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

Building Innovation: APIs, Fintechs and Financial Institutions

CFI Research Fellows Program

Delivery Channels

Digital Financial Services

Financial Service Providers

Fintechs

Partnerships

Blog Post

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

Institute of International Finance

MetLife Foundation

Mainstreaming Financial Inclusion: Best Practices

Agent Banking

Banks

Data Analytics

Financial Technology

Rural Populations

Telcos

Underserved Groups

Report

Picture this scene: hundreds of people cram into a financial service provider’s storefront, arriving seemingly out of nowhere, mobile phones in hand. They act excited, as if they are about to attend a dance party. Curious passersby stop to see what the buzz is about.

This technique, which organizers call a flash mob, is one innovative approach for generating sign-ups and interest in a new product aimed at underserved clients. The flash mob attracts people otherwise hard to reach to FINCA Pakistan’s mobile service, Sim Sim.

Creative approaches, powered digitally, are transforming the customer experience – hopefully for the better. Digital processes can dramatically increase convenience, speed and variety of the services available to the previously unserved. But digital products and processes succeed only with good design – and with the strategic use of human touch.

In our recent report, <a href="https://www.centerforfinancialinclusion.org/charting-the-customer-journey-in-the-digital-age">Charting the Customer Journey in the Digital Age</a> , Amin Khairy of the <a href="https://www.iif.com/">Institute of International Finance</a> and I explain how mainstream financial institutions create effective digital customer journeys for underserved clients. With support from <a href="https://www.metlife.com/corporate-responsibility/metlife-foundation/">MetLife Foundation</a> and CFI’s founding partner, <a href="https://www.credit-suisse.com/us/en.html">Credit Suisse</a>, this report explores how the three main phases of the customer journey evolve through digital transformation and provides examples of how innovative financial institutions are creatively addressing challenges for emerging customers. It’s the penultimate report from our two-year partnership, <a href="https://www.centerforfinancialinclusion.org/program_teams/mainstreaming-financial-inclusion">Mainstreaming Financial Inclusion: Best Practices</a>.

Creative Solutions to Digital Mainstreaming

Human Touch

Microfinance Institutions

<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

A market trader in Ghana hands over part of her day’s earnings to a susu collector every day. In Tanzania, villagers hold weekly Vicoba gatherings to pool savings, receive loans and catch up with the other members of the group. Informal savings mechanisms (ISMs), such as savings groups and daily savings collection, have long been of interest to the financial inclusion community because they demonstrate high quality savings and borrowing behavior and they work for people who do not normally consider themselves "bankable." The digital services revolution offers a prospect of closing the gap between formal and informal alternatives, combining a richer and more robust service offering with a greater understanding of savers’ needs and preferences.

Documented challenges on proximity, cost of acquisition and practical delivery make the provision of a service that benefits both formal and informal actors difficult to achieve. But <a href="https://www.opml.co.uk/projects/savings-frontier">Savings at the Frontier</a> (SatF), a partnership between <a href="https://mastercardfdn.org/">Mastercard Foundation</a> and <a href="https://www.opml.co.uk/">Oxford Policy Management (OPM)</a>, has set its sights on this goal, and is working directly with FSPs to achieve it.

During the early stages of the program, we selected a set of partner FSPs with promising concepts and provided them with up to $100,000 in business plan development funding to flesh out their ideas using whatever mix of technical assistance, customer research, piloting, systems work or prototyping required.

Full proposals underwent a second selection round, with the approved finalists eligible for conditional funding of up to $1 million to implement their business models. To date, SatF has partnered with three institutions in Ghana (Access Bank, DSS and Interpay), four in Tanzania (Equity Bank, Maxcom, NMB and TPB Bank) and one in Zambia (M-Finance).
<h3>What We’ve Learned So Far</h3>
Contrary to some stereotypes about the willingness and ability of FSPs to meet the needs of customers, particularly those of low income savers or people outside their traditional customer base, we have been surprised and pleased at how far our partners’ thinking has already gone, in understanding what it takes to make products relevant to this customer segment, how that can translate into a long-term relationship with internal savings mechanisms and their members, and how much institutional buy-in the SatF partnership has enabled. For example:
<ul>
 	<li><strong>The funding incentive has allowed middle-level managers to promote linkage up the institutions’ corporate agendas.</strong> Operational managers feel able to use SatF’s support to further internal discussions with senior management and other stakeholders, potentially including regulators, government, mobile network operators, etc.</li>
 	<li><strong>Customer centricity has become a central feature of the FSPs’ approach.</strong> Our partners understand that sustainable business means understanding and responding to genuine need. FSPs that conducted research and pilots and ultimately developed a full proposal were able to understand the ‘pain points’ and needs of their customers and reflect those in their product offerings.</li>
 	<li><strong> Early piloting has allowed our partners to foresee and address operational constraints.</strong> From systems changes inhibiting take-up, to ensuring regular contact with customers to maintaining sufficient liquidity through the agent network, FSPs have been quick to pick up on issues that may hinder implementation and have either already identified workable solutions or are in the process of doing so.</li>
 	<li><strong>Their reaction to challenges highlights the FSPs’ commitment, creativity and capacity to innovatively develop and deliver solutions.</strong> With the flexibility offered by their role as lead institutions, our partners have been able to consider a range of consortium options (working with facilitators, creating and facilitating their own informal savings mechanisms, identifying niche technical and delivery partners) and develop effective route-to-market strategies. FSPs have negotiated channel strategies to keep fees and charges affordable, reached out to specialist solution providers, and iteratively developed customer friendly interfaces or engagement strategies to make their products appealing and drive take-up.</li>
 	<li><strong>FSPs appreciate that attracting clients and offering relevant services are key to achieving long term sustainability.</strong> Our partners acknowledge that working with informal savers is not about extracting margins. The viability of their business case will be determined by the FSPs’ capacity to attract and retain customers and develop products that address customer needs and expectations. In looking to offer customer friendly, convenient and affordable services, and creating improved outreach and communication channels, our partners are signaling they are taking sustainability seriously.</li>
</ul>
<h3>What Next?</h3>
Some upcoming challenges are already visible, such as bringing pricing more in line with customer expectations. Why, for example, should anyone pay to use a financial service when cash transactions are free? Other challenges include financial education, closing the proximity gap, agent availability and float management.

The ability of our partners to overcome these challenges will depend on how well they have learned from similar previous challenges. We as a project will also need to be flexible and create space for the FSPs to identify and implement solutions specific to their operating environment. To this end, we have developed a disbursement mechanism that allows us to assess progress and consider course corrections at various points in the process by releasing funding in tranches based on individually negotiated ‘promise cards’, which incentivise design work in the early stages and delivery in later stages. Each tranche has its own delivery milestones built as much around the emerging value proposition being offered to informal savings mechanisms and their users as on the usual kinds of activity/output milestones. These milestones create a continuous dialogue with FSP partners, which allow us to react to needs as they emerge, provide tailored support, and work together to identify elements of the business case that will support the sustainable delivery of their linkage products beyond the lifetime of our project.

As we head into the fourth year of the program, it is encouraging that both the SatF team and our FSP partners are as optimistic about the prospect of successful delivery as we were when we first started. Nurturing the interest and capacity shown by our partners, and taking a flexible and adaptive approach to fund disbursement, we stand a good chance of turning our optimism into success.

Change Management Inside Financial Service Providers: Takeaways from a Funder Partnering with African FSPs

Sub-Saharan Africa

Saving

<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

Alternative Data

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.

This webinar will explore 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 will share insights from a recent report from the Center for Financial Inclusion and the Institute of International Finance.

The report incorporates 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.

Webinar: How Financial Institutions and Fintechs Are Partnering for Inclusion

East Asia and Pacific

Europe and Central Asia

Latin America and The Caribbean

Middle East and North Africa

South Asia

Webinar

<div class="reader-article-content">

Posted by Nina Nieuwoudt, Global Product Development, New Consumers, Mastercard

Around the world this week, governments, multilaterals, and companies are coming together to celebrate <a href="http://financialinclusionweek.org/" target="_blank" rel="nofollow noopener"><u>Financial Inclusion Week</u></a>. It’s an opportunity to reflect on the progress that we’ve made in extending financial access to un-banked and underbanked communities, and also a time to take honest stock of how far we still have to go. As Mastercard’s Chief Product Officer Michael Miebach <a href="https://www.linkedin.com/pulse/time-money-fast-track-financial-inclusion-now-michael-miebach/" target="_blank" rel="noopener"><u>noted</u></a> following his speech at Money 20/20 last week – we’re making progress, but at our current pace we won’t achieve full financial inclusion for another 200 years. Needless to say, we’ve got work to do.

The theme of this year’s Financial Inclusion Week is how new products and partnerships can enable financial inclusion. At Mastercard, this topic is close to our hearts. We believe that cross-sector partnerships are key to extending access to consumers at the base of the pyramid and building products that truly improve their lives.

To be clear, promoting inclusion is not corporate social responsibility for us. Not only is pushing for a world where everyone has access to the security, transparency, and control of digital payments the right thing to do, but it’s also critical to the future of business.

We’re proud that this commitment to new partnership models can be found at all levels of our company. Several of these partnerships have been highlighted in a joint report by Center for Financial Inclusion at Accion and the Institute for International Finance, entitled <a href="http://www.centerforfinancialinclusion.org/storage/CFI_IIF_FI_Fintech_Partnerships_Report_2017.07.pdf" target="_blank" rel="nofollow noopener"><u>“How Financial Institutions and Fintechs are Partnering for Inclusion: Lessons from the Frontlines”</u></a>. The report recognizes our collaboration with <a href="https://newsroom.mastercard.com/mea/press-releases/250000-african-merchants-will-be-financially-empowered-by-masterpass-qr/" target="_blank" rel="nofollow noopener"><u>Kopo Kopo</u></a>, a fintech start-up, and <a href="https://newsroom.mastercard.com/mea/press-releases/dtb-and-mastercard-partner-to-enhance-digital-payments-in-kenya/" target="_blank" rel="nofollow noopener"><u>Diamond Trust Bank</u></a> to create a QR-payment ecosystem in Kenya that allows customers to pay with their phones, by simply taking a photo of a QR code and manually entering the transaction amount.

Later this week, I’ll be speaking about ways financial institutions and fintechs can partner during a <a href="https://register.gotowebinar.com/register/845125705152860161" target="_blank" rel="nofollow noopener"><u>webinar</u></a> hosted by the Center for Financial Inclusion at Accion.

Beyond our partnerships, we’ve done our own on-the-ground research. For example, we recently released a report that offer insights into <a href="https://newsroom.mastercard.com/documents/report-building-electronic-payment-acceptance-at-the-base-of-the-pyramid-to-advance-financial-inclusion/" target="_blank" rel="nofollow noopener"><u>how to build a digital payments ecosystem</u></a> for small and micro businesses. To learn more about how we’re supporting financial inclusion across the company, watch this <a href="https://www.youtube.com/watch?feature=youtu.be&amp;v=sVSsrfQ9iB0&amp;__prclt=xpyp1Vmf" target="_blank" rel="noopener"><u>video</u></a>.

Despite these gains, we still face a host of challenges in reaching the two billion people who are locked out of the formal financial system. At Mastercard, we know that the only way we will ever transform this equation is by creating partnerships that leverage relevant sector expertise, and that offer in-depth knowledge of base-of-the-pyramid needs – from health and education, to payments and digital finance.

It is perhaps the biggest ecosystem we have tried to build yet, but it is incumbent on all of us to do so. 200 years is too long to wait.

<em>This post originally appeared on <a href="https://www.linkedin.com/pulse/how-financial-inclusion-can-move-people-from-poverty-nina-nieuwoudt/">Nina Nieuwoudt's LinkedIn profile</a> and is republished with permission. </em>

</div>
&nbsp;

How Financial Inclusion Can Move People Out of Poverty

Mastercard

Financial Inclusion Week

Payments

The volume of data in the digital universe doubles in size roughly every two years, <a href="https://insidebigdata.com/2017/02/16/the-exponential-growth-of-data/">estimates indicate</a>. The phrase “data rich” has become common business parlance. In the financial inclusion sector, big data is revolutionizing credit underwriting, product development, client segmentation, financial capability-building, and more. But how is this revolution actually happening? For many banks, it’s through partnerships with fintechs. Ujjivan, one of the largest microfinance institutions in India, recently chartered as a small finance bank, had until recently a limited portfolio at the SME level, which was hindered by high operating costs. This changed thanks to a partnership with the Bangalore-based fintech Artoo.

This partnership is described in CFI’s new joint-report with the Institute of International Finance (IIF), <a href="http://bit.ly/2uWXvFQ"><em>How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</em></a>. We discovered dozens of partnerships between mainstream financial institutions and fintechs in emerging markets, and we detailed the workings of 14 of them. The partnership between Ujjivan and Artoo is just one example among many of how financial institutions are increasingly turning to fintechs to improve how they effectively collect, use, and manage data.
<h1><strong>The Value of Better Data Management</strong></h1>
Traditionally, banks collected a great deal of information on loan applicants, but much of it remained in paper form, in loan folders stacked high in offices. With the advent of core banking systems, banks spent a great deal of time transferring data from paper to computer. And once on the computer, much of the richness of the data has gone unused. Largely the data has not been leveraged effectively due to siloed digital infrastructure, inefficient legacy systems, and restrictive or uncertain regulatory requirements. More useful data management relies on the ability to efficiently obtain, store, retrieve, structure, clean, and analyze large bodies of data. This is a monumental task, and best practices and requirements are rapidly changing. Therefore, partnerships with fintechs to help improve data management across an organization can be of tremendous value, helping financial institutions lower costs, identify customer potential, reduce fraud, increase cross-selling opportunities, and expand their customer base.
<h1><strong>The Partnership Between Ujjivan and Artoo</strong></h1>
Beginning in 2012, the partnership with Artoo provides Ujjiva with a digital field application, which is a cloud-based platform that digitizes the entire credit process, including loan generation and underwriting so that field officers enter customer data directly into the system via phones or tablets. As part of this work, Artoo supports Ujjivan’s data management. The platform deepens Ujjivan’s ability to track sales and portfolio performance. Artoo allows agents to capture more data points and consequentially creates more quality data for the bank to use in credit decisions. Data is captured on the Artoo platform, but is still owned by the bank.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/ujjivan-and-artoo.jpg"><img class="wp-image-24076 aligncenter" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/ujjivan-and-artoo.jpg" alt="" width="620" height="560" /></a>

Artoo’s platform has led to a 40 percent decrease in loan-processing time and a 50 percent rise in the number of loans processed per agent. The boost in efficiency resulting from the partnership with Artoo has enabled Ujjivan to expand its SME customer base from 60,000 to 200,000 clients in three to four years, an increase of over 230 percent. Following a pilot where the companies split costs, Ujjivan now pays Artoo a subscription fee for the functions it uses.
<h1><strong>Regulatory Challenges for Data Management</strong></h1>
All the financial institutions we spoke with that were creating partnerships in this area faced regulatory challenges surrounding the movement and use of data. For Ujjivan, regulations required that all customer data be stored on servers in India. Artoo had to switch its system from Amazon Cloud Services, with servers housed in the U.S., to a local Microsoft-based cloud service provider.

Meanwhile, in the case of partnerships between banks and fintechs that provide alternative credit scoring capabilities, we saw regulation limiting the flow of data from the banking institution to the alternative risk modeler, and vice versa. This is indeed a point of much contention in many markets and creates some tension in partnerships. Banks seek to maintain control over customer financial data, fearing that fintechs that gain access to data will use it for their own business purposes.

<em>For more on bank-fintech partnerships, including other standout examples, read the report:</em> <a href="http://bit.ly/2uWXvFQ"><em>How Financial Institutions and Fintechs Are Partnering for Inclusion: Lessons from the Frontlines</em><em>.</em></a>

<strong>Have you read?</strong>

<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/2017/08/23/juntos-harnesses-artificial-intelligence-to-improve-customer-engagement-for-bbva-bancomer-and-bancolombia/">Juntos Harnesses Artificial Intelligence to Improve Customer Engagement for BBVA Bancomer and Bancolombia</a>

How Artoo Helped Ujjivan Unlock the Power of Data

Consumer Credit

Credit

With financial technology disrupting the industry, banks are turning to startups to help them innovate, and startups are turning to banks to help them scale. Banks are increasingly connecting with financial technology startups to reach the unbanked and underbanked. In the report, <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/the-business-of-financial-inclusion"><em>The Business of Financial Inclusion: Insights from Banks in Emerging Markets</em></a>, CFI and the Institute of International Finance (IIF) found that many banks are building a vast ecosystem of partnerships to expand their reach and service offerings and to improve internal processes. This growing interaction between legacy providers and new providers is taking a variety of forms. Many larger banks are engaging with startups in multiple ways, from partnering with the firms to providing support to incubate new firms. In my deep-dive into the ecosystem of this engagement, I discovered three primary types of interaction.

<strong>Partnerships</strong>:  Banks outsource operations partly (white labeling) or fully to a financial technology startup that bears the regulatory risk.

<strong>Investment and Acquisition: </strong> Many banks have their own venture capital funds and accelerators to encourage the development of financial technology startups and to invest in or acquire new companies with relevant offerings.

<strong>Internal development</strong>:  In some cases, banks aim to innovate internally, by building integrated solutions within their own innovations centers. While this model does not involve coordination with a separate startup entity, it aims to replicate the agility of a startup.

I charted out how these various strategies play out in three large global banks. Below are a few examples of how each bank is innovating through all of the channels listed above.

[caption id="attachment_21925" align="aligncenter" width="719"]<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/09/copy-of-adresses-what-aspect-of-financial-inclusion.jpg"><img class="wp-image-21925" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2016/09/copy-of-adresses-what-aspect-of-financial-inclusion.jpg" width="719" height="405" /></a> (click to enlarge)[/caption]

As was outlined in the <a href="https://cfi-blog.org/2016/08/31/commercial-banks-are-partnering-with-fintechs-to-reach-the-unbanked/">first post</a> of this series, we explored four areas in which banks partner with fintech companies: blockchain and digital payments; lending and credit scoring; KYC and compliance; and financial capability building. Improvement in these areas of operation could mean great improvements in access and quality of services for previously unbanked and underbanked customers. By investing in relationships with the fintech startup community, commercial banks are investing in technological improvements that are already having, and will continue to have a great impact on how they can serve new customers. For me, a current customer, this may mean the ability to electronically pay a friend directly from my bank account. For an unbanked person, this may mean the ability to access an account or loan for the first time by using a thumbprint or other biometrics to verify identity. For financial services, partnerships can turn competition to industry acceleration, where everyone wins.

<em>This post is part of a multi-post series focused on partnerships between commercial banks and financial technology startups. You can read part one </em><a href="https://cfi-blog.org/2016/08/31/commercial-banks-are-partnering-with-fintechs-to-reach-the-unbanked/"><em>here</em></a><em>.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/04/24/fintech-for-fi2020-a-conversation-on-aligning-technology-and-partnerships-for-financial-inclusion/">FinTech for FI2020: A Conversation on Aligning Technology and Partnerships for Financial Inclusion</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/2016/08/23/zidishas-take-on-peer-to-peer-lending/">Zidisha’s Take on Peer-to-Peer Lending</a>

The New Wave of Partnership Models Between Banks and Fintech Startups

Allyse McGrath

Amin Khairy

Constantin Albot

Dan Kleinbaum

Dennis Ferenzy

Ethan Loufield

Hannah Sherman

Jacqueline Foelster

Nina Nieuwoudt

Pablo Anton-Diaz

Sonja Kelly

Tess Johnson

Vitas Argimon

Kenya

South Africa

Mobile Banking

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.

South Africa is a global hub for fintech innovation. Accion supports and advises South African innovators using technology to help entrepreneurs expand their businesses and families protect their homes around the world.

South Africa's largest mobile phone operator, Vodacom, <a href="http://www.iol.co.za/business/companies/vodacom-to-cease-m-pesa-in-sa-2019262">announced</a> last month that it will stop offering its mobile-banking product M-Pesa in the country at the end of June. M-Pesa is sustained by large numbers of users but, given the widespread presence of banking services throughout South Africa, fewer customers are taking up the service than in other African markets.

"The business sustainability of M-Pesa is predicated on achieving a critical mass of users. Based on our revised projections and high levels of financial inclusion in SA there is little prospect of the M-Pesa product achieving this in its current format in the mid-term," CEO Shameel Joosub <a href="http://www.bdlive.co.za/business/technology/2016/05/09/vodacom-to-discontinue-m-pesa-mobile-payment-offering-in-sa">said</a> in Vodacom’s statement.

M-Pesa, which is a runaway success in Kenya, its flagship country, had more than 25 million customers across 11 countries at the end of March, a 27 percent increase over the previous year.

Vodafone launched M-Pesa in Kenya in 2007 as a way for customers to send money electronically in parts of the continent where banks are scarce. M-Pesa quickly became the new standard for mobile money services around the world. In 2010, M-Pesa launched in South Africa as an additional revenue stream for the Johannesburg-based Vodacom. However, M-Pesa has struggled to grow its customer base in the country.

Shameel Joosub reported that Vodacom will continue to operate M-Pesa in the service’s other African countries -- Tanzania, Mozambique, the Democratic Republic of Congo, and Lesotho -- where demand for the product continues to grow.

Why has M-Pesa not been as successful in South Africa? According to the <a href="http://datatopics.worldbank.org/financialinclusion/region/sub-saharan-africa">Global Findex</a>, only 34 percent of adults in sub-Saharan Africa have banks accounts, and of those with bank accounts only 12 percent use mobile money services. The picture is different in South Africa. Mobile phone usage is much higher in South Africa than in the rest of the region – nine in ten South Africans own a mobile phone – and a third of these are smartphones, <a href="http://www.pewglobal.org/2015/04/15/cell-phones-in-africa-communication-lifeline/">according to figures </a>from the Pew Research Center. At the same time, 70 percent of adults in the country have a bank account, and overall South Africa has the most technologically advanced, financially included, and accessible banking system on the continent. In short, many people in South Africa can already do what M-Pesa enables – sending money to people in another location quickly, safely, and economically.

When M-Pesa was launched in South Africa in 2010 Vodacom <a href="http://www.bbc.com/news/world-africa-36260348">hoped</a> it could build a customer base of 10 million in three years. However, six years on the service only has 76,000 active users (although many more have been registered).

The financial viability of M-Pesa is dependent on gaining a critical mass of users. Some <a href="http://www.bbc.com/news/world-africa-36260348">point</a> to Vodacom’s banking partner, Nedbank, as a detriment. Although Nedbank is one of South Africa’s largest banks, it caters mostly to middle and high-income customers, who often already have banking solutions. Beyond missed opportunities surrounding leveraging bank partners, it seems the big takeaway is Vodacom has struggled to find customers in South Africa where levels of financial inclusion are much higher than in the rest of the region.

In its <a href="http://www.fi2020progressreport.org/technology/">Financial Inclusion Progress Report</a>, the Center for Financial Inclusion stated that “without new developments in technology, there would be no financial inclusion movement today.” It is abundantly clear that financial technology, especially mobile technology, results in cost-efficient, easily accessible products for traditionally excluded populations, and has helped advance financial inclusion around the world.

However, the example of M-Pesa in South Africa has also shown that as global financial inclusion increases, and more adults open traditional bank accounts, it is not yet time to dismiss traditional banking products. It also demonstrates the simple truth that some services might flourish in one location and flounder in another.

In South Africa, as the days of M-Pesa come to a close, we need to make sure that we do not forget the 30 percent of adults in the country that do not have a bank account. We need to make sure that bypassing the opportunities provided by fintech products like M-Pesa does not result in the continued exclusion of the most vulnerable populations.

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Vodacom Discontinues M-Pesa in South Africa