The theme for Financial Inclusion Week (FIW) 2022 was “Inclusive Growth in a Digital Era.” For years, financial products and services have been moving digital, and the pandemic further accelerated the trend toward digitalization. As digital becomes the new norm, we must ensure that these services are safe and inclusive of all people and do not exacerbate the exclusion of marginalized and vulnerable groups. FIW 2022 explored how the global financial inclusion community can harness digital innovation to expand inclusive financial services for all people across the globe, ensuring that products meet customer needs, have appropriate safeguards in place, and contribute to inclusive economic growth.

FIW 2022 hosted 125 live and on-demand sessions, featuring nearly 400 speakers from around the world. With over 3,330 registered participants from 2,000 organizations and 146 countries, FIW 2022 was the largest event to date.

To capture the learnings and key takeaways from the many Financial Inclusion Week 2022 sessions, CFI is compiling short summaries that highlight content and ideas from FIW 2022 sessions on select topics.

FIW 2022 Recap

The <a href="https://www.inclusivefintech50.com" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> application data from the third year signals continued progress on innovations to onboard low-income customers, despite the challenges posed by the pandemic:
<ul>
 	<li>Inclusive fintechs are using creative approaches to serve new customers. From retail partnerships that help drive customer acquisition, to insurance platforms offering micro-coverage, to native language chatbots, to enhanced biometric identity verification solutions, early-stage inclusive fintechs are pursuing outside-the-box solutions to reach un/underbanked people around the world.</li>
</ul>
Nevertheless, there are two areas of concern:
<ul>
 	<li>Funding concentration persists. While fintech investments across emerging markets have been increasing, early-stage inclusive fintechs continue to face disparities based on geography, funding status, and gender.</li>
 	<li>Potential customer risks persist around data usage. Although data is central to the business models of inclusive fintechs, some applicants require customer consent related to data, and some still do not.</li>
</ul>

Insights from the 2021 Inclusive Fintech 50 Applicant Pool

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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Accelerating Financial Inclusion with New Data

<span style="text-align: left;color: #333333;text-indent: 0px;letter-spacing: normal;font-family: Georgia,'Times New Roman','Bitstream Charter',Times,serif;font-size: 16px;font-variant: normal;font-weight: 400;text-decoration: none;cursor: text;float: none;background-color: transparent">This post originally appeared on <a href="https://www.ictworks.org/do-farmers-really-want-to-be-paid-in-mobile-money/#.Wyqvx6kpDBL">ICTworks</a><span style="float: none;background-color: transparent;color: #333333;cursor: text;font-family: Georgia,'Times New Roman','Bitstream Charter',Times,serif;font-size: 16px;font-style: normal;font-variant: normal;font-weight: 400;letter-spacing: normal;text-align: left;text-decoration: none;text-indent: 0px"> and is re-posted here with permission.

&gt; Posted by By Chrissy Martin, U.S. Global Development Lab, USAID


Do farmers really want to be paid in mobile money? To answer this question, I’ll ask you to first entertain a brief thought experiment.

Imagine that your employer told you that next pay period, your company will start paying you in <a href="https://bitcoin.org/en/">Bitcoin</a>.  How would you react?  Sure you’ve heard about Bitcoin, but you have lots of questions as to what it will mean to receive your salary this way, such as:
<ul>
 	<li>Am I getting swindled?!</li>
 	<li>Where can I use bitcoin?</li>
 	<li>Can I spend it like dollars, or will I have to convert into dollars first?</li>
 	<li>Where can I convert?</li>
 	<li>How much is the conversion fee?</li>
 	<li>Will I be paid into my same bank account?</li>
</ul>


Your employer has some responses to your questions:
<ul>
 	<li>There are <a href="http://coinmap.org/">only a few places to use Bitcoin</a> in Washington, DC.</li>
 	<li>In order to spend your money anywhere else, you’ll have to convert first, and pay a fee to do so.</li>
 	<li>You’ll have to set up a new account, and learn a new app.</li>
 	<li>If you want to help to learn this new system, you can take unpaid leave to sit in a classroom and attend a financial literacy training…</li>
</ul>
<h3>Your Response to Bitcoin Is Their Response to Mobile Money</h3>
Perhaps this sounds like a less than ideal situation, but it really is not that different from how a farmer must feel when the company they usually sell their produce to decides, or offers, to start paying them in mobile money.

Maybe the farmer has heard of mobile money; she’s heard some good things, but she’s also heard some stories about fraud.  Besides, she’s used to cash, and she doesn’t have the luxury of time to learn an entirely new system since she needs to tend to her farm, her children, and the other side jobs she takes on to help pay the bills.

Why is this thought experiment relevant? Efforts are currently underway in many countries to digitize payments along the agricultural value chain. This is due to both the growing evidence that access to a digital account increases household resilience and the potential for mobile money to increase farmers’ access to financing (think loans for inputs) and markets (think connections to more buyers and the ability to lock in better prices).
<h3>Three Ways to Improve Mobile Money Adoption</h3>
Often, the assumption is that we should start by digitizing payments from buyers to farmers. These are large, bulk payments that can be transitioned from cash to electronic fairly easily, from a technology standpoint. This would get money into the farmer’s mobile wallet so that they start to become familiar with the concept.

However, in select value chains in Uganda, USAID and our partners are finding that this is not necessarily the best way to encourage adoption. While some agribusinesses and farmers are signing on enthusiastically, we’re not yet seeing the type of scale that is necessary to really start building out a rural digital financial ecosystem.

Based on this experience, I see three keys shifts underway that can help:

1. We need to ask what the farmer actually wants.  

The payments first approach to digitizing the value chain fails to start with an understanding of the farmer’s interest in transitioning to mobile money, as we start to understand when we consider the idea of transitioning our own salary to Bitcoin.  The farmer, who may not have a mobile phone, who may rarely leave her farm and may never have been to bank, is often perfectly happy with cash.

So, we have to ask, what does the farmer need?  Access to credit for inputs, on-demand production and marketing services, access to household solar through a digital pay-as-you-go plan, and an easy way to pay for school fees are all products that are based on real constraints that many farmers in Uganda face.

To better understand what makes mobile money attractive to a farmer, United Nations Capital Development Fund (UNCDF) and <a href="http://www.cgap.org/about"> </a><a href="http://www.cgap.org/about">CGAP</a> are undertaking a <a href="http://mm4p.uncdf.org/tags/value-proposition-mapping">Value Proposition Mapping</a>, which will help the private sector tailor products accordingly.

2. We need to expand our idea of the user.

When we talk about being user-centered, we often think immediately of the individual.  However, within a value chain, we need to think of the incentives and capacities for a wide variety of users, including the farmer, other members of the farmer’s household, the agribusiness, the cooperative, the community savings group, and the mobile money provider.

For example, we’re finding that agribusinesses may need significant system upgrades and process changes to transition away from paper based processes.

3. We need to reassess the starting point. 

As we’re finding through Digital Development for Feed the Future, a three-year collaboration between the Global Development Lab and the Bureau for Food Security within USAID, improving data collection and data usability underpins all of our efforts to improve agricultural results through digital tools.

For example, our partner in Uganda, <a href="http://akorion.com/">Akorion</a>, is facilitating input loans to farmers with digital farmer profiles that provide banks with detailed information on which they can base creditworthiness. Through its market system digitization platform and Ezy-Agric, Akorion bridges the information and service delivery gap for farmers and agribusinesses.

These three suggestions are based on our experience to-date in Uganda, as well as the experience of USAID’s partners, including <a href="http://www.siaedge.com/">Strategic Impact Advisors</a> and <a href="http://mm4p.uncdf.org/">UNCDF</a>’s program in Uganda.  However, these suggestions all need to be tested and may change or need to be modified quickly.

The key takeaway?  Remember to challenge your assumptions by always taking a minute to imagine yourself in a similar situation.  How would you feel?

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Do Farmers Really Want to Be Paid in Mobile Money?

Is cryptocurrency a household word now? How about blockchain or Bitcoin? You don’t have to be immersed in financial services to regularly hear about the <a href="https://www.cnbc.com/2018/01/10/in-the-world-of-cryptocurrency-buzz-blockchain-is-the-real-winner.html">soaring values</a> of digital currencies, the launch of new products and systems, and other industry developments. Just last week, for example, the Government of Venezuela announced that it was launching a national cryptocurrency backed by its petrol supply. Switzerland is doing the same. And they’re only two of a <a href="https://mashable.com/2018/01/08/cryptocurrency-bitcoin-governments/#2p4BhpujcaqI">growing list</a> of countries actively exploring alternative digital currencies.

This week I came across <a href="https://www.nytimes.com/2018/02/25/business/cryptocurrency-women-blockchain-bros.html?rref=collection%2Fsectioncollection%2Fbusiness">an article</a> that punctuated the flow of hype, an eye-opening piece from Nellie Bowles for The New York Times on what probably won’t come as much of a surprise: the cryptocurrency industry is incredibly male-dominated.

Bowles shares a collection of industry statistics and anecdotes that range from the vanishingly small representation of women in the industry to sexist marketing tactics. For example, studies indicate that only roughly 5 percent of investors in blockchain are women. And at the North American Bitcoin Conference held in January, there were only three female speakers to 84 that were male. Even harder to believe, the official conference party was held at a Miami strip club. I wish I was kidding.

Given how new cryptocurrencies and blockchain are, it’s not surprising that beyond what’s shared in Bowles’ article, there aren’t many statistics on gender diversity in the sector. Through heavy Googling I was able to dig up the following:
<ul>
 	<li>Figures on women cryptocurrency users vary across surveys, though they hover at roughly <a href="https://www.forbes.com/sites/lamjackie/2017/12/10/where-are-the-women-in-the-blockchain-network/#3805ddf6530a">5 percent</a> of all users.</li>
 	<li>In 2017, those who invested in Bitcoin experienced wealth creation of roughly <a href="https://www.forbes.com/sites/lamjackie/2017/12/10/where-are-the-women-in-the-blockchain-network/#3805ddf6530a">$85 billion</a>, and only $5 billion of that went to women.</li>
 	<li><a href="http://fortune.com/2017/12/12/bitcoin-cryptocurrency-women/">Four out of the 30 largest</a> ICOs (<a href="https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp">Initial Coin Offerings</a>) in 2017 were organizations with women founders or co-founders.</li>
 	<li>Digital Currency Group, a venture capital company focused on digital currencies, has an investment portfolio of 67 companies. Women make up only <a href="http://fortune.com/2017/12/12/bitcoin-cryptocurrency-women/">17 percent</a> of those companies’ staff. One-third of these investees have no women staff at all.</li>
</ul>
It’s no secret that today’s tech industry is far from gender-balanced. <a href="http://www.pionline.com/article/20171206/ONLINE/171209897/ctw-investment-group-calls-on-amazon-to-improve-gender-diversity">Amazon</a>, <a href="http://www.washingtonexaminer.com/apple-struggles-to-live-up-to-its-own-values-of-gender-diversity/article/2627362">Apple</a>, <a href="http://fortune.com/2017/06/29/google-2017-diversity-report/">Google</a>, and <a href="https://www.forbes.com/sites/clareoconnor/2017/08/02/facebooks-diversity-report-shows-gains-for-women-but-workforce-remains-very-white/#47e1b3d34375">Facebook</a> have all come under fire for lack of gender diversity in recent years. Why should the nascent world of cryptocurrency be any different, especially in considering that it hasn’t yet rose to the level of scrutiny of the “Big Four” tech companies?

Regardless of how we got to this point, it doesn’t have to be this way. In fact, it hasn’t always been this way. In 1984, nearly <a href="https://www.theatlantic.com/video/index/519426/how-did-tech-become-so-male-dominated/">40 percent</a> of computer science majors were women. Nowadays, about one-quarter of computing jobs are held by women.

However, there are bright spots. Collective Future was <a href="https://www.nytimes.com/2018/02/25/business/cryptocurrency-women-blockchain-bros.html?rref=collection%2Fsectioncollection%2Fbusiness">recently formed</a> by two venture capitalists, with the goal of advocating for gender diversity in the blockchain industry and creating a diversity pledge for companies to sign as a gesture of commitment. One of the U.S. industry’s largest digital currency exchanges, Coinbase, reports that <a href="http://fortune.com/2017/12/12/bitcoin-cryptocurrency-women/">46 percent</a> of its hires in 2017 were women or racially diverse. And lastly, perhaps most encouragingly, cryptocurrencies and blockchain are becoming <a href="https://www.nytimes.com/2018/02/08/technology/cryptocurrencies-come-to-campus.html">increasingly popular</a> class topics at graduate schools throughout the United States.

Stay tuned for International Women’s Day next week when we’ll spotlight some of the ways in which financial services are becoming more inclusive for women.

Featured image credit: <a href="https://www.flickr.com/photos/155621829@N02/27908153579/">Casino Lobby</a> 

Have you read?

<a href="https://cfi-blog.org/2017/08/08/icici-bank-and-stellar-using-blockchain-to-reach-the-base-of-the-pyramid-in-india/">ICICI Bank and Stellar: Using Blockchain to Reach the Base of the Pyramid in India</a>

<a href="https://cfi-blog.org/2017/04/04/what-happens-if-the-blockchain-breaks/">What Happens If the Blockchain Breaks?</a>

<a href="https://cfi-blog.org/2018/01/18/how-technology-is-propelling-inclusive-insurance/">How Technology Is Propelling Inclusive Insurance</a>

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Is Cryptocurrency Just a Guy Thing?

[caption id="attachment_23941" align="alignright" width="597"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/icici-bank-and-stellar.jpg"><img class="wp-image-23941" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/icici-bank-and-stellar.jpg?w=490" alt="" width="597" height="603" /></a> ICICI Bank and Stellar: A look at a transaction enabled by blockchain. [/caption]

Why are mainstream financial institutions and fintechs partnering to pursue financial inclusion? In the case of ICICI Bank and Stellar, it’s because combining forces enables them to reach clients with a free blockchain-backed mobile wallet that they could not sustainably offer on their own.

Last week we released a new joint report with the Institute of International Finance (IIF), <a href="http://bit.ly/2uWXvFQ">How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</a>. As part of the report, CFI and IIF conducted in-depth interviews with over 30 industry participants. We discovered dozens of partnerships between mainstream financial institutions and fintechs in emerging markets, and we detailed the workings of 14 of them.

The story of ICICI Bank and Stellar began when an ICICI Bank senior executive read a book about new technologies. The book mentioned a blockchain company in Silicon Valley called Stellar. Fast forward to today, Stellar now provides ICICI Bank with an open-source online ledger, or blockchain, designed to oversee the movement of money. ICICI Bank customers in India and abroad can transfer money through a free mobile wallet over Stellar’s platform. These transfers are made in real fiat currency, but internally they are documented in cryptocurrency. While the transfers are recorded on Stellar’s ledger in a cryptocurrency called ‘lumens,’ ICICI Bank holds the value for these transactions in Indian rupees in a pooled account. Due to the open nature of Stellar’s platform, ICICI Bank customers can transfer money to customers at any other bank on the platform. Stellar’s open platform has allowed ICICI Bank to easily connect with financial institutions that it might not have connected with otherwise.

The partnership is expected to help transform the way value is transferred—both within the bank and between the bank and other institutions. Following the establishment of 300,000 accounts, the bank will pay Stellar a fee for each additional account. This low pricing allows ICICI Bank to provide the wallet free to customers, enabling the bank to serve lower-income segments than it can reach with more traditional money transfer services.

Currently, ICICI is piloting the mobile wallet on university campuses in India. The bank envisions that it will become a core product for underbanked customers in the future.

Bank-Fintech Partnerships Are a Win-Win-Win

As we see with ICICI Bank and Stellar, partnering with fintechs is enabling mainstream financial institutions to create profitable and useful services including some that solve traditional problems in much more efficient ways. And this arrangement is a win-win-win for everyone. Banks can offer new services or reach new segments, while fintechs get to scale their technology and access growth capital. Customers, in turn, are offered a wider range of product options.

In another example, in Ghana, Stanbic Bank’s partnership with DreamOval led to the creation of Slydepay, a mobile money platform that serves both individuals and businesses with solutions tailored for the local Ghanaian market. And in Spain, Santander is partnering with PayKey to integrate a person-to-person payments function into popular messaging applications such as WhatsApp and Facebook Messenger. These partnerships were expected to increase customer loyalty and keep customers engaged in the long-run.

Many of the partnerships we identified focused on mobile payments. We see these moves to partner as responses to competition from mobile money providers. In addition to adding features and convenience to standard bank services, the products these banks are offering attempt to go one step beyond MNOs by bringing interoperability into the mobile money market, including acceptance of transactions from multiple mobile money providers and easy transfers between customers at different institutions.

For more on bank-fintech partnerships, including other standout examples, read the report: <a href="http://bit.ly/2uWXvFQ">How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines.</a>

Have you read?

<a href="https://cfi-blog.org/2017/07/31/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines/">How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</a>

<a href="https://cfi-blog.org/2016/07/21/new-cfi-and-iif-report-reveals-banks-are-leading-financial-inclusion/">New CFI and IIF Report Reveals Banks Are Leading on Financial Inclusion</a>

<a href="https://cfi-blog.org/2016/09/08/the-new-wave-of-partnership-models-between-banks-and-fintech-startups/">The New Wave of Partnership Models Between Banks and Fintech Startups</a>

ICICI Bank and Stellar: Using Blockchain to Reach the Base of the Pyramid in India

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

When you receive a chain letter, it usually promises that you will receive great rewards, but only if you don’t break the chain. When you do break the chain, it’s generally because you don’t trust those promises. While blockchain technology offers a different equation, trust in its promises is equally important.

Many within the financial inclusion community have been (understandably) excited about <a href="https://www.stellar.org/how-it-works/stellar-basics/#how-it-works">the potential of blockchain</a> and smart contracts to enable greater financial access for customers at the base of the pyramid. Blockchain – which underpins Bitcoin and other cryptocurrencies – is a shared distributed, decentralized ledger technology (DLT) that keeps a permanent record of transactions that take place across a public or private network of computers. (IBM’s Think Academy has a <a href="https://youtu.be/lD9KAnkZUjU">helpful primer</a> on how this process works.) Blockchain could be promising for financial inclusion for a number of reasons, including cutting service costs by eliminating financial intermediaries. Blockchain has already been applied to a diverse array of sectors. Beyond the world of finance, blockchain has been used in <a href="https://techcrunch.com/2016/11/24/blockchain-has-the-potential-to-revolutionize-the-supply-chain/">supply chain management, logistics</a>, <a href="https://techcrunch.com/2016/02/06/3-ways-that-blockchain-will-change-the-real-estate-market/">real estate</a>, <a href="https://www.greentechmedia.com/articles/read/bringing-blockchain-technology-to-the-grid">distributed energy resources</a>, <a href="http://www.pymnts.com/blockchain/2016/blockchain-tracker-technology-in-retail/">retail</a>, and even the diamond industry (as part of <a href="https://bravenewcoin.com/news/kimberly-process-pilots-a-blockchain-for-tracking-the-worlds-diamonds/">the Kimberley Process</a> certification scheme). Yet, blockchain is still a relatively nascent technology. Its first widespread use in Bitcoin was first introduced in late 2008. And as with other financial innovations, blockchain poses potential risks that may be difficult to foresee and <a href="https://www.treasury.gov/initiatives/fsoc/studies-reports/Documents/FSOC%202016%20Annual%20Report.pdf">challenging for regulators</a> to effectively monitor, although <a href="http://www.pcmag.com/article/350088/blockchain-in-2017-the-year-of-smart-contracts">some U.S. regulators</a> have already been engaging with blockchain applications in recent years. One use case of blockchain – the smart contract – has been identified as a potential pain point for the broader adoption and scalability of the technology.

On a blockchain, a smart contract consists of self-executing code that automatically implements the terms of an agreement between parties based on certain pre-defined criteria. <a href="http://www.coindesk.com/making-sense-smart-contracts/">“Smart contract code”</a>, is stored, verified and executed on a blockchain. As different from other kinds of software, smart contracts are recorded on the blockchain, can control blockchain assets, and are executed by the blockchain. For example, following “if, then” logic, if I want to send $20 to a friend across the country, then $20 will be deducted from my account and transmitted to my friend only if I have the requisite funds. Once I indicate that I would like a transaction carried out, the blockchain and its self-executing code performs the transaction, including seamless/automated digital coordination among the related financial entities, according to the parameters set forth in the embedded smart contracts.

Smart contracts, therefore, <a href="https://dupress.deloitte.com/dup-us-en/focus/signals-for-strategists/using-blockchain-for-smart-contracts.html">reduce transactional risks and potentially other costs</a> – such as manipulation, intervention, manual error, or other inefficiencies created through the involvement of traditional intermediaries and other third parties – through nondiscriminatory transaction execution and validation. All transactions are recorded simultaneously and permanently across the nodes of the entire distributed ledger system.

Within the context of financial inclusion, smart contracts allow users to <a href="https://www.stellar.org/how-it-works/powered-by-stellar/">send remittances across the globe with lower fees</a> than traditional money transfer operators and fewer intermediaries. Smart contracts can also help to provide <a href="https://youtu.be/V3DcISaDS7Q">economic identities for some of the world’s most vulnerable populations</a>, such as refugees and internally displaced persons (IDPs). BanQu, for example, enables individuals to set up a personal digital identification profile and accumulate a transaction history on the BanQu blockchain, creating a footprint for the unbanked to participate in the global economy.

Even with these advantages, smart contracts are not impervious to human error. Smart contracts are only as smart as the programming code on which they are based. Recent attacks on blockchain applications, particularly <a href="https://qz.com/710126/a-massive-79-million-heist-just-happened-and-its-threatening-the-future-of-blockchains/">the nearly $80 million hack of “The DAO”</a> – a crowdsourcing venture capital platform based on the Ethereum blockchain – in mid-2016 have underscored the importance of programming code in ensuring the security of blockchain-based transactions. The DAO hack was enabled by a vulnerability in the code of the blockchain’s smart contract. <a href="http://pastebin.com/CcGUBgDG">The attacker’s knowledge</a> of a particular feature in the code demonstrated that such an asymmetry in information could prove to be a lucrative, if nefarious or even illegal, competitive advantage.

As acknowledged by Ripple’s CTO Stefan Thomas, blockchain technology <a href="https://www.ft.com/content/05b5efa4-7382-11e6-bf48-b372cdb1043a">lacks a history</a> of secure code, and specialists have not yet had enough time to anticipate what those flaws might be. Others too <a href="https://www.americanbanker.com/news/does-blockchain-tech-solve-security-problems-or-cause-new-ones">have suggested</a> that smart contracts be written, tested, and deployed in well-defined processes with strong controls around them. Yet, some <a href="http://knowledge.wharton.upenn.edu/article/blockchain-next-great-hope-hype/">have cautioned against</a> the implementation of too many security protection measures, which would <a href="http://www.multichain.com/blog/2015/11/smart-contracts-slow-blockchains/">decrease the efficiency</a> of the blockchain and may obviate the value of the technology in the first place.

Considering this, the role of trust in blockchain applications should not be overlooked. Blockchain technology and smart contracts have been designed to <a href="https://aeon.co/essays/trust-the-inside-story-of-the-rise-and-fall-of-ethereum">reassign trust</a> from more traditional laws and institutions – including the intermediaries the blockchain largely aims to eliminate – to the community of individuals who support the blockchain itself. Blockchain, however, cannot entirely eliminate or automate the human dimension of trust. The stability of the entire blockchain depends on its users placing stock in the individuals who able to verify the code, thereby ensuring that smart contracts will be executed as intended. Without centralized oversight, end users must trust that these gatekeepers share the same values and belief in the blockchain platform as themselves, and wouldn’t act to undermine the system by exploiting vulnerabilities for personal gain.

For the most financially vulnerable populations, the democratic nature of the blockchain and the current application of smart contracts might be a double-edged sword: while BoP users may benefit from some reductions in transaction costs as a result of less intermediation, without lawyers and other middlemen, it is unclear what protections or legal recourse these users would have in the event that their blockchain-enabled transactions are compromised. Furthermore, if even highly financially-literate and tech-savvy consumers cannot see fatal flaws in the smart contract code, can we reasonably expect less financially- and technically-literate users at the base of the pyramid to catch these same mistakes, even if the code is theoretically open to the public eye? And even if BoP users could afford the services of lawyers who were well-versed in blockchain and smart contract coding, can we really be certain these individuals could recognize and enforce airtight smart contracts?

It is naïve, and even dangerous, to take an overly optimistic and utopian vision of blockchain and smart contract technology without further scrutiny of these unresolved fundamental issues on the alignment of economic incentives of users, consensus mechanisms, and trust. Until we have a better understanding of the potential benefits and harms to end users and a broader consensus regarding the larger aims blockchain and smart contract technologies are meant to achieve, such as those promoted by the <a href="https://digitalchamber.org/initiatives/smart-contracts-alliance/">Smart Contracts Alliance</a>, for example, we must be careful about extending blockchain-based services to those who stand to lose the most when something goes wrong.

Have you read?

<a href="https://cfi-blog.org/2014/06/24/bitcoin-and-the-bottom-of-the-pyramid-how-cryptocurrency-can-make-good-on-its-promise-of-financial-inclusion/">Bitcoin and the Bottom of the Pyramid: How Cryptocurrency Can Make Good on Its Promise of Financial Inclusion</a>

<a href="https://cfi-blog.org/2016/09/08/the-new-wave-of-partnership-models-between-banks-and-fintech-startups/">The New Wave of Partnership Models Between Banks and Fintech Startups</a>

<a href="https://cfi-blog.org/2017/02/22/10-things-ive-learned-from-the-cfi-fellows-program/">10 Things I've Learned from the CFI Fellows Program</a>

What Happens if the Blockchain Breaks?

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/?edition_id=c815aa20-a8b8-11e5-b5fd-002590a5ba2d&amp;utm_campaign=paper_sub&amp;utm_medium=email&amp;utm_source=subscription"><img class="aligncenter wp-image-20289" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/12/12-22-2015-fi2020-news-feed.png" alt="" width="620" height="315" /></a>

The latest edition of the <a href="http://newsfeed.financialinclusion2020.org/">Financial Inclusion 2020 News Feed,</a> our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are: Omidyar Network investing in eCurrency Mint, a company that has developed a new technology that enables central banks to issue digital fiat currency; FMO, the Dutch development bank, providing a five-year US$10 million loan to benefit VisionFund International's MFIs in rural Africa; Tyler Wry, a professor of management at Wharton, discussing his research on how patriarchal power manifests itself in microfinance. Here are a few more details:
<ul>
 	<li>Omidyar's investment in eCurrency Mint was made through the firm's Financial Inclusion Initiative. The digital fiat currency, called eCurrency, is issued by a central bank and has the same legal and monetary status as notes and coins - differentiating it from the various forms of private sector digital value available today.</li>
 	<li>FMO’s investment in VisionFund International’s African MFI network will help support the growth of these institutions via debt capital. Additionally, FMO provided a US$275,000 capacity development grant to support VisionFund in creating an innovative approach to disaster resilient microfinance.</li>
 	<li>In a video interview with Knowledge@Wharton, Wry discusses findings on gender and microfinance from his recent paper "Bringing Societal Institutions Back In: How Patriarchy Affects Social Outreach". The baseline finding from the research is that when you have a high level of patriarchy in the state, in religion, in the professions, and in the family, it makes it harder for microfinance organizations to lend to them for a number of different reasons.</li>
</ul>
For more information on these and other stories, read the latest issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Jeffrey Riecke at <a href="mailto:jriecke@accion.org">jriecke@accion.org</a>.

Digital Fiat Currency, Investing in Rural, Patriarchal Power – The Latest FI2020 News Feed

&gt; Posted by David Porteous and Gavin Krugel, Chair and CEO, the Digital Frontiers Institute (DFI)

<img class="alignright wp-image-20088" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/11/thumb_21a389fc936c4c6e8e106faf3f8e8f441.jpg" alt="" width="326" height="217" />We have each been involved in the field of payments in some way or other for fifteen years at least. One of us (David) started through the design of a new credit card program for a bank; but soon had the opportunity to experience some of the earliest mobile payment schemes then emerging in Africa from 2003 and thereafter to be more engaged in the policy and strategy issues of mobile money. The other (Gavin) started as lost card call center clerk from where his payment career developed through new product design, delivery and management to being one of the early pioneers of mobile money.

In the early days of mobile money, there was no foundational training available which would have enabled us better to understand the height and breadth of the journey on which we were embarking. Both of us learned ‘on the job’—sometimes from other people more experienced than we were, and sometimes just through having to work through the issues ourselves. Learning on the job in a new field can be fun; but it also is slower. Today, we view as self-evident a range of issues which were anything but in the early days. We certainly had little idea at the outset that payments was a field in itself, worthy of our professional focus. If anything, we first experienced payments as an outgrowth of banking, done mainly by banks, for banks, for the purpose of collecting their loans, for example.

How the field has grown since then! Technological change has swept up and down the payment value chain. The number and nature of payment providers has exploded. So has the scale of related ambition to accelerate it further. In 2015, the World Bank President Kim launched the goal of <a href="http://www.worldbank.org/en/news/infographic/2015/09/03/getting-to-universal-financial-access-2020">Universal Financial Access by 2020</a>, which means every adult on the planet having what amounts to a payment account—a safe store of value to and from which digital transfers can be made.

In the midst of the accelerating growth in complexity and scale of payment sectors worldwide, we find that the biggest constraint today is not shortage of funding—money is pouring into fintech ventures from investors, and even from donors to build payment infrastructure. Nor is it lack of opportunity, as fintech startups find new space in which to compete. The biggest global constraint is human: a shortage of the capabilities and competences which undergird capacity within organizations new and old, public and private.

This shortage is especially marked considering the scale of the disruptions now underway, affecting business models, regulatory systems, and consumer rights alike. We have witnessed how innovation within payment systems has crept inwards from the outer parts—the branches, as it were—right into the core (or ‘trunk’). Change is sweeping through not only payment systems and instruments but now also through the forms of money which can flow through them, as innovators expand the use of bitcoin and blockchain technology.

In this fast changing environment, the field of digital payments needs more people than ever who can see the proverbial ‘wood for the trees’; and who can embrace ‘innovation with ethics’ because they know about and care about their field. This means understanding the needs of customers but also the business case for payment providers of all the different types in the ecosystem; policy makers in this area need to understand enough of the interests and objectives of both sides while also advancing national policy objectives around the national payments system. And then there is the technology aspect: not everyone needs to be able to code APIs or discuss advanced cryptography; but it is hard to claim to be a payment professional these days, and not understand what APIs are or how the blockchain works.

There is a growing need for a global network of payment professionals who share a common language and are able to contribute in meaningful ways to the extension of digital financial services around the world. We ‘profess’ a belief in the power of sound, relevant, and inclusive digital financial services to support a world with growth, opportunity, and poverty reduction. But that destination is still a long way off. We invite everyone with similar ‘profession’ to join on the journey.

David Porteous is Chair and Gavin Krugel the CEO of the new Digital Frontiers Institute (DFI), <a href="http://www.digitalfrontiersinstitute.org">www.digitalfrontiersinstitute.org</a>. DFI promotes a professional learning journey for people involved in digital payments worldwide today. Enrollments are now open for the first online Certificate in Digital Money, a 12 week modular course in partnership with Fletcher School at Tufts University, which starts in February 2016.

Image credit: Accion

Have you read?

<a href="http://cfi-blog.org/2015/09/08/new-case-study-provides-evidence-on-the-impact-of-digital-field-applications/">New Case Study Provides Evidence on the Impact of Digital Field Applications</a>

<a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/">The Twelve Days of Fintech</a>

<a href="http://cfi-blog.org/2014/07/21/the-emergence-of-responsible-digital-finance/">The Emergence of Responsible Digital Finance</a>

How Do Professionals in a New Industry Learn Their Craft?

Tess Johnson

Allyse McGrath

Dennis Ferenzy

Brianna Nelson

Juan Blanco

Alissa Fishbane

Adriana Magdas

Sub-Saharan Africa

Uganda

Spain

Indonesia

Brazil

Chile

Kenya

Philippines

United Kingdom

United States

Blockchain

Challenges and Crises

Consumer Protection

Fintech

Small Business Owners

Underserved Groups

Women

Alternative Data

Credit

Digital Financial Services

Digital Payments

Enabling Environment

Fintechs

Human Centered Design

Insurance

Remittances

Agent Banking

Mobile Banking

Smallholder Farmers

Impact Investing

Policy, Regulation and Government Initiatives

Report

Blog Post

Jeffrey Riecke

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-19222" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/08/8-31-2015-fi2020-e-zine.png" alt="" width="615" height="330" /></a>The latest edition of the <a href="http://newsfeed.financialinclusion2020.org/">Financial Inclusion 2020 News Feed,</a> our weekly online magazine sharing the big news in banking the unbanked, is now available. Among the stories in this week’s edition are Indonesia's first floating bank branch, a new report from the Impact Programme on the impact investing markets in sub-Saharan Africa and South Asia, and a paper from PricewaterhouseCoopers on the evolving cryptocurrency market. Here are a few more details:
<ul>
 	<li>Bank Rakyat Indonesia's new floating branch, offering all the services of its traditional branches, will boat its way around six of the Thousand Islands off the coast of Jakarta, which encompass around 8,000 of the bank's customers.</li>
 	<li>The Impact Programme's new report explores investment patterns and future plans, revealing that, among other findings, industry participants are optimistic, though they see the need to both disaggregate the market and increase the range of investment instruments.</li>
 	<li>PricewaterhouseCoopers, in a recently released paper, asserts that: "The discussion is no longer one of whether cryptocurrency will survive, but rather how it will evolve." The paper examines how key market participants (merchants and consumers, tech developers, investors, financial institutions, and regulators) fit into the big picture.</li>
</ul>
For more information on these and other stories, read the latest issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

Floating Banks, Impact Investing, Evolution of Cryptocurrency – the Latest FI2020 News Feed

&gt; Posted by Center Staff

<a href="http://newsfeed.financialinclusion2020.org/"><img class="aligncenter wp-image-18725" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/07/fi2020-news-feed1.png" alt="" width="614" height="315" /></a>

Good morning! It’s the start of another week, which means there’s a new issue of the <a href="http://newsfeed.financialinclusion2020.org/">Financial Inclusion 2020 News Feed</a>, our weekly online magazine sharing the big news in banking the unbanked. This week’s issue includes stories on the Islamic Development Bank supporting the Sustainable Development Goals (SDGs), the Bill &amp; Melinda Gates Foundation’s research on bitcoin and blockchain technology, and the Reserve Bank of India (RBI) creating a new financial inclusion committee. Here are a few more details:
<ul>
 	<li>Last week the Islamic Development Bank's Chief Economist asserted the importance of Islamic finance in achieving the SDGs and the Bank pledged over $150 billion over the next 15 years towards achieving them.</li>
 	<li>An interview with CoinDesk highlights the Gates Foundation's recent research on how blockchain technology might be helpful as a means of settlement between payment systems and in international remittances.</li>
 	<li>The RBI created a committee to devise a five-year measurable action plan for financial inclusion covering areas such as payments, deposits, credit, social security transfers, pensions, insurance, and consumer protection.</li>
</ul>
For more information on these and other stories, read the sixth issue of the FI2020 News Feed <a href="http://newsfeed.financialinclusion2020.org/">here</a>, and make sure to subscribe to the weekly online magazine by entering your email address in the right-hand menu so you can be notified when the latest issue comes out.

Have you come across a story or initiative you think we should cover? Email your ideas to Eric Zuehlke at <a href="mailto:ezuehlke@accion.org">ezuehlke@accion.org</a>.

Islamic Finance, Blockchain Technology, India’s Inclusion Committee – the Latest FI2020 News Feed

&gt; Posted by Paul Breloff and Jeff Bond, Accion Venture Lab

[getty src="53270050?et=_tSs6Bq9T9FSfNKHf337NA&amp;sig=3UViRGRb1qp_4H7OXpzAaUPJFhw_JiCZwp_orH3GGgA=" width="594" height="382"]

Remittances are big business. This year, customers will send <a href="http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief23.pdf">$454 billion</a> to developing countries through formal channels alone. Developing countries’ income from remittances is three times bigger than the global aid budget. If you exclude China, remittance flows even outweigh foreign direct investment.

However, remittance services have never been known for great customer experience. Here’s why:

First, they’re expensive. At the end of 2014, the global average cost of sending remittances was <a href="http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief23.pdf">just under 8 percent of the value sent</a>. For less popular remittance corridors, rates climb well into the double digits and can reach over 20 percent.

Second, they’re inconvenient. Coordination between senders/receivers, locating branches to send and receive cash, paperwork and red tape, and long lines – these and other factors often make the experience of sending remittances pretty miserable.

But the world is changing. A convergence of forces offers the opportunity to rethink the traditional remittance model, promising more money, time, and peace of mind for customers. What’s new?
 

<ul>
	<li>New technology. Cell phone penetration, mobile money, and the internet permit remote digital access to financial products in a way never before possible.</li>
	<li>New money. Cryptocurrencies like Bitcoin and related protocols like <a href="https://ripple.com/">Ripple</a> offer instant, point-to-point value transmission. This opens new possibilities for customers as well as alternative payment channels for providers, who have traditionally had to work through a highly intermediated correspondent bank network.</li>
	<li>New distribution. On the sending side, customers can manage transfers from their phone or PC without ever leaving their seats; on the receiving side, customers can have transfers land in mobile money accounts or as gift cards to be spent locally, as well as simply having their bills or purchases paid for directly. Cash is still important, but there are alternatives. Many recipients never need to actually hold currency in their hands.</li>
	<li>New players. The game is not dominated just by Western Union and Moneygram anymore. Incumbents are being challenged by a range of high-growth, well-funded new players, like <a href="http://www.xoom.com/">Xoom</a> (which went public in 2013), <a href="http://www.transferwise.com/">Transferwise</a>, <a href="http://www.worldremit.com/">WorldRemit</a>, <a href="http://www.azimo.com/">Azimo</a>, and others.</li>
</ul>
The opportunity to “disrupt remittances” has become fintech’s honey pot, luring entrepreneurs of all kinds to join the party and see if they can offer better pricing, better service, better experience, better everything. In the last couple of years we’ve learned about dozens of new entrants, including (alphabetically): <a href="http://www.goabra.com/">Abra</a>, <a href="http://www.bitpesa.co/">BitPesa</a>, <a href="http://www.bitx.co">BitX</a>, <a href="http://www.michapulin.com/">Chapulin</a>, <a href="http://www.hellobit.com/">Hellobit</a>, <a href="http://www.instarem.com/">Instarem</a>, <a href="http://www.isend.com/">iSend</a>, <a href="http://www.kipochi.com/">Kipochi</a>, <a href="http://www.kitiwa.com/">Kitiwa</a>, <a href="http://www.kwanji.com/">Kwanji</a>, <a href="http://www.kwikremit.com/">Kwikremit</a>, <a href="http://www.mergims.com/">Mergims</a>, <a href="http://www.getneema.com/">Neema</a>, <a href="http://www.niokobok.com/">Niokobok</a>, <a href="http://www.quippi.com/">Quippi</a>, <a href="http://www.regalii.com/">Regalii</a>, <a href="http://www.remit.ug/">Remit.ug</a>, <a href="http://www.remitix.com/">Remitix</a>, <a href="http://www.remitly.com/">Remitly</a>, <a href="http://www.saldo.mx/">Saldo.mx</a>, <a href="http://www.sikacash.com/">SikaCash</a>, <a href="http://www.simbapay.com/">SimbaPay</a>, <a href="http://www.tawipay.com/">Tawipay</a>, <a href="http://www.volabit.com/">Volabit</a>, <a href="http://www.sendwave.com/">Wave</a>, <a href="http://www.willstream.com">Willstream</a>. No doubt, there are others as well.

As investors, we’ve looked at dozens of pitch decks from these and other companies. Most of them start the same: “Western Union is gouging customers! Prices can be, will be lowered!” Yes, we agree – and most exciting, all of this promises benefits for the global poor and underserved (many of whom are active money transfer users), who will have options that are cheaper, better, faster, nicer, and more transparent.

But as investors, we’re finding it hard to back any of these opportunities – at least at the seed or startup stage.

Why?
<ul>
	<li>Remittance companies are all about trust; trust is all about brand; and brands are expensive. It’s not that remittances can’t be disrupted, but that’s already happening, with some very deep-pocketed challengers already out in the lead.</li>
	<li>Winning at remittances requires winning at customer acquisition: s/he with the customer wins. But at the startup stage, companies have very few customers and are not sufficiently established to allow an investor to determine who has legit customer acquisition prowess.</li>
	<li>A lower price is no longer a sustainable competitive advantage. Pricing is a race to the bottom. This is great for humanity, but bad for remittance companies who claim price as their primary differentiator. Startups may undercut traditional players now, but that’s probably not defensible long-term. An established player like Western Union can simply cut prices when specific markets, like the U.S. – Philippines corridor, grow crowded. The battle will likely be won on better customer experience, convenience, and brand – in addition to a great price.</li>
	<li>Cryptocurrencies like bitcoin may benefit the well-funded challengers more than startups. Traditional companies like Western Union and Moneygram may not easily figure out how to use these new currencies, given their legacy systems, but the more established among the newer players, like Transferwise, Xoom, and Azimo, are poised to take advantage of the cost and speed advantages of cryptocurrencies on the back-end, regardless of whether they choose to make them a direct part of the customer experience. Startups can do this too, of course, but we doubt a startup can create sustainable competitive differentiation on the use of cryptocurrencies alone.</li>
	<li>Similarly, user experience and design is very important, and we’re seeing great examples, but it’s not clear this can be a source of long-term competitive edge without brand and distribution.</li>
	<li>Finally, many of the strategies we’re seeing will be hard to scale (a pre-requisite in a high volume, low margin business like remittances):
<ul>
	<li>“Directed remittances” (e.g., remote bill pay, airtime purchasing, gift cards) may not get to scale quickly enough to result in viable businesses, because of reliance on local retailer, utility, and/or product distributor partnerships.</li>
	<li>Players focused on sending remittances to mobile money accounts will only be able to expand in those markets with robust mobile money ecosystems. However, few markets outside Kenya and Tanzania are ready for this, so scale will come slowly.</li>
	<li>Overall, remittance concepts with limited use cases or specialized corridors may never achieve escape velocity. The very things that make remittance startups valuable in specific markets make them less scalable and transferable: signing on local vendors, integrating with local partners, targeting local users or customers who are part of a specific diaspora. And nothing prevents competitors from doing the exact same thing.</li>
</ul>
</li>
</ul>
There will no doubt be some sizable winners in remittances – companies who break through the clutter and customers who benefit from superior products and lower prices. Capturing even a small slice of the remittance market could be very lucrative indeed. Ultimately, though, the winners will likely be the ones to break through on brand, customer acquisition (and how this compares to repeat usage and lifetime value), customer experience, and execution, not just price. These can be very hard to predict at a startup stage (when we at Venture Lab invest), before the real work has begun.

Paul Breloff and Jeff Bond work with <a href="https://www.accion.org/venturelab">Accion Venture Lab</a>, investing in innovative financial inclusion startups globally.

Have you read?

<a href="http://cfi-blog.org/2014/06/03/a-money-transfer-duopoly-that-fails-to-protect-clients/">Do African Remittances Services Providers Properly Protect Clients?</a>

<a href="http://cfi-blog.org/2014/05/07/walmart-joins-the-list-of-non-traditional-players-offering-remittances/">Walmart Joins the List of Non-Traditional Players Offering Remittances</a>

<a href="http://cfi-blog.org/2015/04/10/digital-financial-inclusion-in-india-taking-off-in-2015/">Digital Financial Inclusion in India - Taking off in 2015</a>

Picking Winners in the Great Remittance Disruption

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

<h4>The most exciting trends and startups in inclusive finance this year</h4>
&gt; Posted by Vikas Raj, Director of Investments, Accion Venture Lab

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There has been a lot of buzz in the financial technology (FinTech) space over the last several months, with a <a href="http://www.bloomberg.com/news/2014-12-10/lendingclub-poised-for-cash-infusion-of-its-own-to-fund-growth.html">high-profile IPO, several more apparently on the way</a>, and more and more venture funding flowing into FinTech startups. Bold ideas for financial services innovation are getting more visibility - just this month, Australian Wealth Index (AWI) listed the <a href="http://fintechinnovators.com/about-awi" target="_blank">50 Best FinTech Innovators</a>, and CFI’s Elisabeth Rhyne <a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/#more-16946" target="_blank">conveniently categorized</a> the list so it’s easy to see at a glance where the innovations are.
At <a href="https://www.accion.org/venturelab">Venture Lab</a>, we found the AWI list interesting but also felt it missed something significant: namely, that one of the biggest opportunities for FinTech is figuring out new solutions to include the billions of lower-income people who are today excluded from formal financial services. And it’s not charity that compels us to reach these customers – it’s good business. These customers represent a big market. In fact, they’re such a significant part of any emerging market’s customer base that any global providers with dreams of international expansion must cater to them if they want to succeed. 
It’s a particularly exciting time because the traditional bottlenecks to reaching these customers – the need for high-touch models and small value transactions, the need for cost-effective means of education and engagement – are exactly the kind of barriers that technological advances can help tackle. As Elisabeth Rhyne <a href="http://cfi-blog.org/2015/01/08/the-twelve-days-of-fintech/#more-16946" target="_blank">laid out</a> in her challenge recently, what about the “top 50 financial inclusion innovators?” What about the new business models and technologies that are impacting the underserved? 
At Venture Lab, we are focused on investing in businesses that are innovating in big ways to get consumers and small businesses a wider range of financial products and services, and therefore giving them the tools they need to manage and improve their lives. The breadth of this challenge is so large, and the ways to chip away at it so varied, that we don’t think it makes a lot of sense to try to force rank the “best” financial inclusion companies.
Instead, we lay out below some of the key groundbreaking trends we see in the financial inclusion space right now, and some of the seed stage companies that are leading the charge. This is by no means an exhaustive list – of trends, and especially not of companies. However, from our seat as seed stage investors, these are some of the most exciting things happening in financial inclusion right now.
Digital Remittances – Companies are figuring out new ways to send money across international borders, dramatically improving the value proposition to senders and recipients, using mobile wallets to get money directly into recipients’ pockets and cryptocurrencies to execute transactions faster and cheaper.
<ul>
	<li>Coins.ph (the Philippines) – A Bitcoin mobile wallet that cuts transaction costs for Filipinos working abroad and sending money home. Also offers direct ATM withdrawal via partnerships with banks as well as merchant integration for e-commerce.</li>
	<li class="List_0020Paragraph">SimbaPay (U.K.) – Mobile app that allows Kenyans abroad to deposit money into Kenyan bank accounts instantly.</li>
	<li class="List_0020Paragraph">Send WAVE (Kenya) – Cuts transaction costs for Kenyans via software that automates remittances, only charging a foreign exchange rate fee. Users can instantly send funds via a mobile application.</li>
	<li class="List_0020Paragraph">Hellobit (San Francisco) – Uses Bitcoin to cut transaction costs for remittances by allowing anyone with a mobile phone to act as Bitcoin exchanger or delivery agent.</li>
	<li class="List_0020Paragraph">BitPesa (Kenya) – Uses Bitcoin to cut transactions costs for Kenyans working abroad and sending money home.</li>
	<li class="List_0020Paragraph">Volabit (Mexico) - Uses a Bitcoin backend for consumers to send money, shop online, and invest in Bitcoins via peer to peer lending.</li>
</ul>
Marketplace Lending 2.0 – With the Lending Club IPO starting 2015 off with a bang, we expect businesses that build online platforms that stand between borrowers and lenders to continue to be a core innovation area in 2015, particularly as new business models leverage motivated alternative capital sources to serve specific customers sets (small business, customers working through credit issues) with more relevant products.
<ul>
	<li>LendStreet (U.S.) – Using marketplace lending capital to allow distressed borrowers to refinance their debt and rebuild their lives.</li>
	<li class="List_0020Paragraph">StreetShares (U.S.) – Connecting small businesses to marketplace lending-sourced capital, with a focus on veteran-owned businesses and investors.</li>
	<li class="List_0020Paragraph">Bolstr (U.S.) – Expansion capital for small businesses with a focus on community support – revenue share-based repayments.</li>
	<li class="List_0020Paragraph">Intoo (Brazil) – Receivables financing for small and medium-sized businesses through FIDCs and other alternative financers.</li>
</ul>
New Data for Credit Scoring – We are more excited than ever about companies that identify and exploit new or never-before-used data pools to enhance lenders’ decision-making and allow them to expand their loan books downmarket.
<ul>
	<li>First Access (East Africa) – Leveraging cell phone data to more reliably gauge credit risk for borrowers in informal markets.</li>
	<li class="List_0020Paragraph">Destacame (Chile) – Uses individuals’ utilities and cell phone data to create and manage alternative credit scores and influence current credit scoring models.</li>
	<li class="List_0020Paragraph">AIRE (U.K.) - Alternative credit score for consumers who have no existing credit data.</li>
	<li class="List_0020Paragraph">Kopo Kopo (East Africa) – Using mobile money merchant data to provide financing to merchants that fits within their cash flow cycles.</li>
</ul>
eCommerce Merchant Lending – This could be seen as a sub-set of the category above, but we are particularly excited about companies that partner with existing eCommerce sites to gather crucial data and provide loans and other financial services to online merchants.
<ul>
	<li>Lendingkart (India) – Partnering with India’s eCommerce players to provide unsecured term loans to online merchants.</li>
	<li class="List_0020Paragraph">Mr Presta (South America) – Partnering with the largest eCommerce players in Mexico and Argentina to lend to small and medium-sized online businesses.</li>
	<li class="List_0020Paragraph">NeoGrowth (India) – Financing via online partners based around merchant cash advance.</li>
</ul>
Customer Engagement – Finally, we love the new breed of companies that are allowing lenders, and others, to better engage with their customers by helping them to better understand products and giving them core insights about customer behavior and risk. These companies run the gamut between financial literacy and credit enhancement tools, but they are connected by their core innovation around bringing customers into the financial system by engaging directly in new ways.
<ul>
	<li>Juntos (Global) – Mobile-based personal finance tools for cash-based households.</li>
	<li class="List_0020Paragraph">Revolution Credit (U.S.) – Online courses and videos that allow consumers to increase financial IQ and access better financial products.</li>
</ul>
This is hardly a complete inventory of all the cool stuff happening, but certainly enough to get excited about.
Have you read?

<a href="http://cfi-blog.org/2014/10/30/fueling-the-economic-engine-global-experiments-in-small-enterprise-lending/" target="_blank">Fueling the Economic Engine: Global Experiments in Small Enterprise Lending</a>

<a href="http://cfi-blog.org/2014/12/05/the-role-of-peer-to-peer-lending-in-financial-inclusion/" target="_blank">The Role of Peer-to-Peer Lending in Financial Inclusion</a>

<a href="http://cfi-blog.org/2014/11/05/accion-venture-lab-responds-to-the-great-competition-and-innovation-deficit/" target="_blank">Accion Venture Lab Responds to 'The Great Competition and Innovation Deficit'</a>

Financial Inclusion Trends and Innovators – 2015

&gt; Posted by Monica Brand Engel and Jackson Scher, Managing Director and Program Coordinator, Frontier Investments Group, Accion

Innovative payment solutions are proliferating globally. Enabled by the exponential expansion of mobile phones, social media, “big data”, and internet access, financial players throughout the world are inventing new ways to complete transactions. Disruptive innovations such as <a href="http://www.forbes.com/sites/tomgroenfeldt/2014/04/21/american-express-expands-its-serve-debit-card-to-walmart/">prepaid options</a>, <a href="http://www.apple.com/apple-pay">NFC-enabled payments</a>, and <a href="https://bitcoin.org/en/">cryptocurrencies</a> are gaining significant adoption and are changing the payments space. These trends are especially pronounced in emerging markets where many new entrants have chosen to “leapfrog” traditional, resource-intensive systems and dive directly into the seamless and nimble world of digital financial services. Although these exciting innovations in digital payments have the potential to increase convenience for customers and dramatically reduce costs, some challenges remain.

1. Infrastructure. Many emerging markets lack the core infrastructure (national switches and settlement systems, connectivity, even electricity) required for innovative payment systems to operate reliably. One option that addresses this pain-point is Eseye’s innovative <a href="http://www.eseye.com/">machine-to-machine (M2M) technology</a>. By embedding SIM chips into solar-powered lighting units, Eseye has created a remote device management system enabling prepaid and pay-as-you-go (PAYG) financing via <a href="http://www.safaricom.co.ke/personal/m-pesa">M-Pesa</a> in East Africa. Prepaid customers buy exactly as much light as they need, while PAYG customers see their lights go out if they miss a payment. The payment options enabled by Eseye’s technology and its relationship with M-Pesa circumvent infrastructure shortcomings in East Africa by operating through mobile channels. Without this technology, customers would have to pay up front or borrow in order to purchase the system. With it, many more people are gaining access to solar lighting.

2. Interoperability. Many digital financial services have been launched as closed loop systems, which operate on an individual mobile network operator (MNO) service. A closed loop system limits the ability of customers to transact with peers using a different MNO service. Closed loops allow MNOs to sell more airtime while increasing revenues and customer retention in the short term, but open loops that promote interoperability across payment options may be needed to expand the acceptance environment, usage rates, and product functionality. Industry led initiatives – like <a href="http://www.cgap.org/blog/tanzania-ready-interoperability-mobile-money">those in Tanzania</a> – have aligned business and social goals more effectively than those done by regulatory fiat. This initiative involves cooperation between the four main MNOs (Airtel, Vodacom, Tigo, and Zantel) and three large banks (Bank of Tanzania, CRDB Bank, and the National Microfinance Bank). It is a good example of interested parties circumventing the near-sightedness that threatens truly game-changing payments innovation.

3. Customer. Many payments products suffer from being supply-driven, aimed at solving industry inefficiencies instead of customer pain points. In Zambia, <a href="https://mobiledevelopmentintelligence.com/insight/Case_Study_-_Zoona?utm_source=ICTworks&amp;utm_campaign=69d8a7eab2-MC-RSS-Email&amp;utm_medium=email&amp;utm_term=0_0814c7961e-69d8a7eab2-48298877">Zoona</a>’s focus on customer interest serves as a source of differentiation from similar offerings by powerful MNOs such as Airtel or MTN. Zoona P2P transfers do not require mobile wallet sign-ups (including a lengthy know-your-customer process) from sender and receiver, rather a simple proof of identification. Additionally, a Zoona transfer only charges the sender, whereas MNO P2P transfers often charge the receiver a cash withdrawal fee. This focus on customer convenience and efficiency is the primary reason Zoona has had success when compared to its larger competitors.

4. Regulation. Although regulation in emerging markets has at times hindered innovation in the name of “prudent financial intermediation”, many policy makers in these markets have also been quick to learn and improve upon such decision making. For example, the Reserve Bank of India (RBI) at first required deep bank involvement with any mobile money scheme. Noting the limiting effect of this regulatory framework on innovation, the RBI created the <a href="http://articles.economictimes.indiatimes.com/2014-09-14/news/53904069_1_payments-banks-final-guidelines-differentiated-banks">payment bank framework</a> in 2014 to enable payments innovators to enter the market more easily. Elsewhere in Zambia, <a href="http://www.zoona.co.za/">interoperable payment platforms</a> are taking advantage of favorable “test, then regulate” regulations. When regulation is well-informed and iterative, it ceases to be a barrier to payments innovation and instead drives progress.

Disruptive businesses are changing the face of financial inclusion and piggybacking on the expanding digital infrastructure throughout emerging markets. With innovative models, engaged regulators, and third-party players continuing to alter the landscape and economics of financial services, the remaining barriers to a digital-enabled financially inclusive world may be overcome.

Monica Brand Engel and Jackson Scher (<a href="https://twitter.com/JacksonWScher">@JacksonWScher</a>) are with <a href="http://www.accion.org/frontier">Accion’s Frontier Investments Group</a>, an early-stage venture equity impact fund that focuses on catalyzing new approaches to financial inclusion. Frontier invests in disruptive business models and technologies that radically enhance the efficiency, reach, and scope of products and services for the financially underserved.

Have you read?

<a href="http://cfi-blog.org/2014/10/30/fueling-the-economic-engine-global-experiments-in-small-enterprise-lending/">Fueling the Economic Engine: Global Experiments in Small Enterprise Lending</a>

<a href="http://cfi-blog.org/2014/03/12/helping-consumers-understand-their-digital-data-initial-experiences-from-tanzania/">Helping Consumers Understand Their Digital Data: Initial Experiences from Tanzania</a>

<a href="http://cfi-blog.org/2014/06/24/bitcoin-and-the-bottom-of-the-pyramid-how-cryptocurrency-can-make-good-on-its-promise-of-financial-inclusion/" target="_blank" rel="noopener">Bitcoin and the Bottom of the Pyramid: How Cryptocurrency Can Make Good on Its Promise of Financial Inclusion</a>

Four Barriers – and Four Solutions – to Financial Inclusion Through Payment Innovations

&gt; Posted by Adriana Magdas, Specialist, CFI <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/financial-inclusion-2020"><img class="alignright" style="border: 0 currentColor" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/12/blogseries.jpg" alt="" width="300" height="66" /></a>

The <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/financial-inclusion-2020" target="_blank" rel="noopener">Financial Inclusion 2020</a> campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.”

Cryptocurrencies, especially Bitcoin, the most famous, are the hot topic of the moment. In light of the shutdown of the most popular Bitcoin exchange in the world, Mt. Gox, and a loss of an estimated US$ 400 million worth of Bitcoins, it’s important to take another look at digital currencies, their pitfalls, and their relevance for financial inclusion. Hailed by many as the greatest monetary innovation of our time and by others as nothing but “<a href="http://www.slate.com/blogs/future_tense/2014/02/13/future_tense_event_recap_there_s_more_to_bitcoin_than_volatility_and_pr.html">libertarian exuberance</a>,” cryptocurrencies show the opportunity that exists for financial transactions, especially international transactions, to move from cash to digital form. As someone working in financial inclusion, I have been wondering whether cryptocurrencies have any role to play in the critical path toward greater inclusion, which ultimately requires lower dependency on cash for low-income consumers.

Other cryptocurrencies abound—Dodgecoin, Litecoin, and Ripple are a few of the others—but Bitcoin, which launched in 2009, is the first decentralized mainstream P2P payment network and digital currency. Independent from hard, government-backed fiat currencies, Bitcoin is an internet-based, software dependent, inflation immune currency that can be purchased with cash and exchanged for services or goods with merchants who accept it. The market supply of Bitcoin is fixed at 21 million, meaning that once 21 million “coins” are in existence, the cash value will be fully determined by demand. In the last four years, the popularity of Bitcoin in developed economies has increased considerably, not necessarily because it’s an easier medium of exchange but because it is new, interesting, a source of revenue for Bitcoin miners and speculators, and because it decreases the costs retailers incur from accepting credit card payments. For example, Overstock.com is the first large online retailer to accept Bitcoins, in an effort to minimize the costs incurred from credit card transactions.

<a href="http://www.flickr.com/photos/13572721@N05/8632995866/" target="_blank" rel="noopener"><img class="alignright wp-image-14322" style="border: 0 currentColor" src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/8632995866_a9174356d8_b.jpg?w=490" alt="" width="300" /></a>Does Bitcoin have any relevance for low and middle-income countries? As in developed economies, for P2P and P2C payments, its greatest benefit is in significantly decreasing the cost of sending remittances to friends and family. Bitcoin transactions are free, meaning remittance senders do not incur significant money transmitter fees.

But what are the challenges?

The challenges to Bitcoin in particular, and cryptocurrencies in general, are substantial. It will be a while before Bitcoin and other cryptocurrencies will be able to substantially help advance financial inclusion in developing countries. In the short-term, Bitcoin might take a significant chunk out of the profits of money transmitters and will definitely underline the appetite for monetary and payments innovation.

Consumer Data Privacy 

Bitcoin transactions are public, traceable, and permanently stored in the Bitcoin network. For example, once someone uses a Bitcoin stored in their wallet, anyone can trace that Bitcoin’s movement in the market, see all the transactions conducted using the specific address, and the address’s current balance (basically how much money a given person is holding in their Bitcoin wallet). This poses security concerns for consumers who may not fully understand how Bitcoin works. Banking data privacy rules protect individuals from misuse of their data, but no such rules govern Bitcoin exchanges. To increase security, <a href="https://bitcoin.org/en/secure-your-wallet">various measures</a> that the Bitcoin owner is fully responsible for are recommended, making it cumbersome and difficult for people to safely transact in Bitcoin.

Knowledge Gap

Cryptocurrencies are, for now at least, an esoteric subject. The very concept behind them makes them inaccessible to most people, but the fact that they are independent of a specific currency and not backed by any government, will make most people, especially non-techy and risk averse ones, reluctant to use them. As demonstrated by <a href="http://www.cgap.org/data/infographic-bitcoin-vs-electronic-money">CGAP’s infographic</a> comparing Bitcoin and M-PESA, the transaction process for Bitcoin vs. mobile money is quite complex and although users don’t necessarily need to understand the full process to be able to use it, it’s in their interest to do so.

Limited Market

Cryptocurrencies can significantly decrease the cost of remittances, but once they are sent to someone’s wallet, this person can only use them if they are accepted as a medium for payment by other people and businesses. Otherwise they have to be exchanged for cash, which in developing economies and for low-income consumers is quite difficult. The process of exchanging Bitcoin for cash can either involve a Bitcoin Exchange where a person has to sell the Bitcoin to someone through an intermediary who then deposits the cash in a bank account or an innovator such as <a href="http://bitpesa.co/">Bitpesa</a>. These transactions require a small fee, most often lower than what money transmitters generally charge. In Bitpesa’s case, regulation has prevented it from officially launching operations.

Irreversibility

Last but not least, Bitcoin transactions are irreversible. Once the user approves a purchase or transaction, the transaction takes about 10 minutes to execute, during which it is still reversible. Once entered in the Bitcoin public ledger (the network history of all transactions), the transaction is no longer reversible. If someone makes a mistake and enters the wrong address, for example, there is no way to get the cash back. As no banks or payments providers are involved in the process, the sender is at the recipient’s mercy (if they can figure out who the recipient is). By contrast, regulated payment systems are required to have robust error correction capabilities.

Regulation

The success of mobile based payments systems such as M-PESA was in large part due to enabling regulatory frameworks. I doubt cryptocurrencies will be met with the same level of government support. The United States and other countries, such as Australia, are increasing their monitoring of Bitcoin in an effort to minimize black market activity. This intersection of the virtual with the physical is where governments and regulators will have a lot to say, and the likelihood they will be open and enabling seems lower by the day, posing significant challenges to the mobility and practicality of cryptocurrencies.

All in all, I have to agree with the skeptics that Bitcoin, and cryptocurrencies in general, don’t hold much potential for advancing financial inclusion at this time. That said, many cryptocurrencies exist already and it’s possible that a future one, constructed better than Bitcoin, will tell a different story. What we can learn from Bitcoin for now, is that there is an appetite for monetary innovation that will make the world less dependent on cash, decrease the cost of transactions, and increase the mobility of money. Emerging markets are in great need of such innovations, but as we work to advance financial inclusion, it is important to make sure that the tools we use will not intimidate consumers or leave them vulnerable, but rather encourage them to become less dependent on cash.

Image credit: <a href="http://www.flickr.com/photos/13572721@N05/8632995866/" target="_blank" rel="noopener">Jason Benjamin</a>

Have you read?

<a href="http://cfi-blog.org/2012/11/28/our-woman-in-milan-observations-on-the-intersection-of-mobile-money-and-regulation/" target="_blank" rel="noopener">Our Woman in Milan: Observations on the Intersection of Mobile Money and Regulation</a>

<a href="http://cfi-blog.org/2013/04/24/what-technology-can-and-cant-do-for-financial-inclusion/" target="_blank" rel="noopener">What Technology Can and Can't Do for Financial Inclusion</a>

<a href="http://cfi-blog.org/2013/10/29/duvvuri-subbarao-on-india-technology-and-the-importance-of-authority/" target="_blank" rel="noopener">Duvvuri Subbarao: On India, Technology and the Importance of Authority</a>