Associate Economist, Institute of International Finance

Ethan Loufield

Tess Johnson

Dennis Ferenzy

<p>This report is part of a two-year initiative, <a href="/about/what-we-do/mainstreaming-financial-inclusion-best-practices/">Mainstreaming Financial Inclusion: Best Practices</a>, to help advance efforts of financial institutions to reach customers at the base of the economic pyramid. This report was completed in partnership with the Institute of International Finance, and made possible with generous financial support from MetLife Foundation.</p>


More Mainstreaming Financial Inclusion Reports

New types of data and new data tools present an unprecedented opportunity for financial service providers to better understand and serve clients, especially credit-seeking “thin-file” clients who are otherwise excluded from the formal financial sector. 

Report

<h6>LEGACY AND NEW FINANCIAL SERVICE PROVIDERS HAVE A LOT TO GAIN FROM NEW DATA</h6>
<h3>The traditional boundaries separating players in adjacent industries are blurring, and the future market for financial services is up for grabs.</h3>
There are many internal and external challenges that providers must address for the promise of new data to be fully realized. From getting the right culture and technical talent in place to engaging with regulators and partners on data sharing and management, there are numerous obstacles to negotiate in capitalizing on the explosion of new data to reach underserved and unserved markets with new commercially viable solutions.

This report is intended to help mainstream financial institutions accelerate their efforts to confront these challenges and future-proof themselves for what the data revolution has in store, but may be useful to other financial service providers as well. However, this report is not an attempt to provide a “how-to” guide for navigating the various stages of the data value chain—there are too many contingencies to prescribe a “one-size-fits-all” solution. Instead, it is an effort to shed light on the potential of data to improve financial services for the underserved.

Accelerating Financial Inclusion with New Data

Sonja Kelly

Allyse McGrath

Webinar

Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships.

This webinar will explore how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets. It will share insights from a recent report from the Center for Financial Inclusion and the Institute of International Finance.

The report incorporates 24 in-depth interviews with people at the frontlines of this innovation and highlights 14 partnerships focused on financial inclusion that we think exemplify best-case scenarios and good practice.

Webinar: How Financial Institutions and Fintechs Are Partnering for Inclusion

Contrary to popular rhetoric, banks do not view fintechs primarily as competitors. Increasingly, they seek them as partners.

Blog Post

Contrary to popular rhetoric, banks do not view fintechs primarily as competitors. Increasingly, they seek them as partners. This is the message of <em><a href="http://bit.ly/2uWXvFQ">How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</a>—</em>a new joint report from the Center for Financial Inclusion at Accion (CFI) and the Institute of International Finance (IIF). The report, launched today, finds that banks, insurers and payment companies don’t see fintechs as “little more than pinpricks for a banking mastodon with trillions in assets,” as <em>The Economist</em> colorfully described the fintech-bank relationship in 2015. The relationships between these players are more symbiotic than combative, because fintechs and mainstream financial institutions bring different strengths. With partnerships, fintechs get to scale their technology and access capital, while financial institutions gain assistance to improve product offerings, increase efficiency, and lower costs.

As it turns out, these are all goals with special relevance to low-income customers who look for products and services that are more convenient, less expensive, and higher quality. That makes financial institution-fintech partnerships a crucial strategy for meeting the financial needs of the unbanked and underbanked around the world. During our in-depth interviews with over 30 industry participants, both mainstream financial institutions and fintechs, CFI and IIF identified dozens of effective bank-fintech partnerships working at the base of the pyramid in emerging markets. The report highlights 14 of them.

<img class="alignnone size-large wp-image-28688" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2017/07/Strengths-of-FI-and-Fintechs-1024x750.png" alt="" width="1024" height="750" />

&nbsp;

But partnering isn’t a slam dunk. Successful partnerships require financial institutions to get organized for innovation, as astute incumbents have already started to do, and that means changes to business as usual inside the large, complex systems that make up banking organizations. Banks have to create smooth pathways for identifying partners and moving partnerships through internal processes. Sometimes they must redesign their procurement decision-making, and nearly always there is a great focus on how to connect IT systems and the information they contain. While partnerships nearly always take longer than expected and require creativity and flexibility in implementation, they are mutually beneficial and enable both groups to accomplish more than they could on their own.

[caption id="attachment_23947" align="aligncenter" width="614"]<img class="wp-image-23947" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/20170726_142824.jpg" alt="Dennis Ferenzy presenting at the report launch event at MetLife offices in New York" width="614" height="183" /> Dennis Ferenzy, Associate Economist at IIF, presenting at the report launch event at MetLife offices in New York[/caption]

For example, though a partnership with BBVA Bancomer, fintech startup Juntos sends personalized SMS nudges to bank customers in Mexico (see figure below), helping new clients to get more out of their bank accounts and increasing account activity. A partnership between fintech Stellar and ICICI bank in India leverages a blockchain ledger and cryptocurrency to enable mobile wallet transactions. Imaginate’s virtual reality technology is being applied to MetLife India’s problem of overcrowded branches. Through partnerships like these, financial institutions gain access to new market segments; create new offerings for their existing customers; optimize data collection, analysis, and management; and deepen customer engagement and product usage. These collaborations are enabling new products and services for underserved customer segments around the world.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/asset-4.png"><img class="wp-image-23906" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/asset-4.png" alt="" width="614" height="460" /></a>

In most of these examples, banks are careful to keep fintechs at a distance from core activities, especially in the early stages. They maintain relationships with their customers, they protect customer and transaction data, and they continue to use traditional ways of assessing risk. Nevertheless, by structuring partnerships carefully, banks can conduct tests that will ultimately lead to revamping even these core activities as fintechs bring in new ways to leverage data, evaluate risk, and conduct relationships with customers.

[caption id="attachment_23949" align="aligncenter" width="614"]<img class="wp-image-23949" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/d715227.jpg" alt="Michael Schlein, CEO of Accion, speaking at the report launch event at MetLife offices in New York" width="614" height="411" /> Michael Schlein, CEO of Accion, speaking at the report launch event at MetLife offices in New York[/caption]

<a href="/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines-2/"><em>How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</em></a> takes a deep look at how financial institutions are organizing to take advantage of the great opportunity of collaborating with fintechs, and the challenges they face in doing so. The report’s in-depth case studies dive into the mechanics of 14 partnerships between fintechs and financial institutions, providing a glimpse into how the two groups are overcoming differences in style and substance to enable collaboration.

We encourage you to explore the report today and to share your own insights on the value of partnerships in financial inclusion.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/08/31/commercial-banks-are-partnering-with-fintechs-to-reach-the-unbanked/">Commercial Banks Are Partnering With Fintechs to Reach the Unbanked</a>

<a href="https://cfi-blog.org/2016/07/21/new-cfi-and-iif-report-reveals-banks-are-leading-financial-inclusion/">New CFI and IIF Report Reveals Banks Are Leading on Financial Inclusion</a>

<a href="https://cfi-blog.org/2016/09/08/the-new-wave-of-partnership-models-between-banks-and-fintech-startups/">The New Wave of Partnership Models Between Banks and Fintech Startups</a>

&nbsp;

&nbsp;

&nbsp;

&nbsp;

&nbsp;

How Financial Institutions and Fintechs Are Partnering for Inclusion

<p>AXA is partnering with MicroEnsure to extend insurance to new customer segments in emerging markets. Diamond Trust Bank and Kopo Kopo are partnering in Kenya and Uganda to serve retail merchants. Mastercard, Gridnod Bank and Net1 are partnering to reach unbanked social grant recipients in South Africa. Société Générale is partnering with TagPay to attract new customers with mobile-enabled banking products in Ivory Coast and Senegal.</p>


<p>ICICI Bank is partnering with Stellar to build a blockchain-enabled payments network for its customers in India and abroad. Stanbic Bank is partnering with DreamOval to offer a mobile payments platform for underbanked merchants in Ghana. Santander is partnering with PayKey on a peer-to-peer payments platform integrated into messaging applications such as WhatsApp and Facebook Messenger.</p>


<p>MicroBank is working with Entrepreneurial Finance Lab (EFL) to extend credit access to thin-file entrepreneurs in Spain. A major bank in the Philippines is partnering with DemystData to expand credit products to thin-file customers. Ujjivan is partnering with Artoo to reach underserved micro, small, and medium enterprises in India.</p>


<p>BBVA Bancomer in Mexico and Bancolombia in Colombia are partnering (separately) with Juntos, utilizing its automated SMS conversation service to increase customer engagement. PNB MetLife is partnering with Imaginate to provide a virtual branch experience for insurance policy holders in India.</p>


The Value of Partnerships

This panel discussion will explore how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets.

Panel Discussion

Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships.

This report examines how partnerships between mainstream financial institutions (e.g., banks, insurers, and payment companies) and fintechs are addressing financial inclusion challenges and expanding access to the formal financial economy for underserved segments of the global population, particularly in emerging markets. It incorporates insights from 24 in-depth interviews with people at the frontlines of this innovation and highlights 14 partnerships focused on financial inclusion that we think exemplify best-case scenarios and good practice. Contrary to the popular narrative, financial institutions view fintechs as partners in innovation, not threats to their core business. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institutions with help from fintech partnerships.
<h2>Major Findings</h2>
Mainstream financial institutions partner with fintechs to improve product offerings, increase efficiency, and lower costs – goals with special relevance to low-income customers. By partnering with mainstream financial institutions, fintechs get to scale their technology and can access capital to grow. As a result of these partnerships, low-income customers who are left out of – or poorly served by – the financial sector have greater access to higher quality, more convenient, and less expensive financial products and services.

To facilitate productive fintech partnerships, mainstream financial institutions are organizing internally for innovation, strategically integrating systems and staff, and developing contractual agreements to ensure stability and success. Fintech partnerships enable legacy institutions to engage with and learn from new technology in low-risk, low-cost ways. They are also key to allowing incumbents to compete in a world where alternative players, like Facebook and Amazon, are threatening the central role of financial institutions in the lives of customers. By offering better, less expensive, and more innovative products, financial institutions can assert their continued relevance as customer-facing institution.

One encouraging and somewhat unexpected finding is that the partnerships between financial institutions and fintechs represent a slow but pervasive financial industry shift toward customer-centricity. Better data management and use, new digital banking products, and greater customer engagement all enable better service for underserved customer segments.
<h2>Who Should Read This Report</h2>
The primary audiences for this report are those in mainstream financial institutions who want to know how their contemporaries are engaging with innovators to pursue financial inclusion, and those in fintech companies who want to understand the way banks are likely to approach them. In addition, venture capital firms, multilaterals, and industry associations have much to learn from this research about what drives banks to partner, what gets in the way, and what comes next.
<h2>Acknowledgements</h2>
This report is part of a two-year initiative, <a href="/about/what-we-do/mainstreaming-financial-inclusion-best-practices/">Mainstreaming Financial Inclusion: Best Practices,</a> to help advance efforts of financial institutions to reach customers at the base of the economic pyramid. The initiative and this report were made possible with support from <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>.

Dennis Ferenzy

Latest by Dennis Ferenzy

Stay informed. Subscribe to our newsletter.