When planning UNCDF’s third global conference on digital finance in 2017, I half-jokingly proposed the theme be <a href="https://www.uncdf.org/article/4162/dfs4what---building-inclusive-digital-economies">#DFS4What</a>, which ultimately did become the 2018 conference’s focus when we convened in Dakar. The title encapsulated something we had been seeing across our work in Africa and Asia: in least developed countries, the benefits to the majority of the population of having digital accounts, particularly amongst the rural and poor, simply did not outweigh the costs. While we often attribute financial exclusion to policies, business models, product design and practices, we saw in our own data in <a href="https://www.cgap.org/blog/making-digital-payments-work-low-income-farmers">Uganda</a> and other countries that the financially excluded chose to remain financially excluded because a digital account wasn’t better than cash, and it did not solve a very real and immediate need or desire for clients. It’s difficult to move beyond the 35 to 40 percent of the population actively using digital finance accounts unless we could make digital finance more relevant for people’s daily lives.
<blockquote>It’s difficult to move beyond the 35 to 40 percent of the population actively using digital finance accounts unless we could make digital finance more relevant for people’s daily lives.</blockquote>
At the same time, the benefits to developing economies of going digital are considerable. As <a href="https://www.gsmaintelligence.com/research/?file=b9a6e6202ee1d5f787cfebb95d3639c5&amp;download">GSMA has quantified</a>, in 2018, mobile technologies and services generated $3.9 trillion of economic value (4.6 percent of GDP) globally, a contribution that will reach $4.8 trillion (4.8 percent of GDP) by 2023. In 2016, McKinsey estimated that digital finance could contribute 5 to 10 percent to a developing economies’ GDP over a decade.

It also has development benefits. The United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development, UNCDF, the Better than Cash Alliance and the World Bank <a href="https://www.unsgsa.org/files/1615/3738/5820/SDG_Compendium_Digital_Financial_Inclusion_September_2018.pdf">highlighted</a> the many ways in which digital financial inclusion was igniting progress toward the SDGs.

The financial inclusion community faces a conundrum. How do we promote digital finance as something that we believe is good for development even though it may not necessarily be of great (or any) benefit for many of the world’s poor in the short and medium term?

In discussions with colleagues over the past few years, some ideas and approaches have come up that are worth considering.
<h2>1. Make it useful.</h2>
PayGo solar has shown us how a very specific use case that solves a very real need can drive digital financial inclusion. A CGAP brief three years ago pointed out how 30 to 50 percent of PAYG (pay-as-you-go) solar customers in East Africa <a href="https://www.cgap.org/sites/default/files/Brief-Digitally-Financed-Energy-Mar-2016.pdf">opened a mobile wallet</a> in order to purchase a digitally-financed energy solution. These PayGo models are ideal for small assets and services, from clean water to cook stoves to riding on <a href="https://safeboda.com/ug/">safe bodas</a>. Focusing on what digital finance is for rather than on why digital finance is important is key to reaching low income populations.
<h2>2. Make it fun.</h2>
As <a href="https://www.economist.com/leaders/2019/06/08/the-second-half-of-humanity-is-joining-the-internet"><em>The Economist</em> recently pointed out</a>, recent migrants to the digital world spend most of their time chatting with friends and streaming videos for which they happily pay. So it’s important to remember its not only about what people need (or what the development community thinks they need), it’s about what they want. I’m not suggesting that we should ignore the dangers, such as digital credit being used for betting, but we be open to the idea that the drivers of digital financial inclusion may be for social or entertainment purposes, such as downloading music and <a href="https://www.ft.com/content/74e9c2a0-1792-11e8-9376-4a6390addb44">red envelopes</a> for the lunar festival.
<h2>3. Make it lucrative.</h2>
Creating an affordable merchant acceptance network for digital payments has long been seen as the elusive magic elixir for digital financial inclusion. But it may be e-commerce, or more appropriately “<a href="https://www.investopedia.com/terms/m/mobile-commerce.asp">m-commerce</a>,” that drives usage before merchants do. E-commerce in the Asia Pacific region generated over <a href="https://www.telecomreviewasia.com/index.php/news/featured-articles/1640-in-with-the-new-how-fintech-and-e-commerce-are-driving-innovation-in-asia">$900 billion in total revenue</a> in 2017 and as Alibaba has demonstrated with Alipay, e-commerce can drive much greater access to a range of financial services. Last year, Facebook reported that it had over <a href="https://www.cnet.com/news/facebook-marketplace-is-used-in-70-countries-by-800-million-people-monthly/">800 million users in over 70 countries</a> for its Marketplace platform. In places like Myanmar, cash on delivery is the way most users on Marketplace close a deal. While the fate of Libra still hangs in the balance, other companies like Grab have moved into free digital accounts to support their ride hailing and other m-commerce offerings.
<h2>4. Make it free.</h2>
This is a counterintuitive counter proposal to the previous suggestion. The user-pays model of digital finance has always been problematic: to many low-income users, it’s a psychological and, in some cases, financial barrier. Alipay and GrabPay do not charge users directly. They make money on their core business. So too does Telesom Zaad in Somalia, which makes up the cost of managing its mobile money service through the increase in mobile and data sales. Digital finance provides so many positive externalities, efficiencies and cost savings for businesses and governments alike that there is a strong argument to move to a “freemium” model for customers for basic accounts and payments and instead let large corporate, NGO and government users bear the costs.
<h2>5. Make it easier.</h2>
The JAM trinity of India, combining identification, real-time payments, and basic accounts is a great example of how government innovation is building a backbone for businesses of all types to provide and use digital finance. The next challenge for regulators and the industry alike is to create a simple way for m-commerce firms to embed payment options to on-line and in-person payments. Interoperability is not enough. There is a need for better interfaces between m-commerce sites and payment apps and for simple, standard rules of the game and pricing so that anyone who follows and plays by the rules can be part of the digital economy.

&nbsp;

The advent of fintech is making digital finance happen in new ways and by new actors, which are making it useful to people in ways that go well beyond our traditional understanding of financial inclusion. We now see how digital financial inclusion is increasingly being driven by the lure of the broader digital economy in all of it chaos.

This comes at a time when the global financial sector – indeed monetary systems themselves – are in a state of flux. In my work as Secretariat Director of the United Nations Secretary-General’s Task Force on Digital Financing of the Sustainable Development Goals, we conducted a landscape study to look at <a href="https://digitalfinancingtaskforce.org/wp-content/uploads/2019/07/DFET-White-Paper-Final-08-17-afa.pdf">how the changes in finance due to digitalization were impacting sustainable development</a>. What we noted is that beyond digital retail finance and fintech, innovations in global finance are also beginning to have positive impacts on development and financial inclusion. Payments is a clear example, with new, cheaper money transfer services like Remitly and Transferwise making cross border payments cheaper, faster and more secure. Insurance is another, with global insurers deploying increasingly sophisticated index insurance models that are being used to provide small farmers in Africa with crop insurance.
<blockquote>Innovations in global finance are also beginning to have positive impacts on development and financial inclusion.</blockquote>
&nbsp;

Which brings me to my last suggestion:
<h2>6. Make it global.</h2>
It’s easy to get bogged down in all of the barriers to reaching the next 1.7 billion unbanked through digital finance. From connectivity to cybersecurity, the challenges are considerable. Digital finance might be a just small part of many larger developmental, environmental and business opportunities. Digital finance is key to solving energy challenges – and taking advantage of the clean energy opportunity. It is vital for the booming ride hailing and food delivery sectors around the world – sectors which hire a number of poorer members of society, if not sustainably, at least temporarily. It is critical to boosting tax collection and reducing “leakages” in government payments. In short, we have allies, a lot of them around the world, all of whom stand to benefit from digital payments. Our challenge is harnessing them and finding ways to work together to accelerate access to digital finance.

These six suggestions might go a long way toward boosting digital financial inclusion, and, in doing so, boost development and build the digital economy. Do you have any suggestions to add? Share in the comments below!

DFS for Development: 6 Ideas to Reach the Next 1.7 Billion

Financial Inclusion Week 2019

Delivery Channels

Digital Financial Services

Financial Service Providers

Human Centered Design

Mobile Banking

PayGo

Payments

Blog Post

<em>&gt; Posted by Nancy Widjaja and Maelis Carraro, Accion Venture Lab and BFA</em>

<a href="http://catalyst-fund.org/"><img class="alignright wp-image-24047" style="margin-bottom:5px;border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/1-h0i-i3udbpuhq9hi8pyodg2x.png" alt="" width="397" height="74" /></a>When we met Miguel Duhalt, CEO of <a href="https://4uno.org/landing">Comunidad4Uno</a> in Mexico City, he was working day and night to launch a company that sought to change the financial lives of domestic workers. His goal was building a platform that could offer financial services such as insurance, direct payments, and bank account access to low-income domestic workers in Mexico. With Comunidad4Uno, people who employ domestic workers in their homes would be able to sign up for the service and, with a small annual fee, insure their domestic workers and give them access to medical check-ups. They would be able to pay their employees electronically via a smartphone app into a newly-opened bank account. Leveraging technology and the personal relationships between workers and employers, Miguel wanted to formalize access to insurance and other financial services for domestic workers in Mexico.

But to achieve his ambitions, Miguel needed two things: to raise enough capital to take his enterprise off the ground and to validate his idea in the market with more users. Like many other startup founders, he faced a Catch-22. Investors wanted to see traction and a proven business model before endorsing his company, but his small team had a hard time focusing on reaching proof points because they needed to raise capital to keep the lights on. Raising seed funding is particularly challenging in Mexico and many other emerging markets. Moreover, challenging regulatory environments, inefficient infrastructure and connectivity, costly supply chains, and consumer distrust add to the operational difficulties.

So Miguel, like other talented entrepreneurs, needed to find an aligned investor who could look beyond quick financial returns and help meet important milestones to attract institutional funding at a later stage.



<strong><u>Catalyst Fund: Catalyzing investments in inclusive fintech</u></strong>

This is where the <a href="http://www.catalyst-fund.org/">Catalyst Fund</a> came in. Catalyst Fund is a $2 million program of <a href="http://bfaglobal.com/">BFA</a>, funded by the Bill &amp; Melinda Gates Foundation and JPMorgan Chase &amp; Co. <a href="https://www.accion.org/venturelab">Accion Venture Lab</a> is a founding member of the Fund’s Investor Advisory Committee. It aims to help ‘pre-seed’ inclusive fintech startups like Comunidad4Uno address barriers to early venture development, while demonstrating how the financial products and services of these ventures can serve and benefit underbanked customers. Investees receive grants up to $100,000 (no strings attached), tailored technical assistance, and mentoring from a group of impact and mainstream investors.

One year down the road, Catalyst Fund has provided grant funding and technical advice to 10 investees. Investees’ innovative business models range from insurance and payment services in Mexico, to pay-as-you-go gas cooking stoves in Kenya, to a peer-to-peer lending insurance platform for low-income farmers in Ghana, mobile-based micro-credit for middle and low-income households in India, to alternative credit scoring in Chile.

<strong><u>What we learned about how Catalyst Fund best supports startups </u></strong>

We want to arm our Catalyst Fund investees with the data points they need to prove to their next round of investors that the risks they are being asked to take on are commensurate with potential returns. To do so, we help startups reduce a number of risks typical of early stage ventures, such as value proposition risks, execution risks, financing risks, and technology risks. Of course, developing our approach to technical assistance and mentoring has been a process. We built on initial ideas and continually refined what kind of support was most appropriate. Here is what we learned so far.

<strong>There are no cookie-cutter solutions to make startups investment-ready</strong> -<strong> tailor-made and hands-on support work best in the early days. </strong>At the outset, we run through a risk framework to identify which risks the company is facing and how we can best support them. Do they know their customers well enough? Is their technology solid? Is the team capable of executing and working efficiently together? Getting to “key milestones” and reaching proof points means different things for various startups and business models, and they uniquely require myriad resources and support to do so. Some examples of our tailored support include:
<ul>
 	<li>Perfecting the startup’s technology by <a href="http://bfa.works/medium-worldcover">crafting product and service roadmaps</a> and <a href="http://bfa.works/medium-paygo-CTO">sometimes serving as </a><a href="http://bfa.works/medium-paygo-CTO">interim CTOs</a></li>
 	<li><a href="http://bfa.works/medium-escala">Identifying opportunities for behavioral nudges in their customer journeys</a></li>
 	<li><a href="http://bfa.works/medium-destacameML">Testing the performance of machine learning algorithms</a></li>
 	<li><a href="http://bfa.works/medium-worldcover">Building customer service blueprints</a></li>
 	<li><a href="http://bfa.works/medium-trust">Engendering customer trust</a> by integrating elements like transparency and proper data management</li>
</ul>
<strong>Startups are better positioned to take advantage of Catalyst if they have </strong><strong>already piloted with at least one client and generated initial data for analysis. </strong>We help startups run lean startup experiments as early as possible to validate learning, even with very rudimentary value propositions. We’ve worked with companies to identify best market fit for their product or conduct early customer discovery to refine their core offering and communication strategy. With Comunidad4Uno, for example, we visualized core customer personas, building each customer journey and tweaking the product, marketing, and user experience for each persona.

<strong>B2C and B2B startups exhibit different operational models, </strong><strong>requiring different technical support and knowledge resources. </strong>Creative partnerships are emerging that leverage the respective strengths of incumbents and innovators. But companies need support on how to best forge successful partnerships. Accion Venture Lab created a primer to advise B2B startups on forming partnerships with banks (see <a href="https://www.accion.org/venturelab/resources">“Enterprise Sales for Fintech Products and Services”</a>). For investee Escala Educación, which provides long-term savings plans for higher education tailored to lower and middle income individuals in Colombia, we helped think through what financial services partner would be best for a painless customer experience and for their long-term business goals. For Atikus, we helped build an ROI simulator to show microfinance banks in Rwanda the value of using the Atikus loan management platform and worked on KPIs to track bank performance over time.

Given the common challenges faced by many of our startups, we are now also packaging what we learned into practical <a href="https://www.cftoolkit.org/">toolkits designed for early-stage companies</a>. These toolkits help management teams think through how to build trust with low-income customers, how to manage their internal and external risks and how to achieve product-market fit in emerging markets.

So, has it worked? Has Catalyst Fund’s combination of philanthropic capital and TA been enough to make our startups investment-ready?

<strong><img class="alignright wp-image-24062" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/08/pull-quote-v-21.png" alt="" width="340" height="284" />The $100,000 grant seed funding, coupled with the tailored technical support, makes a big difference in the trajectory of a startup at this early stage.</strong> It helps keep the lights on and allows the management team to focus on running the startup and gaining traction. Catalyst Fund’s investees have been using the capital to reach important milestones, ranging from hiring a capable sales team to financing data collection efforts or pilot projects. While we’re flexible about how the funding is spent, we fully expect each investee to have a clear, transparent plan on the use of the grant capital. Moreover, funding is connected to certain milestone achievements, in conjunction with the TA plan.

And some startups have quickly received follow-on investments. <a href="https://www.destacame.cl/">Destácame</a>’s successful achievement of milestones through Catalyst Fund eventually convinced Accion Venture Lab to invest in a seed round. ESCALA Educación was able to <a href="https://www.crunchbase.com/organization/escala-educacion#/entity">close a seed round led by Mountain Nazca</a>, a prominent Latin American venture capital firm. <a href="http://catalyst-fund.org/news-home/2017/4/25/paygo-energy-cooking-on-your-terms">PayGo Energy</a> closed a round with a key investor in Kenya.

<strong>However, there is still a persistent gap in the funding continuum for these startups after they graduate from Catalyst Fund.</strong> Currently only a limited number of seed stage fintech investors exist, underlining the need for more creative ways to bring funding into this space. Commercial investors often wait until they can make bigger ticket investments and startups, quickly find themselves back in a dire funding environment. To help address this issue, Catalyst Fund has created the <a href="http://catalyst-fund.org/circle-of-investors">Circle of Investors</a>, a group of investors who follow the startups’ progress and are matched with firms that fit their investment criteria. Some 19 mainstream (e.g., Index Ventures) and impact investors (e.g., Goodwell) have already joined this group and we hope to see many introductions turn into real investments.

Measuring the impact of our kind of model on a startup’s trajectory is not easy. Catalyst Fund is not a typical accelerator and there are no directly relevant benchmarks. While Catalyst Fund can certainly reduce a number of risks for a company on its growth journey, we don’t solve all of them. But after over a year, we are ever more convinced that against the backdrop of an investment continuum, de-risking early-stage startup trajectories is critical for attracting investors and capital to inclusive fintech. For now, we’ll continue to unpack the indicators and feedback sessions about how Catalyst Fund makes a difference in the life of the startup and their likelihood to thrive.

Visit our <a href="https://medium.com/catalyst-fund">Catalyst Fund blog</a> or sign up for our mailing list to follow the progress of our investees!

<em><a href="https://www.accion.org/content/venture-lab-team">Nancy Widjaja</a> is the Principal Manager of Knowledge and Industry Engagement at Venture Lab, leading the team’s efforts in identifying, analyzing, and articulating key trends and lessons emerging from the work of Venture Lab and our portfolio, as well as in engaging with the industry and stakeholders to amplify the reach and scale of our efforts in service of positive and innovative sector development.</em>

<em><a href="http://bfaglobal.com/people/maelis-carraro/">Maelis Carraro</a> is an Associate at BFA. She manages Catalyst Fund, an innovative fintech fund supporting early stage inclusive fintech startups with grant capital, mentorship and technical advisory services. Her work focuses on exploring innovative business models to further financial inclusion, supporting early startups to reach scale and advising financial institutions on alternative delivery channels, digital processes and better product design for low-income customers.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2016/08/29/goldilocks-and-the-just-right-credit-market/">Goldilocks and the "Just Right" Credit Market</a>

<a href="https://cfi-blog.org/2016/03/15/mexico-financial-diaries-reveal-how-households-use-credit-to-stretch-budgets-and-bridge-gaps-in-income/">Mexico Financial Diaries Reveal How Households Use Credit to Stretch Budgets and Bridge Gaps in Income</a>

Catalyst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready

Accion Venture Lab

Agent Banking

Fintechs

<em>The following post was <a href="http://blogs.accion.org/features/7-fintech-trends-to-watch-in-2018/">originally published</a> on the Accion blog.</em>
<p id="46a8" class="graf graf--p graf-after--h4">We’re in the middle of a fintech boom that <a class="markup--anchor markup--p-anchor" href="https://medium.com/accion/trends-that-may-change-the-world-c00f4e500a8c" target="_blank" rel="noopener noreferrer">could change the world</a>. As a seed-stage investor in fintech for the underserved, Accion Venture Lab continues to see innovative startups increasing access to, reducing the cost of, or improving the quality of financial services for underserved individuals and small businesses around the world.</p>
<p id="c50b" class="graf graf--p graf-after--p">As we kick off a new year, we’re particularly excited about seven areas of startup-led innovation.</p>

<h4>Digital neobanks</h4>
[caption id="attachment_24930" align="aligncenter" width="616"]<img class="wp-image-24930" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/appsm_mockup2.jpg" alt="" width="616" height="411" /> SmartMEI is a digital neobank serving small businesses in Brazil[/caption]
<p class="graf graf--p">In the last few years, we’ve seen the emergence of a number of digital neobanks. Neobanks offer a user-friendly digital interface and a platform for financial services without maintaining their own banking licenses. With a focus on user experience and digital applications, neobanks stand to offer faster and better service to the underserved. Moving forward, neobanks will need to provide both a compelling product for a targeted customer segment and a suite of offerings that go beyond basic accounts or credit cards to retain customers and improve unit economics. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="http://nowmoney.me/" target="_blank" rel="nofollow noopener noreferrer">NOW Money</a>, which offers migrant workers in the UAE a platform to more efficiently transfer remittances and access to other products and services over time, and <a class="markup--anchor markup--p-anchor" href="https://www.smartmei.com.br/" target="_blank" rel="nofollow noopener noreferrer">SmartMEI</a>, which offers small businesses in Brazil a free tax tool and access to a broader set of financial services.</p>

<h4>Next gen small business finance solutions</h4>
<p class="graf graf--p">Around the world, micro, small, and medium enterprises (MSMEs) struggle to access capital. Estimates suggest that <a class="markup--anchor markup--p-anchor" href="https://www.ifc.org/wps/wcm/connect/4d6e6400416896c09494b79e78015671/Closing+the+Credit+Gap+Report-FinalLatest.pdf?MOD=AJPERES" target="_blank" rel="nofollow noopener noreferrer">200 to 245 million formal and informal small businesses</a> either don’t have a loan or have one but are still constrained by their access to financing. Startups have been developing creative ways to acquire, underwrite, and fund these businesses. Some of the most innovative models today are embedding themselves into supply chains and working with a partner in that supply chain to identify MSMEs in need of financing and to obtain existing data that can support credit decision-making. These companies include <a class="markup--anchor markup--p-anchor" href="http://www.tiendapago.com/en/" target="_blank" rel="nofollow noopener noreferrer">Tienda Pago</a>, which partners with major consumer good distributors in Peru and Mexico to extend short-term working capital to small stores for inventory purchases, and <a class="markup--anchor markup--p-anchor" href="https://lidya.co/" target="_blank" rel="nofollow noopener noreferrer">Lidya</a>, which works through partners in Nigeria to provide invoice discounting and supply chain financing to small businesses.</p>

<h4>Insurtech for the underserved</h4>
<p class="graf graf--p">Low-income consumers in emerging markets need insurance products to manage and mitigate financial risks, but serving those customers poses significant challenges — from cost-effectively reaching and educating consumers, to accurately assessing and pricing risks, to efficiently managing claims. Startups can play a critical role in solving those challenges with products intended to address specific risks for underserved communities, new distribution channels to reach these populations, and new streams of data to more effectively assess and price risk. Insurtech innovators include <a class="markup--anchor markup--p-anchor" href="https://lumkani.com/" target="_blank" rel="nofollow noopener noreferrer">Lumkani</a>, which sells a low-cost heat detector bundled with insurance to households in South African informal settlements that protect against loss of life, shelter, and assets, and <a class="markup--anchor markup--p-anchor" href="https://togarantido.com.br/" target="_blank" rel="nofollow noopener noreferrer">Togarantido</a>, which serves as an online-based insurance broker focused on the underserved in Brazil.</p>

<h4>Financial services for smallholder farmers</h4>
<p class="graf graf--p">Smallholder farmers remain notoriously difficult to reach and are often considered high-risk clients since their incomes are tied to unpredictable harvests. An estimated <a class="markup--anchor markup--p-anchor" href="https://www.raflearning.org/post/inflection-point-unlocking-growth-era-farmer-finance" target="_blank" rel="nofollow noopener noreferrer">270 million smallholder farmers around the world face a financing gap of $170 billion</a>. Innovators addressing this need can provide real value — by helping farmers finance irrigation pumps, combat pests, or address climate risks. Startups in this space include <a class="markup--anchor markup--p-anchor" href="https://apolloagriculture.com/" target="_blank" rel="nofollow noopener noreferrer">Apollo Agriculture</a>, which leverages satellite imagery, data science, and mobile money to finance fertilizer and seeds needed to increase crop yields, and <a class="markup--anchor markup--p-anchor" href="https://www.pula-advisors.com/" target="_blank" rel="nofollow noopener noreferrer">Pula</a>, which works with large seed and fertilizer suppliers across Africa to bundle crop insurance in with product purchases.</p>

<h4>Asset finance</h4>
[caption id="attachment_24931" align="aligncenter" width="615"]<img class="wp-image-24931" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2018/01/kn_pg_2016_25.jpg" alt="" width="615" height="410" /> The Paygo team at work on their smart meter for cooking gas[/caption]
<p class="graf graf--p">Individuals and small businesses require financing for assets like medical equipment, smartphones, and solar home systems to increase efficiency and improve lives. One promising innovation in this space is pay-as-you-go financing, which allows consumers and business owners to make small upfront payments and regular “top-ups,” usually sent via mobile money. The model has already led to a rapid expansion in solar home systems across emerging markets. Other scalable models for asset financing leverage new distribution and payment approaches like layaway solutions, leasing models, and peer-to-peer transfers. <a class="markup--anchor markup--p-anchor" href="http://paygoenergy.org/" target="_blank" rel="nofollow noopener noreferrer">PayGo Energy</a> is a promising company in this space; its pay-as-you-go financing model enables low-income customers in Kenya to pre-pay for cleaner and more affordable cooking gas.</p>

<h4>All-digital consumer lending</h4>
<p class="graf graf--p">Recent years have seen digital consumer lenders emerge and scale by using simple apps to collect and analyze customer data to provide access to credit for underserved populations. The speed and accessibility of digital platforms enable credit access for consumers who are underserved by traditional lenders and who might otherwise be too costly to serve. Innovators could add value to the sector with new approaches to credit underwriting and consumer engagement that lower defaults and improve retention — two of the critical challenges to the app-based lending model. <a class="markup--anchor markup--p-anchor" href="http://smartcoin.co.in/" target="_blank" rel="nofollow noopener noreferrer">SmartCoin</a> offers new engagement tools alongside its mobile lending platform to better understand and serve its customers in India, and <a class="markup--anchor markup--p-anchor" href="https://www.tezfinancialservices.pk/" target="_blank" rel="nofollow noopener noreferrer">Tez</a> provides an all-digital banking platform with a full suite of products to low-income consumers in Pakistan.</p>

<h4>Consumer financial health</h4>
<p id="ce83" class="graf graf--p graf-after--p">In 2016, the Federal Reserve revealed a concerning statistic about financial health in the U.S.: 46 percent of Americans said they could not pull together <a class="markup--anchor markup--p-anchor" href="https://www.washingtonpost.com/news/wonk/wp/2016/05/25/the-shocking-number-of-americans-who-cant-cover-a-400-expense/?utm_term=.893f79e72c4c" target="_blank" rel="nofollow noopener noreferrer">$400 to cover an emergency</a>. Startups are providing solutions that help consumers manage their day-to-day financial lives and rebound from shocks. There is significant potential for innovators to leverage behavioral science to design new solutions such as clever nudges, useful automation, gamification, or bundling across different financial products. Innovators in this space include <a class="markup--anchor markup--p-anchor" href="https://www.lendstreet.com/" target="_blank" rel="nofollow noopener noreferrer">Lendstreet</a>, which focuses on financial health by providing U.S. consumers a platform to restructure and refinance their distressed debt and rebuild their credit, and <a class="markup--anchor markup--p-anchor" href="https://www.destacame.cl/" target="_blank" rel="nofollow noopener noreferrer">Destacame</a>, which empowers users in Mexico and Chile with control of their data to build their financial capabilities and access better financial products.</p>
<p id="2358" class="graf graf--p graf-after--p">Each of these areas of startup-led innovation offers significant potential for both social impact for underserved consumers and financial profit in 2018. We’re excited to see what’s next.</p>
<em>Image credits: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/02/27/kopo-kopo-building-on-the-rails-of-mobile-money-in-kenya/">Kopo Kopo: Building on the Rails of Mobile Money in Kenya</a>

<a href="https://cfi-blog.org/2017/08/28/catalyst-fund-lessons-on-getting-early-stage-fintech-startups-investment-ready/">Cataylst Fund: Lessons on Getting Early-Stage Fintech Startups Investment-Ready</a>

<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 Financial Inclusion: Lessons from the Frontlines</a>

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Lidya

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<em><a href="http://www.fi2020progressreport.org/technology/"><img class="wp-image-19609 alignright" style="border: 1px solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/fi2020-tech-section.png" alt="" width="615" height="336" /></a>The following post draws observations from the just-released </em>FI2020 Progress Report on Technology<em>. See the full report to explore other topics</em><em>.</em>

Technology innovation is dramatically changing the financial services landscape—and quickly. No longer are simple 2G/SMS-based payments the talk of the financial inclusion community. Instead, a range of platforms and products and services promise that as we move into the future, the costs of providing services will be lower, and the base of the pyramid will be within reach for mainstream financial services providers.

The world in which these innovations are mainstreamed is one where the agent network concerns we have today will be gone. In the cash-lite or cash-free world that technology providers are seeking, there will, in fact, be few to no agents, as people will receive money electronically and spend it electronically without ever converting it to cash. When is the last time you went to a banking agent?

Consider the following innovations that allow important financial transactions to take place without a detour through cash. (For a more comprehensive list of innovations, see the <em>FI2020 Progress Report on Technology</em>.)

<strong>Low-Fee Remittances: </strong>In 2014, the global average cost for transferring remittances was 8 percent – a burden for low-income families who rely on remittance income. But this may soon change. Start-ups such as TransferWise, WorldRemit, and Azimo have mobile apps through which users can send remittances at fees as low as 1 percent. Companies like PayPal are increasing their global consumer base, and charge 3–4 percent on international transfers. Customers who were recently offered mobile cross-border remittances in West Africa <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/04/2015_MMU_Mobile-money-crosses-borders_New-remittance-models-in-West-Africa.pdf">responded by rapidly</a> adopting the service. Orange Money offered transfers between its own customers across Cote d’Ivoire, Mali, and Senegal, while MTN and Airtel created a bilateral agreement to serve the Cote d’Ivoire–Burkina Faso corridor. With the emergence of these competing business models, established players such as Western Union and MoneyGram have reduced their fees. Cornelis Heesbeen, CEO of Auxfin, a remittance service, <a href="http://www.remittancesgateway.org/index.php?option=com_kunena&amp;view=topic&amp;catid=9&amp;id=12&amp;Itemid=151">predicts</a> that by 2020 there will be no fees for remittances. The big question is how and when the remittance industry will shift from one in which most transactions start and end in cash at a banking agent, to one in which most transfers are account to account.

<strong>Pay-As-You-Go Utilities: </strong>Large up-front costs make solar home systems too expensive for off-grid, low-income customers, unless they get a loan. To sidestep the need for credit, some companies are using pay-as-you-go leasing technology on top of mobile payments. For example, with M-Kopa in Kenya and Mobisol in Tanzania and Kenya, customers pay daily-use fees via M-Pesa. If payment is not received, the company can turn off the system remotely through the embedded pay-as-you-go device. <a href="https://www.cgap.org/sites/default/files/DigitallyFinancedEnergy%20_FINAL.pdf">According to CGAP</a>, as of 2014 there were at least 25 companies selling solar systems with this technology in Africa, Asia, and Latin America. And the technology is being tested for other utilities, too.

<strong>P2P Lending: </strong>P2P lending services <a href="http://www.wsj.com/articles/peer-to-peer-lending-takes-off-in-china-1433320681">have taken off</a> and expanded rapidly, particularly in China, led by CreditEase, Lufax, China Rapid Finance, and DianRong. At the end of 2014 there were an estimated 1,575 P2P platforms operating in China, up from only 50 in 2011, and 103.6 billion yuan (US$16.7 billion) in outstanding loans issued via online platforms.

<strong>Online ROSCAs: </strong>An estimated 1.5 billion people globally participate in rotating savings and credit associations (ROSCAs). They provide a simple, informal method for people to save money and receive loans, although traditional ROSCAs can be unreliable and subject to management problems. <a href="http://kitty10.io/">Kitty10</a> is a mobile app that offers a possible remedy, allowing ROSCAs to manage their finances, maintain an electronic history of transactions, and easily make decisions (such as those dealing with loan amounts and repayment terms). It gives financial tips and can even build credit histories for members. <a href="https://www.margadarsi.com/index.jsp">Magadarsi</a> is an Indian chit fund that uses the Internet to support ROSCA-like operations. Magadarsi allows users to sign up online and pay savings and loan installments through online banking on its website. This allows for much larger scale in membership.

These innovations exemplify the impressive progress that technology has made in the last few years—and will continue to make from now to 2020, when the financial inclusion industry is striving to achieve financial inclusion globally. Truly, of all of the lenses through which we explored progress made toward financial inclusion for the <em>FI2020 Progress Report</em>, technology was the most promising, and we gave it the highest score on progress (7/10).

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<strong>Have you read?</strong>

<a href="http://cfi-blog.org/2015/10/01/rating-progress-toward-financial-inclusion-on-a-scale-of-1-to-10/">Rating Progress on Financial Inclusion on a Scale of 1 to 10</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/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>

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