Financial Inclusion Trends and Innovators – 2015

The most exciting trends and startups in inclusive finance this year

> Posted by Vikas Raj, Director of Investments, Accion Venture Lab

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There has been a lot of buzz in the financial technology (FinTech) space over the last several months, with a high-profile IPO, several more apparently on the way, and more and more venture funding flowing into FinTech startups. Bold ideas for financial services innovation are getting more visibility – just this month, Australian Wealth Index (AWI) listed the 50 Best FinTech Innovators, and CFI’s Elisabeth Rhyne conveniently categorized the list so it’s easy to see at a glance where the innovations are.

At Venture Lab, we found the AWI list interesting but also felt it missed something significant: namely, that one of the biggest opportunities for FinTech is figuring out new solutions to include the billions of lower-income people who are today excluded from formal financial services. And it’s not charity that compels us to reach these customers – it’s good business. These customers represent a big market. In fact, they’re such a significant part of any emerging market’s customer base that any global providers with dreams of international expansion must cater to them if they want to succeed.

It’s a particularly exciting time because the traditional bottlenecks to reaching these customers – the need for high-touch models and small value transactions, the need for cost-effective means of education and engagement – are exactly the kind of barriers that technological advances can help tackle. As Elisabeth Rhyne laid out in her challenge recently, what about the “top 50 financial inclusion innovators?” What about the new business models and technologies that are impacting the underserved? 

At Venture Lab, we are focused on investing in businesses that are innovating in big ways to get consumers and small businesses a wider range of financial products and services, and therefore giving them the tools they need to manage and improve their lives. The breadth of this challenge is so large, and the ways to chip away at it so varied, that we don’t think it makes a lot of sense to try to force rank the “best” financial inclusion companies.

Instead, we lay out below some of the key groundbreaking trends we see in the financial inclusion space right now, and some of the seed stage companies that are leading the charge. This is by no means an exhaustive list – of trends, and especially not of companies. However, from our seat as seed stage investors, these are some of the most exciting things happening in financial inclusion right now.

Digital Remittances – Companies are figuring out new ways to send money across international borders, dramatically improving the value proposition to senders and recipients, using mobile wallets to get money directly into recipients’ pockets and cryptocurrencies to execute transactions faster and cheaper.

  • (the Philippines) – A Bitcoin mobile wallet that cuts transaction costs for Filipinos working abroad and sending money home. Also offers direct ATM withdrawal via partnerships with banks as well as merchant integration for e-commerce.
  • SimbaPay (U.K.) – Mobile app that allows Kenyans abroad to deposit money into Kenyan bank accounts instantly.
  • Send WAVE (Kenya) – Cuts transaction costs for Kenyans via software that automates remittances, only charging a foreign exchange rate fee. Users can instantly send funds via a mobile application.
  • Hellobit (San Francisco) – Uses Bitcoin to cut transaction costs for remittances by allowing anyone with a mobile phone to act as Bitcoin exchanger or delivery agent.
  • BitPesa (Kenya) – Uses Bitcoin to cut transactions costs for Kenyans working abroad and sending money home.
  • Volabit (Mexico) – Uses a Bitcoin backend for consumers to send money, shop online, and invest in Bitcoins via peer to peer lending.

Marketplace Lending 2.0 – With the Lending Club IPO starting 2015 off with a bang, we expect businesses that build online platforms that stand between borrowers and lenders to continue to be a core innovation area in 2015, particularly as new business models leverage motivated alternative capital sources to serve specific customers sets (small business, customers working through credit issues) with more relevant products.

  • LendStreet (U.S.) – Using marketplace lending capital to allow distressed borrowers to refinance their debt and rebuild their lives.
  • StreetShares (U.S.) – Connecting small businesses to marketplace lending-sourced capital, with a focus on veteran-owned businesses and investors.
  • Bolstr (U.S.) – Expansion capital for small businesses with a focus on community support – revenue share-based repayments.
  • Intoo (Brazil) – Receivables financing for small and medium-sized businesses through FIDCs and other alternative financers.

New Data for Credit Scoring – We are more excited than ever about companies that identify and exploit new or never-before-used data pools to enhance lenders’ decision-making and allow them to expand their loan books downmarket.

  • First Access (East Africa) – Leveraging cell phone data to more reliably gauge credit risk for borrowers in informal markets.
  • Destacame (Chile) – Uses individuals’ utilities and cell phone data to create and manage alternative credit scores and influence current credit scoring models.
  • AIRE (U.K.) – Alternative credit score for consumers who have no existing credit data.
  • Kopo Kopo (East Africa) – Using mobile money merchant data to provide financing to merchants that fits within their cash flow cycles.

eCommerce Merchant Lending – This could be seen as a sub-set of the category above, but we are particularly excited about companies that partner with existing eCommerce sites to gather crucial data and provide loans and other financial services to online merchants.

  • Lendingkart (India) – Partnering with India’s eCommerce players to provide unsecured term loans to online merchants.
  • Mr Presta (South America) – Partnering with the largest eCommerce players in Mexico and Argentina to lend to small and medium-sized online businesses.
  • NeoGrowth (India) – Financing via online partners based around merchant cash advance.

Customer Engagement – Finally, we love the new breed of companies that are allowing lenders, and others, to better engage with their customers by helping them to better understand products and giving them core insights about customer behavior and risk. These companies run the gamut between financial literacy and credit enhancement tools, but they are connected by their core innovation around bringing customers into the financial system by engaging directly in new ways.

  • Juntos (Global) – Mobile-based personal finance tools for cash-based households.
  • Revolution Credit (U.S.) – Online courses and videos that allow consumers to increase financial IQ and access better financial products.

This is hardly a complete inventory of all the cool stuff happening, but certainly enough to get excited about.

Have you read?

Fueling the Economic Engine: Global Experiments in Small Enterprise Lending

The Role of Peer-to-Peer Lending in Financial Inclusion

Accion Venture Lab Responds to ‘The Great Competition and Innovation Deficit’