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Fellow Exec Ed

Blog Post

Anand Giridharadas’s book Winners Take All: The Elite Charade of Changing the World has shaken up the philanthropy world this year; everyone is talking about his critique. I promised myself I would approach it with an open mind, but with its caustic title and subtitle, I figured I would be in constant rebuttal mode as I worked my way through it. However, Winners Take All was considerably more balanced and nuanced than I had expected. Despite some gaps and omissions that I will explore below, the author made some very important points that those of us in the philanthropy world need to come to grips with. To wit:
<ul>
 	<li>By adopting the language and mental models of business – e.g., optimization, profit as a proxy for effectiveness, quickly distilling “actionable” (and often relatively easy) steps to be taken when confronting a societal problem, and measuring everything – we have impoverished our ability to think about, talk about, and respond to societal problems.</li>
 	<li>Too often, those of us in the philanthropy world who are in a position to speak truth to power opt to play it safe by self-censoring (or “pulling our punches”). In other words, we sanitize how we describe societal problems, what and who caused them, and the best ways to solve them – in part to ensure that our organizations are funded and that we get invited back to the elite gatherings of the “do good” world. To take one example, we speak much more about growing economic opportunity, catalyzing entrepreneurship, and reducing poverty than about the alarming and accelerating increase in inequality.</li>
 	<li>This self-censorship causes us to avoid assigning blame to those people and institutions that play a role causing the problems all around us, or saying much of anything that would make the wealthy feel uncomfortable, much less culpable. We talk much more about so-called “win-win” strategies while neglecting trade-offs; we applaud clever solutions while sidelining difficult discussions of root causes and bad actors. If a solution doesn’t allow for elite “impact investors” to earn financial returns while doing good, it is somehow suspect.</li>
 	<li>Many very wealthy donors – convinced by their success in business that they know best how to solve society’s problems (despite having contributed to creating those problems in some cases) – have some problematic tendencies. For example, they regularly create their own philanthropic operating arms and think tanks that reflect their own biases and worldviews, leading to duplication of capacity and fragmentation. As a result, they often neglect to learn from and support experienced organizations with deep and longstanding ties to communities being impacted by major societal problems.</li>
 	<li>People who care about global issues often do so from a safe distance and don’t engage nearly enough with true experts, credible grassroots organizations, and impacted people. They would benefit not only from doing more of those three things, but also from getting involved as active volunteers, donors, and citizens in their local communities – engagement that could better ground their thinking and action and also serve as an important reality check for them.</li>
</ul>
<h2>Reflections of a Non-Profit Leader and Citizen</h2>
As I read the book, I reflected on my own experience as a nonprofit leader and citizen. In retrospect, there were times that I did pull my punches and avoid certain sensitive topics. At other times, I was willing to be a lonely voice speaking uncomfortable perspectives. One example of the latter was writing <a href="https://www.centerforfinancialinclusion.org/what-impact-investors-could-learn-from-microfinance">a blog post</a> about how the impact investing community should learn from the experience of the microfinance movement by, for example, more clearly acknowledging trade-offs between profit and social impact.

While Giridharadas tends to put people in either the “elite-friendly” or “speak truth to power” camps, my own experience – as well as those of the organizations and coalitions I have been part of – is much more complex. In failing to fully acknowledge this complexity, the author runs aground at times. He singles out the Clinton Global Initiative held in 2016 for criticism, some of which is deserved, but he fails to note that people such as Paul Farmer, not someone normally associated with punch pulling, spoke there with great passion and eloquence (which I <a href="https://twitter.com/AlexCounts/status/778614631334109184">tweeted</a> about at the time).

To take another example, some deep pocketed donors must be backing prominent activist (i.e., truth-speaking) organizations such as Greenpeace, Partners in Health, and Action Aid (to name a few). Yet the author spends little time exploring who those people are, what motivates them, and how they could be models for others whose natural tendency is towards incremental, win/win, overly clever, and reformist approaches.

Let’s take the microfinance movement as a case study. There are ample grounds to criticize it based in Giridharadas’ analysis. For example, global banks and financial institutions were rarely rebuked or even mildly challenged by name by microfinance supporters about their roles in financial exclusion or recent financial crises.

On the other hand, microfinance icon <a href="https://www.muhammadyunus.org/">Muhammad Yunus</a> has forcefully argued before all manner of convenings that the policies and practices of traditional banks has led to “financial apartheid” and that his own strategy in designing Grameen Bank was to observe how banks operated and then do exactly the opposite. Yunus has also called for making credit a human right and for rethinking the fundamentals of capitalism, which he says is in crisis in part due to growing inequality – which he rightly calls out as dangerous and unacceptable. The <a href="https://grameenfoundation.org/blog/microcredit-summit-campaign-legacy-impact-shoestring#.XVRCsVApBTY">Microcredit Summit Campaign</a> routinely amplified Yunus’s messages during its two decades as the largest and most inclusive forum for microfinance professionals, regulators, researchers, and activists.

Other microfinance leaders are usually more circumspect, but they have often made the point that their grassroots financial institutions survived recent financial crises better than more traditional banks due to their more realistic, more humane, and better-grounded underwriting policies. These are indirect but still powerful critiques of the status quo.

The book’s concluding recommendations are a mixed bag. The author argues strongly and effectively for systems change rather than nibbling around the edges of today’s big problems. He advocates for a democratic process leading to robust government regulation of wrongdoing companies through the messy and win/lose dynamic that politics often represents. In terms of a path forward, however, that’s about it.

Oddly, much of the book’s closing argument is articulated in the epilogue by Chiara Cordelli, an Italian political philosopher based at the University of Chicago, rather than by the author himself. Her judgements include this one: even people working hard (as volunteers or as professional staff) on innovative solutions to – or on alleviating the symptoms of – societal problems are still complicit with those problems unless they actively and contemporaneously work on “root causes” and “systems change” through the political system. I did not find this convincing, and regardless, I would have preferred it if Giridharadas had the final word.
<h2>An Agenda for Improving Philanthropy</h2>
While the case for more and better government action to address root causes is defensible and to some degree unarguable, it is woefully incomplete and in the short term, probably unrealistic. His singular focus on this response may limit his influence, and was unnecessary. Indeed, throughout the book, many solutions that are incremental and (yes) “actionable” are hinted at but are never fully explored. Taken together, I believe that they represent the core of a potent agenda for improving philanthropy. Five examples:
<ol>
 	<li>Taking a page from an underappreciated aspect of an earlier generation of philanthropists including John D. Rockefeller, billionaires should set philanthropy priorities but then delegate most grant-making decisions to a diverse group of technocrats and activists with relevant expertise.</li>
 	<li>Individual and institutional donors should give more support to groups with hard-earned expertise in attacking societal problems and with credibility among impacted populations. This should include these organizations’ advocacy work that is informed by their service delivery efforts. There should be less fad-driven funding of clever approaches dreamed up in Silicon Valley, and more risk-taking and delegation of priorities to credible organizations.</li>
 	<li>Similarly, more funding should go towards providing endowments for – and amplifying the messages of – true “public intellectuals” who feel no constraints when explaining the root causes of key societal problems, describing tradeoffs, and naming those who are worsening problems due to their inattention, wishful thinking, or excessive profiteering.</li>
 	<li>Philanthropy conferences and forums should include many more dissonant and activist voices on stage and in conference planning and more debates with multiple sides of key issues presented in civil but forceful ways that at times will make the elites in audience squirm. Especially in the major philanthropy conferences, set aside time to acknowledge trade-offs in areas where win-win solutions may not exist. Publish key themes from these private, invitation-only gatherings in order to solicit public comment which organizers can respond to in a variety of ways, including in how they plan future sessions.</li>
 	<li>Encourage more “globalists” – whether they be donors, thought leaders, conference planners or grant-seekers – to get involved in their local communities as engaged volunteers and citizens. Let their insights from those experiences inform their thinking and action in the public sphere. (For Americans wondering where to start, let me suggest the highly substantive, challenging and rewarding <a href="https://casaforchildren.org/">Court Appointed Special Advocate</a> program, as it has enriched and balanced my lifelong engagement in global social justice issues.)</li>
</ol>
Anand Giridharadas has, with his new book, made a forceful and often unexpectedly balanced contribution to the debates about philanthropy, impact investing, the privatization of societal problem solving, and the pitfalls of thought leadership. His central call to action for bringing about transformative change, while valid, strikes me as incomplete and perhaps unrealistic for the foreseeable future.

I wish he had given more thought to some of the powerful intermediate steps that can be taken in the direction of sparking a more realistic societal conversation about private philanthropy and the public good. Perhaps, if taken, they could even pave the way for some of the more profound changes that he believes are desperately needed.

Alex Counts: “Winners Take All” Is Forceful and Unexpectedly Balanced, but Lacking

As recently as 2011, more than <a href="https://globalfindex.worldbank.org/">2.5 billion adults globally</a> did not have a formal financial account. Since then, an astonishing 1.2 billion adults have obtained an account with a bank or mobile money service, representing great strides in escaping poverty and boosting prosperity. Progress has been most notable in <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/07/GSMA-Sub-Saharan-Africa-SOTIR-presentation.pdf">Sub-Saharan Africa</a>, where account ownership increased from 23 percent in 2011 to 43 percent in 2017. This great achievement can be attributed in large part to the incredible growth of mobile money.

Mobile money has emerged as the mainstay of financial inclusion in Sub-Saharan Africa. According to the latest <a href="https://globalfindex.worldbank.org/">Findex</a> report, the share of adults with a financial institution account (excluding mobile money) across Sub-Saharan Africa has risen by a modest four percentage points between 2014 and 2017, while the share with a mobile money account has grown twice as fast, increasing by nine percentage points. With 21 percent of adults in the region having a mobile money account, Sub-Saharan Africa is the global leader in the use of mobile money. This finding is confirmed by the GSMA’s own <a href="https://www.gsma.com/mobilemoneymetrics/">supply-side data on mobile money</a>, which shows that Sub-Saharan Africa <a href="https://www.gsma.com/mobilefordevelopment/africa/sub-saharan-africa-the-enduring-epicentre-of-mobile-money-part-1/">remains the epicenter</a> of mobile money.

What has underpinned this success? Regulation calibrated to enable low-cost services for the financially excluded has been crucial. In fact, we’ve found a clear correlation between countries in the region with high mobile money adoption rates and those with <a href="https://www.gsma.com/mobilefordevelopment/programme/mobile-money/introducing-the-mobile-money-regulatory-index-an-interactive-tool-to-measure-the-effectiveness-of-mobile-money-regulatory-frameworks/">more enabling regulatory environments</a>. Industry leaders in these markets adopted a myriad of strategies to drive adoption of mobile money services, but the successful strategies shared some fundamental business characteristics. The most foundational characteristic was investment in building a robust agent distribution network – a powerful model for extending the reach of financial services – which both disrupts and complements traditional “brick and mortar” banking. Mobile money agents across the region are more prevalent than any other channel, with approximately 60 agent outlets per 1,000 sq km, compared to only one bank branch and two ATMs in the same space.
<blockquote>Regulation calibrated to enable low-cost services for the financially excluded has been crucial.</blockquote>
Remarkably, and contrary to predictions, there has been a shift away from using cash toward digital payments. Across the region, people are increasingly using mobile money in diverse ways, extending beyond basic use cases such as person-to-person (P2P) transactions and airtime top ups. Today, millions of consumers are using mobile money in their daily activities: paying for children’s school fees, accessing loans to invest in their farming activities, saving for the financial future of their household, and mitigating financial risks and shocks. Innovative partnerships between mobile network operators and banks, MTOs, governments, and businesses have played a key role in digitizing payments and formalizing the economy across the region. Orange, for instance, has established partnerships with governments to offer a range of person-to-government (P2G) payments via mobile money across <a href="https://www.gsma.com/mobilefordevelopment/resources/championing-a-unified-digital-person-to-government-p2g-payments-strategy-lessons-from-orange-p2g-payments-in-africa/">five of its operations</a> in West and Central Africa (Senegal, Burkina Faso, Côte d’Ivoire, Cameroon and DRC). Another example is the partnership between PayPal and Safaricom, enabling users in Kenya to securely transfer funds between PayPal and M-Pesa.

Despite this progress, there is still a sizeable opportunity to further digitize the economy to drive efficiency and transparency, and to convert informal cash and non-financial assets into the formal financial system. This is where the shift towards a “<a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/02/Embracing-payments-as-a-platform-for-the-future-of-mobile-money.pdf">payments as a platform</a>” business model will have a demonstrable impact, not only in growing the ecosystem and incorporating more partners into the mobile money platform, but also in terms of deepening engagements with individuals and businesses. Industry-wide initiatives will also play a central role in driving the digitization of more complex use cases such as merchant payments and international remittances. <a href="https://www.gsma.com/mobilefordevelopment/uncategorized/unlocking-mobile-money-interoperability-and-merchant-payments-across-africa-through-mowali/">Mowali</a>, a joint venture between Orange Group and MTN Group to enable interoperable payments across the African continent, is a great example of industry collaboration enabling customers to seamlessly transact across borders.
<h2>Challenges Ahead</h2>
Sub-Saharan Africa has come a long way in the past decade, but there are still strides to be made in certain markers, and across the wider African continent. Africa’s three most populated countries, Nigeria, Ethiopia and Egypt – home to a combined adult population of over 242 million – have low rates of financial inclusion (below 40 percent) and limited availability of mobile money services. All three markets have had unfavorable conditions for mobile money uptake. We anticipate that recent reforms in these markets could spark a wave of adoption with the potential to unlock over 110 million new mobile money accounts in the next five years, offering a financial future to millions of previously financially excluded people.

Micro, small and medium-sized enterprises (MSMEs) play a major role in economic development across the region. According to the IFC, MSMEs account for roughly <a href="https://www.ifc.org/wps/wcm/connect/2c6289c3-df5e-4f90-b910-2a04e1000922/IFC+SME+Ventures+Final+low+res+30+Nov+2018.pdf?MOD=AJPERES&amp;CVID=mtQwg2S">90 percent of all businesses</a> across Sub-Saharan Africa, and contribute to 78 percent of the region’s employment. Despite this, financial institutions are not currently meeting the majority of MSMEs’ financial needs across the region. We see a huge opportunity for mobile money providers to bridge this gap and offer solutions that can help MSMEs with day-to-day management of their business and financing needs.
<blockquote>Mobile money providers can offer solutions to help MSMEs with day-to-day management of business and financing needs.</blockquote>
Over the course of the next decade, a dramatic rise in mobile internet usage and smartphone adoption is expected in Sub-Saharan Africa. This growth, alongside the shift to “payments as a platform” model, will empower millions of young entrepreneurs, innovators and small businesses to maximize new income generation opportunities and gain new skills. Increased access to financial services is a cornerstone of prosperity, and the future for financial inclusion in Sub-Saharan Africa holds much promise.

Learn more by checking out GSMA's <a href="https://www.gsma.com/mobilefordevelopment/wp-content/uploads/2019/07/GSMA-Sub-Saharan-Africa-SOTIR-presentation.pdf">State of the Mobile Money Industry in Sub-Saharan Africa</a> presentation.

Sub-Saharan Africa Mobile Money: Diverse Use Cases, Enabling Environment Boost Adoption

This year’s Financial Inclusion Week is a chance for our industry to reflect on the purpose and impacts of our work as an industry. At CFI, we're observing trends that make us believe this an important time to reflect on these issues, which is why we’ve chosen the theme “Financial Inclusion: For What?”.

As we described throughout our <a href="https://www.centerforfinancialinclusion.org/program_teams/mainstreaming-financial-inclusion">Mainstreaming Financial Inclusion</a> series, the digital revolution is fundamentally altering how traditional financial service providers and innovative fintechs interact with each other and how they recruit, onboard, serve, and retain customers. The potential opportunities are limitless, but the move to digital also exposes low-income households to new and poorly understood risks.

Simultaneously, the scope of the financial inclusion industry has widened dramatically. Attention and investment once given almost entirely to microcredit is now being shared with cash transfer, savings, and insurance services, and these products are being offered through increasingly dynamic platforms. When used well, the financial ecosystem can be staggeringly important, delivering digital payments to health workers combating Ebola, facilitating life-saving G2P and P2P cash transfers, or providing working capital to small businesses at critical moments. When it works less well, we read about Kenyans racking up unpaid gambling debts financed through mobile money-delivered nano loans.

Financial Inclusion Week is an opportunity to explore this dynamism while reflecting and refocusing our goals as an industry. Why are those of us in this space engaging in this important work? How do our goals inform our perspective on these and other trends? What does it mean if we’re working to different or competing aims? How should we think about success, and what is necessary to ensure we achieve it?
<blockquote>During Financial Inclusion Week events, four possible answers to the question “Financial Inclusion: For What?” will be in focus.</blockquote>
From October 21 to 25, 2019, CFI and partner institutions will be hosting digital and in-person events to explore these questions, and we invite you to <a href="http://financialinclusionweek.org/get-involved">join the conversation</a>. During Financial Inclusion Week events, four possible answers to the question “Financial Inclusion: For What?” will be in focus. We’ll ask leading voices in the industry to debate the merits of these questions and articulate why these objectives should or shouldn’t be the guiding light of the industry.

Financial Inclusion: For What?

Fifty million years ago, in the Cambrian Era, the diversity of life on earth exploded, thanks to a perfect storm of microbial enablers and geologic conditions. Today, some observers think the world is witnessing a digital “<a href="https://www.economist.com/special-report/2014/01/16/a-cambrian-moment">Cambrian Moment</a>” because of a combination of highly connected people and easily accessible building blocks for digital services. The financial inclusion sector is poised to share in this Cambrian Moment, thanks to widespread mobile phones, mobile money adoption and other enablers of innovations that promote access for the underserved.

In this post, we look at one of those building blocks – a potential enabler for financial inclusion: application programming interfaces (APIs). We also discuss the different types of APIs and how financial institutions should think about their API strategies.

Building Innovation: APIs, Fintechs and Financial Institutions

Join Smart Campaign's Boubacar Diallo for a talk about fueling fintechs with an enabling regulatory and investment environment during SAM 2019. 

Event

Fintech investment and growth are occurring in relatively limited areas and for a handful of high-profile companies. Enabling regulatory environments and well-informed investment flows are prerequisites to realizing the potential of fintech to achieve scale and impact. On October 23rd, as part of SAM 2019, <a href="/bio/boubacar-diallo">Boubacar Diallo</a>, Senior Africa Advisor, Smart Campaign, will present on a panel entitled Fueling Fintech: Regulations and Investment for Scale and Impact.

Key Questions
<ul>
 	<li>What examples do we have of successful legislation and investment environments to promote fintech development, and how can other markets replicate these successes to pave the way to more diverse and durable growth of digital financial services?</li>
 	<li>How can investors better evaluate investments with regard to the SDGs?</li>
</ul>
<a href="https://www.ada-microfinance.org/en/presentation-sam-2019">African Microfinance Week</a>/Semaine Africaine de la Microfinance (SAM 2019) is a biennial conference dedicated to the development of financial inclusion in Africa. The <a href="/about/what-we-do/the-smart-campaign/">Smart Campaign</a> will participate in this year’s conference, taking place October 21-25, 2019 in Ouagadougou, Burkina Faso, on the theme “Pathways Toward Impact: African Inclusive Finance for the Sustainable Development Goals.”

More details to come. Hope you can join us.

African Microfinance Week (SAM 2019)

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HBS-Accion Program on Strategic Leadership in Inclusive Finance

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Alex Counts

The CFI Advisory Council member summarizes Anand Giridharadas’s key points and reflects on his non-profit leadership experience. 

Nika Naghavi

"Payments as a platform" will also aid in empowering millions in the region to maximize income generation opportunities, according to the GSMA.  
 

Eric Noggle

CFI has put forward the proposition that financial health is the goal of financial inclusion. Fundamentally, financial tools exist to help people manage mismatches between their income and expenses over time and space and build lumps sums of cash. The ability to do those things is financial health. The financial health concept is also resonating with financial service providers (FSPs) globally. It’s viewed simultaneously as a useful lens for understanding customer behavior and an easy way for providers to communicate to customers that they’re more than just an account number. Financial health, thus, seems like a natural goal to guide the industry.
However, as this CGAP <a href="https://www.cgap.org/blog/whats-financial-health-got-do-it">blog post</a> notes, it’s unclear where financial health sits in the industry’s theory of change. Is it an intermediate outcome or the ultimate one? It’s also proving difficult to define and measure, especially across different geographic and socio-economic contexts. With those concerns in mind, is this concept enough to guide us?

Financial inclusion, financial services, and microfinance are explicitly mentioned in the targets of seven of the 17 <a href="https://sustainabledevelopment.un.org/?menu=1300">Sustainable Development Goals</a>. Their presence implies that financial services are a means to improve quality of life and suggests that creating financial stability should not be the only goal of financial inclusion.
The implications of sustainable development as the financial inclusion sector’s proverbial North Star are significant. It would require our focus on some of the world’s most intractable problems, like climate resilience and access to safe drinking water. It would challenge us to work even harder to reach the most vulnerable, reinvigorating efforts to include the ultra-poor and women in conversations about promoting small businesses and employment.
That could be a tall order for providers, even those focused on social impact. Serving the most vulnerable or niche markets is costly, which makes private investment riskier and less profitable. In that environment, what is the role of investors (impact-oriented and otherwise) and donor organizations? Is the financial inclusion industry, an industry which has increasingly aligned itself with the private sector and traditional finance over the years, prepared to adopt a new and broader mandate like this?

If financial inclusion is a means to an end, maybe we should focus less on the ends and more on ensuring the means are fair. Doing so would be no small feat when “inclusion” is granted to people who can be served profitably, and of the included, the people with the least are either scrutinized or put at the greatest risk compared to the people with the most. Should striving for equity – fair access, fair use, and fair treatment for customers – be where we focus our efforts?
<blockquote>A focus on equity could be a driving force for collaboration.</blockquote>
A focus on equity could be a driving force for collaboration. Policymakers, regulators, and providers would need to work together to understand the opportunities and challenges for diverse market segments and formulate strategies to serve them. Efforts like the <a href="https://www.smartcampaign.org/">Smart Campaign’s</a> client protection principles and digital credit standards or the <a href="https://www.gsma.com/mobilefordevelopment/mobile-money/certification/">GSMA Mobile Money Certification</a> would serve as important guideposts to ensure customers are protected. And providers may even find that a <a href="https://hbr.org/2012/09/finding-the-profit-in-fairness">focus on fairness</a> helps drive customer activity.

Maybe these objectives are too difficult to define and measure; too difficult to achieve consensus on; or unreasonable given the nature of financial services. Maybe we should focus on what businesses do best: achieving a positive bottom line.
<blockquote>This may sound cynical or like an endorsement of unfettered capitalism. It’s neither.</blockquote>
This may sound cynical or like an endorsement of unfettered capitalism. It’s neither. Rather, it’s a recognition that successful businesses that are also good-faith actors deliver value to clients, as demonstrated by their success. As costs are driven down, the infrastructure to enable access will expand, demand for formal financial tools will increase, and businesses will spring into existence. With this as a guiding vision, the industry would focus on martialing capital to finance innovative ideas, nurturing their development, and aggressively scaling their successes.

We’re excited to have you join us during the week of October 21, 2019, as we debate these and other objectives for the industry. We’re anticipating unique perspectives from stakeholders across the financial inclusion spectrum– banks, traditional microfinance institutions, fintechs, regulators, investors, donors, non-profits, and others. Please feel free to <a href="mailto:tjohnson@accion.org">reach out to us</a> with any questions; <a href="https://centerforfinancialinclusion.us5.list-manage.com/subscribe?u=394352ae963270aef6c51680d&amp;id=72f6a9abbe">sign up</a> to receive updates and announcements; and follow #Finclusionweek on social media.

Learn More

Why we chose the 2019 theme "Financial Inclusion: For What?" and its four guiding answers

Dan Kleinbaum

Application program interfaces (APIs) are a set of defined methods and functions that allow one computer program to “talk” to another program to consume data, perform actions, or both. APIs generally reduce the complexity of accessing technology systems and automate the interaction between systems and apps in ways that are seamless and unseen to the consumer.
<blockquote>APIs are a set of defined methods and functions that allow one computer program to “talk” to another program to consume data, perform actions, or both.</blockquote>
Greg Walker of 18F explains APIs by analogy to <a href="https://18f.gsa.gov/2016/04/22/what-is-an-api/">grocery stores</a>, which easily connect thousands of shoppers to thousands of food producers. “You [know to] go to the produce section for bananas, not the dairy aisle. You don’t have to know how to grow bananas, how to harvest them, or how to ship them; you only need to know that you want them. The store ‘hides’ the how so you can focus on what matters to you – getting some food.”
APIs act as a catalyst for a variety of services, including some examples that promote financial inclusion. For example, <a href="http://textteller.com/">Teller</a>, a DFS Lab portfolio company uses APIs to connect cost-effectively with customers. Teller offers AI-powered financial literacy training, customer onboarding, and customer support for digital financial service providers. Teller is behind some of the largest deployments of <a href="https://www.mtn.com/mtn-group-launches-africas-first-artificial-intelligence-service-for-mobile-money/">chatbots in emerging markets</a>. A key enabler for their multi-platform chatbot are APIs that enable Teller to access messaging services like SMS and WhatsApp and voice via IVR to reach customers. APIs to these services are provided by companies like Twilio and <a href="http://www.turn.io/">Turn</a>.

Generally speaking, financial institutions offering APIs utilize one of three methods:
<h2>1) Open APIs</h2>
Open APIs are designed for general, repeatable use and openly accessible to third parties.
Twilio and Turn are open APIs for communication. Open APIs offer access to functional systems and, ideally can be accessed purely online, with no human interaction. To encourage uptake of open APIs, providers often offer free sandbox testing or freemium pricing allowing developers to start using the service free to get a sense of how the APIs function and whether they work with the developers’ products. Readily available documentation, standardized onboarding and KYC documentation processes, sandboxes and other aspects of the delivery in open APIs are designed for repeatability.
<blockquote>Open APIs are designed for general, repeatable use and openly accessible to third parties.</blockquote>
A financial institution planning to offer open APIs embarks <a href="https://medium.com/abn-amro-developer/open-banking-the-api-journey-continues-ce889931d9eb">on a journey</a> that can require significant upfront investment of time and resources and may come <a href="https://www.cgap.org/blog/avoiding-common-pitfalls-along-journey-open-apis">with some risk</a>. This is especially true when converting from complex legacy IT and core banking systems which were not initially designed to be accessed via API. Moreover, there are often significant security requirements and regulatory hurdles that must be considered.
Despite these barriers, more and more financial service providers are opening APIs. MTN Uganda invested $400,000 to <a href="https://www.cgap.org/blog/mtn-uganda-opens-mobile-money-apis">open their mobile money API</a>. Equity Bank in Kenya has invested upwards of <a href="https://www.bloomberg.com/news/articles/2018-10-14/equity-group-sees-22-million-fintech-unit-revenue-in-first-year">$10 million in Finserve</a> – a subsidiary to offer a suite of open transactional, KYC and account APIs – and NedBank in South Africa <a href="https://apim.nedbank.co.za/blog/nedbank-digital-innovation-scores-african-first">invested over $138 million to incorporate APIs</a> as part of a massive technology overhaul across the bank. Justifying the investment, long run benefits can include higher deposits, transaction volumes and revenue, resulting from an ecosystem of partners who also benefit from lower costs of integration and better service delivery through open infrastructure.
<h2>2) Private APIs</h2>
Private APIs are created to grant access to a specific party or parties.
Private APIs are designed to enable financial institutions to allow specific internal or external, pre-authorized parties access to certain functionality, based on predetermined requirements. Often, a discreet business or use case dictates the development of a private API and, consequently, the major distinguishing feature of private APIs is a lack of repeatability.
<blockquote>Private APIs are created to grant access to a specific party or parties.</blockquote>
An example comes from <a href="https://www.xendit.co/">Xendit</a>, a payment processor in Indonesia, which was founded to build the “<a href="https://www.youtube.com/watch?v=_0rgx8gN6cQ">Venmo for Indonesia</a>.” After succeeding with peer-to-peer payments, Xendit saw demand for customer-to-bank transfers. Xendit collaborated with a mid-sized bank which, as a regulated financial institution, can process payments to any other bank in Indonesia. The bank partner developed a transactional API for Xendit that enables the service to make instant transfers to any bank in Indonesia from an escrow account held by Xendit at the bank. On that foundation, Xendit built an expanded set of products, including payroll payments and invoices, has successfully onboarded a large number of customers, and built a viable business. For the partner bank, the Xendit relationship has significantly increased its total deposits.
<h2>3) API Marketplaces</h2>
API marketplaces are offered by third parties to other third parties.
API marketplaces are also operated by third parties, and offer APIs on behalf of any number financial institutions. API marketplaces aggregate documentation, KYC, and onboarding processes and try to get a critical mass of fintech innovators actively looking to develop solutions with participating financial institutions. By spreading the costs of constructing APIs among a larger number of participating FIs, marketplaces can lower the costs for participants. Examples of API marketplaces include <a href="https://www.finconecta.com/">FinConecta</a>, a global API marketplace, and the <a href="https://apixplatform.com/marketplace/aboutapix">APIX exchange</a> launched in the ASEAN region.
<blockquote>API marketplaces offered by third parties to other third parties.</blockquote>
The resources available and business goals tend to determine the delivery model chosen by a financial institution. Internally-owned, open APIs offer financial institutions the greatest flexibility to build a suite of API-based products that can enable a successful innovation ecosystem, but they require significant investments in technology and people to sell and support. In some cases, there may not be a need, or resources available, to open APIs, and a private API will suffice to work with a partner. Private APIs still requires technical development and internal capacity to build and sell.
API marketplaces, on the other hand, reduce the need to redo internal business structures and add internal capacity. However, initial interviews for my research indicate that given the lack of ownership over success metrics, in addition to regulatory barriers, more effort may be required to make these successful. I will investigate this in more detail as my research proceeds.

Regardless of how a particular financial institution implements APIs, technology alone will never be enough to successfully build partnerships using APIs. Thinking of APIs as products inevitably leads to considering complementary business units, which can be the difference between success or failure. The gold standard comes from Amazon Web Services, Twilio and Stripe – three companies that have been extraordinarily successful in building and selling APIs. They have separate departments for a set of services to adequately deliver APIs as a product: sales and marketing, technology, documentation, customer onboarding, and customer support. Successful API implementations need to think through each of these aspects, and <a href="https://www.cgap.org/blog/youve-opened-apisnow-what">having KPIs</a> attached to each function can lead to measurable results.
Financial institutions have regulatory approvals and core banking capabilities that are highly valuable in the market, while fintech innovators often have greater ability to iterate rapidly and develop new products for underserved or unproven customer segments. Creating partnerships between these two types of organizations <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/IIF-CFI_FI-Fintech_Partnerships_Final.pdf">offers multiple opportunities</a> for bringing innovations to market. Increasingly, these partnerships are based on financial institutions productizing APIs and offering infrastructure for new products and services.

In the next blog post, we will share a few detailed case studies that highlight the various API models. The hope is that these real world examples and lessons learned will help financial institutions to better navigate APIs. Also, as more case studies emerge, they will begin to form an answer to a larger question: do APIs help promote financial inclusion? We’ll see.
All comments and suggestions are welcome! Keep a lookout in the coming weeks for my next blog post, which will preview my research report. Learn more about my research topic on my <a href="https://www.centerforfinancialinclusion.org/bio/dan-kleinbaum">bio page</a>.

Don’t know much about APIs? CFI Research Fellow Dan Kleinbaum describes them—including their main delivery types—and their potential for helping institutions reach the underserved.  

Boubacar Diallo

Smart Campaign Senior Africa Advisor Boubacar Diallo will participate on a panel about fueling fintechs with enabling regulations and investment flows.

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