">Accion Venture Lab Responds to 'The Great Competition and Innovation Deficit'</a>

Financial Inclusion Trends and Innovators – 2015

First Access

Kopo Kopo

Brazil

Chile

Kenya

Philippines

Sub-Saharan Africa

Data Analytics

&gt; Posted by Jeffrey Riecke, Communications Associate, CFI

<a href="http://www.afi-global.org/news/2014/7/21/international-leaders-highlight-financial-inclusions-role-sustaining-success-rwanda"><img class="aligncenter wp-image-15599" style="margin-top:5px;margin-bottom:5px;border:0 solid #ffffff" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/07/dsc08057.jpg" alt="" width="540" height="359" /></a>

Rwanda has a lot to celebrate in terms of financial inclusion these days. Last week in Kigali the National Bank of Rwanda (NBR) hosted a conference in partnership with the World Bank, the African Development Bank, and the Alliance for Financial Inclusion (AFI) commemorating their 50-year anniversary. At the event, titled <a href="http://www.afi-global.org/news/2014/7/21/international-leaders-highlight-financial-inclusions-role-sustaining-success-rwanda">Financial Inclusion for Inclusive Growth and Sustainable Development</a>, NBR Governor John Rwangombwa highlighted the country’s recent rise in access levels, from 48 to 72 percent between 2008 and 2012 across formal and informal providers. Rwanda now has the laudable goal of increasing this figure to 90 percent by 2020. To help it get there, on Friday the World Bank launched a <a href="http://www.worldbank.org/en/news/press-release/2014/07/18/world-bank-group-to-step-up-its-support-to-rwanda-financial-inclusion-goals">$2.25 million program</a> supporting key financial inclusion areas for the country.

Along with overall exclusion rates dropping from 52 to 28 percent over 2008 to 2012, formal services access increased from 21 to 42 percent during the same period, according to the <a href="http://www.afi-global.org/news/2013/3/04/national-bank-rwanda-makes-significant-progress-toward-maya-declaration-commitment">2012 FinScope Rwanda Survey</a>. The new government goal of 90 percent access by 2020 is an extension of the country’s Maya Declaration Commitment of 80 percent access by 2017. Rwanda’s growth in formal access can be attributed to products offered by both banks and non-bank providers, like the country’s community savings and credit cooperatives known as Umurenge SACCOs. Over the past three years, Umurenge SACCOs have attracted over <a href="http://www.afi-global.org/sites/default/files/publications/afi_case_study_rwanda_finalweb.pdf">1.6 million customers</a>. Ninety percent of Rwandans live within a 5 km radius of one of the cooperatives. Countrywide, the number of MFIs, including Umurenge SACCOs, increased from 125 to 491 between 2008 and December 2013. Elsewhere in the sector, over the last three years, the number of banks increased from 10 to 14, the number of insurance companies increased from 9 to 13, and the number of pension providers increased from 41 to 56.

The NBR conference highlighted the role that technology has played in reducing exclusion rates in Rwanda and elsewhere in East Africa. During the “Innovation, Technology, and Financial Inclusion” panel session, the Central Bank of Tanzania Governor Benno Ndulu cited how technology-enabled services models have halved exclusion rates in his country in just a few years. In the mobile money space, both Rwanda and Tanzania are prioritizing interoperability among providers (see <a href="http://www.theigc.org/sites/default/files/Argent%20et%20al%202013.pdf">here</a> and <a href="http://cfi-blog.org/2014/06/06/interoperability-agreement-signed-between-leading-tanzanian-mobile-money-providers/">here</a>). The two countries were the first in African to support <a href="http://techmoran.com/tigo-cash-launches-worlds-first-mobile-money-transfer-with-currency-conversion-between-rwanda-tanzania/">mobile money-based cross-border remittances</a>. Across the continent, Rwanda and Tanzania’s central banks and other AFI member institutions are part of the <a href="http://www.afi-global.org/african-mobile-phone-financial-services-policy-initiative-ampi">African Mobile Phone Financial Services Policy Initiative</a> (AMPI). The coalition serves as a platform for knowledge sharing and developing best practices and solutions for mobile money policy and legislative frameworks.

Other conference topics included the synergies and trade-offs of financial inclusion, financial stability, financial integrity, and financial consumer protection. The value of timely, accurate, and complete data for measuring and working towards poverty alleviation was also discussed, in a session that included leaders from MasterCard, CGAP, Innovations for Poverty Action, and the United Nations Capital Development Fund.

The World Bank’s newly-launched support for Rwanda is through the Financial Inclusion Support Framework (FISF) program. The program is aligned with the country’s financial inclusion agenda, targeting areas including MSME finance, client protection, financial literacy, payment systems, and financial infrastructure. Operating in close collaboration with inclusion stakeholders, the initiative aims to improve services access, usage, and quality, especially for lower-income and underserved rural populations. The scope of the work will entail technical assistance, advisory services, and capacity building for policy, regulation, and infrastructure development.

For a closer look at inclusion in the country, check out MIX’s <a href="http://maps.mixmarket.org/rwanda/">Rwanda Map of Financial Inclusion</a>.

Image credit: <a href="http://www.afi-global.org/news/2014/7/21/international-leaders-highlight-financial-inclusions-role-sustaining-success-rwanda" target="_blank">AFI</a>

Have you read?

<a href="http://cfi-blog.org/2013/12/18/elections-and-interruptions-financial-inclusion-strategy-pitfalls/" target="_blank">Elections and Interruptions: Financial Inclusion Strategy Pitfalls</a>

<a href="http://cfi-blog.org/2014/06/06/interoperability-agreement-signed-between-leading-tanzanian-mobile-money-providers/">Interoperability Agreement Signed Between Leading Tanzanian Mobile Money Providers</a>

<a href="http://cfi-blog.org/2013/05/10/untapped-potential-women-and-mobile-money/">Untapped Potential: Women and Mobile Money</a>

With 72 Percent of Population with Access, Rwanda Looks Toward 2020 for Next Inclusion Milestone

Mastercard

Regulators

Amee Parbhoo

Danielle Piskadlo

Leora Klapper

Rob Stevens

United Arab Emirates

Access Usage Gap

Appropriate Product Design and Delivery

Resilience

Article

As part of the <a href="https://globalfindex.worldbank.org/">World Bank’s Global Findex</a> team, I’ve gotten to see firsthand how far we’ve come on financial inclusion in the past decade. In just a few years, there’s been real progress around the globe: more than 1 billion previously excluded people have opened an account, giving them in a foothold in the formal economy.

But we have so much more work to do. Around the world, 3 billion people are still left out of or poorly served by the formal economy. The adults who remain unbanked will be much harder to reach than those who we’ve recently included.

Reaching them won’t be easy, but after researching this problem for years and speaking with individual clients around the world, it’s clear that there are some immediate next steps we can take to extend financial services to more people and businesses:
<ul>
 	<li>Prioritize smallholder farmers. Sustainable agribusiness supply chains hold massive potential for expanding account ownership. Globally, <a href="https://globalfindex.worldbank.org/">235 million unbanked farmers</a> receive agricultural payments in cash, including 115 million women. In Ethiopia alone, creating a digital agricultural payments system could cut the share of unbanked adults by up to 60 percent. By paying farmers via formal accounts, we create an ‘onramp’ to a wider array of financial services, including credit and insurance.</li>
 	<li>Make payments more affordable. The development advocate in me yearns for cheaper ways to send remittances. Every year, <a href="https://www.weforum.org/agenda/2018/06/migrants-remittance-global-economic-force/">migrants send home more money</a> to emerging markets than what governments spend on development aid. That money provides vital support, but it would go even further if remittances weren’t as expensive as they are today. On average, international remittances cost just under <a href="https://remittanceprices.worldbank.org/sites/default/files/rpw_report_sept_2018.pdf">7 percent</a> of the total amount being sent. And it’s banks that typically charge the most, with fees as high as ten percent. My colleagues at the World Bank estimate that, if we were to reduce the costs of sending remittances by 5 percentage points, workers would save up to $16 billion every year — that’s money that could go to children’s tuition, better food, or launching businesses. Moreover, by making payments more affordable, we incentivize more formal account usage.</li>
 	<li>Emphasize financial health. We need to tailor financial products to customers’ financial health needs. Ultimately, we’d like everyone to access and use financial services to meet their life goals, like paying for school, purchasing a home, or starting a business. But financial services should help people in the moment and assist them in overcoming immediate, everyday problems. For instance, unexpected and unaffordable car repairs could prevent employees from getting to work, ultimately causing them to lose their job. The possibility of that expense keeps people up at night. Financial inclusion should lead to financial security and happier lives — and financial health is one of the ways that we can create and measure inclusive products and services. Financial health, like physical health, considers someone’s overall well-being. Where is their money going? Are they saving enough? Do they have the knowledge and skills to manage their expenses, endure shocks, and seize opportunities? Developers and financial service providers should ask and answer those questions as they design new products.</li>
 	<li>Use behavioral economics. It’s not enough to have an account. To create a financially inclusive world and achieve our development goals, it’s important for people to use their accounts. In India, the data also show that half of all accounts have never been used for a single deposit or withdrawal. Our challenge is to design appropriate and affordable financial services to meet people’s needs, and for clients to use them over the long-run. Behavioral economics is one way to get there. Behavioral tools — reminders, nudges, auto-deposits from mobile wallets and bank accounts, and auto-enrollment in digital payroll tools — can be used to build products that help people meet their financial goals and encourage usage over the long term.</li>
</ul>

Four ways we can empower financially underserved people and businesses

Financial Inclusion Practitioner

Social Good

Despite the fact that they are wealthy and modern, cities like Dubai in the Gulf Cooperation Council (GCC) actually face a big financial inclusion challenge. There are 8 million foreign-born migrant workers in the United Arab Emirates (UAE) alone, making up some 88% of that country’s total population. These workers come primarily from India, Pakistan, Bangladesh, and the Philippines, and are mostly in low-paying jobs such as construction or domestic labor. Across the Gulf region, migrants have faced tough working conditions and have been historically ignored by financial institutions. They lack access to basic financial services, including bank accounts and fast, convenient remittance channels for sending money to their families back home.
This is where <a class="markup--anchor markup--p-anchor" href="http://nowmoney.me/" target="_blank" rel="noopener noreferrer">NOW Money</a>, <a class="markup--anchor markup--p-anchor" href="http://www.accion.org/uae-based-fintech-start-up-secures-700k-investment-to-advance-financial-services-access-for-underserved-migrant-workers/" target="_blank" rel="noopener noreferrer">Accion Venture Lab’s newest portfolio company</a>, comes in. NOW Money was founded in 2015 by Katharine Budd and Ian Dillon, who were inspired by the digital-only <a class="markup--anchor markup--p-anchor" href="http://www.businessinsider.com/the-digital-only-challenger-banks-explaine-2017-5" target="_blank" rel="noopener noreferrer">“challenger banks”</a> that had begun to emerge across the US and Europe. While the UAE has over 50 banks in operation, none of them are able to reach the country’s massive and underserved low-income migrant population effectively. NOW Money provides a suite of products to its customers: current accounts for depositing and withdrawing wages; debit cards for use at ATMs and for merchant transactions; and a marketplace of online remittance platforms for cheaper and more convenient money transfer services. By reducing the cost of customer acquisition and reaching a relatively untapped market, NOW is able to offer these services (and eventually others) and cost-effectively serve customers that would otherwise be considered unprofitable by traditional banks.
NOW partners and integrates with large employers to pay workers’ salaries directly into NOW Money accounts. The value proposition is strong for both end customers and employers. For customers, NOW offers a suite of products otherwise unavailable in the market. In particular, during our due diligence we saw customers incredibly excited about the digital interface for access to remittances. In the UAE today, some 95% of remittances are cash-based transactions. The workers we spoke with remit 60% or more of their wages to family members in their home countries, and typically have to take time off work, wait in long lines at remittance houses, and pay high fees in order to make these regular transactions.
For employers, NOW provides a less expensive solution for payroll. In addition, the employers we spoke with were motivated to give their employees the benefits NOW offers for both moral and economic reasons. Some employers see a spike in absenteeism the day after pay is disbursed, as employees go to remittance houses. Lastly, many employers, especially in more skilled and technical professions, value NOW as a way to increase employee retention.
Venture Lab is excited to be supporting the NOW Money team as they grow and scale. We invested in the company — our first in the GCC and one of the first early-stage VC deals in the region — for a number of reasons:

<ul class="postList">
 	<li class="graf graf--li">Clear social impact: The migrant population in the GCC is historically underserved by basic financial services. The wages these workers earn are low ($200–300 per month, depending on occupation). Due to banking standards in the UAE, it is very difficult and costly for a customer to open an account if they earn less than $1,300 per month, thereby excluding a vast majority of the migrant worker population.</li>
 	<li class="graf graf--li">Large market with unmet need: The UAE is the third largest market in the world for remittances, trailing only the US and Saudi Arabia. Across the GCC (UAE, Saudi Arabia, Bahrain, Kuwait, Qatar, and Oman), the total addressable market is some 25 million low-income migrant workers believed to be remitting about $50 billion annually. The remittance corridors used are some of the most active in the world, and NOW fills a crucial gap by providing customers ease of access and lower costs.</li>
 	<li class="graf graf--li">Innovative “neobank” model: Accion Venture Lab looks to support fintech companies that have innovative approaches to increasing access to and quality of financial services for underserved markets. We have been actively watching the digital-only neobank/challenger bank models around the world and are excited about NOW Money, our very first neobank investment. We’re thrilled to be part of NOW as it expands and aims to become the financial service platform of choice for migrant workers. As NOW truly owns the customer relationship, it will be able to provide incremental value to customers’ financial lives with each further partnership, beyond simply account access and low-cost remittance tools.</li>
 	<li class="graf graf--li">Opportunity to learn from new customers, market, and product: NOW Money would be a first for Venture Lab in a number of ways. Venture Lab has never invested in the Gulf region, and NOW Money could serve as a way to learn about this fast-growing region and its market dynamics. In addition, Venture Lab has investments reaching many kinds of underserved customers, but we have limited experience serving migrant workers, which is a huge market with demonstrated, specific, and relevant financial needs. NOW Money would help us better understand this vast and growing population of underserved customers.</li>
</ul>
As is the case for all of our seed investments, NOW Money is early in its journey, but as investors in the company and proponents of financial inclusion for underserved populations, we are excited about their progress so far and the company’s plans going forward.
<a class="markup--user markup--p-user" href="https://medium.com/u/c50787175cb7" target="_blank" rel="noopener noreferrer">Rob Stevens</a> contributed to this article.

Why Accion Venture Lab invested in NOW Money

<a href="https://www.antfin.com/index.htm?locale=en_US">Ant Financial</a>, the Chinese inclusive finance powerhouse founded by Alibaba Group, and <a href="http://www.euronetworldwide.com/our_company/businesses.cfm">Euronet Worldwide</a>, a U.S. giant in the money transfer game, are in a bidding war over <a href="https://secure.moneygram.com/">MoneyGram</a>. Financially, this makes sense as the global remittance market is estimated at about <a href="https://www.infosys.com/industries/cards-and-payments/resources/Documents/money-transfer-industry-2016.pdf">US$600B</a> and MoneyGram commands a market share of roughly <a href="http://ir.moneygram.com/releasedetail.cfm?releaseid=879586">13 percent</a> of the world’s largest remittance route, from the U.S. to Mexico.
<h2>MoneyGram and financial inclusion</h2>
When two large companies compete to acquire another large company you might <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">hear about it on CNN Money</a> and promptly move on to other thoughts. But this particular news struck me because it touches on three of the (many) insights about the future of financial inclusion that I took away from attending this year’s <a href="https://www.accion.org/hbs">Harvard Business School – Accion Program on Strategic Leadership in Inclusive Finance</a> just last month.
<h2>Big players</h2>
Big players will increasingly drive the financial inclusion sector moving forward while, in the past, only small companies served the financial needs of the low-end market. Microfinance has shown the poor to be a commercially viable customer segment, and as competition heats up, many big financial players are looking for ways to better tap into the commercial potential of new clients at the base of the pyramid. These big players have the deep pockets to innovate, experiment, and take the risks required to figure out how best to serve the billions of people still financially excluded. In addition to Alibaba’s Ant Financial, China’s WeChat, the social messaging app which connects over 800 million people, now <a href="http://onestop.globaltimes.cn/how-to-transfer-money-to-your-wechat-wallet-contacts/">allows for money transfers</a>.
<h2>Political interests</h2>
Political interests play a much bigger role in the financial inclusion industry than you might realize. This makes sense given that we are working at the nexus of finance and the poor. Still, I was surprised that almost every case we discussed at the HBS-Accion Program had an important regulatory angle which proved critical to the outcome. We discussed examples of regulation done well and also regulation gone wrong – with the latter often closely tied to political interference. The main takeaway was that regulators can best allow for innovation by setting out their desired outcomes and then taking a hands-off approach on how financial institutions get there. Most of the regulatory examples discussed at the HBS-Accion Program took place in developing markets, but their lessons hold true in the MoneyGram bidding war. In an era of “America First” rhetoric, there is <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">political resistance</a> to allowing Ant Financial, in which the Chinese government has a 15 percent stake, to buy MoneyGram. Members of Congress have <a href="http://money.cnn.com/2017/04/17/investing/moneygram-ant-financial-outbids-euronet/">spoken out</a> against the deal.
<h2>Data ownership</h2>
Data ownership was another hotly discussed issue at the HBS-Accion Program, and it may be an important reason for U.S. political concerns about a Chinese company owning a U.S. money transfer service. If Ant Financial were to buy MoneyGram, it’s reasonable to assume that the Chinese government would gain access to information on American consumers’ finances. At a minimum, such data has the potential to convey a competitive advantage. More broadly, data is increasingly seen as power.

In March, Euronet offered to buy MoneyGram for $1 billion, and last month Ant countered with $1.2 billion. MoneyGram’s board unanimously approved the new deal from Ant, but U.S. regulatory approval still needs to be secured, including from the Committee on Foreign Investment, which is tasked with vetting foreign investments into the U.S. and discerning how they might affect national security.

It may seem the MoneyGram bidding war is pretty far away from a week-long program focused on financial inclusion, but the HBS-Accion Program provides a new lens for analyzing some of the most pressing issues facing the financial inclusion industry. It provides an opportunity to take a step back from the day-to-day and think more strategically about industry trends. This year’s HBS-Accion Program brought together 71 executives and other leaders in financial inclusion from leading institutions spanning 30 countries to engage in interactive case studies and peer exchange. Learning from this group of peers and world-class facilitators proved immensely enriching.

How MoneyGram's bidding war affects financial inclusion