Financial Inclusion not Exclusion: Managing De-Risking

World Bank Group
16 Nov 2016

This is a recap of the Financial Inclusion not Exclusion: Managing De-Risking event that took place during the World Bank Group’s Annual Meetings in Washington DC.

Watch: Financial Inclusion not Exclusion: Managing De-Risking

Financial inclusion has emerged as a critical development challenge. Fintech innovation and successes from emerging countries and the private sector show tangible progress toward Universal Financial Access 2020. But de-risking, where global financial institutions are restricting relationships with remittance companies and certain local banks because of perceived anti-money laundering risks, is undermining these efforts.

Event Recap:

Powerful panel weighs progress on financial inclusion

Government leaders and advocates came together during the Annual Meetings to discuss a major development goal – ensuring everyone has access to affordable financial services such as a bank or mobile money account. (WBG Voices Blog)

More on Financial Inclusion and De-risking:

Achieving Financial Universal Access 2020

An estimated 2 billion adults globally don’t use formal financial services. Extending access to finance to them is the first building block to build a better life.

National Strategies for Financial Inclusion

More than 50 countries have made headline financial inclusion commitments as of the end of 2014. Many of them are developing National Financial Inclusion Strategies (NFIS) to ensure that resources and actions are put in place to achieve those commitments.

De-risking in the Financial Sector

De-risking practices by global financial institutions threaten to cut off access to the global financial system for remittance companies and local banks in certain regions, putting them at risk of losing access to the global financial system.

World Bank Group Surveys Probe “De-Risking” Practices

At the request of the G20 and the Financial Stability Board (FSB), and with the support of the Committee on Payments and Market Infrastructures (CPMI), the World Bank Group has led fact-finding work on de-risking – the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk.

The Power of Smartphone Interfaces for Mobile Money

Greg Chen from CGAP
16 Nov 2016
A number of organizations have collaborated to bring out an initial set of 21 principles for the design of smartphone interfaces and mobile money. We hold that this is a powerful new area of research and testing that can harness the power of smartphones to better serve the poor.It is true that smartphones are not accessible for many. Indeed, many poor people still do not use feature phones. Yet the forces pushing smartphones out into the hands of hundreds of millions of people are strong.

In Myanmar today nearly four in five connections are smartphones, and most are already using data to access the internet. Prices are at all-time lows – a few weeks ago I bought a new smartphone on the streets in Yangon for $28. India’s newest mobile network operator, Jio, is going straight to 4G and offering voice services for free, aiming to gain revenue from data sales. The world is rapidly urbanizing, putting many more people within reach of 3G and 4G cell towers. These forces are particularly powerful in Asia according to GSMA.

It is possible that in five years, more banking transactions will happen via a smartphone than by traditional banking channels. This may include many low-income people who would otherwise not access formal financial services.

A lot of hype speculates about how over-the-top (OTT) players like WeChat or Facebook will enter the space. This is important, but interface designs could have an even bigger impact. Today, older USSD or SIM toolkit hierarchical menu interfaces keep many users away. A simple cash-in transaction can require seven to eight menu screens and entering two to three number sequences. Mistakes are all too easy. It is too painful to use often or for everyday purposes. Many stay away altogether.

Smartphone interfaces not only have the chance to make basic transactions simpler, they can potentially address a host of other barriers. For instance, services can be presented more transparently, listing fees and costs as transactions happen. Videos or graphics can explain services and their risks more clearly than text only. Customers register for new services quickly – perhaps even self-registering without the costly need to fill in paper forms or visit a branch or agent.

Each of these changes are small, but collectively they are transformative. These changes can drop the cost of customer acquisition from $10-20 per customer to merely a few cents at a time. Ease of use can persuade users to transact more frequently. Building trust through transparency, providers can persuade customer to carry larger balances.

Imagine the changes for customers. Social media and contact lists can make easier links with business partners and families. Users can better self-protect with more information; more importantly, key information is presented in understandable and intuitive ways. Some customers should find the simplicity of the user interface a reason to switch from OTC to wallet-based transactions.

Unfortunately, the early use of smartphones has not leveraged the full capabilities of smartphones. New apps often mimic USSD hierarchical menus, over-rely on text or simply try to squeeze a laptop online interface onto a much smaller smartphone screen.

To take full advantage of the transformative potential we need to invest in interface design – often referred to as the user interface (UI) and user experience (UX). This is not a side activity delegated to one person in the marketing department. Interfaces are a strategic asset. Just look at how the largest and best known Silicon Valley firms invest: Expedia, Facebook, Uber. Each relentlessly tests and improves its interfaces. A recent report on #DesignInTech highlights the growing importance of design in technolgy.

It highlights some important facts:

  • Design is leveraged over the entire user base. Investments, even in small tweaks, can have massive impacts on use and revenues.
  • When the CEO cares about design, progress happens fast.
  • Design is increasingly valued on equal footing with those who code/program. Many more positions in management are design focused.

To put our hypotheses to test, CGAP and its partners Wave Money Myanmar, Karandaaz Pakistan, Small Surfaces and GRID Impact have begun a series of design experiments to test new user interface experiences on the smartphone with a particular focus on low-income mass-market users. The goal has been to identify key basic steps in the most simple mobile money functions of getting started, cash in, cash-out and other basics. Earlier this year an expert group convened to collectively help build out from experience a consensus set of principles

An Initial Set of 21 Principles

  1. Allow users to explore before using
  2. Help users find agents
  3. Simplify application registration
  4. Flatten menu hierarchy
  5. Focus menu choices on actions
  6. Reduce text and use visual cues
  7. Design icons relevant to local users
  8. Use simple and familiar menu terms
  9. Build on users’ familiarity with smartphones
  10. Customize transaction choices
  11. Auto-fill from the address book and transaction history
  12. Auto-check to minimize human error
  13. Display information in digestible chunks
  14. Reassure with transaction confirmations
  15. Leave a clear trail of transaction histories
  16. Provide instructions when needed
  17. Handle errors by providing next-step solutions
  18. Customize and simplify keyboards
  19. Auto-calculate fees during transactions
  20. Provide full transaction details on one screen to finalize transactions
  21. Make account balance easy to see and hide

These are just the tip of the iceberg. There are many more ideas out there that need further testing.

  • Can customers rate agents to enforce accountability?
  • Should customers be able to self-register using the camera to capture their ID and facial images?
  • Should visual images of cash notes be used to depict large values and leverage users familiarity and comfort with cash?

We need to push the boundaries to reach the truly disadvantaged, illiterate and those with disabilities. This first set of principles is just a starting point.

This blog was originally published on the CGAP website on October 6, 2016

Digital Finance Successes and Failures Provide Lessons for Microfinance

Kelly Hattel from ADB
16 Nov 2016

Published on Wednesday, 28 September 2016

Microfinance institutions (MFIs) are starting to see the benefits of new digital technologies, including greater efficiency, lower transaction costs for institutions and clients, and extension into new markets. These benefits can be tremendous and the experiences with both successful and unsuccessful digital financial solutions reveal how these ‘disruptive’ innovations can enable the unbanked and underserved to participate more fully in financial systems.

Complex digital financial services and new technologies create new processes and other challenges for institutions and their clients. In addition, as the following examples illustrate, partnerships and realistic timeframes are key to successfully apply these technologies.

Rural banks like Cantilan Bank in the Philippines are well-placed to utilize digital technologies to make disbursements more efficient and to increase client convenience and security. But when Cantilan Bank first offered mobile phone banking services (in partnership with GCash), it found that many of its customers were not ready for the service, and usage did not meet expectations. The bank therefore took a step back and offered a new ATM/debit card instead.

Since then, the bank has identified other opportunities to innovate using mobile and e-wallet services and by facilitating digital payments (remittances, government-to-person, person-to-government) which it will roll out incrementally. Cantilan Bank learned the importance of not making assumptions about target-market needs. Convenience may not be a priority for clients. Understanding the full costs of new products and services is also important.

In another case, Basix Social Enterprise Group of India helped clients and the clients of partner banks to utilize its network of more than 10,000 business correspondence outlets and common service centers serving over 2.5 million households in 28 states and 330 districts to provide banking services like opening accounts, mobile top-ups, bill payments, savings, credit, and receive pension insurance and remittances. Through a subsidiary, Sub-K, Basix manages another 5,000 business correspondence outlets and common service centers reaching an additional 1.5 million clients on behalf of banks. Basix does this by equipping business correspondence outlets with a mobile technology platform, micro-ATM, and staff training to market various financial and payment services.

Customers of the outlets become customers of the partner bank. Basix has found that the main prerequisites for success are willingness among key parties to build the network, existence of a large agent network, sufficient internet or mobile connectivity and information technology infrastructure, a credit bureau, and strong government regulation.

For FINTQnologies, a financial technology firm recently formed in the Philippines, a partnership with Landbank allowed it to launch a mobile loan-saver product through a digital consumer lending platform with added insurance and auto-savings features. The partnership will enable FINTQnologies to expand to a wider range of municipalities and lower-income populations not least because customers will be able to submit loan applications outside banking hours. Through its use of this technology, Landbank has been able to reduce lending rates by 4 percentage points. Working with the Central Bank of the Philippines, the company was able to use school enrolment data to meet the know-your-customer requirement for their special microinsurance and microsavings products for students and their parents, known as Personal Insurance and Savings Option (PISO) sa Kinabukasan.

MFIs and fintechs face common key challenges: the crucial importance of building trust around new digital financial services and appreciating that doing so takes time, and ensuring reliable and stable service delivery. The latter is often limited by poor telecommunications and energy infrastructure, especially in remote areas. Providers should establish communication channels and complaint resolution mechanisms and be able to address their customers’ risk perceptions and issues, including inability to transact in network downtime, complex and confusing user interfaces, poor customer recourse, opaque fees, and other issues.

Indeed, perhaps because of some of these issues, clients in many cases still prefer face-to-face transactions, as in Cantilan Bank’s experience. It is extremely important that providers engage the local community, allowing community members to help clients use the services (such as ATM withdrawals). For Basix, for example, assisted digitization (step-by-step demonstrations of processes, showing transactions in passbook or receipts) was critical to bringing digital financial services to new clients. While financial education is also critical, costs have to be considered and the real impact of the education must be weighed against these costs.

MFIs and fintech companies each bring unique strengths to the development and deployment of digital financial services. They can leverage each other’s strengths through partnerships to improve value for clients. The potential need for reliable and accessible financial services is vast. And if key issues are addressed, most importantly trust, affordability, and reliability, then digital financial services can help extend financial services to all.

 This blog was originally published on the Asian Development Blog Platform on September 28 >