Dan Kleinbaum

API Deployment Recommendations

Related Work

This report was made possible with support from FMO Entrepreneurial Development Bank.

Partners

Recommendations to Optimize API Deployments Between Banks and Fintechs for Financial Inclusion

Report

APIs are often viewed as potential solutions for traditional financial institutions, particularly small and midsize banks, to partner with upstart financial technology companies (fintechs) to offer innovate products, especially to low-income customers. In practice, however, due to the maturity of the fintech market, fear of losing competitive advantage, and a variety of strategic errors in planning for and developing APIs, smaller banks and fintechs do not often succeed in deploying API solutions for inclusive finance.  

In this report, based on nearly two dozen interviews with leaders at fintech companies, small and midsize banks, and large financial institutions, CFI Fellow <a href="/bio/dan-kleinbaum">Dan Kleinbaum</a>, examines the extent to which APIs are meeting their potential to facilitate bank and fintech partnerships that advance financial inclusion. Dan breaks down what API integrations between banks and fintechs look like and how typical deployments work. Finally, he offers four recommendations for how to improve API deployments between banks and fintechs to deliver financial services to underserved communities.
<h2>A Typology of APIs</h2>
It is useful for leaders at financial institutions to understand the types of APIs common in financial services. For examples, in API aggregator and platform models shown below, a third-party provides APIs on behalf of financial institutions to institutional customers (e.g., fintechs) in its network. The aggregator or platform may also provide sales, marketing, onboarding and other services. We also explore open and private API models in the report.
<h3>API Aggregator and Platform Models</h3>
<img class="size-large wp-image-37835" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2020/03/CFI55_API_deployments_FINAL-fig05_graphic-LOGO-1024x596.jpg" alt="API Aggregator and Platform Models" width="1024" height="596" />

API Deployments in Inclusive Finance

The Global Microscope 2019 assesses the enabling regulatory environment for financial inclusion in 55 countries. The 2019 edition features 11 new gender-focused indicators that measure financial inclusion for both women and men.

Regulators play a significant role in catalyzing or impeding a country’s progress toward financial inclusion. By evaluating five domains of the regulatory environments in 55 countries (i.e., government and policy support, stability and integrity, products and outlets, consumer protection and infrastructure), the Global Microscope identifies each country’s current policies and regulations and notes which are likely to create an enabling environment for financial inclusion.

The 2019 Global Microscope features 11 new gender-focused indicators that measure financial inclusion for both women and men. These new indicators can help policymakers identify areas that could potentially improve women’s ability to access and use the financial tools they need to thrive.

The Global Microscope is produced by The Economist Intelligence Unit with policy guidance and financial support from leading organizations in the field, including CFI.
<h2>Major Findings</h2>
<ul>
 	<li>The enabling environment for financial inclusion has improved in the 55 countries covered in the Global Microscope 2019. Colombia, Peru, and Uruguay maintained the top rankings again this year. Likewise, the countries covered in the study’s regional analysis of Latin America and the Caribbean maintained the most favorable regulatory environments. These findings are at odds with access and usage data that show that Latin America and the Caribbean have recently fallen behind other regions. This points to the limitations that policies play in driving outcomes. They can contribute, but policies alone are insufficient in driving desired outcomes.</li>
 	<li>Practical impediments – such as limited access to identification, the Internet, and/or mobile phones – restrict women’s ability to use digital financial services.</li>
 	<li>Argentina, Costa Rica, Honduras, Russia, and other countries continue to adopt financial inclusion strategies and incorporate digital approaches to foster inclusion. In the past, national-level programs have led to the most progress over the short and long term.</li>
 	<li>Consumer protection and privacy laws are evolving to respond to the unique challenges that fintech presents, but few countries have updated their consumer protection regulations to account for the risks posed by digital players.</li>
</ul>
<h2>Calls to Action</h2>
Policymakers must ensure that both women and men are enabled to utilize and empowered benefit from greater financial inclusion. As the landscape for financial inclusion continues to evolve, and as financial service providers adopt new technologies and approaches, governments will need to implement policies to ensure that potential users develop the necessary capabilities and possess key enablers to access and use these products (such as national ID and mobile phones). This includes developing and implementing policies specifically designed to address gender disparities in access to these enablers.

Governments must ensure their national strategies do not worsen the gender gap. As financial inclusion policy shifts its focus towards the promotion of digital financial services, regulators and policymakers must address this digital gender gap or risk contributing to even greater disparities in access to financial services between women and men. Although nearly four-fifths of countries in the Microscope have strategies or initiatives to promote digital literacy, only one-fifth incorporate a gender approach into these programs.

Global Microscope 2019: The Enabling Environment for Financial Inclusion

Danielle Piskadlo

Deborah Drake

Ezra Mannix

Jasper  Veel

Goals of This Resource...

<h3>For founders and leaders of innovative companies&#8230;</h3>
To raise awareness about the importance of strong governance structures early in the life of innovative companies serving base-of-the-pyramid clients.
<h3>For investors and independent board directors of innovative companies&#8230;</h3>
To set realistic governance expectations and standards in terms of the complexity and requirements they should have for boards at various stages in a company’s growth.
<h3>For the industry&#8230;</h3>
To serve as a key reference to help formulate these structures and best practices, and to align expectations.
&nbsp;
<h2>What This Document Is</h2>
A guidance document: This document offers suggestions on how to form, manage and structure a board in an innovative company optimally.
A discussion starter: The quotes here are candid and may be disagreed upon&#8211;and that’s the point!
<h2>What This Document Isn&#8217;t</h2>
A be all and end all: Boards take on many forms and structures, and this document is not exhaustive in breadth or depth of company types or issues faced.
A magic bullet: This document does not offer one-size-fits all recommendations to overcome challenges.

Interviewees & Reviewers

We are extremely grateful to these individuals for their contributions and candid feedback on this resource.
<ul>
<li>Lauren Cochran, Managing Director, Blue Haven Initiative</li>
<li>David Dewez, Regional Director of Latin America and Caribbean, Incofin</li>
<li>Tahira Dosani, Managing Director, Accion Venture Lab</li>
<li>Andrew Goodwin, Managing Director, Mobisol</li>
<li>Bill Harrington, Managing Director, Vista Ventures Social impact Fund</li>
<li>Miguel Herrera, former Partner, Quona Capital</li>
<li>Arvind Kodikal, Investment Officer, FMO</li>
<li>Ethan Loufield, Director of Strategy, Center for Financial Inclusion at Accion</li>
<li>Ivan Mbowa, CEO &amp; Founder, Umati Capital</li>
<li>Jacqueline Musiitwa, former Executive Director, Financial Sector Deepening Uganda</li>
<li>Kwame Owusu-Boateng, CEO, Opportunity International Savings and Loans, Ghana</li>
<li>Vikas Raj, Managing Director, Accion Venture Lab</li>
<li>Prateek Shrivastava, Vice President, Digital, Global Advisory Solutions, Accion</li>
<li>Martin Steindl, Manager, ESG, FMO</li>
<li>Peter Stolze, COO, Lendahand</li>
<li>Erik Vermeulen, Professor of Business and Financial Law, University of Tilburg</li>
<li>Merima Zupcevic Buzadzic, Regional Corporate Governance Lead, International Finance Corporation</li>
</ul>

Background

The impact investing space continues to evolve to include new players, more digital channels, and increasingly innovative models. As the number of innovative, growth-stage companies serving the base of the pyramid increases, these companies – spanning a wide variety of growth stages—have tremendous potential to be revolutionary and disruptive. The structures and processes used to provide governance oversight to these innovative companies warrants further examination and special recommendations because there are specific issues—from regulatory matters to how often to schedule meetings—to consider with regard to innovative companies given their potential. Disruption and innovation notwithstanding, however, there will always be core governance “best practices” to guide all institutions, even if the role of a board evolves drastically over time.
The Center for Financial Inclusion at Accion (CFI) and FMO have partnered to develop a governance resource for early and growth-stage innovative companies. An innovative company is defined in this document as one that has a value proposition that has never previously been offered at scale or is wholly different from existing solutions and that supports the proliferation of inclusive finance. It may do so through direct product offerings of its own or through services provided to other companies in the market. This publication focuses on creating an awareness of the critical role of governance and urges a “call for action” for growth companies to focus earlier, rather than later, on building strong governance structures and practices than what is currently often the norm.
<h2>Why Focus on Governance for Innovative Companies?</h2>
It is particularly important to provide innovative companies with specific benchmarks and insights as they manage growth, since:
<ul>
<li>Growth can happen quickly, and it is important to ensure that the proper controls and processes are in place before it occurs;</li>
<li>Growth often requires additional capital and the need to attract new investors who may (and should!) want to see strong governance processes and procedures in place;</li>
<li>Governance practices should be in-line with investor expectations throughout the life-cycle of a company;</li>
<li>Aligning investor expectations can be particularly challenging for innovative companies that may need to pivot their business models quickly;</li>
<li>Identifying the right moments to establish certain practices will avoid creating boards that are either too weak or too burdensome for the stage of the company;</li>
<li>Governance improves transparency, particularly if there are strong founders in the business</li>
<li>Governance instills a culture of best practices, even if a board is only partially implemented</li>
</ul>
All in all, corporate governance should be fit for purpose.

Audience

Leveraging the networks of CFI and FMO, this learning tool incorporates the (sometimes divergent) perspectives of a wide variety of industry practitioners, including the following stakeholders: founders, angel investors, venture capital investors, board members, senior management and others—the focus always being innovative companies serving the base of the pyramid and making sustainable contributions to local economies and societies. The terms “board member” and “board director” are used interchangeably.
Through these testimonials, this resource demonstrate the importance of “getting the board right” from the start in order to survive and thrive. After an introductory discussion, we provide nine easily digestible and actionable principles.
&nbsp;

Stages of Company Growth

Introduction

One of the main issues unique to innovative companies is that there appears to be a discrepancy amongst investors about the importance of governance processes and procedures. Some investors feel very strongly about ensuring solid governance principles are in place while others—both newer and veteran investors—seem to either take a “check the box” approach to governance, or place a lower value on board structure and governance principles and practices (and therefore do not ask for them).
Some innovative companies, because they are so attractive to investors, seem to be able to get away (almost right up to an initial public offering) with having informal governance structures, processes, and procedures. However, even the most successful innovative companies are questioned about corporate governance from a very early stage.
Innovative companies recognize the importance of having boards for advice and—more importantly, for very specific areas of expertise—but they don’t always see value in the formalization and structure of boards. To be sure, the priority for a company is to have a high-value investor who can give advice. However, part of what makes their value high is a strong commitment to governance oversight as a formal structure.
The following perspectives illustrate the differing and sometimes conflicting perspectives and experiences on governance:
<ul>
<li>Entrepreneur Perspective: “We meet once a quarter to solicit feedback on board agendas, and have a once-a-month call on key performance indicators. We’re sharing. What more do you want from us?”</li>
<li>Investor Perspective: “We may be less concerned now with a formal board structure—at least with the earlier stage companies—but my assessment of the willingness of the CEO to be transparent and to share both good and bad news on a regular basis is key. A negative assessment of that transparency is enough for me to pass on an otherwise strong investment.”</li>
</ul>
The director and board are discussing the same topic: governance expectations. But while the entrepreneur is focused on outputs (making sure he/she has checked off all the tasks on a to-do list), the investor is thinking about the outcomes of these actions, i.e., looking for signs as to how transparent the company is.

Principle 1

Boards should be formalized as early as possible in the life of the organization. But this doesn’t mean having a board just to have one. It means scheduling, sticking to and carrying out fruitful, productive meetings. Founders and directors alike are very busy, and meetings tend to be postponed repeatedly. Formalizing board meetings and having a clear agenda will keep everyone on task and engaged. The board directs and guides the management of innovative companies, so this keeps entrepreneurs on the right track and focused on agreed upon plans and priorities.
Just as a good student studies copiously prior to class, board members ought to spend at least two hours preparing for each hour of a board meeting. And like a good participatory student, a board member of an early-stage company should be able to actively participate and guide the entrepreneurs during the meeting. Examples of this “in class” support are prioritizing efforts, challenging assumptions and keeping entrepreneurs focused by setting adequate key performance indicators (KPIs). Board members should always stand ready to take on assignments and see them through without constantly having to be reminded. And—not to belabor the analogy—just as a teacher prepares a syllabus at the beginning of the course, the company should also put together a board package of meeting schedules, financial information, strategic planning documents—and whatever other information deemed crucial—to help prepare incoming board directors.
Lastly, entrepreneurs might have blind spots, and their passion can lead to dominating meetings. Engaged board members can provide meaningful and valuable advice, but they cannot do so if they are absent or continuously checking their phones during meetings.
See <a href="https://www.centerforfinancialinclusion.org/corporate-governance-for-early-stage-innovative-companies-a-practical-resource-guide#annex-3">Annex 3</a> for more information on structuring board meetings and setting expectations of directors.
TIP:
Follow the “three strikes, you’re out” rule if you must postpone meetings. Two is the maximum amount of times you can put off a meeting without seeming disinterested or unprofessional.

Principle 2

Entrepreneurs are dedicated to their ideas and do their utmost to make the business a success. More often than not, establishing basic corporate governance structures is not at the top of their agenda. It might be perceived as a burden, and its value to the company is not always fully understood. A well-established board that is fit for purpose given the development stage of the company is, however, instrumental for the success of the company.
Roles are different when a company becomes more established. In more mature companies, the board traditionally has an oversight role with a strong focus on strategy, financials and internal controls.
The role of the board for early-stage companies is fundamentally different from that of more mature companies: it should not be a burden that prevents a company from being able to innovate, grow, or be agile. Entrepreneurs should not be bothered too much with detailed minutes, detailed board packs and preparing lengthy memos. Thus, the board should be able to challenge and guide entrepreneurs, as well as fill gaps to support them (e.g., network or business development). As the company grows, the board will play more of an oversight role suitable for an institution that is well-established. That said, new boards should still implement at least financial oversight and transparency to the same extent as mature boards.
Advisory boards can be useful when founders are still not sure if they are ready to form an official board and want to get a sense of how it would be to have a group of outsiders provide additional input on strategy in particular. This applies to founders who didn’t receive investor funding that came with a right to appoint a director. An advisory board, however, should not be a long-term governance structure.

Principle 3

An investor adds value directly through their investment in the company, and company founders want investors to support their vision. But an investor often expects to add value in other ways to ensure growth and profits. What often happens, however, is that expectations on both sides are not clearly communicated early, leading to frustration from all parties. Communicating expectations from the outset helps established board members think through expectations, and helps convey those expectations to potential new board members. It also provides honest, realistic expectations for onboarding once they agree to join.
Expectation-setting doesn’t mean putting in place heavy reporting requirements or complex committee structures, but it does mean clarifying roles and establishing parameters for constructive discussion and decision making, such as Robert’s Rules of Order. These parameters can take the form of a committee or an advisory board to talk through challenges.
A value-add investor at this stage understands that the business will pivot often and will demand agility from other investors and founders alike. On the other hand, investors want to know that the CEO and his/her team are willing to communicate clearly and “share the dirty laundry.”

Principle 4

At mature companies, it&#8217;s typically the board committees that are the workhorses of the board. Assigning specific tasks to a board committee and discussing specific topics in a smaller group can make the board more efficient. This is particularly true with larger boards, where it is neither efficient nor effective to discuss all agenda items with the full board. Once the board grows, it’s important to consider establishing committees to improve board effectiveness. This is typically the case once the board has more than five members.
Early-stage companies typically have small(er) boards, and committees may not be warranted yet because it makes board structures unnecessarily complex. Rather, an important value of boards in early-stage companies should be in the diversity of views and support for agile decision-making and action. Subject matter experts tend to cluster in committees (i.e., financial service professionals in the audit committee) where out-of-the-box views may be given more consideration.
In more regulated industries (e.g., financial services), on the other hand, there might be a requirement to have specific board committees (e.g. audit committee). In those cases, a company has no choice but to comply, especially where the size and reach of a company is not considered in regulations.
TIP:
Management should think about specific board committees for when the company matures and communicate this to the board. It shows investors you are organized and have thought through governance structures. See <a href="https://www.centerforfinancialinclusion.org/corporate-governance-for-early-stage-innovative-companies-a-practical-resource-guide#annex-3">Annex 3</a> for more on committees.

Principle 5

Board members should bring skills and experiences that support and complement the management team. Entrepreneurs might have brilliant ideas, but lack the required network or business development skills, and may have a limited knowledge of the expectations of (future) investors. Board members should bring missing skills and experiences to the table that are instrumental to the longer-term success of the company. Board members typically add value by facilitating future capital rounds, opening up access to a network and bringing expertise in business development.
At the growth stage, “scalers” are one type of desired board member. Scalers are investors who may not be subject matter experts but have experience scaling a company and thinking and acting strategically. Their modus operandi is “we can get you through series A and B with our connections.” Another value-add board member is someone based in a served market, because he/she understands intimately the company’s operating environment, including political and regulatory challenges.

Principle 6

Any company serving vulnerable populations at the base of the pyramid must be particularly focused on the impact of their products and services—both positive and negative. As with any company, having a deep understanding of your clients and designing client-centric products and services makes sound business sense.
However, some investors do “check the box” due-diligence and don’t ask detailed questions about actual social impact. To counteract this, a strong governance structure can help to ensure:
<ul>
<li>a sense of social alignment among investors,</li>
<li>the social mission is truly embedded into the company’s practices,</li>
<li>the impact being measured is tailored specifically to the company,</li>
<li>the company doesn’t drift from its core social mission as it grows.</li>
</ul>

Principle 7

Many innovative companies are dominated by one or two very strong individuals with a very clear vision. Sometimes, boards run the risk of that vision dominating everything. If there are not enough people pushing back or challenging governance perspectives, things can turn into a dictatorship —and future investors do not want that. This is not to say that a board should always put up roadblocks and slow things down, because innovative companies need to be nimble, but the board must not be afraid to challenge ideas or perceived realities of a founder.
As one interviewee put it: “The board is the biggest bane and not adding value—on both sides. They were too close. The investor needs to realize that their hand-holding is for them and not helping the innovative company.”
Likewise, founders and entrepreneurs should not be afraid to receive criticism. When blood, sweat and tears are spilled leading an innovative company, it’s easy to resent criticism or dismiss it as ill-informed. It’s nothing personal. The director has the company’s best interests in mind—otherwise she/he wouldn’t be there!
For more on the role of boards in challenging management, watch CFI’s “Governance for Startups.” See <a href="https://www.centerforfinancialinclusion.org/corporate-governance-for-early-stage-innovative-companies-a-practical-resource-guide#annex-2">Annex 2</a>.

Principle 8

Like all companies, it is important that the corporate governance structures of an early-stage company are fit for purpose. The structures should reflect the ownership model, size, complexity and risk profile of the company. Those structures should mature as a company grows, and this is particularly the case for fast growing companies.
As institutions mature, their boards gradually formalize functions previously executed informally. Examples of this include creating committees of the board to undertake detailed work in support of board decisions, developing a board manual, or formalizing the CEO’s annual review process. Over time, a board of an early-stage company, when successful, will develop into a mature board. It is difficult to generalize about what acceptable governance looks like at different stages, but organizations should continuously assess if their governance structures are fit for purpose. Also, companies need to recognize the need to further professionalize the corporate governance structures as the company matures.
The Maturity Matrix (<a href="https://www.centerforfinancialinclusion.org/corporate-governance-for-early-stage-innovative-companies-a-practical-resource-guide#annex-1">Annex 1</a>) provides a view on a board maturity model. It is important for a company to recognize that it should think about its board sooner rather than later. A fit-for-purpose board is a strong asset to the company, and the lack of an appropriate governance structure is a real liability.

Principle 9

The initial board of a company is usually comprised of the founders and one or two early investors. This board is typically the first formalized corporate body that performs work that was previously carried out informally.
The board will grow once more investors come onboard as additional funding rounds are completed. The founders typically only have a single seat after series A, with the investors taking the other seats. A board will become more professional as it matures, which would typically be the moment where a first independent board member comes in. The independent board member is best positioned to act exclusively in the best interest of the company and should be a driving force behind further professionalization of board practices.
&nbsp;
<h3 style="text-align: center;">Final Thought</h3>
“From a governance point of view, you simply have to do what is right, right from the start, rather than wait until much later. Sometimes, for startups, they tend to think that getting the governance structure right is expensive, that it takes too much time, but I think that it’s worth their while to make sure they get it right.”

Annex 1

This typography outlines the stages of a board’s development and provides suggested benchmarks on appropriate governance structures and practices at various stages of maturity and funding.
<a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/Governance-Maturity-Matrix_v6-pic.png"><img class="size-large wp-image-37241 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/Governance-Maturity-Matrix_v6-pic-1024x784.png" alt="" width="1024" height="784" srcset="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/Governance-Maturity-Matrix_v6-pic-1024x784.png 1024w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/Governance-Maturity-Matrix_v6-pic-300x230.png 300w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/Governance-Maturity-Matrix_v6-pic-768x588.png 768w" sizes="(max-width: 1024px) 100vw, 1024px" /></a>

Annex 2

From: Africa Board Fellowship Roundtable: Governing in a Digital World. Addis Ababa, 2017. 
Published by the Center for Financial Inclusion at Accion, January 2018.
This <a href="https://www.youtube.com/embed/4dm7bWAR9VY">video</a> offers additional points for executives and board members to consider:
<ol>
<li>Engage with regulators. Working closely with regulators to understand parameters, while at the same time pushing boundaries, is a delicate balancing act, but one that can pay dividends. Taboos and stigmas about how things are done should be challenged in a way that’s constructive, while for their part, regulators should eagerly embrace digital transformations.</li>
<li>Ensure board diversity and independence. With many young fintechs dominated by one or two people with strong visions for the future of financial inclusion, it’s imperative that board members push back and challenge founders in the right way and implement checks and balances – all while keeping ensuring nimble action. These professionals should have access and experience in emerging markets. This can give tech-oriented executives a chance to step out of the “echo chamber” and provide real time feedback for what the business climate is like, who they should get to know, and how to make solutions culturally relevant.</li>
<li>Consider partnership potential. Innovative startups should understand what incumbent businesses are doing and the gaps in their business models in order to find opportunities to collaborate. Figure out what’s core and non-core in a business model and partner with other businesses in those non-core areas. It’s also helpful to determine imperatives for success in partnerships after determining where they can be forged.</li>
</ol>
<h3>Video Interviewees</h3>
<ul>
<li>Rohit Acharya, Co-Founder and Chief Data Scientist, First Access</li>
<li>David Cracknell, Global Technical Director, MicroSave</li>
<li>Buhle Goslar, Director of Customer Intelligence, JUMO</li>
<li>Kelvin Kizito Kiyingi, Deputy Director of Communications, Bank of Uganda</li>
<li>Paul Lamont, Director, Digital Services, Africa, Accion</li>
<li>Patrice Nkhono, Board Director, FDH Bank</li>
<li>Emil Sjoblom, Chief Commercial Officer, BelCash</li>
</ul>

Watch "Governance for Start Ups"

Annex 3

Created by Accion <a href="https://www.accion.org/how-we-work/invest/accion-venture-lab">Venture Lab</a>, a seed stage investment initiative, this resource also offers early-stage businesses helpful content to guide creating and leveraging a board, structuring committees, recruiting new members, and more. It also provides more detail on board meetings, including tips for creating agendas, what items to include in a board deck, how to take minutes, and so on. “<a href="https://www.accion.org/best-practices-for-building-and-leveraging-a-startup-board">Best Board Practices</a>” is divided into three parts:
<ul>
<li>Building &amp; Structuring Your Board</li>
<li>Leveraging Your Board</li>
<li>Board Meetings</li>
</ul>
Link to the Presentation: https://www.accion.org/best-practices-for-building-and-leveraging-a-startup-board
Select slide graphics:
<img class="aligncenter size-full wp-image-37216" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/as-you-grow-forming-committees.png" alt="" width="595" height="402" srcset="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/as-you-grow-forming-committees.png 595w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/as-you-grow-forming-committees-300x203.png 300w" sizes="(max-width: 595px) 100vw, 595px" />
<img class="size-full wp-image-37217 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/have-a-recruitment-plan.png" alt="" width="529" height="164" srcset="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/have-a-recruitment-plan.png 529w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/have-a-recruitment-plan-300x93.png 300w" sizes="(max-width: 529px) 100vw, 529px" />
<img class="size-full wp-image-37218 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/board-basics.png" alt="" width="591" height="387" srcset="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/board-basics.png 591w, https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/10/board-basics-300x196.png 300w" sizes="(max-width: 591px) 100vw, 591px" />

We appreciate the support of our partner. 

Partner

Featuring candid insights from leading investors, executives, academics and development finance professionals, this governance resource is dedicated to helping board directors and executives/founders navigate challenges of steering a growth-stage, innovative company toward success. 


<h2>Key Takeaways</h2>
<ul>
 	<li>It's important for early-stage companies, especially innovative ones with exponential growth and market disruption potential, to be proactive about governance by ensuring a strong board is in place before periods of growth and important inflection points occur.</li>
 	<li>Boards need to ensure investors are aligned on social mission and values.</li>
 	<li>It's important for the role of the board and the role of individual board members to be clearly defined and understood from the outset. This means that investor board members should be neither too involved in operations, nor merely fulfilling an obligation to have a board seat.</li>
 	<li>The role of boards will evolve as a company grows and innovates, but strong, well-functioning boards add value at every stage of a company’s growth and development.
Board meetings should to be held at regular intervals, and attendees should “do their homework” and be prepared to actively participate.</li>
 	<li>Having a board provide “checks and balances” doesn’t necessarily mean slowing down growth or innovation. Strong boards challenge founders, make important introductions, partner in growth, and ultimately make a company more sustainable for the long term.</li>
</ul>

Corporate Governance for Early-Stage, Innovative Companies: A Practical Resource Guide

Using the Handbook on Consumer Protection for Inclusive Finance

The Handbook on Consumer Protection for Inclusive Finance is a joint project between experts at the Center for Financial Inclusion at Accion and DLA Piper/New Perimeter, with support from Mastercard Foundation.

A practical resource for regulators and policymakers on consumer financial protection

As digital technologies transform financial inclusion, with new providers, products, and delivery channels reaching out to the financially excluded, the need increases for effective legal and regulatory frameworks to protect low-income consumers. A sound legal framework for consumer financial protection will support financial inclusion and innovation, allow new products and services to responsibly reach previously underserved consumers, and provide for empowered and capable regulators to oversee and enforce these frameworks.
<h2>Strengthening the Legal Framework for Digital Financial Services</h2>
The Handbook on Consumer Protection for Inclusive Finance presents updated and revised guidance for consumer financial protection regulators organized around the Smart Campaign's Client Protection Principles (CPPs). It expands upon a previous document, the Client Protection Principles: Model Law and Commentary for Financial Consumer Protection (Model Legal Framework) to reflect updated <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> from the Smart Campaign, new and emerging guidance from international organizations and collaborative working groups, and consultation with a broad range of experts regarding the unique characteristics of digital financial services (DFS), with an emphasis on digital credit.
<h2>Global Lessons and Model Legislation for Policymakers</h2>
In the Handbook, the Client Protection Principles are matched with legal provisions that promote the realization of these principles in practice. Expanded areas of the Handbook include the unique characteristics presented by DFS, new content around data privacy, fraud, and security, and product-specific recommendations. The tool is intended as a resource for financial consumer protection policymakers by providing model language, illustrative examples, and actionable recommendations. The aim is to support dialogue and foster collaboration between government and industry.

Handbook on Consumer Protection for Inclusive Finance

This study was commissioned in collaboration with the Social Performance Task Force and Microsave Consulting. It was made possible with support from Agence Française de Développement. 

We examine the evolving challenges with digital credit in Kenya and make recommendations for more responsible and customer-centric product delivery.

Digital credit has emerged as a new and profitable service offering that has a great potential to increase financial inclusion. Yet, if it is not carefully managed, digital credit runs a great risk to exclude, over-charge, and create over-indebtedness.

During the first half of 2019, The Smart Campaign and the Social Performance Task Force (SPTF) commissioned Microsave Consulting (MSC) to study the current state of digital credit in Kenya and formulated recommendations for how to make digital credit delivery safer and more customer-centric. We propose that regulations be put in place such that delinquencies and defaults among loans below some fixed amount not be reported to the credit bureau so as not to unduly burden consumers. We also call for increased public awareness campaigns about how credit bureaus work and the consequences of default so consumers will better understand the risks involved in borrowing.

More generally, the Smart Campaign recommends that both lenders and regulators consider adopting the <a href="http://www.smartcampaign.org/about/smart-microfinance-and-the-client-protection-principles/digital-credit-standards">digital credit standards</a> and <a href="https://www.smartcampaign.org/tools-a-resources/1210-handbook-on-consumer-protection-for-financial-inclusion">model regulations</a> covering issues ranging from transparency, to the fair use of algorithms, to protection of customer data.

Making Digital Credit Truly Responsible

Jacqueline Foelster

Amin Khairy

This report is part of a two-year initiative, Mainstreaming Financial Inclusion: Best Practices, which aims to help advance efforts of financial institutions to reach customers at the base of the economic pyramid. This initiative and this report were made possible with support from MetLife Foundation, and in collaboration with the Institute of International Finance. The views and opinions expressed in this report are those of the authors and do not necessarily represent the views of the MetLife Foundation or the interviewees. All errors are our own.

Despite the growing volume of agents, the agent network model is rife with utilization and operational challenges. This brief examines the role of technological innovation as a potential driver for improving the quality and maximizing the productivity of agent models.

As a means of reaching underserved customers at low cost, financial institutions have designated authority and responsibility to banking agents to deliver financial products and services. Agent banking is a model for delivering financial services whereby an institution — be it a financial service provider or a mobile network operator — partners with a retail agent to extend services in remote or hard-to-reach areas.
<blockquote>Innovative financial institutions are streamlining and digitizing their processes, and utilizing real-time data and analytics to increase both the efficiency and effectiveness of agent networks.</blockquote>
Despite the growing volume of agents, the agent network model is rife with utilization and operational challenges. The good news is that technology offers financial institutions an opportunity to make agent models more efficient and productive for themselves and their customers. Based on in-depth interviews with industry experts and senior bank officers, and supplemented by a review of the literature, this brief examines the role of technological innovation as a potential driver for improving the quality and maximizing the productivity of agent models.

We found it useful to study this topic across two time-horizons: the short-and long-term; and from the perspectives of the main stakeholders in the agent network triad: the financial institution, the agent, and the customer. This structure allows us to account for two key trends: 1) the diminishing role of cash as a payment form, and 2) an increasing readiness of institutions to embrace digital transformation. It also allows us to explore commonly-cited challenges with agent networks through an illustrative, hypothetical narrative lens, giving voice to each stakeholder group. The narratives are accompanied by real-world examples of how technological integration and innovation has helped to improve and streamline processes within agent networks. Finally, we anticipate that in a future financial services ecosystem that is digital and cashless or cash-lite, we will see the role of the agent evolving from transaction processors to solution providers.

Leveraging Technologies to Improve the Quality and Maximize the Productivity of Agent Models

Alexandra Rizzi

Mobile Money in Rwanda At-A-Glance

Rwandans Speak on Digital Financial Services

Most people in Rwanda are satisfied with mobile money services, and with the agents and user interfaces that provide it. However, there are many ways that DFS operations and practices can be improved to better protect clients and strengthen trust.

This report was prepared by Laterite, Ltd., in close collaboration with the Smart Campaign, with support from Mastercard Foundation. 

The authors of this report are Emily Farbrace, Loes van der Velde, Medha Sethia, and Alexandra Rizzi, with support from Mike O’Doherty. Data collection was supported by Jean-Baptiste Muhoza, Jean-Claude Rukondo, Fabiola Niwenshuti, and Ezron Mucyo. Data analysis was performed by Emily Farbrace, Loes van der Velde,
Medha Sethia, and Patrick Hitayezu.

The authors would like to thank the Smart Campaign and the National Advisory Council that was assembled for this project for their guidance and support for this research. In addition, the authors thank all of the respondents who shared their experience with us.

Acknowledgments

Based on a survey of over 1,200 people in three districts in Rwanda, this Smart Campaign report delves into the experiences of individuals who use digital financial services, the main client protection issues they are concerned about, and the impact and prevalence of negative experiences.

Today there are close to 700 million mobile money accounts registered worldwide — a number that, if it were a population, would rank as the world’s third-largest country. East Africa continues to lead in digital financial innovations as well as account usage, with two-thirds of the combined adult populations of Kenya, Rwanda, Tanzania, and Uganda actively using mobile money. With the proliferation of mobile financial services, particularly among underserved populations, it is vital that users be treated fairly and with dignity. In the momentum to define responsible digital finance and recognize providers of high-quality financial services, the industry must not forget the consumer.
<h1>Client Voices: Why We Listened</h1>
<a href="/about/what-we-do/the-smart-campaign/">The Smart Campaign</a>, a global initiative to create an environment in which financial services are delivered safely and responsibly to low-income clients, has long recognized that client perspectives are often underrepresented in consumer protection discussions. With the Client Voices Project, the Campaign questions whether the industry’s assumptions about what constitutes problematic treatment rightly reflect what clients themselves worry about.

The dual objectives of the project are to solicit input from low-income clients about what they consider good and bad treatment in their interactions with financial service providers and to assess the prevalence of consumer protection problems among these clients, using quantitative surveys. The project is designed to act as a catalyst for financial service providers, regulators, industry associations, consumer advocacy groups, and others to improve client protection in ways that are grounded in client feedback.
<h1>Major Findings</h1>
Based on a survey of over 1,200 people in three districts in Rwanda, this report delves into the experiences of individuals who use digital financial services (DFS), the main client protection issues they are concerned about, and the impact and prevalence of negative experiences. We find that mobile money enjoys a high degree of satisfaction and trust from clients in Rwanda, even though 40 percent of clients report being targeted by fraudulent schemes, which have become increasingly sophisticated.
<blockquote>Customers report wising up to scams and fraud, but with a continuous influx of new mobile money users and fraudsters who innovate quickly, the threat is real and constant. Fraud represents the greatest potential to damage customer trust and engagement with mobile money in Rwanda.</blockquote>
However, there are many ways that DFS operations and practices can be improved to better protect clients and strengthen trust. Client recourse mechanisms, for example, represent an important area for improvement: many clients shared that they feel helpless and unsure about what to do after realizing they have been duped. Additionally, for business models that rely more on the mobile interface than on human interaction, clients increasingly rely on agents for information and guidance. This presents an opportunity to provide better service, as well as a risk for poor client treatment.

We hope that providers, industry associations, support organizations, regulators, consumer protection advocates, and clients can benefit from these findings to create a stronger, more inclusive client protection ecosystem. We offer specific recommendations for many of these stakeholders.

Client Voices: Rwandans Speak on Digital Financial Services

Pablo Anton-Diaz

During the interviews we conducted for this report, it became abundantly clear that the mobile phone plays an essential role in fostering the digitization of customer journeys, particularly in the case of products that cater specifically to low-income segments. Indeed, the increased penetration of mobile phones and mobile money services among low-income segments has highlighted handheld mobile devices as the appropriate tool to finally incorporate financially excluded individuals into the financial sector. GSMA’s Mobile Economy 2017 report highlights the growth trends of mobile money transactions. Between 2012 and 2017, mobile money transaction value increased by 350 percent to $31.5 billion, while the number of transactions increased by 428 percent to 1.8 billion.

How are mainstream financial institutions creating effective digital customer journeys for lower-end clients? In this report, which is based on interviews with senior staff members from fifteen financial institutions in the financial inclusion space, we explore the challenges of digital transformation in each phase of the customer journey: discovery, onboarding and continuing use. We provide examples of how innovative financial institutions are addressing these challenges with creative solutions for emerging customers.

Discovery [Stage One]

The discovery stage begins when customers identify a need for a financial service. Broadly, it incorporates three steps by the customer: developing an awareness of potential options, evaluating those options, and selecting the most appropriate product. Companies compete for customers’ attention in this stage in an attempt to build brand awareness and communicate value.
One of the pre-digital era challenges banks faced targeting lower income segments in emerging markets was the relative ineffectiveness of conventional marketing techniques on those segments. The target clients of financial inclusion efforts are generally less literate than the overall population. Moreover, they often lack the confidence to approach financial institutions, fear that the institution does not want them as a customer, and discount marketing messages. They often think, “That’s not for people like me.”
One of the obstacles hindering financial inclusion is the fact that underserved customers have traditionally distrusted financial service providers. According to the Global Findex Database 2017, 16 percent of adults without an account at a financial institution cited <a href="http://documents.worldbank.org/curated/en/332881525873182837/The-Global-Findex-Database-2017-Measuring-Financial-Inclusion-and-the-Fintech-Revolution">distrust as their main barrier to opening an account</a>. Digital awareness and marketing campaigns may reach a big audience at low costs compared to traditional methods. However, to create trust among underserved segments, financial institutions need to make concerted efforts to improve how they are perceived by the unbanked.
With digitization, messages can be delivered directly to clients’ phones and tablets in simple terms or with images. For customers in the digital ecosystem, much of this happens through targeted advertising: companies compete to deliver targeted ads to specific handsets at critical moments as customers browse the internet or use social media.
<blockquote>Underserved customers don&#8217;t believe products are for them, but targeted digital messages can overcome this.</blockquote>
These channels overcome an access to information challenge and may make it less costly to raise awareness. As underserved clients connect to the internet and develop digital footprints, companies will be increasingly able to reach them with these methods.
<h2>That Human Touch</h2>
However, our interviews suggest that, to be effective, digital models must be combined with elements of human touch that customers still prefer or find more comforting. This is especially true for customers new to digital experiences. While targeted advertising is useful, it cannot address many of the concerns clients have when evaluating and selecting products.
As described in CFI&#8217;s Uniting Tech and Touch: Why Centaur Products Are Better for Consumers and Providers, consumers with limited exposure to digital financial services find it especially important to <a href="https://www.centerforfinancialinclusion.org/uniting-tech-and-touch-why-centaur-products-are-better-for-consumers-and-providers-evidence-from-kenya">speak to a person when they are first learning about a product</a>. Rather than scrolling through FAQs, customers can ask questions in their own words, which builds confidence. A guiding hand may be especially helpful for underserved clients who are <a href="http://content.accion.org/wp-content/uploads/2018/10/1122_TechTouch-RO6-Singles.pdf.">unaware of the range of available products, lack the digital savviness to evaluate products, or mistrust financial institutions</a>. Many customers interviewed for our Tech and Touch study said that their very first question is whether a new brand or service is legitimate. To be convinced, they want to speak to a person they can look in the eye.
Many of the financial institutions we interviewed for this paper use tech and touch during the discovery stage. Several institutions reported that offering a human touch to prospective customers is critical to boosting adoption, and some of the products with the highest rates of adoption add human elements to primarily digital experiences.

Discovery Case Studies

Onboarding [Stage Two]

Once a person decides to apply for a product, the provider initiates a series of activities to establish the customer’s credentials and eligibility and set up the account. This stage also involves underwriting decisions for credit products, providing detailed information about product terms and conditions, and signing contracts. Most of this process used to involve paperwork, for the obvious reason that it traditionally required customers to sit with staff to fill out paper forms and check documents.
In its traditional form, the onboarding stage can be especially difficult for underserved clients. The prospect of opening an account the same day was often low due to insufficient documentation, such as lack of proof of income (especially hard to obtain for people working in the informal sector). According to the 2017 Global Findex survey, nearly <a href="http://documents.worldbank.org/curated/en/332881525873182837/The-Global-Findex-Database-2017-Measuring-Financial-Inclusion-and-the-Fintech-Revolution">one quarter of adults without an account at a financial institution cited a lack of documentation as a reason</a>. When documentation is completed on paper, a customer may have to travel to and from a financial institution several times, which is time consuming even in urban environments. Approximately one-fifth of the Findex respondents without accounts also cited distance to a financial institution as a barrier. For loan products, this stage is even more difficult for customers: the approval process can often take days or weeks, and understanding contract terms and conditions can be daunting, even for the well-educated.
Over time, onboarding processes have gone digital, as staff members were given tools to enter information directly into a computer rather than first writing it down in paper. Today, a fully digital onboarding process—in which customers can sign up for a product on their phones or computers from any location, often within a few minutes—is spreading. With fully digital onboarding, the customer gains convenience and speed, while the provider reduces personnel costs.
In response to these barriers, financial service providers are working to make the onboarding process easier for clients wherever possible by creating tools that allow customers to complete portions or entire onboarding processes digitally. In our interviews, we found that financial institutions are moving toward digital onboarding, though not all have fully reached that destination. There are a number of examples where the process occurs entirely from a smartphone, and others that still require some face-to-face element.
<blockquote>In countries with digitized national identification systems, know your customer (KYC) can be fully digitized.</blockquote>
One of the most helpful advances in this stage concerns processes. In countries with digitized national identification systems, KYC can be fully digitized through provider links to the national identification database. However, in a number of instances, the national identification system has not been fully implemented or streamlined sufficiently to allow for onboarding to take place remotely. The role of government in establishing an enabling environment to promote financial inclusion and digital financial service adoption was a major theme in many of the interviews conducted.

Onboarding Case Studies

Continuing Use [Stage Three]

The continuing use phase includes product use, customer engagement, cross-selling and responding to inquiries or complaints, as providers work to build extended relationships with clients. Financial institutions hope that this will be the longest stage in the customer journey, and it is certainly the stage in which initial investments in discovery and onboarding pay off. However, as low account usage rates—particularly for mobile money accounts—suggest, it is also one of the most difficult for financial institutions to get right. According to the latest Global Findex, 20 percent of account owners worldwide reported having an inactive account, that is, no deposit or withdrawal—digital or otherwise—in the past 12 months.
Many FSPs that are just starting to cater to clients at the base of the pyramid struggle to build a relationship with clients. Learning about their financial lives and habits in order to continue improving and innovating their service offerings is challenging because they are thin-file customers, so records about their financial lives are scarce. Additionally, many clients of this market segment are interested only in a particular feature of the product that they have identified is beneficial for them and thus are thought to be less open to exploring other beneficial features. Because of this, FSPs face many challenges when trying to engage their clients in this segment.
In a traditional financial institution, contact with customers is limited to times when customers visit branches for transactions or inquiries, or to expensive phone or mail outreach. Digital systems allow for ongoing contact at a much lower cost, giving institutions the opportunity to develop a different kind of relationship with their customers. The digital footprints that customers leave allow companies to conduct a range of analytics, so that messages sent by SMS or other means can be highly targeted. Our interviewees reported using machine learning to cross-sell products at certain moments for the customer and using chatbots to provide customer service assistance. The digital relationship can also incorporate nudges, tools and reminders based on behavioral insights to encourage clients to save more, manage better their debts, keep closer track of their expenses, and build more accurate personal budgets. In this way, a bank can contribute to customer financial health.
Banks can also offer enhanced, tailored financial services to emerging customers through digital means. mBank is using machine learning to identify what managing director Jakub Fast calls “natural scenarios,” during which they can offer tailored financial services. For example, if their system detects that a customer is using his or her mBank card to pay for transportation to the airport, the customer might receive an offer for a travel insurance product. Or an additional line of credit might be offered to a customer with a good credit score who has maxed out his or her credit card during a transaction. Similarly, Bancolombia uses machine learning to analyze the savings behavior of its Ahorro a la Mano (“Savings on Hand”) customers to identify an approval limit for their Credito a la Mano (“Loan on Hand”) product. The customer can go through the complete customer journey for these products—from signing up for Ahorro a la Mano, to applying for and repaying credit from Credito a la Mano—digitally.
At financial institutions with digital offerings, examples like these are not particularly unique. The majority of institutions we spoke with mentioned the importance and use of some exciting new technology or the application of analytical tools to their data.
One area where human touch may still be needed is complaint resolution. Institutions are using email, chatbots, live chat and call centers to handle inquiries and complaints, and these mechanisms may take care of the great majority of inquiries. However, our research with customers in Kenya suggests that while they are comfortable with digital transactions, when something goes wrong they want to know that they can have <a href="https://www.centerforfinancialinclusion.org/uniting-tech-and-touch-why-centaur-products-are-better-for-consumers-and-providers-evidence-from-kenya">ultimate recourse through a person</a>. If most inquiries can be answered through automated means—inexpensively—the FSP may still be able to provide a human response for more difficult cases, while saving money overall on the complaints function.
What was most interesting in the examples we identified related to this phase was the degree to which innovative bank offerings relied on partnerships with technology companies to reimagine the customer journey. Such partnerships allow for rapid experimentation, take advantage of the technology know how of other companies, which may be more attractive than in-house development. BBVA, for example, runs an Open Innovation program, which supports its business verticals to find and integrate cutting-edge technology start-ups. The bank uses a variety of methods to identify partners, such as competitions where start-ups pitch their ideas to senior executives. The winners of those competitions are then put on a fast track to deploy their solutions as quickly as possible.

Continuing Use Case Studies

Takeaways

The case studies presented throughout this report offer important lessons about how mainstream financial institutions can create a successful customer journey in the digital age.
One important message is that it will likely be necessary to maintain some portion of touch even as the majority of transactions shift to tech. As the case studies in the discovery stage show, this is especially important in early stages of the customer journey, and to assist with complaint resolution. Quite possibly, as clients interact in a digital environment, they will become more comfortable locating and deciphering digital information and will rely less on the human touch to usher them along at key stages in their journey. However, as long as trepidation about new products and services still exists, the availability of a human touch element is needed. As Keith Sandbloom of FINCA International put it: “We want to maintain the [human] touch with our clients, but we [also] want to implement tech to offer new products through new channels that add convenience to our clients’ lives. When we talk about how our business model is evolving, we use a phrase we call ‘touchtech.’”
<blockquote>Maintaining some portion of human touch might be necessary even as the majority of transactions shift to tech.</blockquote>
Our case studies also show how policymakers and regulators play important roles, particularly in setting up the framework for smooth digital onboarding. The advent of national identification systems and changes in KYC regulation have allowed banks to launch fully digital customer journeys. Scans of photo IDs and/or biometrics, verified with uplinks to national databases, have replaced trips to branches and photocopies of national registration cards.
We have also seen that partnerships between financial institutions and fintech and other technology companies are important in facilitating the customer journey. Companies that have largely digitized their operations make use of predictive analytics to segment their clients and offer products and services in a targeted way. They are also using artificial intelligence chatbots to serve customers. Partnering with fintech and technology companies provides institutions with capabilities that are otherwise difficult to acquire. In our case studies, we highlighted a partnership that allows for communication between deaf customers and frontline staff and a conversational AI tool to that supports a digital bank. Developing even one of these solutions in-house is a time-consuming and costly process, and collaborations represent an efficient way for mainstream financial institutions to adapt to the digital environment and improve the customer journey.
Transformation from traditional to digital models is not easy. It requires deep rethinking of business models, rather than simply automating existing ones. The challenge is both internal (such as major changes in staff roles and upgrading in-house data analytic capabilities) and external (such as adapting to new regulations or forging new partnerships).
<blockquote>Transformation from traditional to digital models requires deep rethinking of business models, rather than simply automating existing ones.</blockquote>
Digital transformation takes time, upfront investment and ingenuity. However, the potential benefits make digital transformation models worthwhile, as mainstream financial institutions gain new customers and while reducing operating costs, and emerging customers enjoy faster, more convenient and more tailored financial products and services.

Acknowledgements, Interview List and Endnotes

More Mainstreaming Financial Inclusion Reports

How are mainstream financial institutions creating effective digital customer journeys for underserved clients? We explore the three primary stages involved in digital transformation and provide examples of how innovative financial institutions are addressing its challenges with creative solutions for emerging customers.  

<h1>Introduction</h1>
Financial services are going digital. Digitization will change the way financial institutions organize themselves to relate to their customers, and it will dramatically change how customers experience financial services. These changes will be especially profound for traditionally underserved customers who are the targets of financial inclusion efforts.

The good news is that digital delivery models make it possible—and profitable—for banks to serve many people who were previously excluded because their incomes were too low or their locations too remote to reach through high-touch models. The high operational costs associated with physical buildings and staffing only makes sense if the branches break even and provide a satisfactory return within an acceptable timeframe. Low-income customers with thin credit histories borrowing small amounts of money have long presented a challenge to the analog way of doing business. Thus, serving the underbanked customer segment through digital channels presents an opportunity—by lowering operational costs and increasing customer engagement—to transform financial inclusion into a sustainable business. Additionally, digitization allows thin-file customers to have their creditworthiness assessed through alternative scoring models that incorporate other types of behavioral records.

When done effectively, the returns to digital transformation can be significant. For example, DBS Bank, a financial services group in Asia named <a href="https://www.euromoney.com/article/b18k8wtzv7v23d/world39s-best-digital-bank-2018-dbs">“world’s best digital bank” by Euromoney in 2018</a>, has seen digitization contribute to rising shareholder value. DBS customers who process more than half their transactions remotely bring in more revenue than traditional customers. <a href="https://www.economist.com/finance-and-economics/2018/03/08/how-digitisation-is-paying-for-dbs">Two-thirds of DBS’s gross profit currently comes from digital customers</a>. A DBS staff member told us, “The cost-to-income ratio for digital customers is just 34 percent, compared to 55 percent for traditional customers. The return on equity from digital customers is, impressively, at 27 percent.” Numbers such as these make it attractive to reach new customer segments. But if the transition from face-to-face to digital is to succeed, financial institutions will need to understand and address the special characteristics of these segments and get the digital customer journey right—for both their own operations and the customers’ experience.
<h2>Walking vs. Flying</h2>
For customers, the difference between a traditional and a digitized customer journey can be as dramatic as the difference between walking and flying in an airplane. The traditional customer journey includes traveling to branches to talk with a customer service representative, assembling pages of paper documents to meet KYC requirements, and then waiting for days to receive decisions. With digitization, customers can discover and apply for products on their phones and receive funds into mobile wallets, all in a matter of minutes.
<blockquote>The difference between a traditional and digitized customer journey can be as dramatic as the difference between walking and flying in an airplane.</blockquote>
In order to produce such a streamlined journey, financial institutions must address technical and operational challenges and regulatory issues. And, as we discuss in this report, the journey they construct needs to work well for customers—especially when those customers are new to their services. Digitization can bring enormous gains in speed and convenience to customers, but it can also create gaps as it shifts from familiar, person-to-person interactions to interactions that take place on a digital device.

Charting the Customer Journey in the Digital Age

This report was made possible with support from the Development Bank of Latin America (CAF). We also wish to thank our partners in Colombia, Banca de las Oportunidades and the URF (Unidad de Proyección Normativa y Estudios de Regulación Financiera) of the Colombian government, which were instrumental in helping us organize logistics for the workshops.

An analysis of how to embed behavioral insights into financial educational programming

In July 2017, Colombia launched its National Economic and Financial Education Strategy, which established an action plan for promoting financial education in the country. The Intersectoral Commission for Economic and Financial Education, in charge of implementing the strategy, partnered with the Latin American Development Bank (CAF) and the Center for Financial Inclusion at Accion (CFI) to develop a training program to impart the latest financial education programming insights and best practices to those who would be implementing the national strategy.

This report describes our efforts to communicate behavioral economics best practices to policymakers and practitioners in Colombia, including case studies from Fundación Capital and Banco de la República. We also evaluate the success of our efforts, and make recommendations for further embedding behavioral insights into financial education programming.
<h1>Major Findings</h1>
<h5>WHAT DOES IT TAKE TO BUILD FINANCIA CAPABILITY?</h5>
<h2>Shifting the financial education paradigm in Colombia begins with understanding how to design behaviorally-focused interventions.</h2>
Financial education programs are delivered by financial service providers, government agencies, public schools and universities, research institutions, institutional donors and non-profit organizations throughout Colombia. The majority of these programs are delivered in classroom-based settings, town hall-style lectures, seminars or workshops and employ printed materials and videos to communicate information. These kinds of traditional financial education models are difficult to scale, expensive to implement and often struggle with low attendance and participation.
<blockquote>Traditional financial education models are difficult to scale, expensive to implement and often struggle with low engagement.</blockquote>
Information transfer alone does not adequately engage people in the type of active learning and practice that prompts
behavior change. There is a growing body of evidence showing that financial education interventions that incorporate behavioral economics principles are more likely to improve client’s money management skills than traditional interventions.
By hosting six two-day workshops between for a mix of stakeholders from the public, private, and non-profit sectors in Bogotá, we gave practitioners a holistic understanding of what is necessary to design behaviorally focused interventions. We also asked participants to think deeply about cognitive biases that impact the success of behavior change programs, including procrastination, social norms, limited attention span, predisposition to the present, loss aversion, and default options. We asked participants to identify how these biases affect their lives, underscoring the fact that cognitive biases are present in all of us, not just beneficiaries of social programs or financial product users.

This project gave us a valuable opportunity to put our own behaviorally-informed principles into practice in the development of the workshops. We aimed to make the workshops fun, social and customized to the target audience. We developed simple, memorable rules of thumb for making financial education workshops more effective. Additionally, we were able to leverage what seemed to be somewhat of a national "teachable moment" right at the start of the implementation phase of the National Financial Education Strategy of Colombia. Overall, we are satisfied with the high level of information retention that we found in our follow-up surveys, and we are convinced that this constitutes a very important step in the right direction.

Expanding Financial Capability in Colombia

<ul>
<li>Colombia, Peru, Uruguay, the Philippines and India have the most conducive environments for financial inclusion, driven by a high degree of government coordination</li>
<li>Rwanda and South Africa stand out for the most enabling environments amongst countries in sub-Saharan Africa</li>
<li>Gaps in connectivity infrastructure and digital identification systems represent a barrier for the expansion of digital financial services in sub-Saharan Africa and Middle East and North Africa</li>
<li>E-money is making inroads in countries that allow market entry to a variety of providers</li>
<li>Technology introduces new opportunities and new risks, and most countries still need to increase their commitment to cybersecurity and develop their capacity to enforce data privacy protections</li>
</ul>
<h2>The top-performing countries demonstrate government and policy support for financial inclusion, prioritize financial stability and integrity, and foster inclusion through a variety of products and outlets.</h2>
Colombia, Peru and Uruguay hold the top three spots in the overall rankings in the 2018 Global Microscope on Financial Inclusion. Of the top five overall, only fourth-ranked India has yet to issue a financial inclusion strategy, although the country is following a coordinated, three level-approach and publication of a strategy is expected during 2018-19. Rwanda and South Africa stand out for the most enabling environments amongst countries in sub-Saharan Africa (SSA), tied for 11th place overall. In terms of stability and integrity, leading countries also feature market entry regulations that do not deter new players that serve the low and middle-income population. A common strength among top-ranked countries is the ease with which customers can access a variety of financial products and outlets.
<h2>E-money is making inroads, becoming more accessible as a wider variety of providers are able to enter the market.</h2>
Most countries in the 2018 Microscope have made efforts to facilitate new digital providers and performed well on the market entry restrictions indicator. This overall positive operating environment across the world, along with client demand, is contributing to e-money becoming a leading digital financial product. However in three countries (Chile, Guatemala and Vietnam) there is no legal recognition of e-money and 16 countries have opted for bank-led digital transformations. The research suggests that competition and innovation can make e-money more accessible, especially if a wide range of institutions can become e-money issuers.
<h2>Although many countries in SSA and Middle East and North Africa (MENA) score well on Government and Policy Support, a lack of connectivity infrastructure and digital identification systems limits the expansion of digital financial inclusion.</h2>
In terms of connectivity, most of the SSA countries in the index have substantial room for improvement—although South Africa, Senegal and Ghana scored among the top half of countries in this category. Infrastructure for payments also has considerable room for growth in both regions.
<h2>Technology introduces new risks, and many countries still need to update cybersecurity laws and develop their capacity to enforce data privacy protections.</h2>
In 35 of the 55 countries in the 2018 Microscope, consumer protection regulations generally facilitate financial inclusion, and previous editions have shown gradual strengthening of these protections over time. As digital financial services expand, new consumer risks emerge, and therefore, in the best performing countries, traditional consumer protections are coupled with data privacy and cybersecurity safeguards. Colombia and South Africa have dedicated financial consumer protection frameworks and specialized enforcement capacity, as well as government entities with a strong capacity to enforce data protection laws. However, in most countries data privacy protections are not well developed—42 countries have limited or no capacity to enforce data privacy.
&nbsp;

<ul>
<li><a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/11/EIU_Microscope_2018_PROOF_10.pdf">Global Microscope 2018 (English)</a></li>
<li><a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/10/EIU_Microscope_2018_SP_PROOF_05.pdf">Global Microscope 2018 (Spanish)</a></li>
<li><a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/10/2018_Microscope_29-Oct-2018.xlsm">Global Microscope Model (.xlsm)</a></li>
</ul>
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The 2018 Global Microscope shows countries in Latin America and Asia have the most conducive environments for financial inclusion.

The Global Microscope is a benchmarking index that assesses the enabling environment for financial inclusion in 55 countries. Now in its 11th year, the Microscope is the global standard for financial inclusion policy in developing economies. The 2018 Global Microscope on Financial Inclusion, with a revised research framework, offers a forward-looking focus on the digital financial services now and in the future, and the critical role for financial inclusion envisioned in the Sustainable Development Goals.

The 2018 Global Microscope sets a model for an enabling environment for financial inclusion across five domains: government and policy support, stability and integrity, products and outlets, consumer protection, and infrastructure. The Microscope evaluates the regulatory and policy environment for key players in the financial inclusion space including banks, non-bank financial institutions, e-money issuers and cross-border payment providers. It also focuses on the role of inclusive insurance, financial agents, financial technology (fintech) firms, and credit information providers.

The Global Microscope is produced by The Economist Intelligence Unit (The EIU), with policy guidance and financial support from leading organizations in the field, including CFI.

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Global Microscope 2018: The Enabling Environment for Financial Inclusion and the Expansion of Digital Financial Services

Latest Reports

Read Sezgi&#8217;s full bio on the <a href="https://www.accion.org/bio/sezgi-guler-fuechec">Accion</a> site.

Legal Fellow, Accion

Sezgi Guler-Fuechec

Vice President, Research and Consulting Group, Credit Suisse

Shweta Vashisht

Jasper works with FMO investees and clients to improve corporate governance practices.

Corporate Governance Officer, FMO

Research Director, Grameen Foundation

Bobbi Gray

Chief Data Officer, Commercial International Bank (Egypt)

Islam Zekry

Financial Inclusion and Payments Officer, Development Pathways

Sarina Kidd

Senior Financial Inclusion and Payments Specialist, Development Pathways

Sarah Langhan

External Affairs Manager, Accion U.S. Network 

Lauren  Rosenbaum

Senior Manager, MEL, Caribou Digital

Niamh  Barry

Former Secretariat Director of the United Nations Secretary-General’s Task Force on Digital Financing of the Sustainable Development Goals

Tillman Bruett

Operations Specialist, Investing in Inclusive Finance

Maria Teresa Nagel

Senior Manager, Inclusive Fintech, GSMA

Francesco  Pasti

Madeleine &#8220;Maddy&#8221; Longwell supports the HBS-Accion Program on Strategic Leadership in Inclusive Finance, Financial Inclusion Week, the CFI Research Fellows Program, and other programs and projects.
A recent graduate with a degree in economics from George Washington University, Maddy has previously worked as a research assistant investigating artificial intelligence, digital trade, and data protection issues with Professor Susan Aaronson, and as a reporter on defense contracts for Defense News.

Project Associate and Program Coordinator

Madeleine Longwell

Principal, Anne Folan and Associates

Anne  Folan

Director, Social Performance Task Force

Laura Foose

A 20-year veteran and leader in financial inclusion, Mayada El-Zoghbi became CFI&#8217;s Managing Director in September 2019. She leads the vision and strategy for CFI, building on its strong foundation of innovative, industry-shaping work.
Mayada&#8217;s experience includes serving as Lead for Strategy, Research &amp; Development for CGAP. In that role, she led CGAP’s strategy development and its research on women’s financial inclusion, financial services in crisis environments, and other emerging topics. Prior to this, she managed CGAP’s work with the donor and investor community based in Paris, France.
From 2002 to 2009, Mayada founded and managed a development consulting firm. She has also led numerous technical assistance, evaluation, and research assignments, served as a research director for a USAID initiative, and lectured at Columbia&#8217;s School of International and Public Affairs. Mayada started her career working with several non-profit organizations establishing inclusive financial institutions in the Palestinian Territories, Bosnia and Herzegovina, Croatia and Kosovo.
A dual national of Egypt and the U.S., Mayada is fluent in Arabic and English, and continues to work on improving her French.

Managing Director

Mayada El-Zoghbi

In her role as director of the Smart Campaign, Isabelle leads global efforts to keep clients first in financial inclusion. She comes to the Smart Campaign with over 20 years of experience in financial inclusion and banking. Deeply motivated to reduce inequality and improve the lives of vulnerable people, she has devoted her career to spearheading innovative solutions that increase access to quality financial services and contribute to improving people’s lives. From 2007 to 2010, she managed Kiva’s early operations and developed its global strategy to maximize social impact. She helped to create the MIX in 2002, and led its strategic initiatives until 2007. Isabelle has been a key contributor to best-practice publications on standards and financial performance monitoring, and is a founding member of Women Advancing Microfinance.
Isabelle holds a bachelor’s degree in economics from the University of Montréal, an MBA from McGill University, and a post-graduate degree in development economics from the Sorbonne and is fluent in English, French and Spanish.

Vice President and Campaign Director, Smart Campaign

Isabelle Barrès

Eric conducts and performs financial inclusion research at CFI, helping to ensure that research leads to action. In addition to overseeing CFI&#8217;s research portfolio on financial inclusion innovation, financial capability, financial health, and digital finance, Eric will focus on stakeholder and industry engagement, partnership development, the CFI Fellows Program, Financial Inclusion Week, and the HBS Accion Program on Strategic Leadership in Inclusive Finance.
Prior to joining Accion, Eric worked as Research Director at Microfinance Opportunities, where he completed 14 research projects in Central America, South and Southeast Asia, and Southeastern Africa, producing analysis from surveys with up to 30,000 interviews. During that time, he worked on data management tools to increase research productivity, and directed a multi-country team of up to 60 people. He has also worked as a consultant for the U.S. Agency for International Development, a research assistant, and a math teacher.
Eric holds a Master’s in Public Administration from Syracuse University, and a Bachelor&#8217;s Degree in Economics and Political Sciences from the University of Nevada.
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Senior Research Director 

Eric Noggle

Deborah leads CFI&#8217;s governance and risk management portfolio, including the Board Leadership for Impact Program and the Africa Board Fellowship Program, which are dedicated to strengthening governance and improving risk management and strategy for CEOs and board directors of social enterprises and financial institutions. She also directs the Financial Inclusion Equity Council (FIEC), a membership organization of private entities making equity investments in financial institutions in the developing world.
Deborah is co-editor of The Commercialization of Microfinance: Balancing Business and Development, and the co-author of Alchemists for the Poor: NGOs as Financial Institutions. Prior to joining Accion, she was a banking specialist at the World Bank and a commercial banker. She serves on the boards of the Calmeadow Foundation and Root Capital, and Root’s Peruvian subsidiary, ACCDER.
Deborah is a graduate of Georgetown University and holds an MBA from Babson College. She speaks English, Spanish and Portuguese.

Vice President

Alexandra (Kobishyn) Rizzi is the Senior Director of the Smart Campaign and works closely with the Vice President on Campaign strategy, communications and management.  Prior to joining Accion, Alex was a Project Development Manager at Innovations for Poverty Action where she helped create the Microsavings and Payments Innovation Initiative (now part of the Global Financial Inclusion Initiative), a research fund focused on rigorous impact evaluations of savings products and payment systems.  She has also worked at the Centre for Micro Finance at IFMR Research in Chennai India, where she was the Head of Knowledge Management and Dissemination and contributed to the launch of the Microfinance Researchers Alliance Programme (MRAP).
Alex holds a bachelor’s degree in political science from Princeton University, and a Master of Science in Foreign Service from Georgetown University where she focused on international development and was part of the business diplomacy program.
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Senior Director, Smart Campaign 

Our Experts

Benin’s microfinance industry continues to grow and the country boasts the largest number of institutions in the West African Economic and Monetary Union (WAEMU). Between May-October 2014, BFA conducted qualitative and quantitative data collection, guided by a National Advisory Council chaired by the Alafia Network. What did client voices in Benin tell us?

Benin’s Client Voice research includes the voices of over 1,500 current and former microfinance clients to understand the market’s consumer protection challenges. The Smart Campaign selected Benin as the African market for the Client Voices project for several reasons. First was the need for more demand-side research in Francophone West Africa, as relative to Anglophone East Africa. The Campaign also believed that the relevance of the Benin findings would likely extend beyond the country itself to the other seven members of the West African Economic and Monetary Union (WAEMU) given their operating under a common regulatory regime. Finally, Benin was selected because of the engagement of local stakeholders such as the Consortium Alafia – a 34-member local microfinance association.
<blockquote>Transparency, fair and respectful treatment of clients, and complaint resolutions mechanisms are the key consumer protection concerns for clients in Benin.</blockquote>
From May – October 2014, Bankable Frontier Associates (BFA) and its local research partner the Centre pour L’Environment et le Developpement en Afrique, Benin (CEDA Benin) carried out qualitative and quantitative research. The quantitative survey reached 1,733 Beninois (1,028 current MFI clients, 526 former clients, and 179 non-clients).

Key client protection risks emerged around the issues of transparency, fair treatment and complaint resolution mechanisms. Addressing these concerns requires a market-level approach that takes into consideration the unique role that regulators, the MFI industry, and clients themselves each must play. This page contains the results of the initial qualitative research, the follow-up quantitative survey and the final country report which weaves both pieces together. Finally the page has a link to the raw, anonymized data from the quantitative survey along with the survey instrument so that fellow researchers and client protection data wonks can play draw their own conclusions.

Client Voices: Benin Country Report

Georgia’s microfinance industry’s robust regulatory framework is undergoing reform. The Consumer Protection Division is in the process of becoming an independent agency, highlighting the country’s ongoing dedication to client protection. The reform makes the Client Voice report research timely. Between March and July 2015, BFA conducted qualitative and quantitative research to determine the concerns of microfinance clients in Georgia. What did client voices in Georgia tell us?

Georgia Client Voice research included the perspectives of 1,000 current and former microfinance clients to identify the consumer protection impediments that persist in the country. The Smart Campaign selected Georgia as the market in Eastern Europe and Central Asia for the Client Voices project for several reasons, primarily because of the current regulatory reform at the national level. As the Consumer Protection Division becomes its own entity, operating outside of the regime of the National Bank of Georgia, this research will enrich the discussion and inform the next steps in the country’s consumer protection arena. The building blocks for a thriving industry are already set, including a credit bureau, CreditInfo. Regulators, local partners, and microfinance institutions all have a role to play to raise awareness among clients and cement customer protection in the industry.
<blockquote>Top concerns among microfinance clients in Georgia are: over-indebtedness, appropriate product design and delivery, and transparency.</blockquote>
Various research methods were implemented in the qualitative phase, including focus group discussions, individual in-depth interviews, and a photography exercise to gain a deeper and contextualized understanding of clients’ views of good and bad treatment. The quantitative sample consisted of 800 currently clients and 200 former clients, 59 percent of whom were women.

The research finds that the majority of clients, around 66 percent, are happy with their institutions and thus stay with their institutions for a long time. Primarily, microfinance institutions’ service and treatment was ranked as matching or exceeding commercial banks. However, clients’ understanding of terms and conditions is still lacking, especially around the high risks associated with taking loans in U.S. Dollars.

Client Voices: Georgia Country Report

Pakistan has a thriving microfinance sector and one of the most enabling regulatory environments among microfinance markets globally. From March to October 2014, BFA conducted qualitative and quantitative research in the provinces of Punjub and Sindh, the regions most saturated with microfinance. What did client voices in Pakistan have to tell us?

Pakistan’s Client Voice research includes the voices of roughly 1,000 current and former microfinance clients to identify consumer protection challenges in the country. The Smart Campaign selected Pakistan as the market in Asia for the Client Voices project for several reasons. Notably, a priority objective of this research is to catalyze industry discussion, which requires strong and engaged local partners. The Pakistan Microfinance Network (PMN) has long-demonstrated its leadership and commitment to client protection among its members and was a natural partner for this exercise.
<blockquote>Top concerns among microfinance clients in Pakistan are transparency, fair and respectful treatment of clients, and mechanisms for resolving complaints.</blockquote>
Between March and October 2014, Bankable Frontier Associates conducted qualitative and quantitative research. The qualitative portion included individual interviews as well as participants taking photographs that represented their positive and negative experiences with microfinance. On the quantitative end, over 900 clients and 100 former clients participated in a survey expressing any concerns related to microfinance practices.

The research confirms Pakistan’s advanced consumer protection ecosystem while underlining the issues that persist. Key client protection risks emerged around the issues of harsh treatment of clients, inflexibility in the case of late repayment, and unclear terms and conditions. Unlike other markets, the regulatory environment for the microfinance industry is well-developed in Pakistan with the Credit Information Bureau (MF-CIB) exclusively monitoring activity.

Building on the country’s strong regulatory environment and addressing these client protection concerns requires a market-level approach that takes into consideration the unique role that regulators, local partners, microfinance institutions, networks, and clients themselves each must play.

Client Voices: Pakistan Country Report

Peru has the most conducive environment for microfinance, as evidenced by its top position in the 2015 Global Microscope for its  leading client protection regulatory frameworks. From January through July 2015, BFA conducted qualitative and quantitative research in Peru to determine the biggest concerns of microfinance clients. What did client voices in Peru tell us?

Peru’s Client Voice research included the perspectives of 1,000 current and former microfinance clients to identify consumer protection challenges and opportunities in the country. The Smart Campaign selected Peru as the market in Latin America for the Client Voices project because of its strong consumer protection regulations, recourse mechanism, and well-functioning credit reporting system.
<blockquote>The top concerns that emerged for clients in Peru are prevention of over-indebtedness, transparency, and fair and respectful treatment of clients.</blockquote>
Between January and July 2015, Bankable Frontier Associates (BFA) and Datum International, a local research firm, conducted qualitative and quantitative research. Peruvian clients of savings and loan institutions, cooperatives, and NGOs offering group loans participated in the qualitative research. The quantitative research included 550 current clients and 450 former clients.

Peru has a favorable environment for financial services, in recent years earning the top spot in the Economist Intelligence Unit’s Global Microscope rankings. Although a strong government consumer complaints institution (INDECOPI) exists, over-indebtedness, transparency, and fair and respectful treatment emerge as the most prevalent concerns for clients in Peru. Addressing these concerns requires a market-level approach that takes into consideration the unique role that regulators, the microfinance industry, and clients themselves each must play.

Client Voices: Peru Country Report

Keeping focus on who matters most in financial inclusion

Keeping Clients First

Client Voice Research

<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

Banking Sector Approaches to Customer Engagement and Capability explores how financial institutions are leveraging innovation, new technology, social networks, and other tools that inform and engage customers. This brief builds on the belief that good product design builds the financial capability of customers. The research captures a number of successful models, including:
<ul>
 	<li>RBL offering unsecured loans that allow customers to build up a credit score for the first time in India</li>
 	<li>Standard Bank leveraging existing informal group savings culture combined with a lottery to incentivize and reward savings activity in South Africa,</li>
 	<li>A small cooperative bank “rounding up” loan repayments to create an auto-saving mechanism among credit recipients in Mexico.</li>
</ul>
This brief is part of the Mainstreaming Financial Inclusion: Best Practices initiative which aims to facilitate learning and action on how mainstream financial institutions around the world can reach underserved populations with quality financial services. The project is completed in partnership with the Institute of International Finance (IIF), with support from MetLife Foundation.

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Banking Sector Approaches to Customer Engagement and Capability

We use the term “inclusive  insurance” to encompass many different approaches to reaching the unserved,  underserved, vulnerable, or low-income populations in emerging markets with appropriate and affordable insurance products. These range from microinsurance for people with very little disposable income to new  products and  services for an emerging middle class around the globe who have not been served by traditional  insurance. Based on insights from written submissions and in-depth interviews with 30 people across 22 institutions, this report invites us to re-think the concept of insurance and its fundamental role in society.
<h2>Major Findings</h2>
In  the  broadest  terms,  the  challenges  of  providing  insurance  to  lower-income  population segments are similar to those of providing mainstream insurance: identifying, understanding, and connecting with customers; providing relevant products; and carrying out the administrative work of collecting premiums and paying claims. For customers at the base of the economic pyramid, the small incomes from which premiums must come require insurers to solve these challenges in highly cost-efficient ways. Adding to the intensive cost pressure, several factors amplify the challenge of connecting with these customers: their remote locations, lower education levels, and lack of experience with formal institutions.

Strategies for effectively serving this target market include:
<ul>
 	<li>Simplifying products so they are easy to understand, easy to enroll in, and easy to claim against. For institutions, such simple products engender trust and are lower cost to provide.</li>
 	<li>Finding new distribution channels and aggregators-from telcos to farmer cooperatives to banks—to identify and connect with low-income customers.</li>
 	<li>Leveraging digital channels and new “insurtech” (insurance technology) innovations to connect with, and serve, low-income customers.</li>
 	<li>Implementing new business models and products to provide and administer the risk mitigation solutions at scale that meet low-income customers’ needs.</li>
</ul>
This report is part of a two-year initiative, <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/mainstreaming-financial-inclusion">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 <a href="http://www.iif.org">Institute of International Finance</a>, and made possible with support from <a href="https://www.metlife.com/about/corporate-responsibility/metlife-foundation/index.html">MetLife Foundation</a>.

Inclusive Insurance: Closing the Protection Gap for Emerging Customers

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>.

How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines

Blog Post

With the explosive growth of data and the breakneck pace of digitization, mainstream financial service providers (FSPs) are increasingly turning to new and alternative data sources and analytics tools to more efficiently reach emerging markets and help bring the world’s 1.7 billion underserved people into the formal financial system. This “new data,” largely separate from traditional credit bureau data, represents a tremendous opportunity for commercial banks to identity new customers, many of whom were previously “credit invisible,” and to better understand and serve the needs of their existing client base. However, the path to greater data utilization is not always clear, as FSPs must weigh the benefits of embracing a data-centric approach with significant operational challenges, including changing a risk-adverse banking culture, recruiting top technical talent, upgrading legacy IT infrastructure and navigating a complex regulatory environment. Building upon in-depth interviews with banks, fintechs and other actors, <a href="http://bit.ly/Data4FI">Accelerating Financial Inclusion with New Data</a>—the newest joint report from the Center for Financial Inclusion at Accion (CFI) and the Institute of International Finance (IIF), supported by MetLife Foundation—examines the data landscape and evaluates the progress FSPs have made in innovating around data and areas where they have faced obstacles.
<blockquote>
<h4>The path to greater data utilization is not always clear, as providers must weigh the benefits of embracing a data-centric approach with significant operational challenges.</h4>
</blockquote>
The sheer volume of data now available to mainstream FSPs is truly immense, with some estimates projecting the size of the digital universe to increase five-fold between 2015 and 2020.

<img class="alignnone size-full wp-image-25687" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/2_twittercharts.png" alt="Growth of Global Data Graphic" width="1020" height="512" />

Emerging technologies such as artificial intelligence and blockchain will only enhance providers’ ability to analyze both traditional and non-traditional data. For providers looking to break into emerging markets, leveraging alternative data—which includes, but is not limited to data derived from social media, email, utility payments history, mobile phone and e-commerce activity, and psychometric test results—is a necessity.

It is difficult, in practice, to collect alternative data, convert it into a format which can be readily analyzed, and extract actionable insights without collaborating extensively with external partners or building up internal capacity.

But as our interviews with banks and fintechs revealed, it is difficult, in practice, to collect this data, convert it into a format which can be readily analyzed, and extract actionable insights without collaborating extensively with external partners or building up internal capacity. Banks and fintechs commonly source non-traditional data from third party providers (such as utility companies, social media companies, and mobile network operators), frequently a time-consuming process which is further complicated by data privacy, protection and ownership regulations, KYC requirements, anti-money laundering statutes and the like. FSPs sometimes end up deploying multiple solutions for various jurisdictions/countries to comply with these rules. For example, Artoo—a customer relationship management (CRM) solutions company working with microfinance and other lending institutions in India—had to switch from using Amazon Web Services to another local cloud service provider to satisfy Indian data localization laws that mandate the retention of customer data within the country’s borders.

<img class=" size-full wp-image-25688 aligncenter" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/06/5_twittercharts.png" alt="The data journey infographic" width="1020" height="1167" />

Ultimately, FSPs might find that only some alternative data types are useful, as their utility is contextual and depends heavily upon the particular product or use case in question. There is no “one-size-fits-all” solution for tapping into underserved markets.

Despite the constraints, <a href="http://bit.ly/Data4FI">our research</a> also shows that many FSPs have found success utilizing new data sources and analytics tools. Our report details four snapshots highlighting different products and approaches to data-driven innovation:
<ul>
 	<li>As China’s first private online-only bank, WeBank has capitalized on its connections to tech giant Tencent and utilizes an iterative approach to incorporating social media data into its loan decisioning processes.</li>
 	<li>In Mexico, BBVA Bancomer has pursued partnerships with fintechs to test new alternative credit scoring and customer engagement strategies in combination with internal efforts to change customers’ use of transactional products, such as checking and savings accounts.</li>
 	<li>Following in the footsteps of Bangladesh’s Grameen Bank, Grameen America has taken a high-touch approach by collecting data directly from customers, instead of using credit scores and other external data sources for its lending decisions.</li>
 	<li>SCB Abacus has spun off entirely from Siam Commercial Bank to achieve greater flexibility and autonomy needed to pursue digital innovation.</li>
</ul>
These examples, and others featured throughout the report, underscore the benefits for banks and fintechs of data-centric innovation and proactive engagement with the broader ecosystem of players in this space, including financial regulators and other policymakers.

<a href="http://bit.ly/Data4FI">Accelerating Financial Inclusion with New Data</a> represents a concerted effort to evaluate the impact and potential of new data and analytics techniques for financial inclusion, and illuminate how mainstream financial institutions and fintechs have adapted their strategies to reach underserved customers in this increasingly data-centric world.

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I have been an inclusive insurance enthusiast ever since I worked for Opportunity International and witnessed the experiments that later became <a href="https://microensure.com/">MicroEnsure</a>. In those early days, Richard Leftley framed insurance as the missing piece in the game of Chutes &amp; Ladders (Snakes &amp; Ladders for those outside the U.S.). He likened credit and savings to ladders that could provide a way up for those with lower incomes --but without insurance, each borrower or saver was just one disaster away from slipping back down into destitution. I remember his—at the time—revolutionary concept of paying insurance claims within 10 days or less. He would say that days-to-payout was the only report he wanted on his desk every morning. (Today, of course, payouts can be automatic or even come pre-loss.)

As is often the case with breakthroughs, Richard, of course, was not alone. Thanks to many innovators, an entire industry has emerged with profitable models reaching millions of people, and there is a growing understanding around the world, across social strata of the impact that insurance can have for families, communities and societies. The NGOs that pioneered microinsurance spurred the interest of commercial giants such as Allianz, AXA, MetLife, Swiss Re and Zurich, which have lent their considerable weight to solving the business challenges of extending insurance to underserved and unserved customers. Market catalysts such as A2ii, MicroInsurance Centre, MicroInsurance Network, ILO’s Impact Insurance Facility, and Cenfri have offered insights on everything from the customer experience, to good product design, to proving the business case, to creating an enabling regulatory environment for reaching new insurance markets.

Into this mix comes a new paper on inclusive insurance from the Center for Financial Inclusion at Accion and the Institute of International Finance. <a href="http://bit.ly/2AFOUZa">Inclusive Insurance: Closing the Protection Gap for Emerging Customers</a> gives a global snapshot of the inclusive finance sector, examining how providers have extended service offerings using new technologies and innovative business models, and highlighting the challenges that persist. It suggests how the industry can further expand its reach to this massive, virtually untapped potential market. The study focuses on actual on-the-ground experience of providers in emerging markets.

Here are a few of the report’s main takeaways:

Insurers are bullish on the size of the market opportunity. Using Allianz’ model, which refers to the inclusive insurance market as those with the bottom 60 percent of incomes, we estimate the potential market to be 3.8 billion people worldwide (though more study is needed on segmentation). Insurers report feeling great personal satisfaction about the social impact of their products -- but by far the most significant drivers of inclusive insurance are the base of the pyramid (BOP) market size and the rise of the middle class. In fact, Martin Hintz, previously with Allianz, said, “Don’t get distracted by charity! There is a clear business case.”

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/market-graphic.png"><img class="wp-image-24870" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/market-graphic.png" alt="" width="614" height="349" /></a>

Insurtech goes far beyond mobile payments. Insurers are using tech innovations to build new products, increase trust among customers, and more. In Colombia, prospective DaviPlata customers can send an SMS with their national ID number and they are instantly enrolled. In Indonesia, robo-calls and automated text messages teach Allianz customers about the products they are already enrolled in and build customer trust and loyalty.  In Zimbabwe, weather satellite systems provide data that allows Blue Marble Microinsurance to offer parametric insurance with automatic payments in the event of drought – without customers even submitting a claim! And all around the world, new sources of data are available on customers who were previously invisible, with sophisticated analytics making it possible to design products to meet their needs.

Simplicity is the best innovation for the BOP. Insurers are cutting down costs and reaching new customers by simplifying processes and products. MicroEnsure has designed life, accident and hospitalization products with no exclusions, which dramatically reduces the cost of enrollment. Some policies are based only on phone numbers, without even capturing customer names, ages or any demographic information. Recognizing that lower income people often prefer to pay for things in small increments, Lorenzo Chan of Pioneer Life in the Philippines promotes “insurance in a sachet”—a concept that in many emerging markets is yielding trials of micro terms, micro cover and micro payments. And Aviva looks at the full range of services people need at different life stages (not limited to insurance), and bundles them together into simple packages that, in their words, “kill complexity.” Take, for example, the wonderfully named YOU, ME and WE products in Poland. In the case of WE, the needs of young families are met through a bundle that includes insurance for property, education, childcare, critical illness for parents and children, disability, and household goods.

New customers are being identified. AXA has shared a <a href="https://cdn.axa.com/www-axa-com%2F57b5a3a4-c7cc-4dea-97c9-5f7d9f47232c_sheforshield_final-web2015.pdf">landscape study</a> on the women’s market for insurance, predicting the annual premium value of the women’s global market to grow six to nine times by 2030 to between $569 and $874 billion. Met99 is reaching rural residents in Mexico by partnering with the Government. And insurers are looking at the customer journey for low-income mass markets for health insurance in India as well as for niche markets such as motorcyclists working in the sharing economy.

Insurers see new opportunities to move risk models from protection to prevention. This is especially apparent in regards to climate risk. As an example, Blue Marble Microinsurance, Swiss Re, and others are not only ensuring that farmers have agriculture insurance and other financial services, but they are also working with a range of partners to provide access to farm inputs that help guard against climate risk through water conservation methods and other climate-smart strategies.

Distribution channels make or break inclusive insurance. Microinsurance was first distributed through community organizations, microfinance institutions and cooperatives that addressed the last mile challenge and served hard-to-reach customers. In the last 10 years, mobile network operators have stepped in with the convenience of payments by mobile phones and banks have begun to cross-sell as part of their bouquet of services. Insurers are working with retailers, postal banks, workplaces, governments, and everyone you can think of to aggregate customers and find convenient ways to reach them. CARD Pioneer Microinsurance (CPMI) in the Philippines works with over 70 distribution partners.

This last point is one of the key findings of the report -- that insurers are doing their part, but they can only do so much on their own. They need partners from the private, public, and non-profit sectors to come alongside to make protection possible for all. In his foreword, Denis Duverne of AXA writes that “Informal risk management is ten times less efficient than formal protection mechanisms, and one single emergency can force families to sell productive assets, move back to the village, remove children from school to help the household earn extra income or go back into poverty.” With these kinds of consequences, the real life game of Chutes &amp; Ladders takes on added urgency, and all those who can play a part in ensuring protection for the vulnerable should seek an insurer to partner with. The insurers are ready.

To learn more about inclusive insurance, from the many sources doing good work around the world, see the curated <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/12/inclusive-insurance-resource-list-pdf-final.pdf">Resource List</a> that accompanies <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/973-inclusive-insurance-closing-the-protection-gap-for-emerging-customers">the paper</a> to get a glimpse of the wealth of material that insurance experts have produced.

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Have you read?

<a href="https://cfi-blog.org/2017/04/13/making-microinsurance-work-in-bangladesh-three-takeaways/">Making Microinsurance Work in Bangladesh: Three Takeaways</a>

<a href="https://cfi-blog.org/2014/10/06/bundling-mhealth-info-and-microinsurance-to-improve-health-outcomes-in-kenya/">Bundling mHealth Info and Microinsurance to Improve Health Outcomes in Kenya</a>

<a href="https://cfi-blog.org/2014/08/29/the-formula-for-mobile-microinsurance-success-in-senegal-and-pakistan/">The Forumula for Mobile Microinsurance Success in Senegal and Pakistan</a>

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Mainstreaming Financial Inclusion Series

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Ethan Loufield

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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.

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. 

Allyse McGrath

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Financial institutions are leveraging innovation, new technology, social networks, and other tools that inform and engage customers. In doing so, banks are driving greater use of products and increasing consumer confidence.

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This report illuminates the market opportunities and challenges associated with expanding coverage to underserved customer segments and the efforts insurers and banks around the world are making to help them manage and mitigate financial risk.

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