<em>This post was originally published on the FinDev Gateway <a href="https://www.findevgateway.org/blog">blog</a>.</em>

Last week the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign">Smart Campaign</a> launched new <a href="http://www.smartcampaign.org/storage/documents/Digital_Credit_Standards_June_2019.pdf">standards</a> and <a href="https://www.smartcampaign.org/storage/documents/2019_06_19_Principles_Guidelines_FINAL2.pdf">guidance</a> covering digital financial services, especially credit. This is a milestone for the Campaign, and a step forward for protecting consumers who are accessing financial services digitally for the first time. We would like the standards to be widely used to guide the practices of both fintechs and traditional financial service providers undergoing digital transformation.

Through the in-depth research, piloting and consultation to prepare these standards, we have developed an approach to consumer protection for digital credit that is in many ways familiar and in other ways brand new. The Client Protection Principles, from transparency to fair and respectful treatment, continue to be the bedrock on which the standards are based, and many of the original standards still apply with few or minor changes.

But there is also big news in these standards. They shift the emphasis in application of consumer protection from staff and operations toward product design and delivery. When services are delivered primarily through front line staff or loan officers, clients are protected by ensuring that staff are well-trained and properly incentivized. With digital services, the consumer experience is embedded in the design of the product and user interfaces – largely in advance. This is a profound shift. To ensure consumer protection, digital financial service providers will need to institute practices in the design process to confirm that consumer risks are mitigated. These practices are only now emerging in the sector.
<blockquote>There's big news in these standards: They shift emphasis in application of consumer protection from staff &amp; operations to product design &amp; delivery.</blockquote>
For example, we propose that to protect clients against over-indebtedness in digital lending, where predictive algorithms substitute for repayment capacity analysis, providers must regularly review the choices embedded in the algorithm and selection of data points (ex ante measures), and they must monitor results in the portfolio and directly with clients (ex post measures).

Similarly, there is a broad shift in emphasis from Client Protection Principle #5, Fair and Respectful Treatment, to an expanded Client Protection Principle #1, reformulated as Design of Products, Services and Delivery Channels. In non-digital models the standards around fair treatment focus on staff behavior toward clients, such as codes of conduct and sanctions for lapses. In the new standards, more attention is given to ensuring that the design process incorporates client input and that predatory or deceptive sales and marketing techniques are not programmed.

Another big change in the standards is the elaboration of the Privacy of Client data principle, which has been reformulated as Privacy, Security and Integrity of Client Data. When the Smart Campaign began, data privacy was often regarded as the least important of the principles, but today it is a major concern, as financial service providers and their partners have, use and share so much more client data. Many providers have not yet determined what privacy policies to follow or how to implement them. Informed consent is a starting point, as the standards state, but we are also looking at ways to bake privacy protections into design. As more data is manipulated, stored and moved from place to place, risks increase for data breaches and misuse, prompting us to also deepen attention to cybersecurity.
<blockquote>As more data is manipulated, stored and moved, risks increase for data breaches &amp; misuse, prompting us to deepen attention to cybersecurity.</blockquote>
A final noteworthy shift is the use of partnerships (including agents) to deliver products, which makes it harder to assign responsibility for client mistreatment. For example, an agent may be managed by a network operator while selling products of a bank or other financial service provider. When something goes amiss, it should be made clear who is responsible to make the client whole. The standards call on providers to discuss relevant practices with partners and secure agreement for partners to meet high standards, wherever possible.

As a first cut at a complete set of consumer protection standards for digital services, we recognize that these standards will need to continue to be tested and refined. An enormous thanks to the organizations who worked with us to develop the standards, particularly the <a href="http://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects</a> community of practice and <a href="https://www.mf-rating.com/">MFR</a> (formerly Microfinanza Rating), as well as to the many people who provided comments and critique. We continue to welcome your feedback. Meanwhile, we call on digital financial service providers around the world to apply the standards so that they and their consumers will face fewer risks and receive the value they seek from using financial services.

Consumer Protection in a Digital Age

The Smart Campaign

Consumer Protection

Responsible Digital Finance

Blog Post

Barres's questions that Libra's developers should consider when innovating for the new cryptocurrency are:
<ul>
 	<li>What would data privacy agreements look like if we wanted them to be understandable, fair and with an option to opt out?</li>
 	<li>How would algorithms that did not discriminate be set up?</li>
 	<li>How might fully transparent, low-cost and high-quality products and services that truly solve problems be brought to bear?</li>
</ul>
Read the <a href="https://www.euromoney.com/article/b1g0hvpnhqmyg0/cryptocurrency-facebook39s-libra-is-this-how-we-get-to-responsible-fintech">full article in Euromoney</a>.

In Euromoney: Smart Campaign's Isabelle Barres Poses Questions About Libra

Appropriate Product Design and Delivery

News

This week the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/">Smart Campaign</a> is celebrating its 10th anniversary year with a bang by releasing its new standards for digital financial services. These standards represent the opening of a new phase for Smart to meet the growing challenges of the digital age.

The Smart Campaign began in the context of the 2008 global financial crisis. The financial system, and indeed the world economy, had just been brought down by interlocking defects in the financial system, a chain of events triggered by reckless lending in the U.S. mortgage market. A parallel phenomenon was taking place in the microfinance market in countries as diverse as India, Nicaragua and Morocco, with fast growth and commercialization leading to widespread over-indebtedness among customers, and a resulting backlash in public opinion. Customers suffered and providers lost the trust they had enjoyed. No greater object lesson can be imagined for prompting a focus on <a href="https://www.centerforfinancialinclusion.org/topics/consumer-protection">consumer protection</a>.

Smart quickly became a vehicle for the growing community of financial service providers, investors, regulators and support organizations who wanted to embed consumer protections into the microfinance sector. With the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>, the community created a common language and, with detailed guidance, standards and tools, it improved consumer protection and built trust.

Over the past decade, Smart has expanded its reach into the broader financial inclusion sector, and now there are thousands of endorsers and networks of providers and practitioners around the world who are engaged in embedding client protection standards into their products and practices. Today, more than <a href="http://www.smartcampaign.org/certification/certified-organizations">115 financial service providers</a>, serving over 45 million customers, have been awarded the <a href="http://www.smartcampaign.org/certification/all-about-certification">Smart Certification</a> seal, which demonstrates their commitment to treat customers with fairness and respect. <a href="https://www.centerforfinancialinclusion.org/the-business-case-for-smart-certification">Investors have adopted</a> the standards in their due diligence and social impact assessments. Regulators in many countries rely on the principles and the Smart’s research to design policies that balance client risk with provider sustainability, taking the voices of both providers and clients into account. Smart has facilitated the collaboration needed to create a world in which clients can access financial services with confidence.

In recent years, Smart has examined the new risks emerging as financial inclusion goes digital. Digital financial services make access much more available and more convenient for many of the people who were previously excluded, but care is needed to get it right for the vulnerable. After much research and consultation, we've developed practical guidance and standards for digital providers.
<blockquote>After much research and consultation, we've developed practical guidance and standards for digital providers.</blockquote>
As we launch these new standards, we see some parallels with the situation ten years ago, though with different headline risks. In the mainstream economy, concerns over the <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-responds-to-the-zuckerberg-moment">rising power of “big tech”</a> and the appropriate use of personal data are causing widespread anxiety and mistrust. In the financial inclusion sector, data privacy and protection are also <a href="https://www.centerforfinancialinclusion.org/consumer-harm-from-data-breaches-is-a-black-box">central concerns</a>. The Smart Campaign standards address these concerns, as well as more traditional issues like over-indebtedness and transparency, which must be handled differently when digital interfaces replace face-to-face. Smart commends digital financial services for giving more people greater access to powerful financial tools. Our goal is to ensure that the digital revolution develops in a way that is healthy for customers and providers alike.

A heartfelt thank you goes out to all who have been part of this movement. We are thrilled to continue this journey together with many partners who are old friends and many more who are new ones. As we celebrate a decade of practical action to instill good practices, we ask stakeholders across the sector to join us in ensuring that the digital revolution builds trusting relationships and mutual benefits for customers and financial service providers well into the future.

<em>Stay tuned for an upcoming post on the launch of the digital standards, which will provide in-depth discussion of the new standards. For now, this <a href="https://www.centerforfinancialinclusion.org/help-us-shape-standards-for-responsible-digital-lending">post from the standards’ comment period</a> provides more detail on what these standards are.</em>

Smart Campaign’s Next 10 Years to Start With New Digital Standards

<a href="https://libra.org/en-US/">Libra</a>, a new digital currency backed by blockchain technology and introduced today by Facebook, has the potential to reach any consumer with a digital connection. It’s exciting news for the 3 billion people worldwide who are currently unserved or underserved by the world’s financial sector. In addition to leveraging connections between people already on the world’s largest social network, the platform will be leveraged by many innovators -- starting with an impressive <a href="https://mashable.com/article/facebook-libra/">array of founding members</a> -- enabling people across the globe to transact and access new products securely. While this represents a huge opportunity, there’s also a responsibility to ensure that access to the platform and new financial service customers’ data and funds be safeguarded.

The value proposition of a global payment infrastructure has been recognized before, with many innovators moving into this space to launch solutions tailored to the underserved. Yet, the potential scale of Libra, through familiar and popular platforms such as WhatsApp and those of other founding companies, is a potential game changer. Libra has the potential to add a streamlined payment feature in millions of people’s phones – without even requiring that they download a new app.

At the <a href="http://smartcampaign.org/">Smart Campaign</a>, we’re enthusiastic about the potential for partnerships and innovations through Libra, which will be governed by the independent, non-profit Libra Association. Vulnerable unbanked and underbanked populations still face challenges to access high-quality and trustworthy products. Libra will allow a wide range of innovators to develop creative solutions, backed by secure technology.

Ensuring the privacy and security of client data is at the core of building lasting trust in a digital world. Providers can strengthen their privacy and security practices by having:
<ul>
 	<li>Sound data collection and storage policies</li>
 	<li>Clear guidelines about when and with whom to share data</li>
 	<li>Informed consumers who have meaningful choices in regard to the handling of their data</li>
 	<li>Systems to detect and respond to fraud</li>
</ul>
Those are a few of the safeguards that the Smart Campaign promotes with providers and is helping providers to implement. Together, we can ensure that the products and services that are developed to use the Libra platform create trust and value for both providers and customers.

The <a href="https://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles">Client Protection Principles</a>, which form the cornerstone of the Smart Campaign’s work, provide a framework to anticipate and evaluate the consumer risks introduced by blockchain innovations. We look forward to working with innovators in the Libra community, as we have with our <a href="https://www.smartcampaign.org/about/fintech-protects-community-of-practice">Fintech Protects Community of Practice</a>. Similar to our work with Fintech Protects, we hope to promote greater awareness and consensus among Libra innovators on consumer risks in digital financial services and how to mitigate them.
<blockquote>We hope to promote greater awareness and consensus among Libra innovators on consumer risks in digital financial services and how to mitigate them.</blockquote>
There will be adoption challenges for any cryptocurrency among low-income consumers. Over a decade of learning about the needs of this customer segment has shown us that appropriate product design requires a feedback loop between consumers and those developing the products. We know that payments can be an on ramp to access, but that <a href="https://www.centerforfinancialinclusion.org/financial-inclusion-hype-vs-reality-deconstructing-the-2017-findex-results/">does not guarantee consumers will make meaningful use</a> of other core financial services, such as credit, savings, or insurance. Thinking through the last mile use cases for Libra, including cash out points and merchant transactions, will be key, as will anticipating the risks that can damage consumer trust. Our goal is to ensure that new financial products aren’t just exciting new innovations, but that they actually deliver quality, appropriate, fair and trusted services.

Libra: With Opportunity Comes Responsibility to Safeguard

Delivery Channels

Digital Financial Services

Payments

The <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign/">Smart Campaign</a>'s senior director discussed the motivation behind the survey and forthcoming report with <a href="https://www.newtimes.co.rw/"><em>The New Times</em></a>, a leading Rwandan news provider.

“We want all stakeholders to understand the actual experiences and concerns of the clients they are serving, protecting or advocating for, because there hasn't been a comprehensive survey underpinning the conduct of this digital financial service before,” <a href="https://content.centerforfinancialinclusion.org/people/alexandra-rizzi/">Rizzi</a> said.

Fraud was a "major problem" for about 40 percent of respondents (with 10 percent falling victim themselves), and while nearly 90 percent trust mobile money services, that trust extends to specific services, namely person-to-person (P2P) transfers. There are approximately 11 million mobile money users in Rwanda.

The report will be available for download on this site in the coming weeks. The results were discussed at a workshop of regulators in the Rwandan capital Kigali in March and will be discussed at the <a href="https://sptf.info/annual-meetings/2019-summit-inclusive-digital-future">Inclusive Digital Future Summit</a> in Nairobi in June 2019.

Read the<a href="https://www.newtimes.co.rw/business/mobile-money-services-enjoy-public-confidence-fraud-remains-threat-survey-reveals"> full article</a> and learn more about the <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voices Project</a>.

&nbsp;

&nbsp;

In The New Times: Smart Campaign's Alex Rizzi Interviewed About Client Voices Project Survey in Rwanda

Rwanda

Sub-Saharan Africa

Client Treatment

Enabling Environment

Fraud

This <a href="https://soundcloud.com/user-273615244/frt-episode-28-digital-customer-journey">episode</a> of the "FRT" podcast focuses on how digital customer journeys are enabling financial institutions to reach underserved segments in a sustainable manner. IIF’s Conan French host Rhyne and Amin Khairy to discuss the upcoming CFI-IIF paper “Charting the Customer Journey in the Digital Age.”

Rhyne discusses the persistent challenges for digital inclusion and the importance of having a “tech-touch” balance at certain stages of the customer journey.

They also discuss the potential gain in operational efficiencies for financial institutions and the positive impact digitization has on unbanked customers and provide real-life examples of digital customer journeys in various stages: pre-onboarding, onboarding and continued use.

"We're finding that the countries that are making it easy to onboard are those with a good national ID program," Rhyne said. "Having a very clear and simple to use national ID that's easily connected electronically is probably the most important thing."

Rhyne also notes that understanding the unique financial lives of lower income segments is crucial to digitization and different from transitioning banked populations from analog to digital.

Browse more <a href="https://www.iif.com/Innovation/FRT-Podcast">FRT podcast episodes</a>.

&nbsp;

IIF Podcast Features Elisabeth Rhyne Discussing the Digital Customer Journey

Human Centered Design

I remember a time, back in the 1990's, when almost everything in my life was computer-less. I didn’t use email or the internet and didn’t own a cell phone. Other than some government, education, medical and financial records that may have been stored electronically, I essentially had no digital footprint. That all changed in 1996 when I subscribed to dial-up internet.

Fast forward to 2019, and we now have the term “data exhaust” to describe how we are constantly generating new data about ourselves as we go about our daily lives. Data has become so fundamental to our existence that a growing number of people, including Satya Nadella and Tim Cook, CEOs of Microsoft and Apple, respectively, have been calling for data privacy to be treated as a human right. But despite all the attention data is getting, there’s tremendous confusion and uncertainty among consumers and businesses alike as to what to do about it.
<h2>Urgency to Act at a Fever Pitch</h2>
In terms of what this means for financial services, we at CFI are living the growing sense of urgency with respect to data use and protection, and we’ve been responding, most recently with the new draft <a href="https://www.centerforfinancialinclusion.org/help-us-shape-standards-for-responsible-digital-lending">standards on responsible digital credit</a> from CFI’s <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/the-smart-campaign">Smart Campaign</a>.

We’ve also begun to explore more ways in which we can better support financial service providers in getting data right. Last month, we partnered with <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab/">Accion Venture Lab</a>, which has also released a new <a href="https://www.accion.org/data-protection">data protection resource</a> targeted to fintechs, in a convening of about 30 stakeholders with a shared interest in this topic to consider the primary data protection issues financial service providers are grappling with and ways in which we can make progress.

Not surprisingly, there was an ample supply of challenges put forward on issues: from informed consent and data minimization, to regulatory complexity and the limited resources and expertise of smaller providers. There were no easy answers, but about halfway through the discussion, one participant said, “Maybe we need to bring it down a level to basic blocking and tackling. We can’t own the philosophical discussion.”

While the larger questions are important to consider, this served as a reminder that it’s easy to get swept away in the ocean of issues. So the best approach may be to look to players and solutions that already exist to help anchor our efforts around more practical steps.

What this means for us is that while new standards and resources are good first steps, they're stepping stones for establishing good practices and building trust between providers and clients. There’s a need for greater awareness and more concrete guidance and solutions through audiences that can help to maximize influence, such as boards, investors and regulators. Throughout the conversation, the ideas that emerged hinted at a two-part approach:
<ul>
 	<li>working at an ecosystem level to develop principles around data protection, and</li>
 	<li>seeking out existing organizations and resources in adjacent spaces that could be leveraged to develop more practical tools.</li>
</ul>
So how might we go about this? One path could be to try to work with larger technology players to develop high-level principles as a guiding framework. Whether or not there would be an appetite among larger technology players to collaborate on such an undertaking, principles need broad-based buy in to achieve scale.

Martin Tisne, Managing Director at <a href="https://luminategroup.com/about">Luminate</a>, recently made this point in “<a href="https://www.technologyreview.com/s/612588/its-time-for-a-bill-of-data-rights/">It’s Time for a Bill of Data Rights</a>,” published last December in <em>MIT Technology Review</em>. He discussed the importance of data rights, such as the right to be secure against unreasonable surveillance and the right to not be discriminated against. “The details should flow from basic principles, as with America’s existing Bill of Rights. Too often, attempts to enunciate such principles get bogged down in the weeds of things like ‘opt-in consent models,’ which may fast become outdated,” Tisne wrote.
<h2>From Frameworks to Specific Actions</h2>
As for specific actions, another path could be to scan the landscape for existing resources that could be adapted and applied in the financial inclusion space. Some specific organizations mentioned include the <a href="https://www.sifma.org/">Securities Industry and Financial Markets Association</a> (SIFMA) and the <a href="https://www.sei.cmu.edu/about/divisions/cert/">CERT Division</a> of the Software Engineering Institute at Carnegie Mellon. While they don't specifically focus on BOP markets, consulting with these organizations could serve as a good reference point for relevant data protection frameworks and policies, procedures and best practices. They could also provide listings of third parties that specialize in services around data privacy and security, such as audits, penetration testing and threat intelligence.
<blockquote>There’s a need for greater awareness and more concrete guidance and solutions.</blockquote>
CFI’s goal is not to become technical advisors, but rather to provide overall direction and practical tools that are tailored to smaller providers in geographies where assistance of this nature is harder to come by. Despite all the attention that the topic of data has been getting, the level of risks and uncertainties only continues to rise, especially for smaller providers. There's nothing more core to our purpose than to confront these types of emerging challenges head on. We did this in 2009 when we launched the Smart Campaign to take on consumer protection, and we see this new phenomenon of data as being just as pressing.

Please join us in our pursuit of getting data protection right. Leave a comment below and let’s get the discussion going on actionable best steps!

On Data, Let’s Anchor Ourselves in Practicality

You’re invited to join the Smart Campaign on Tuesday, February 26, at 11 am EST for a virtual event to discuss the newly released draft Consumer Protection Standards for Digital Credit. We’ll be talking with the Smart Campaign’s Global Director Isabelle Barres and Senior Director Alexandra Rizzi joined by Lucia Spaggiari, Chiara Pescatori, and Ben Wallingford of MFR about how the digital credit standards were developed and major updates in areas such as transparency, data privacy and security, and algorithm governance.

Based on the latest industry research, field assessments with digital lenders conducted by Smart and MFR, and discussions with the Fintech Protects Community of Practice, the draft standards consolidate what we have learned about good practices for responsible digital credit and provide a starting point for discussion.

This webinar is part of the six-week public comment period on the standards and serves as an opportunity for the industry to ask questions and provide feedback before the standards are finalized.

Webinar: Draft Digital Credit Standards

Webinar

More and more low-income customers around the world have access to digital loans that promise improvements to their lives. At the Smart Campaign, we believe that financial service providers and their customers can both benefit from transparency and fair treatment in financial services. Customers need to be confident that they can trust their provider and its products.

With an emerging consensus around the importance of responsible digital credit, demand is rising for a shared set of criteria to assess the practices of digital lenders. Investors and regulators want a way to evaluate consumer protection practices among the financial service providers they invest in or regulate. Digital financial service providers also want guidance to improve their practices and demonstrate that they are committed to putting responsible finance into action.

This is why the Smart Campaign has been working to develop a revised set of Client Protection Standards that address the risks involved in digital credit. Today we are releasing a set of draft standards that reflect input from consumers, researchers, financial service providers and on-the-ground testing.
<blockquote>We're releasing a set of draft standards that reflect input from consumers, researchers, financial service providers and on-the-ground testing.</blockquote>
To prepare these standards, the Smart Campaign has engaged in research to understand emerging risks to clients (see, for example, "<a href="https://www.centerforfinancialinclusion.org/smart-brief-tiny-loans-big-questions">Tiny Loans, Big Questions</a>") and mapped these risks to the Client Protection Principles through CFI Fellow John Owens’ work on <a href="https://www.centerforfinancialinclusion.org/responsible-digital-credit">responsible digital credit</a>. We have learned about the <a href="https://www.centerforfinancialinclusion.org/digital-finance-and-data-security-2">state of data security</a> through the work of CFI Fellow Patrick Traynor. In collaboration with <a href="https://www.mf-rating.com/2018/10/05/mfr-smart-campaign-and-fintech-protects-pilot-digital-client-protection-assessments/">MFR</a>, the Campaign has worked with providers, including <a href="https://www.centerforfinancialinclusion.org/building-trust-and-growing-digital-financial-services-a-look-at-jumo/">Jumo</a>, <a href="https://www.centerforfinancialinclusion.org/partnering-with-providers-to-set-dfs-standards-for-client-protection">4G Capital</a>, and <a href="https://www.centerforfinancialinclusion.org/app-based-lender-weighs-in-on-standards-for-responsible-digital-credit">Tala</a>, to conduct research and field assessments to ensure that the draft Client Protection Standards for Digital Credit would be practical. We have had extensive discussions with providers who are members of the Fintech Protects community of practice. We have benefitted from and built upon the high quality research produced by institutions including CGAP, GSMA, Microsave, Financial Sector Deepening, and the Better than Cash Alliance.

These draft standards consolidate what we have learned about good practices and where to set the bar. They provide a starting point for further inquiry and discussion across the industry.
<h2>Familiar and New Territory for Financial Consumer Protection</h2>
The Standards for Digital Credit are anchored in the <a href="http://smartcampaign.org/certification/4-demonstrate">Client Protection Principles</a> (CPPs) that serve as the north star of Smart Certification. We found that many of the standards already in place for traditional forms of lending apply equally to digital lending. In other cases, standards remain the same, but practices differ. For example, the principles of transparency have not changed, though in practice standards must be adapted to products that interface digitally with customers. For example, clients must be able to access terms of service agreements and receive provider notifications in a local language whether the channel is a loan officer, an app, or a chat bot.

More important changes involve areas at the heart of digital business models, notably data privacy, data protection and digital underwriting. The sections on these topics have been greatly enlarged, and we are especially eager to receive input on them. For these areas in particular, we recognize there is more to learn to <a href="https://news.un.org/en/story/2019/01/1031092">strike a balance</a> between the benefits and risks of new data-rich business models.
<h2>Comments Please!</h2>
Now, we’d like to hear from you, so we’ve opened this initiative to public comment.

Per <a href="https://www.isealalliance.org/credible-sustainability-standards/iseal-codes-good-practice">ISEAL’s Codes of Good Practice</a> on standard setting, we will collect feedback over the coming six weeks and incorporate these ideas into an updated set of standards. We will host a <a href="https://register.gotowebinar.com/register/8253670247853286401">public webinar</a> to discuss the standards and field questions on Tuesday, February 26, in addition to hosting a <a href="https://www.smartcampaign.org/about/evolution-of-standards/public-comment-2019">feedback form</a> on our website (see "How to Give Feedback" below).

As you comment on the new standards for digital credit, we ask you to approach them as a minimum viable product (MVP). In much in the same way as an MVP is the starting point for product testing, iteration, and improvement, so we expect to iterate these standards quickly to develop standards backed by industry consensus. We are also hopeful that during this public comment period providers will evaluate their own practices against these standards. We would love to hear the results, and we would be even more excited to hear if providers upgrade their policies and procedures to reflect the standards.
<blockquote>We’d like to hear from you, so we’ve opened this initiative to public comment.</blockquote>
Following the public comment period, we will revise the standards based on input received and integrate them into our Smart Certification program as a roadmap for digital lenders. Smart Certification has been a catalyst for improvement of consumer protection practices at more than 110 financial institutions, and we expect to offer <a href="https://www.smartcampaign.org/certification/2-assess">Smart Assessments</a> and <a href="http://smartcampaign.org/certification/all-about-certification">Smart Certification</a> to digital lenders shortly after revised standards are published (exact date TBD). To support providers to implement the standards, we will develop publicly available tools for providers, investors, and others, as well as products for more formal assessments offered through our expert network of trainers and certification bodies.

Ensuring trust in the next generation of digital financial services is an effort that involves all participants in the sector. We can all work together to ensure that clients remain at the center.

Help Us Shape Standards for Responsible Digital Lending

Consumer protection is essential for ensuring that financial inclusion works for consumers and results in a healthy sector. That’s why the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Global Microscope</a> includes indicators on the state of consumer protection regulation in its overall assessment of a country’s enabling environment. The <a href="https://www.smartcampaign.org/">Smart Campaign’s</a> expertise in consumer protection give its team an informed perspective on these issue. We sat down with Isabelle Barrès to get deeper perspectives on this relationship and her general reactions to the Microscope.
<h4>Did the Microscope reveal any surprises from a consumer protection perspective?</h4>
What stood out to me was the way consumer protection cuts across all of the domains in the Microscope framework. Indeed, while specific consumer protection and privacy regulations are key, as I look through the Microscope indicators, I’m struck by how nearly all of them contribute to minimizing consumer harm.

For instance, a favorable environment for consumer protection requires government and policy support and a solid infrastructure. Consumers stand a better chance of being protected if financial literacy programs enable them to make more informed choices and advocate for their rights. Thoughtful product design is critical to mitigate risks – for example in designing a loan product, it’s important to build in restrictions against excessive borrowing. The way agents and outlets are supervised can make a critical difference in the way clients are treated.

This 2018 Microscope has increased its weighting on cybersecurity one of the rising risks to consumers and the industry, which the Smart Campaign is tracking.
<h4>How do you get a robust regulating environment that doesn’t stand in the way of new players? Where’s the balance?</h4>
The Smart Campaign helped draft a <a href="https://responsiblefinancialinclusion.org/?page_id=2353">model legal framework</a> – a guideline for regulators – largely for this purpose. It builds on existing <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/28996/122011-PUBLIC-GoodPractices-WebFinal.pdf?sequence=1&amp;isAllowed=y">guidelines</a>, <a href="https://clmr.unsw.edu.au/sites/default/files/content_files/Regulatory_Diagnostic_Toolkit-June 2018.pdf">tools</a>, and <a href="https://www.itu.int/en/publications/Documents/tsb/2017-DFS-ConsumerExperienceProtection/mobile/index.html#p=1">recommendations</a>, and is drafted in a way that leaves room for regulators to factor in the level of competition in the market, the types of players, the level of maturity, prep regulation to support a balance between regulation and innovation. In developing standards for digital credit providers, we see a number of practices that, if we were looking at a traditional provider, we would have been very critical of (e.g., portfolio quality and pricing). While still very much focused on these issues, we recognize that many of these models are nascent and providers are still refining their models and need time to innovate and adapt. We are therefore providing space for early stage providers to innovate rather than have more stringent guidelines from the get go, as long as risks to clients are mitigated.
<h4>The Microscope states that, "in the best-performing countries, traditional consumer protections are coupled with data privacy and cybersecurity safeguards... strong performance on traditional consumer protection (countries that scored greater than 80) does not necessarily indicate that a country has a sufficient framework for digital consumer protection." What does this mean to you?</h4>
That means that countries have traditional consumer protections in place, but these are not sufficient to deal with newly arising risks. So just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.
<blockquote>Just because a country has a good consumer protection framework, doesn't mean it's up to date with the emerging digital risks.</blockquote>
The main adaptations that we see needed for an adequate framework for consumer protection in a digital world are the need to account for 1) the increased reliance on agent networks for sales and service; 2) the reliance on technology and technical interfaces and the client risks linked to data collection, use and storage; and 3) more complex value chains. These are taken into consideration in the current <a href="https://www.centerforfinancialinclusion.org/partnering-with-providers-to-set-dfs-standards-for-client-protection">update</a> to the Client Protection Standards for digital services.
<h4>Would the countries that have done well in traditional consumer protection be well positioned to adopt digital consumer protection?</h4>
In some ways, yes. Digital consumer protection builds off of traditional consumer protection. The “traditional” consumer protection dimensions (appropriate product and delivery design, prevention of over indebtedness, transparency, responsible pricing, fair treatment, recourse) are still relevant, with adaptations needed for the new risks that come with low touch/ high tech models. The biggest changes from the digital revolution that affect consumer protection are linked to data: data privacy, data security and data use, and the confluence of industries that used to work independently: technology and finance. While data privacy and protection was part of the traditional consumer protection, the extent to which the data protection frameworks need to be extended to cover consumer risks in a digital world is considerable. Countries that have strong data protection policies and enforcement (e.g., The Philippines, Colombia) are getting a head start to address consumer protection issues in a digital world.

The extent to which countries are well positioned to adopt digital consumer protection also depends on the extent to which they embrace innovation, the extent to which non financial digital providers can be integrated to the financial infrastructure, and the extent to which telcos and banking regulators cooperate. As highlighted by the Microscope, The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry. Their work under the <a href="https://www.r2accelerator.org/bsp/">R2A program</a> in developing and testing technology based solutions that can support good consumer protection is an interesting example to follow.
<blockquote>The Philippines is a good example of a country making headway in building an effective digital finance ecosystem and increasing the collaboration between regulators and industry.</blockquote>
<h4>Are there any country-level assessments that especially caught your attention?</h4>
For Cambodia, in terms of key barriers to financial inclusion, the Microscope authors worry about the expansion in the number of MFIs and MBIs, and it does reference the surge of refinanced loans. In our work, we’re seeing self-organization efforts in response to a surge of lending and a fear of over-indebtedness that has been well documented through <a href="https://mimosaindex.org/living-on-the-edge-is-it-worth-it/">Mimosa</a>. We see ongoing efforts from investors to share information on their portfolios. There are industry efforts in the form of lending guidelines that have started. It’s an example of an industry-based initiative that is complementing what regulators are doing.

Kenya is another example. The Microscope highlights the Consumer Protection Act, which aims to protect consumers from aggressive lending. Yet, regulations are not yet going far enough, because of the proliferation of digital lenders that aren’t regulated. It would be great if the Microscope analysis could dig deeper into the institutional landscape.

<em>Read the <a href="https://www.centerforfinancialinclusion.org/global-microscope-2018">Microscope</a> and let us know what you think!</em>

Digital Standards and Nascent Business Models: Smart Campaign Reacts to The Global Microscope

Global Microscope

Policy, Regulation and Government Initiatives

Coryell Stout

Portfolio Engagement Manager

Vikas Raj

Managing Director, Accion Venture Lab 

Alex Qian

Amee Parbhoo

Emma Morse

Megan Peterson

Michael Schlein

Pablo Anton-Diaz

Prateek Shrivastava

Rachel Morpeth

Radhika Shroff

Yanina Seltzer

Colombia

Dominican Republic

India

Kenya

Latin America and The Caribbean

Mexico

Myanmar

Netherlands

Nigeria

Spain

United States

Agricultural and Rural Finance

Banks

Behavioral Insights

Customer Centricity

Entrepreneurs of MSMEs

Financial Health

Financial Service Providers

Financial Technology

Fintechs

Human Touch

Impact Investing

Microfinance

Mobile Banking

MSME/SME Finance

Neobanks

Over-indebtedness

Personal Financial Management

Privacy

Resilience

Smallholder Farmers

Trends

Women

Article

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

Six vital trends changing the future of fintech

Pula

Tienda Pago

Toffee Insurance

Business Leader

Financial Service Provider

Impact Investor

Accion Venture Lab

At Accion Venture Lab, we work with fintech startups, most of them in emerging markets. The majority of their customers haven’t worked with any kind of financial service provider before, and so our portfolio companies are the first (and probably sole) holder of these individuals’ financial information. What’s more, many fintech startups have developed innovative ways to use alternative sources of data for determining customers’ creditworthiness, so in addition to records on assets, business revenues, and payment history, the company may also have mobile phone records, housing information, and so on.

In the rush of launching a new fintech, protecting client data may not be top of mind. But this data is both valuable and sensitive — and any fintech firm is only one data breach away from losing customer confidence. We advise our portfolio companies to take steps to safeguard their customers’ data sooner rather than later — and certainly before a crisis occurs. For inclusive fintechs, protecting customers is even more important because of the vulnerable populations they serve. For a smallholder farmer, microentrepreneur, or any other low-income individual, a data breach that drains a savings account, damages a credit score, or exposes confidential information is not just an annoyance — it can be an insurmountable setback.

So, where to begin? To help answer that question, we’ve developed a <a href="https://www.accion.org/data-protection">Data Protection resource</a> that will guide you through the process of assessing your company’s risks, understanding the various policies, protocols, and practices you can adopt to address those risks, and taking steps to implement a plan that fits your company’s needs.

We use the term “data protection,” as it encompasses both data privacy and data security. Data privacy focuses on which parties have authorized access to user data, and for what purpose. The data’s owner should always have control over what information is available and understand how it is to be used. On the other hand, data security relates to the systems in place to keep unauthorized entities from accessing and exploiting the data. So a complete data protection plan will cover everything from user transparency to technical solutions to regulatory compliance.

Our Data Protection resource contains not only a thorough explanation of how and why to put a data protection plan into place, but also an assessment to identify your company’s most urgent needs, a template to use in developing a data policy, options for taking this on in-house or hiring specialists to help, and much more. You’ll learn how often to update your plan, how to foster a staff-wide culture that supports data protection, ways to ensure your partners don’t expose you to vulnerability, and more.

And, if you do experience a data breach, the resource offers a response plan to help you identify the source of the problem, limit the damage, prevent it from happening again, and repair customer confidence.

If you’d like some extra help getting started with your data protection plan, join us for a <a href="https://register.gotowebinar.com/register/2335246549346892299">free webinar on July 30 from 9:30–10:30 am EDT</a>. We’ll walk through the resource and invite some of our portfolio company CTOs to share their experiences, discuss what they’ve learned about best practices, and answer your questions.

How startups can both empower customers and protect their data

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

<span style="font-weight: 400;">Andrew Murithi Karanja studied mechanical engineering but didn’t pursue it as a career. Instead, he found himself back on the land in central Kenya his father bought over 50 years ago. “Farming is deep in me because my parents were farmers. I just found myself in farming,” he says. However, even though he loved the land and his work, he found it hard to get ahead using the same skills his parents did. “Life was difficult,” he recalls. “I used inferior seeds, used less fertilizer. The yields were poor.”</span>

<span style="font-weight: 400;">That all changed when he signed up with </span><a href="https://apolloagriculture.com/"><span style="font-weight: 400;">Apollo Agriculture</span></a><span style="font-weight: 400;">, a Kenya-based fintech startup and Accion Venture Lab portfolio company that works with smallholder farmers like Andrew. Apollo helps farmers obtain the high-quality seeds and fertilizer they couldn’t afford before and also advises them on how to plant and tend the crops to maximize their yield. For Andrew, the results have been very positive. “They have taught me so much about farming,” he says. “We learned how to apply fertilizer, how to space maize, it has helped us.” He used to farm only an acre and a half of land, but with Apollo’s help, he is up to three acres and is confident he’ll soon be able to manage five. </span>

<span style="font-weight: 400;"><img class="wp-image-19105 alignleft" src="https://content.accion.org/wp-content/uploads/2019/07/Nakuru_0012-1024x684.jpg" alt="Andrew smiling outside of a home" width="500" height="334" />Andrew is so happy with his Apollo experience, he’s urged friends and neighbors to become customers as well. “People have learned about Apollo through me, especially my neighbors. They have seen how my farm is looking good, so I tell them about Apollo.” Now 58 years old, he plans to retire from farming in about a decade but thinks he might still want to keep working with Apollo. “I would like to retire. Then I can teach others about farming with Apollo. I cannot leave Apollo. I will continue to work with them,” he says. </span>

<span style="font-weight: 400;">Again, reflecting on his past struggles, Andrew says, “You would have pitied us if you saw us then. The futile labor of the past is gone. Apollo boosted me and helped me to see a ray of hope. Now I am proud to be with Apollo.”</span>

Learning new skills helped this longtime farmer thrive

Apollo Agriculture

Institutional Funder

Social Good

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

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

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

Angela came to Bogota as a refugee from Venezuela in 2016 and started selling freshly sourced fruits and vegetables. She’s an employee at Merqueya, a shop in the  <a href="https://www.plazadepaloquemao.com/">Paloquemao market</a> in Bogota, and when we met with her last month, she discussed how this income has helped her find stability and build a life in a new country.

We work with institutions around the world that help people like Angela achieve greater financial security and fulfill their ambitions by supporting the growth of micro and small businesses where they work. It is easier than ever before to serve more people, effectively, through the use of technology. For small businesses, digital financial tools can help them process more transactions and manage their operations, which makes it easier for them to grow and create jobs for people in their community.

At Accion, we see digital technology as a means to achieving greater financial inclusion because when everyone has the tools they need to support their businesses and their families, they’re able to cover their day-to-day needs and plan for a better future. While digitization is effective for bringing useful financial tools to more businesses and individuals, it’s crucial that these tools are designed responsibly to protect customers. The <a href="https://www.smartcampaign.org/">Smart Campaign</a>, which promotes customer protection in financial services, recently released for public comment <a href="https://www.smartcampaign.org/about/evolution-of-standards/public-comment-2019"><em>The Consumer Protection Standards for Digital Credit</em></a> to establish benchmarks and standards for digital lending. The standards address appropriate product design and delivery, prevention of overindebtedness, transparency, responsible pricing, fair and respectful treatment of clients, data privacy and security, and mechanisms for complaint resolution. Maintaining these principles is a core part of our work with partners.

On November 1, 2018, the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> and Accion <a href="https://www.accion.org/mastercard-and-accions-partnership-to-unlock-millions-of-underserved-microbusinesses">launched a global program</a> that will make it easier for 10 million clients, including 4 million merchants, to fully benefit from the digital economy. Stuck in the cash economy, people around the world rely on what’s in their pocket after a day of work or stashed under a mattress for emergencies. They have little access to tools to manage their daily expenses, grow their businesses, and plan for the future — and being invisible to the formal financial sector can make them vulnerable to predatory lenders. To make sure more individuals and businesses have useful financial tools that enable them to <em>run better, buy better, and sell better</em>, this project will digitally transform financial service providers and operationally strengthen fintechs.  By the end of 2020, we aim to be supporting up to 12 institutions across countries such as Bolivia, Ecuador, Colombia, Peru, Mexico, Nigeria, Egypt, South Africa, Pakistan, India, Myanmar, and Indonesia.

It is with great excitement that we announce the first three participating institutions: <a href="https://www.accionmfb.com/">Accion Microfinance Bank</a> in Nigeria, <a href="https://subk.co.in/">BASIX Sub-K iTransactions</a> in India, and <a href="https://www.civico.com/">CÍVICO</a> in Colombia and Mexico.

Helping small businesses and communities thrive with digital financial services

Accion Microfinance Bank

Civico

Sub-K

Mastercard

Accion Global Advisory Solutions

Accion Global Investments

If you’ve never used financial services in the past, you’re going to encounter a significant learning curve when you finally get access. That’s why more institutions are rolling out products to support first-time clients and equip them with actionable tips and tools to simplify their experience. These new services aren’t just good for customers, they’re good for business. By helping consumers attain the <a href="https://www.centerforfinancialinclusion.org/a-change-in-behavior-catalogue-of-innovations-in-financial-capability">knowledge, skills, attitudes, and behaviors</a> necessary to make sound financial decisions — what we call financial capability — customers can become more informed and engaged. In other words, they become better customers.

For any financial institution interested in increasing customer loyalty, building better financial capability is crucial.

<a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">As we work with MetLife Foundation</a> to expand financial capability through customer-centered innovations, we’re excited about the potential benefits for both customers and institutions. Here are four reasons why helping clients build their financial capability is a win-win:
<h3><strong>1. Financial capability drives active use of financial products </strong></h3>
Products that help increase financial capability, <a href="https://www.centerforfinancialinclusion.org/financial-capability-building-practices-in-mexico">drawing insight from behavioral science</a>, can encourage customers to use products more often, which translates to higher profitability for providers and greater usefulness to customers.

Take the case of <a href="https://www.grupobancolombia.com/wps/portal/personas/productos-servicios/cuentas/ahorro/transaccional/ahorro-a-la-mano"><em>Ahorro a la Mano</em></a><em>, </em>a mobile savings product and e-wallet from Bancolombia, the largest bank in Colombia. The bank discovered that if a customer does not make a transaction within the first month of opening the account, she is unlikely to make a transaction at all. It decided to use <a href="https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/nudge/">“nudges”</a> to remind users to put money into their savings.

Bancolombia worked with<a href="https://www.forbes.com/sites/petercohan/2011/06/01/juntos-finanzas-helps-latinos-save-plan/#3c0a808d5db3"> Juntos</a>, a fintech company that specializes in data science and behavioral insights. Juntos developed a chatbot named <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/IIF-CFI_FI-Fintech_Partnerships_Final.pdf">“Emilia,”</a>  that could point out opportunities to use the product and makes special offers to encourage transactions within the first month. Because they provide individually tailored messages in a friendly, personal voice, Emilia’s nudges and reminders build trust with clients, and they become more likely to act on her suggestions.
<h3><strong>2. Customer loyalty increases</strong></h3>
As customers use their products more frequently, they are likely to become more loyal. Most financial service providers’ balance sheets and product viability calculations do not figure long-term customer loyalty into their calculations, but customers that stick with a provider over time are important to business success.

In September 2017, BBVA launched <a href="https://www.bbva.com/en/bbva-opens-its-banking-app-in-spain-to-accounts-and-products-from-other-providers/"><em>Bconomy</em></a>, a digital platform meant to add value to the customer experience by giving them a full picture of their financial health. Fueled by data analytics, the platform uses behavioral insights to encourage positive behavior. Clients can see an overall snapshot of their finances, turning their bank accounts into financial management hubs. The tool ensures that customers continue returning to the platform and rely on BBVA as their primary financial provider. To date, the platform has had over <a href="https://www.centerforfinancialinclusion.org/banking-sector-approaches-to-customer-engagement-and-capability">2 million users per month.</a>
<h3><strong> 3. </strong><strong>Capable customers use more products</strong></h3>
Part of the accepted definition of financial capability is a person’s confidence in using a wide range of products to meet their financial needs. Savvy institutions that promote financial capability also build appropriate follow-on products for customers. Institutions that ignore this strategy may see their first-time customers move on to other providers as they become more comfortable with formal finance.

<a href="https://acreimex.com.mx/">Acreimex,</a> a savings and credit cooperative in Mexico, has incorporated savings into payroll loan repayments so that customers who opt in can save painlessly while they repay their loans. Savings discipline is a key attribute of financially capable people, and automated savings is a tool that assists people to stick to their best intentions. Acreimex built this option by combining its two most popular products. It merged its payroll loan and savings services by rounding up repayment installment amounts and automatically depositing the excess amount into clients’ savings.

The combination of products resulted in significant increases in savings activity and balances. An <a href="https://optixproject.org/acreimex/">evaluation</a> showed that participants made about twice as many deposits and saved 30 percent more than those who didn’t participate. Additionally, <a href="https://nextbillion.net/stealthy-saving-building-on-payroll-credit-to-automate-savings/">96 percent of savers chose not to withdraw</a> the balances from their accounts throughout a 12-month pilot.<strong> </strong>
<h3><strong>4. Investing in financial capability is more effective — and less expensive </strong></h3>
Traditional, classroom-based financial instruction is costly. Features that build financial capability are often cheaper and more effective because they generate direct and longer lasting behavior change.

When <a href="https://www.nefe.org/Portals/0/WhatWeProvide/PrimaryResearch/PDF/CU%20Final%20Report.pdf">researchers analyzed</a> more than 200 individual impact studies on financial education, they found that only 0.1 percent of the observed positive changes in people that had attended classroom-based financial education programs could be attributed to the programs themselves.

On the other hand, impact evaluations of financial products that incorporate behavioral insights to nudge client behavior consistently find statistically significant positive impacts. For example, in a study with <a href="http://www.bancoadopem.com.do/app/do/frontpage.aspx">Banco ADOPEM</a>, <a href="https://www.povertyactionlab.org/sites/default/files/publications/124_303%20Rules%20of%20Thumb%20AEJ%20Apr2014.pdf">researchers tracked customers</a> who attended either a traditional accounting-based financial education class or a class that, in keeping with behavioral insights, offered simple rules of thumb in accounting. Both classes aimed to assist customers to separate business and personal accounts. In the end, the customers who received the simplified rules of thumb displayed more positive business outcomes — they saw a 30 percent increase on average in the level of sales during weeks with typically low sales and saved an average of 6 percent more in personal savings.

More and more institutions are thoughtfully designing products and experiences that not only match their customers’ experiences and lives, but also consider their attitudes, skills, and behaviors. Financial institutions that invest in building up financial capability are likely ensuring they will have customers that are more active users of their products, that are loyal for longer, and that will use a wider variety of products.

<em>We’ll continue to share insights on financial capability based on research conducted by Accion’s Global Advisory Services team and the Center for Financial Inclusion as part of our project on </em><a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/"><em>Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</em></a><em>, supported by MetLife Foundation.</em>

Four reasons focusing on financial capability is good business

MetLife Foundation

Financial Inclusion Practitioner

Center for Financial Inclusion

In India, access to credit is crucial for lifting people out of poverty and offering them stability and a chance to thrive. Gowri Mukherjee, Rajasundaram Sudarshan, and Ranjit Punja spent years working in the financial sector before they came together to establish <a href="https://www.creditmantri.com/">CreditMantri</a>, one of our portfolio companies in India. They saw firsthand the challenges that many people face in accessing credit, and they also saw the opportunities that technology presented to transform the industry and provide everyone with high-quality financial tools.

These three co-founders share what inspired them to launch an inclusive fintech startup, and what keeps them going even on the hard days.
<h4>Gowri Mukherjee</h4>
<img class="alignleft wp-image-16796" src="https://content.accion.org/wp-content/uploads/2019/01/Lower-Res-51-of-236-1024x618.jpg" alt="Gowri Mukherjee" width="500" height="302" />

Gowri <a href="https://www.accion.org/gowri-mukherjee-of-creditmantri">co-founded CreditMantri</a> to help people learn about their credit scores and improve their financial health. “Seeing that many lack awareness of even what a credit report looks like, I felt there was a huge opportunity to make a difference,” says Gowri. CreditMantri uses an automated web platform and call center to help consumers easily access their credit reports, understand their credit scores, improve their creditworthiness, restructure outstanding debt, and get access to relevant products and services from lenders and financial institutions. With this accessible approach, CreditMantri has been able to serve more than 5 million customers. "For me, the most rewarding thing has been the number of users who've actually understood where they stand in terms of their credit profile,” says Gowri.
<h4>Ranjit Punja</h4>
<img class="alignleft wp-image-16797" src="https://content.accion.org/wp-content/uploads/2019/01/Lower-Res-52-of-236-1024x650.jpg" alt="Ranjit Punja" width="500" height="317" />

What’s it like co-founding a fintech startup? “The downs tend to be horrible, and the ups tend to be truly amazing,” says Ranjit. While being an entrepreneur isn’t always easy, CreditMantri’s mission makes even the tough days worth the effort for Ranjit. His decades of experience in the financial sector opened his eyes to the challenges customers face when trying to access funding. If someone has little to no formal history, or if they’ve made a credit mistake in their past, they can get locked out of the financial system and all of the opportunities that come with having access to high-quality financial tools.

At CreditMantri, Ranjit’s team strives to “help as many customers as we can as quickly as we can,” he says. By using an online platform, they’re able to reach customers all over the country. They can then quickly profile people and give them the right products tailored to their needs and abilities to manage credit. This efficiency helps them reach enough people so they can make a real impact in serving the tens of millions in India who’ve been financially excluded for too long.
<h4>Rajasundaram Sudarshan</h4>
<img class="alignleft wp-image-16798" src="https://content.accion.org/wp-content/uploads/2019/01/Lower-Res-59-of-236-1024x720.jpg" alt="Rajasundaram Sudarshan" width="500" height="351" />

While he was working in a previous job in credit collections, it became clear to Sudarshan that customers shouldn’t be perpetually punished for one mistake. “Every customer has a story — a reason why he had a credit challenge,” says Sudarshan. He thought that fintech could help provide a path back to good credit for these customers, so he co-founded CreditMantri. “The world is going digital — with mobile increasing by the day — and so is India,” Sudarshan explains. “Technology is going to lead the way in doing what we’re doing now.” He’s proud of what CreditMantri has accomplished so far in getting customers to understand their credit scores, take control of their finances, and learn to rebound from a bad credit history. “The journey has just begun,” he says. Now CreditMantri is ready to scale and reach more people, putting people on the path to better credit and giving a second chance to many in need.

Three founders share why they launched an inclusive fintech startup

CreditMantri

Inclusive fintech CEOs work in the most highly-regulated sector on earth. They have to hire talented teams, navigate opaque regulations, and work hard for funding. In addition to entrepreneurial challenges, they’re also trying to create impactful businesses that help build a financially inclusive world.

That doesn’t overwhelm the founder-CEOs that we work with. Being in a room with roughly 50 of the most innovative fintech CEOs and company leaders at the Inclusive Fintech CEO Forum in The Hague was absolutely thrilling: they’re all working on a common mission and trying to bring new financial tools to people who need them.

[caption id="attachment_18223" align="alignleft" width="500"]<img class="wp-image-18223" src="https://content.accion.org/wp-content/uploads/2019/04/FintechForInclusionGlobalSummit_2019_NicoAlsemgeest_0116-1-1024x708.jpg" alt="" width="500" height="346" /> <em>At the Inclusive Fintech Summit, leaders came together to discuss how we can drive financial inclusion.</em>[/caption]

Hosted by <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab">Accion Venture Lab</a>, <a href="https://quona.com/">Quona Capital</a>, and <a href="https://www.fmo.nl/">FMO</a>, the Forum allowed CEOs to learn from one another: whatever a CEO’s top problem was, someone else there had solved it, thought about it, or, at the least, could commiserate about it.

More often than not, their conversations returned to basic issues like hiring staff, creating an effective corporate culture, overcoming adversity, or engaging customers. These issues are more important today than ever before: by understanding peoples’ behavior, needs, and goals, we can use technology to provide more customers with better, faster, cheaper, and safer financial products and services. Knowing our customers is the only way to develop a scalable, sustainable, and impactful company — and building those companies is how we’ll create a financially inclusive world.

Our CEOs’ energy and passion were inspiring; I’m still impressed by some of the highlights from their conversations:
<h2><strong>It’s all about people – not technology </strong></h2>
Companies everywhere are wrestling with how to use technology to achieve scale and efficiency while meeting customers’ preferences for <a href="https://www.accion.org/does-human-touch-still-have-a-place-in-a-high-tech-world/">human touch</a>. Being well-informed about and responsive to your customers is the only way to come up with appropriate solutions:
<ul>
 	<li><strong>Technology is not the product. </strong>Instead, it’s a background layer that should enable product delivery. For financially underserved customers, the technology tends to work best when it automates internal operations in the background — not when it’s foregrounded as the product itself.</li>
 	<li><strong>Don’t assume. </strong>Talk to prospective clients first. What technology do they use? How do they use it? What are they willing to try?</li>
 	<li><strong>Shrink your time zones</strong>. Have your tech team near your customers so they can respond quickly. Create a feedback loop where both your tech team and customers inform one another.</li>
 	<li><strong>The more your team knows your clients, the better</strong>. Make sure your entire team knows who your customers are. Arrange client visits or allow back-office staff to join customer calls.</li>
</ul>
<h2><strong>Tips for hiring teams in emerging markets </strong></h2>
Hiring is the only challenge that gets more difficult with time: as roles become more complex and as an organization takes on more work, hiring the right candidates becomes harder and inhibits companies’ ability to scale.

This is a challenge for startups everywhere — but it’s particularly pronounced in emerging markets, where top talent can be difficult to recruit and retain. Here are some of the ways our CEOs address this:
<ul>
 	<li><strong>Always be recruiting</strong>. Extend your talent pipeline as far as it can go, because even if the seats aren’t open today, they will be soon.</li>
 	<li><strong>Treat recruiters as business partners</strong>. Ultimately, you’re both working to build a better organization.</li>
 	<li><strong>Value the right attitude and generalists over specialists</strong>. Specific skill requirements can change over time, so it’s better to get someone who can adapt to multiple future needs. And attitude should count as much as skills: <a href="https://news.harvard.edu/wp-content/uploads/2015/11/16-057_d45c0b4f-fa19-49de-8f1b-4b12fe054fea.pdf">Harvard Business School</a> found that avoiding toxic employees is worth twice as much as the returns that top workers produce. Toxic workers also diminish productivity and drive out other employees.</li>
</ul>
<h2><strong>Corporate culture results from CEOs’ choices and behavior</strong></h2>
[caption id="attachment_18217" align="alignright" width="500"]<img class=" wp-image-18217" src="https://content.accion.org/wp-content/uploads/2019/04/Fintech-For-Inclusion-Global-Summit-2-1-1024x678.jpg" alt="" width="500" height="331" /> <em>CEOs’ actions and choices have an outsized role in creating corporate culture.</em>[/caption]

High-performing organizations have great corporate culture: it gives them a competitive advantage.

CEOs’ actions and choices have an outsized role in creating corporate culture; the values they exhibit and the behaviors they reward shape an organization’s character:
<ul>
 	<li><strong>Explain what you believe. </strong>Every organization should explain its values in concise, memorable language. Those values should factor into hiring new employees or evaluating current employees.</li>
 	<li><strong>Cultivate psychological safety. </strong>The feeling that a team “is safe for risk-taking” was the biggest contributor in <a href="https://rework.withgoogle.com/print/guides/5721312655835136/">Google's</a> review of successful team dynamics. Psychologically safe teams brought in more revenue and were twice as effective as ‘unsafe’ teams.</li>
 	<li><strong>Develop <a href="https://www.accion.org/hiring-and-talent-employee-value-proposition">employee value propositions</a></strong>. These identify why a prospective employee should work for a given startup. They elevate the organization’s mission and explain how an employee could grow from their work at a particular company.</li>
</ul>
<h2><strong>How to help your team get through a crisis </strong></h2>
One session on overcoming adversity resonated with many in the room. Founder-CEOs routinely face any number of crises; professionally, there’s nothing harder than trying to lead your team through a major challenge.

But it’s something that every entrepreneur needs to be prepared for. And while there’s no one way to overcome adversity, CEOs did reflect on a few measures that helped:
<ul>
 	<li><strong>Keep the right people with you.</strong> Rely on the team you trust to help turn the ship around. Promote them if that’s what it takes to retain them.</li>
 	<li><strong>If bad news is coming, you want to be the one sharing it.</strong> Don’t let someone else tell your story. This is true for your investors, employees, and family.</li>
 	<li><strong>It’s important to be honest and transparent.</strong> In good times — and especially in bad times — let people know what’s really happening. That said, you don’t need to bring everyone through every twist and turn. Focus on the most important issues and communicate them well.</li>
 	<li><strong>Protect your health. </strong>Founders emphasized basic self-care, including exercise, sleep, cutting alcohol and sugar, and seeking advice from mentors.</li>
</ul>
By focusing on our users and understanding their needs, behaviors, and goals, we’re more likely to create valuable financial products and services. And by building teams that know their end-clients, founder-CEOs can create impactful and successful companies.

That’s easier said than done. But after meeting and speaking with so many extraordinary people who are all working so hard to pursue a common vision and change the world, I’m more optimistic than ever about our chances.

<em>Many thanks to CGAP, Catalyst Fund, Triodos, Citi Inclusive Finance, Mastercard Foundation, and Community Investment Management for helping to convene the Inclusive Fintech CEO Forum.</em>

The fintech event that puts people first

Fintech startups are often said to “disrupt” the financial services sector. Usually this is not because they have an entirely new financial product to offer, but instead, they have developed tech-assisted improvements on existing services. Even the most digitally-driven fintechs tend to retain some elements of human touch in their offerings, however, as consumers appreciate some familiarity and security as they begin to use more and more technology in their financial lives.

In our recent paper, <a href="https://www.accion.org/the-tech-touch-balance/">“The Tech Touch Balance: How the Best Fintech Startups Integrate Digital and Human Interaction to Accelerate Financial Inclusion,”</a> we showcase several fintech startups in the Accion Venture Lab portfolio that are finding an optimal balance between tech and human interaction, making their offerings accessible, affordable, and attractive to their target customers. While most of the companies profiled are located in developing countries, one, <a href="https://www.selflender.com/">Self Lender</a>, is in the United States.

Some 45 million Americans have “thin-file” credit, meaning they don’t have much credit history because they are newer to using credit or haven’t used it much. Another 50 million have damaged credit because of debts or other personal circumstances. Credit builder loans are an existing option to help people build or repair their credit scores, but have not been widely available or used. In a credit builder loan, a financial institution loans a client a sum of money, and the client’s repayment installments are deposited in a savings account. Over the term of the loan, if the client makes payments on time, this fact is reported to credit bureaus, boosting the client’s credit scores. When the loan is repaid, the client may access the money in the savings account. Self Lender, a fintech startup based in Austin, Texas, offers an online version of the credit builder loan, making it accessible across the country.

Americans are quite comfortable using computers, and many even have experience with online banking, so an online-only application makes sense for Self Lender. There are, however, call and chat functions applicants can use if they run into questions during the process.

Once the loan is approved, the relationship between Self Lender and the borrower is also highly automated: payments are made online, reminders are sent via email, account status can be tracked on the website. But Self Lender maintains a human feel to the relationship, such as by using names of real employees in the sender field of email messages, even though they are automated. Posts on social media and the website blog also allow Self Lender to share information about their services in a more approachable way.

For more examples of how fintech startups balance tech and touch as they develop their offerings, and general advice on these issues, read the full paper <a href="https://www.accion.org/the-tech-touch-balance">here</a>.

Using fintech with a human touch to improve credit scores in the US

self lender

Mastercard Foundation

The tech touch balance

For Daw Moe Moe, there’s no time to wait for the sun to rise before starting her day. Every morning, she’s up at 4 a.m. to cook breakfast for her family before taking the bus to the meat market, where she purchases fish and chicken to sell back at her shop. She raises pigs and runs a snack shop selling rice, sweet treats, and cooking oil in Hlegu Township, just north of Yangon, Myanmar´s former capital city. Her husband also works hard, earning 5,000 kyat (~US$ 3.30) per day driving a trishaw taxi.

Despite her long days of work, Daw Moe Moe didn’t have enough money to replace the dirt floor in her shop with something more durable. That’s why she turned to Accion portfolio company <a href="https://www.dawn.com.mm/">DAWN</a>. DAWN works across six regions of the country with small and medium business owners like Daw Moe Moe to make sure they have the tools they need to succeed. For many of these entrepreneurs, this is their first time interacting with a formal financial institution, so DAWN has to build trust with their customers. To this end, DAWN has focused efforts on creating strong relationships between its loan officers and mostly-women client base, and also providing educational support.

DAWN’s relationship-building and client education efforts are part of its client-centered approach — an approach that has guided its transition from a program in a nonprofit organization, to one of the leading microfinance companies in Myanmar. When designing and testing new products and services, DAWN takes care to consider the impact on clients and makes changes based on what will result in a positive experience for its customers.

<img class="alignleft wp-image-18094" src="https://content.accion.org/wp-content/uploads/2019/04/42A4694-1024x683.jpg" alt="Daw Moe Moe with her pigs" width="500" height="334" />For Daw Moe Moe, the positive impact of DAWN’s services was obvious as she showed us around her place — she has a new concrete floor, which funding from DAWN supported her to afford. “Before DAWN’s loan, we just had a dirt floor and it would get very muddy in the monsoon season,” she tells us. The loan came with terms that fit her needs, so she’s standing on solid ground, literally and financially. “We make enough from our shop to repay the installments on DAWN’s loan, and we have a much cleaner home and business.”

DAWN is working on even more ways to improve the experience for their customers. The institution is currently in the process of implementing a digital field application (DFA). It will streamline processes and allow it to capture more accurate and useful data, and to track social performance and client satisfaction. Technology has <a href="https://www.facebook.com/ACCION.International/videos/10155340951301136/">replaced the piles of paper and notebooks</a> DAWN previously used to track transactions. Paperwork that once took 4 hours now takes 20 minutes. This means spending less time at the branch, and more time supporting local women like Daw Moe Moe improve their businesses. Coupled with DAWN’s new partnership with Ongo, a leading mobile money service provider, cash management has become almost exclusively digitized. This makes work safer for DAWN’s employees, who no longer need to carry cash, and makes the loan repayment process more convenient for customers.

While digitization has been a powerful force for helping drive financial inclusion in Myanmar, DAWN is also mindful that many customers are not fully comfortable with new technology and financial products. To make sure all of its clients are set up for success, DAWN requires its group lending borrowers to attend three basic financial education sessions. To further support its clients, DAWN expects to include additional educational elements to address the digital financial service literacy gap.

There are more than 10 million people in Myanmar who don’t have the financial tools to support their families, manage their businesses, and seize opportunities to improve their lives. To chip away at this vast number, DAWN will continue to stay focused on what its customers need and grow to serve those who have been left behind for too long.

Daw Moe Moe needed solid ground to stand on

Dawn Microfinance

The real impact of financial inclusion

Last month, I had the privilege of chairing <a href="https://www.money2020.com/">Money20/20</a>’s first <a href="https://money2020us2018.sched.com/event/Fvl0/fintech-for-social-good-track-chairpersons-welcome">Fintech for Social Good track</a> <a href="https://vimeo.com/301069957">(video of my presentation can be found here)</a>. It was encouraging to see that the financial industry’s top thought leaders and disruptors recognize the crucial role fintech can play in building a better world. Currently, there are 3 billion people globally who have little to no access to financial tools that could improve their lives. But the reach of technology is outpacing the reach of financial services — mobile and internet access are streaming into communities that were previously left behind. Inclusive fintech can make a massive difference.

As I listened to speakers from every part of the industry, I was struck once again by how invaluable innovators are for making sure tech can reach its potential for social good. If technology is the key to unlocking financial inclusion, innovators are the ones with the power to turn the key. For fintech to make a real impact, we need innovators who are taking technology and actually making it work for low-income individuals and small businesses.
<h2><strong>Who will drive the fintech revolution?
</strong></h2>
<img class="alignleft size-large wp-image-16299" src="https://content.accion.org/wp-content/uploads/2018/11/m2020_platform_poll-1024x614.jpg" alt="Poll: Who will make the greatest impact in reaching the world's three billion financially underserved over the next 5 years?" width="1024" height="614" />

Innovators in inclusive fintech come in various forms. I took the opportunity to poll the Money20/20 audience to find out which players people expect to drive social impact.  I wasn’t surprised to see large tech platforms come out on top. One overriding theme throughout the day was that large tech platforms are best positioned to drive change in the industry — they have the infrastructure, access point, data, and strong brands on their side. We’ve already seen examples of this, such as how <a href="https://www.cnbc.com/2017/10/08/china-is-living-the-future-of-mobile-pay-right-now.html">WeChat and Ant have helped drive mobile money usage in China</a>. As the massive global tech platforms continue to establish their role as key — if not primary — players in the financial services space, I expect we will need to talk a lot more about how issues like privacy and data ownership inform the decisions those companies make. <a href="https://www.linkedin.com/pulse/future-money-devin-banerjee-cfa/">With great power comes great responsibility</a>.

Even as tech giants take the spotlight, it’s heartening to see that people surveyed still have high hopes for entrepreneurs and financial institutions to leverage fintech for social change. At <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab">Accion Venture Lab</a>, we’ve invested in nearly 40 early-stage fintech startups, so I may be biased when it comes to entrepreneurs and the power they have to make an impact — I’ve seen firsthand <a href="https://www.accion.org/series/fintech-founders/">what talented entrepreneurs can accomplish</a>. But I’ve also seen how critical it is for these entrepreneurs to<a href="https://www.accion.org/more-proof-that-fintechs-and-traditional-financial-institutions-work-better-together/"> partner with established banks</a>. I have no doubt that both parties will play a crucial role in building a better future for the world’s financially underserved.

When it comes down to it, it’s going to be a group effort to drive real social change. Disrupting and implementing fintech solutions takes a supportive enabling environment as well as innovators working in the trenches. To scale at a level to reach the vast underserved population, the entrepreneurs behind fintech solutions need capital from investors, but they also need a regulatory environment that welcomes innovation, and they need large players like banks, tech platforms, and payment companies as partners, infrastructure providers, and customers.
<h2><strong>What tech will make inclusion possible?</strong></h2>
<img class="alignleft size-large wp-image-16300" src="https://content.accion.org/wp-content/uploads/2018/11/m2020_tech_poll-1024x600.jpg" alt="Poll: What are of innovation will be the biggest driver for reaching the world's three billion financially underserved over the next 5 year?" width="1024" height="600" />

I also polled the audience about what standout tech innovation has the potential to really drive service to the world’s underserved, and it was clear that there’s still optimism that mobile money can provide the infrastructure for inclusion. We’ve certainly seen this ring true for the companies we work with. In Kenya, Apollo Agriculture <a href="https://www.accion.org/fintech-startup-revolutionizing-kenyan-agriculture">uses satellite data to provide farmers</a> with the inputs that they need to succeed, and their clients can easily pay for the service using mPesa. In India, <a href="https://www.accion.org/smartcoin-brings-financial-health-low-income-indians">Smartcoin operates their whole individual lending process</a> within their smartphone app, including collecting payments digitally using <a href="https://www.accion.org/upi-changing-financial-inclusion-india">UPI</a>.

Digital identity’s second-place finish is well-deserved. More than 1 billion people have no formal identity, and a lack of identification is a crucial factor that has prevented too many people from accessing financial services, so <a href="https://www.accion.org/digital-identity-and-financial-inclusion">digital identity opens new avenues</a> to allow people to prove who they are and receive financial services they were previously denied.

Perhaps one of the most exciting parts of the fintech revolution that’s currently underway is that there is still new tech waiting to be developed and new innovators ready to enter the ring and push it forward. We’ll continue to watch for the next innovations that expand access, improve quality, and ensure affordability of financial services for the underserved at scale.

Fintech players and platforms are driving real social good

SmartCoin

<a href="https://websummit.com/" target="_blank" rel="nofollow noopener">Web Summit</a> brought together leaders from across fintech, impact investing, and social enterprise to discuss how emerging technologies are reshaping the financial sector. But it’s clear that, though we have a number of <a href="https://www.accion.org/three-fintech-trends-that-will-reshape-social-impact-in-2019/" target="_blank" rel="nofollow noopener">new tools</a> at our disposal, to create a financially inclusive world, we first need to address a much older problem: trust.

Trust is vital in every aspect of financial services, but it’s most important of all in reaching the most vulnerable people in the world — three billion people left out of or poorly served by the formal financial sector.

[embed]https://www.youtube.com/watch?v=oLcNfjU7LfY[/embed]

My friend, Evelyn Stark from the MetLife Foundation made a helpful analogy. If your employer decided to pay you in Bitcoin, you’d have a lot of questions: how much is this going to cost me? Where can I buy groceries? How do I use it? Who else will use it? That’s what it feels like when we ask people to go from cash to digital. There is fear and uncertainty.

The world’s three billion financially underserved people are as invisible to the formal financial sector as it is to them: they don’t see it, use it, or benefit from it. And it would be no small thing for them to go from a cash-based, informal economy to a digitized, formal economy with mobile payments and e-receipts. The world’s financially underserved would have just as many questions about going from cash to digital as you would have going from dollars to cryptocurrency.

We have to prepare for this and launch products that build trust from the start. In some cases, that’s as simple as accounting for the technical realities underserved consumers often endure, including intermittent electricity, unreliable internet availability, and high costs for data plans. Creating well-designed products that don’t crash, work well, and simply do what users expect them to do is the first step in fostering trust.

But it’s just the first step. We’ll also need to continuously rethink how to balance ‘<a href="https://www.accion.org/does-human-touch-still-have-a-place-in-a-high-tech-world/" target="_blank" rel="nofollow noopener">tech and touch</a>’ to automate back-office operations and respond to users’ customer engagement preferences. And we also need to be aware of — and responsive to — growing concerns about data protection and privacy. Finally, we need to recognize that new consumers may not have the financial capability they need to prevent overindebtedness, and we'll need to communicate those risks clearly.

All of that begins with trust — with designing high-quality products that put our users first. Delivering those products demonstrates to new users that we understand them and can address their needs. It’s a fundamentally important first step we must take in order to help underserved people and businesses everywhere realize their economic potential.

Can the financially underserved trust fintech?

Kenya leads the world in mobile money as nearly three-quarters of adults have an account, and most of them are actively using those accounts. The growth of digital financial services in Kenya has ushered in significant opportunities and some challenges. As the chief operating officer for <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab">Accion Venture Lab</a> portfolio company, <a href="https://kopokopo.co.ke/">Kopo Kopo</a>, Peace Osangir has tackled these opportunities and challenges firsthand. Ahead of the panel at <a href="https://registration.european-microfinance-week.eu/ehome/emw2018/758262/">European Microfinance Week</a> (Nov. 14-16) on client protection and digital finance practices from Kenya, Peace answered our questions on her work in inclusive fintech for Kopo Kopo, client protection, and making sure small and medium businesses can benefit from Kenya’s mobile money revolution.
<h4><strong>Q: Before coming to Kopo Kopo, you worked in the formal financial sector. What led you to leave that space and come work for a startup serving the small business market?</strong></h4>
<strong>A:</strong> The startup environment provided the opportunity for creativity and innovation that sometimes may be lacking in a formal financial sector. The desire to demystify the challenges of extending credit to small business owners and the interest in testing the applicability of microlending models for individuals on businesses made the venture into the startup world intriguing.
<h4><strong>Q: Kenya is a model of success when it comes to digital financial inclusion. What lessons can other countries learn from Kenya about how to make the digital revolution in financial services work for everyone?</strong></h4>
<strong>A:</strong> The regulatory environment needs to be favorable to foster innovation and product enhancements in response to market needs.

Product access channel needs to be simple and available to a majority of the population. In Kenya, USSD is the most preferred channel to reach the greatest percentage of the population due to usability on both feature phones and smartphones.

The product design needs to be intuitive and solve a problem in the market.

Investment in brand building and adhering to service standards is critical in gaining the trust of the market and product adoption.

Cultural fit and cost are also key in driving product usage and growth in digital financial services.
<h4><strong>Q: How does the highly digital nature of Kenya’s financial system create unique challenges for client protection?</strong></h4>
<strong>A:</strong> Digitization has made it easier for customers to apply for a service or product without fully understanding the terms and conditions.

Customers are prone to defaulting on credit products due to the faceless nature of the lender, resulting in a high number of customers with adverse listing with the credit reference bureau.

Sharing of login credentials by less tech and information security savvy persons has increased the exposure of individuals and business to fraud.
<h4><strong>Q: What steps does Kopo Kopo take to ensure that its customers are protected?</strong></h4>
<strong>A:</strong> Kopo Kopo clearly displays the cost of each service to avoid any surprises. In addition, Kopo Kopo engages the customers in verbal conversations to gauge understanding of its terms and conditions of service.

Kopo Kopo also carefully handles customer data by employing high-level data security protocols.

Kopo Kopo also ensures that all customers are the actual business owner, verifies all instructions on account changes in order to minimize instances of fraud by rogue employees.

All changes to our terms of service are clearly communicated to the customer prior to implementation.
<h4><strong>Q: Kopo Kopo works specifically with small business owners. How has Kenya’s digital transformation in financial services affected this segment?</strong></h4>
<strong>A:</strong> Digital transformation has positively affected small business owners, and they are now able to build digital footprints of their business, thus making it possible for the small business owners to access value-add services such as loan and loyalty program.

Digital transformation has also increased the average spend size at business locations as the customer is not limited to cash on hand.
<h4><strong>Q: Are there different concerns about client protection serving the small business segment rather than individual consumers?
</strong></h4>
<strong>A:</strong> Yes, verification of Know Your Customer details is a bit challenging for small businesses compared to individual customers due to a lack of a centralized validation system. Small business owners are also prone to sharing business registration documents with friends and family, thus further complicating the authentication process.

Small business owners who are not technologically savvy may also share sensitive account management information with other persons to help with using the technology services. This practice makes the customer susceptible to fraud.
<h4><strong>Q: We’ve seen that </strong><strong><a href="https://www.accion.org/the-tech-touch-balance/">balancing technology with human interaction</a></strong><strong> can often create a better user experience for clients of inclusive fintechs. How does Kopo Kopo integrate human interactions to make the customer journey more accessible for its clients?</strong></h4>
<strong>A:</strong> Kopo Kopo has invested in a Merchant Engagement team that is solely focused on interacting with the customers in their first 180 days to ensure that they fully understand our products, services, and terms of service. In addition, we ensure that all Cash Advance applications are followed up with a phone call to gauge the merchant’s understanding of the credit terms prior to approval. Our dedicated in-house customer support team is always on standby to respond to merchants requests in the shortest time possible. Our goal is to always have an informed and empowered customer.

Insights from a Kenyan fintech leader

Kopo Kopo

Entrepreneur

Regulators

On International Women’s Day, at <a href="https://www.uschamberfoundation.org/event/international-womens-day-forum-2016"><em>The Business of Inclusion: Global Prosperity through Women and Girls Empowerment</em></a>, I had the opportunity to participate in a lively <a href="https://www.uschamberfoundation.org/event/international-womens-day-forum-2016">panel discussion</a> on ways to close the gender gap in financial inclusion globally. I was joined by two of our close partners and collaborators, JP Morgan Foundation and Citi Foundation, as well as BBVA Foundation, a microfinance investor and operator focused on Latin America, and McGraw Hill Finance, a content and analytics company serving the capital and commodity markets.

My conversations focused on the tools and tactics that help build inclusive solutions that create opportunities for women and girls around the world. Gender equality is good business – it is estimated that <a href="http://www.mckinsey.com/global-themes/employment-and-growth/how-advancing-womens-equality-can-add-12-trillion-to-global-growth">advancing women’s equality can add $12 trillion to the global economy</a>, but if the rate of change continues as it is today, it will take over 100 years for the inequality gap to close.

All of the panelists work in financial inclusion in some form, and our combined expertise resulted in a nuanced conversation on both the genesis of the persistent financial inclusion gender gap and ways to address some of the challenges.
<h2>Integrating client education</h2>
Financial education should be delivered in an integrated way – that is, bundled with the actual financial services and products being offered. BBVA Foundation does this in their microfinance institutions (MFIs) in Latin America and further leverages its financial services channels as a conduit to delivering other critical services, such as healthcare. Accion recognizes the importance of financial literacy in a number of ways, both for the purposes of consumer protection and asset building. Our “trainer of trainers” program, <a href="http://www.accion.org/content/accions-money-plan-financial-literacy-training-professionals-and-institutions">MoneyPlan</a>, helps low-income individuals in India learn about the tools they need to grow financially and ways in which they can avoid over-indebtedness and other risks.

Additionally, Accion’s partner IFMR Rural Channels serves “remote rural” clients in India with a “wealth management” approach. IFMR wealth managers go house-by-house throughout a village to first understand clients’ holistic financial situations. Only after assessing their unique needs to they offer products and services that fit individual needs, such as savings, insurance, pension plans, and others. All the while, clients learn from the manager about how to best use the services that best fit their life circumstances.
<h2>Influencing regulation</h2>
Restrictive <a href="http://smartcampaign.org/tools-a-resources/1049-model-law">regulation</a> often limits the capital available to financial intermediaries, which are in turn unable to reach more clients and work with clients perceived as more risky. Restrictive regulations can include limited access to capital, expansion constraints, capped interest rates, or deposit minimums.

Often, women clients exist at an institution’s “last mile” – they are often harder to reach than male clients, both literally and figuratively. Ironically, women are often the very clients MFIs need to reach since they are often shut out of the formal economy and are running small businesses from their homes. Those businesses exist to help families out of poverty, and the profits are likely invested in children’s’ education or the business itself. If due to systemic challenges, MFIs are restricted in expanding access, then this much-needed funding for growth will not be available in the very places where it is needed most.

<img class="alignnone size-full wp-image-6819" src="http://blogs.accion.org/wp-content/uploads/2016/04/rural-india-ifmr-accion-client-at-a-market-financial-inclusion_gender_gap_IWD_International_Womens_Day.jpg" alt="rural-india-ifmr-accion-client-at-a-market-financial-inclusion_gender_gap_IWD_International_Women's_Day" width="776" height="518" />
<h2>Making data available</h2>
Many of the world’s financially excluded people and their businesses don’t have traditional credit histories or formal transaction date. Within the world of finance, they are known as “<a href="http://www.accion.org/what-do-you-do-if-your-credit-score-is-zero/">thin file</a>” customers. As a result, they are seen as high-risk clients. Luckily, many fintech companies are focused on creative ways around this obstacle, such as Konfío in Mexico, which uses alternative data to predict credit-worthiness.

The US financial services industry, however, has shown some reluctance since the 2007 financial crisis to share data that could be critical to understanding the credit needs and potential repayment rates for typically underserved communities in the US. As an underserved population (in the US and elsewhere), this disproportionately affects women and women-owned businesses. Greater understanding of women’s most basic financial needs through access to appropriate data could be essential to providing women and their businesses with the financial products central to their success.
<h2>Opportunities and challenges of technology</h2>
Technology can be both an opportunity and a challenge when it comes to bridging the financial inclusion gender gap. The use of mobile technology in financial services, for example, has the potential to <a href="http://www.accion.org/fintech-in-myanmar-leapfrogging-to-mobile-money/">help clients “leapfrog”</a> the need to visit physical locations, but it's not a panacea. In some cases, the clients in question are not yet comfortable using phones to transact and still rely on the reliable model of in-person transactions with people they trust when dealing with their money.

In some nascent markets, such as Myanmar, <a href="http://www.mmtimes.com/index.php/business/technology/15514-myanmar-third-for-mobile-growth.html">mobile phone penetration rates have grown astronomically in a very short period of time</a> (SIM cards now cost $1.50 – <a href="http://www.bloomberg.com/bw/articles/2014-09-29/myanmar-opens-its-mobile-phone-market-cuing-carrier-frenzy">four years ago they were over $2,000</a>), making the country seemingly ripe for technology leapfrogging. Yet, women still gather weekly in groups to meet with loan officers, discuss their businesses and receive disbursements, and pay back loans of $50 to $100. Are these women ready to leave their support groups and loan officers in favor of transacting over their phones? While technology and digitization can be a way forward, the actual adoption of technology on a large scale has not yet happened in some places and models have not yet been proven.

In China, peer-to-peer lending (P2P) has <a href="http://www.accion.org/assessing-opportunities-within-the-dragons-den-chinas-internet-finance/">grown exponentially since 2012</a>, helping address a huge lending gap to individuals and small businesses. Unfortunately, P2P has since suffered from issues of fraud and is viewed as a potential systemic risk to the economy if China’s growth continues to slow down and people are unable to pay back their loans. Questions remain, however, on how fast can societies adapt, which models will succeed, and for some, is there a credible substitute for the human side of banking? Which technologies and business models will withstand credit cycles, be adopted by clients, and help reach the remaining 2 billion adults who do not have access to financial services, <a href="http://www.weforum.org/agenda/2015/09/why-are-women-in-developing-economies-excluded-from-banking">55 percent of whom are women</a>?

<img class="size-full wp-image-6820" src="http://blogs.accion.org/wp-content/uploads/2016/04/Daw_Myint_Han_Accion_Dawn_Myanmar_client_financial_inclusion_gender_gap_IWD_International_Womens_Day.jpg" alt="Adult, Female, Mother, Married, Fishmonger, Urban, Market, Mawlamyaing, Myanmar, DAWN Adult, Female, Mother, Married, Fishmonger, Urban, Market, Mawlamyaing, Myanmar, DAWN Adult, Female, Mother, Married, Fishmonger, Urban, Market, Mawlamyaing, Myanmar, DAWN Adult, Female, Mother, Married, Fishmonger, Urban, Market, Mawlamyaing, Myanmar, DAWN" width="802" height="535" />
<h2>All clients are not the same</h2>
Women are widely viewed as credit-worthy borrowers – as microfinance flourished worldwide over the last 30 years, women have generally proven to be <a href="http://www.microfinancegateway.org/sites/default/files/mfg-en-paper-women-and-repayment-in-microfinance-mar-2009_0.pdf">better borrowers than men</a>. In this context, “better borrowers” means that women are more likely to repay loans on time and use the money for productive purposes, such as investing in their businesses, their children’s education, and the family’s healthcare.

However, women are also seen as risk-averse, and perhaps don’t borrow enough to maximize growth for their business, increase returns, and build sustainable wealth. In many poor countries, <a href="http://www.microfinancegateway.org/sites/default/files/mfg-en-paper-women-and-repayment-in-microfinance-mar-2009_0.pdf">women continue to pay the same interest rates as less creditworthy borrowers.</a> In the US, we offer the best credit clients better pricing – in effect, passing along to the client some of the savings financial services companies gain in credit costs. This is the beauty of an effective, data-driven bank – unlike manufacturing companies that sell widgets, pricing can be tailored to client quality.

What if MFIs and other lending institutions were able to do the same thing in emerging markets? The best quality borrowers would have access to more capital at better rates, and lending institutions could retain these clients by recognizing their value. On the other end of the spectrum, variable pricing would allow lending institutions to offset the real or perceived risk of “thin file” clients with higher pricing.
<h2>Driving financial inclusion forward</h2>
It remains to be seen how today’s financial inclusion efforts will drive forward the actions and innovation needed to provide women with the financial services they need. The financial inclusion gender gap is about more than clients for MFIs and organizations like Accion. It is a fundamental discussion on opportunity and inclusiveness. <a href="http://www.mckinsey.com/global-themes/employment-and-growth/how-advancing-womens-equality-can-add-12-trillion-to-global-growth">Another 100 years to close the gap</a> is far too long and far too costly for the world economy. Integrating education, influencing regulation, tapping into technology and serving women where and how they need to be served are just a few of the initiatives that will help make full financial inclusion a reality.

<em>This post originally appeared on the <a href="https://www.uschamberfoundation.org/blog/post/understanding-financial-inclusion-gender-gap" target="_blank" rel="noopener">U.S. Chamber of Commerce Foundation blog</a>. </em>

Understanding the financial inclusion gender gap

IFMR

Konfio