After Access, What’s the Impact of Digital Finance on Clients?

Plotted against a set of client outcomes, an updated long-term study aggregates insights to understand the impact of digital finance products and services.

The number of digital finance products tested in the Evidence Gap Map, which charts the landscape of impact evidence in digital finance. All image credits: FiDA Partnership.

In 2017, The Mastercard Foundation’s Partnership for Finance in a Digital Africa (FiDA) embarked on a journey to answer the question: “What’s the impact of digital finance on low-income clients?” The complexity of this question was clear. Digital finance is not “one thing,” it’s dozens of products, designed and delivered in various ways, to various client segments, in various markets. A single study cannot answer this question.

To encourage a dialogue on impact, FiDA developed the Digital Finance Evidence Gap Map (EGM) in 2017 to aggregate impact insights and place them in dialogue with each other. At its simplest level, the EGM charts the landscape of impact evidence – be it positive, negative, or null – for a set of digital finance products, plotted against a set of client outcomes. Its interactive design and filters enable users to scan for evidence for questions as specific as “Does X product, designed with Y features, delivered in Z ways, to clients in A market lead to B outcomes?”

This year marks the third year of updating the EGM. While the first edition contained 40 studies, two years on, the EGM has almost doubled to include 75 studies. Each year, as studies amass, we inch closer to understanding the impact of various digital finance products on low-income users.

This Financial Inclusion Week, we wanted to share findings from our updated EGM, and share insights on how digital financial services have [and have not] improved financial health and how equitable these impacts have been.

The 3rd Edition EGM: What to Expect

The updated EGM includes 75 studies that test 81 digital finance products and interventions from 26 different countries. There are 14 digital finance products and 32 design and delivery mechanisms with various counts of evidence.

Geography

Although the EGM represents 26 countries, Kenya accounts for nearly one-third of the studies (30 percent), and the East African region accounts for over half (53 percent) of the impact literature. Because geographical context is a significant variable, we must consider social, economic, and cultural differences before we apply learnings from East Africa to other regions.

Number of countries represented in the Digital Finance Evidence Gap map.
Number of countries represented in the Digital Finance Evidence Gap map.

Digital Finance Products

Digital payments and transfers studies account for 47 percent (n=38) of the impact literature. When general mobile money studies (i.e., studies that do not identify a specific use, e.g., P2P, airtime top, or bill payment) are folded into this category, digital finance studies increases to 62 percent (n=50). It’s crucial to recognize the gaps in product-level impact insights and allocate resources to begin correcting it.

Number of digital finance products tested.
Number of digital finance products tested.

Product Design and Delivery

Meta-studies may fail to account for the varied ways in which digital finance products are designed and delivered. The aggregate effects of several different savings products are simply designated as the effects of “savings” overall. The reality of the impact of different savings products is far more complicated. An analysis of the EGM confirms that product designers use a multitude of innovative digital, and non-digital, design and delivery mechanisms. Further, the EGM shows that, across the 81 products studied, 32 different design and delivery features were observed. On average there were two design and delivery mechanisms described per product in the EGM. These nuances of design and delivery matter, as we will highlight in the product-level deep dives.

Number of design and delivery mechanisms used across 81 products in the digital finance Evidence Gap Map
Number of design and delivery mechanisms used across 81 products in the digital finance Evidence Gap Map

Client Outcomes

Across the 75 studies, 334 reported “tests” were linked to the 10 high-level client outcomes. The tests are concentrated at immediate outcomes (adoption: 13 percent, and savings behavior: 21 percent) and longer-term outcomes (resilience: 13 percent, welfare: 16 percent, and income investing/asset building: 13 percent). The types of outcomes tested vary at the product-level.

Number of tests per client outcome
Number of tests per client outcome

Key Takeaways from New Impact Studies

In 2018 we shared insights on savings, credit and payments. The third edition of the EGM has folded 25 additional studies into the evidence base. Through compounding existing evidence and/or presenting new insights on the impact [or not] of different design and delivery mechanisms, these studies are valuable additions to the evolving impact story. We highlight the new insights from these additional studies.

Savings

Complementary insights were observed regarding the use of two-way SMS and behavioral science to improve savings – with an important caution that the wrong message is worse than no message at all. There was additional early evidence on the benefits of coupling savings products with business training for women – that made a case for the value in testing the various design and delivery mechanisms. New insights were located on the effects of labeled savings accounts for resilience and welfare outcomes, but questions on impact mechanisms were raised. Lastly, we noted additional evidence supporting the need to be aware of how different client segments experience impact, some segments may benefit more, or less.

Credit

For the first time since the launch of the EGM, we now have a number of insights on the effect of digital credit on longer term outcomes – an area that was previously lacking. We learned that the design and delivery of digital credit products varies the impact that is observed. For example:

  • Low-value, short-term loans improve household liquidity and response to shocks, but were not found to have effects on wealth, consumption or labor outcomes.
  • By digitizing the delivery channel of business loans, women benefited from reduced visibility of the loan and thus pressure to share and significantly improved their business and household outcomes.
  • Service or product linked loans that are adapted to the client segments income cycles produced the desired effect. For example, education loans increased children in school.

Payments

Digital payments and transfers are the most studied digital finance products to date. From folding in new studies, we’ve found out the following:

  • Additional insights to support that person-to-person (P2P) transfers saves users’ time and money users due to greater access to agents.
  • Limited evidence supporting a link between using P2P and improving savings behavior or value of saving.
  • Supportive evidence has been added to the already high evidence count related to the positive impact of P2P in facilitating risk sharing and improving household ability to cope with various shocks in the short term.
  • However, there is limited evidence to support that P2P impacts the longer-term economic welfare of households.

Micro, Small and Medium Enterprises (MSMEs) and Digital Financial Services

This year we’ve also put a spotlight on a specific client segment: MSMEs. However, we found that very few studies have been conducted on the impact of MSMEs using digital financial services. When studies have been conducted, they’ve focused on women predominantly, and offline MSMEs exclusively. Based on the four studies, we learned that:

  • Digital savings has a clear role to play in business development, but the impacts are greatly enhanced when coupled with investment in additional business training.
  • By digitizing the delivery channel of business loans using mobile money, women benefited from reduced visibility of the loan, and thus a reduced pressure to use the loan for non-business purposes. This appeared to promote the use of the loan for business purposes and to significantly improve their business outcomes with downstream effect on household outcomes.
  • The adoption of a merchant payment system, which included access to credit, was found to smoothen sales volatility and increase safety perceptions, in particular for smaller businesses.

We encourage those of you interested in the impact question to fill in the gaps and enable the digital finance community to understand the impact of various digital finance products delivered in their nuanced ways. Beyond a product-level analysis, the EGM comprises other learning, such as the types of product design and delivery mechanisms gaining traction, segmenting findings by population types and market level, or even methodological approaches to measuring digital finance impact. The EGM can be used as an entry point for all of these inquiries.

As financial health is one of the themes of Financial Inclusion Week, it’s heartening to see evidence where digital financial products can positively affect financial health and beyond. However, not all products have the same impact and some have shown negative impacts. The greatest impact we can have through resources like the EGM is in using the knowledge of the digital finance community to make better choices on both testing impact and designing better products.

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