Oleksiy Anokhin
28 Jun 2018

by Oleksiy Anokhin, adapted from a case study by Dean Caire


Digital Financial Services provide an enormous opportunity to deliver formal financial services to underserved individuals.  Large obstacles remain toward meeting this goal, such as customers who lack identification cards; or, for example, on the national level, inadequate credit bureaus.   These types of barriers push users to seek financial services from the informal sector, which can carry higher risks and costs. Data analytics can help close these gaps, to build bridges between the industry needs and existing business solutions.  Services that help bring underserved segments into the formal sector, reducing these risks and costs, also promote the principles of responsible finance.

This blog post describes a data analytics solution, which allowed a team to overcome some formal barriers for potential customers, using modern data driven tools and techniques. Lenddo combined social media data of clients with information, received from survey data received from loan applicants.  The data were refined to drive models; and the outputs resulted in increased efficiency of processes as well as reduced fraud risks and costs for the lender. In addition, it ensured the growing transparency of customer protection together with proper sensitive data management.

Lenddo co-founders Jeffrey Stewart and Richard Eldridge initially conceived the idea while working in the business process outsourcing industry in the Philippines in 2010. They were surprised by the number of their employees regularly asking them for salary advances and wondered why these bright, young people with stable employment could not get loans from formal FIs. The particular challenge in the Philippines was that the country had neither credit bureaus nor national identification numbers. If people did not use bank accounts or services – and less than 10 percent did – they were ‘invisible’ to formal FIs and unable to get credit. In developing their idea, Lenddo’s founders were early to recognize that their employees were active users of technology and present on social networks. These platforms generate large amounts of data, the statistical analysis of which they expected might help predict an individual’s credit worthiness. Lenddo loan applicants give permission to access data stored on their mobile phones. The applicant’s raw data are accessed, extracted and scored, but then destroyed (rather than stored) by Lenddo. For a typical applicant, their phone holds thousands of data points that speak to personal behavior:

  • Three Degrees of Social Connections
  • Activity (photos and videos posted)
  • Group Memberships
  • Interests and Communications (messages, emails and tweets).

More than 50 elements across all social media profiles provide 12,000 data points per average user:

Across All Five Social Networks:7,900+ Total Message Communications:

·       250+ first-degree connections

·       800+ second-degree connections

·       2,700+ third-degree connections

·       372 photos, 18 videos, 27 interests, 88 links, 18 tweets

·       250+ first-degree connections

·       5,200+ Facebook messages, 1,100+ Facebook likes

·       400+ Facebook status updates, 600+ Facebook comments

·       250+ emails

Data Usage

Confirming a borrower’s identity is an important component of extending credit to applicants with no past credit history. Lenddo’s tablet format app asks loan applicants to complete a short digital form asking their name, DOB, primary contact number, primary email address, school and employer. Applicants are then asked to onboard Lenddo by signing in and granting permissions to Facebook. Lenddo’s models use this information to verify customer identity in under than 15 seconds. Identity verification can significantly reduce fraud risk, which is much higher for digital loan products, where there is no personal contact during the underwriting process. An example from Lenddo’s work with the largest MNO in the Philippines is presented below.

Lenddo worked with a large MNO to increase the share of postpaid plans it could offer its 40 million prepaid subscribers (90 percent of total subscribers). Postpaid plan eligibility depended on successful identity verification, and Telco’s existing verification process required customers to visit stores and present their identification document (ID) cards, which were then scanned and sent to a central office for verification. The average time to complete the verification process was 11 days. Lenddo’s SNA platform was used to provide real-time identity verification in seconds based on name, DOB and employer. This improved the customer experience, reduced potential fraud and errors caused by human intervention, and reduced total cost of the verification process. In addition to its identify verification models, Lenddo uses a range of machine learning techniques to map social networks and cluster applicants in terms of behavior (usage) patterns. The end result is a LenddoScore™ that can be used immediately by FIs to pre-screen applicants or to feed into and complement a FI’s own credit scorecards.


This case study demonstrates that formal barriers of financial inclusion for potential customers can be overcome sometimes with the help of modern data driven solutions. Analyzing activity of future clients indirectly through contemporary approaches and tools in certain environments with less traditional formats of access to financial services create opportunities for all interested parties. Such solutions help lenders mitigate their risks, decrease costs, and improve own efficiency, following the best practices in customer protection regulation and its transparency, responsible pricing and respectful treatment of own clients; in turn, borrowers, receive access to financial resources which were not previously available to them due to strict formal rules of a traditional financial sector.

Adapted from a case study (prepared by Dean Caire, IFC)  and additional content presented in the Data Analytics and Digital Financial Services Handbook (June, 2017), this post was authored by Oleksiy Anokhin, IFC-Mastercard Foundation Partnership for Financial Inclusion, for the Responsible Finance Forum Blog June, 2018.



Sonja Kelly and Evelyn Stark
22 Jun 2018

by Sonja Kelly, CFI, and Evelyn Stark, MetLife Foundation

What conditions create physical health? We know more now than we ever have—working out, eating lots of vegetables and limiting alcohol intake seem to be healthy decisions. But there is no one agreed-upon set of conditions for physical health and wellness. Rather, there is a body of literature that provides clues about different aspects of health. For instance, nutrition literature makes it clear that broccoli is a better food choice than bacon, and data shows us that doing yoga is healthier than watching TV.

In the same way, the new Gallup Global Financial Health Study gives us additional language and data to understand more about what drives different aspects of financial health. No single perspective on financial health constitutes a definitive “theory of everything,” but the new Gallup data contributes significantly to our understanding of how to make financial inclusion work for customers. This dataset comes at the perfect time—right on the heels of the Global Findex launch—and with it, we can start to ask ourselves with humility if financial inclusion is leading to financial health.


First, some background about the Gallup survey. The financial inclusion field has benefited greatly from excellent surveying and reporting, from financial diaries projects in multiple countries to huge global databases such as the World Bank’s Global Financial Index, or Findex, which gathers and analyzes sex- and age-disaggregated data on account ownership, transaction patterns, account dormancy and much more. MetLife Foundation, in partnership with Rockefeller Philanthropy Advisors, wanted to know even more: the first-hand perspectives of individuals’ financial situations as they experience them.

So MetLife Foundation partnered with Gallup, one of the global leaders in polling and surveys, to get a deeper understanding on several points: how financially secure people are (or are not), the predictors of financial insecurity, and the degree to which people perceive that they have control over their financial lives. Gallup surveyed more than 15,000 people in 10 very different countries, across a range of economies, between January and March 2018 to take an unprecedented look at personal finance and how people perceive their situation.

To gauge financial security, the Gallup pollsters asked two simple questions: first, how long respondents could cover their basic needs (through savings or by selling assets) if they lost their income; and second, whether making repayments against debts does or does not make it difficult for them to pay for other things they need. We recognize of course that financial security is a complex and contextual phenomenon: A person with the same level of income and assets might be financially secure in one country but insecure in another, depending on available social protection safety net services and a host of other variables. Gallup chose those two simple but powerful questions in order to maintain comparability across 10 survey countries (Bangladesh, Chile, Colombia, Greece, Japan, Kenya, South Korea, United Kingdom, United States and Vietnam) that had been chosen for their diversity.

Financial control is the extent to which people perceive that they are in control of and can influence their financial situation. In the Gallup survey, financial control levels are measured as the percentage of respondents who gave a positive response to at least eight out of the 10 dimensions below. 

Dimensions of Financial Control

1. Do you think that no matter what you do, your financial situation will stay the same?*

2. Do you think that you can overcome any financial problem that you might face?

3. When you spend money on something you don’t need, do you usually regret the decision later?*

4. Have you tried to save money in the past, but been unable to do so?*

5. Do you avoid thinking about how you are going to pay for things in the future?*

6. Do you think you will EVER be able to pay back all the money you owe?

7. Do you enjoy planning what you are going to do with your money in the future?

8. Are you satisfied with how much input you have in financial decisions in your household?

9. If you had a financial emergency today, such as a medical emergency, do you think you would be able to find the money to pay for it?

10) Do you have people in your life who can help you financially if you ever need it?

*Reverse-scored item.

Finally, to derive predictors of financial insecurity, the Gallup survey cross-tabulated self-reported financial insecurity with demographic data (age, sex, education level, marital status) and with the self-reported degree of perceived financial control to see what patterns might emerge. To dig into all of these indicators (and others), see the full dataset here.


In an initial analysis full of surprises, two of the biggest were these: The relationship between account ownership and perceived financial control is weak at best. (See Figure 1). And especially in the emerging markets—places where the financial inclusion community has focused the most attention—people’s access to financial services appears to have little correlation with financial security. (See Figure 2)

In Kenya, for example, 82 percent of people have an account, but only 9 percent are financially secure. And in Bangladesh, 50 percent of people are financially included (that is, have an account), but just 7 percent are financially secure. Even in the United States, which also spends significant philanthropic and government funds to increase financial health, only 33 percent are secure despite the fact that 93 percent have an account.

Figure 1: Account Ownership and Perceived Financial Control

Figure 2: Account Ownership and Financial Security


So, does this mean we should give up on financial inclusion? No. This research is a point-in-time assessment and would benefit from being repeated across a wider set of countries and over a longer period, to see how trends in account ownership and financial control and security relate. In addition, account ownership does seem to make clients happy – in response to the survey’s question, “Overall, do you think that using the services of a bank or other financial institution improves your life?” most account owners (bank and mobile) responded positively. That might mean that they appreciate saving time by avoiding queuing to pay simple bills, or by sending or receiving money quickly to and from loved ones.

But though these benefits can be useful, they are not the ultimate goal of financial inclusion. Worse, these findings could also mean that it’s easier to borrow or spend for frivolous things or to lay bets on sports games, which would likely do little to increase feelings of control, and would certainly not boost financial security.

Further, financial inclusion has always been an overly simplistic term. Virtually all definitions of financial inclusion stress the importance of low-income people using a full suite of financial tools that enable them to manage daily cash flows, save and plan for the short and long term, take advantage of opportunities, and protect against risk. Inclusion and account ownership are just the tip of the spear and perhaps have been too much the focus in the field to date.

The balancing act in this field has always been between two related goals. On the one hand, there’s the need to identify the most efficient way to reach the largest possible number of low-income people. And on the other hand, there’s the need to make those products as useful and custom-tailored as possible, enabling clients to grow their businesses, improve their ability to send their children to school, obtain timely medical care, or otherwise respond effectively to their individual life circumstances.

Although much necessary work has been done to walk back the previous over-hyping of microcredit as a silver bullet for poverty alleviation, it seems unwise to over-correct and limit our focus to inclusion, without keeping in mind the intended outcomes. Perhaps it’s time for those of us working in this field to expand our views beyond basic financial tools and to expand or renew our focus on the quality of those tools and the outcomes they enable. Our current nomenclature is not clear or reflective of our shared goals.


MetLife Foundation requested that Gallup make the dataset publicly available. Gallup has enthusiastically encouraged researchers to use the data and share the results. The Center for Financial Inclusion team is planning to dig through these 15,000 survey responses and produce a brief later this summer, to highlight what the data says about the relationship between financial services use, attitudes toward these services, and financial health. For this deep dive, the subjective nature of the survey—which focuses on perceptions rather than empirical data—presents challenges but also an opportunity to understand the client perspective.

For MetLife Foundation, we want to make sure that our efforts remain ultimately focused on the point of it all: building the capacity of more people around the world to live financially healthy lives. As with physical health, the thinking about financial health is evolving: Different ideas and assumptions from our field will certainly join the food pyramid and other examples of discarded conventional wisdom in the archives of outdated theories. Our job is to continue learning and supporting others to keep doing their best work, too.

This data on financial control and security offers the industry one lens into financial health and wellness—in the same way the Apple Watch might provide a different behavioral nudge toward fitness than the Fitbit or Garmin. With all of these different approaches, we can build an inclusive world that works better to enable positive financial outcomes for end-users. We’re excited to see how this data adds to and catalyzes this conversation on financial health, and we look forward to seeing where these new observations take our industry.

Download the Gallup dataset here.

Sonja E. Kelly is director of research at the Center for Financial Inclusion at Accion.

Evelyn J. Stark serves as assistant vice president for Financial Inclusion for MetLife Foundation.

Photo by BRAC World via Flickr

This post was originally published by NextBillion


Daniel Rozas
22 Jun 2018

by Daniel Rozas

The publication of the 2017 Global Findex has generated much reflection on the state of financial inclusion – and plenty of analysis of the data, looking for the buried treasure of some new trend or pattern. This yields important insights. The Financial Inclusion Hype vs. Reality report by the Center for Financial Inclusion (CFI) is particularly worth reading for its in-depth and honest reflection of what Findex tells us.

But when using Findex, there are important things to keep in mind. First, while the overall figures and trends are important, the numbers for any one country should be treated with caution. This is not because we mistrust the Findex team or their work. It’s simply the result of what Findex is – a set of surveys based on randomly selected (hopefully representative) population samples of more than 150,000 adults in over 140 economies. And surveys can – and often do – go wrong, particularly when they deal with difficult or personal subjects (like finance) or are conducted in countries undergoing political and economic turmoil.

This reality forms the backdrop of our work at the Microfinance Index of Market Outreach and Saturation (MIMOSA) project, which since last year has been supported by a strategic partnership with e-MFP. A huge part of MIMOSA is collecting and comparing data – from credit bureaus, microfinance and banking associations, central banks, third-party surveys like Findex, and our own field surveys. We have now done this in 10 different countries. Certainly, 10 countries is not 140, and that’s where Findex continues to play a key role in this process – it’s the only resource that genuinely covers the world. But our work has given quite a different perspective on the financial inclusion trends Findex is highlighting. Let’s look at a few examples.


In MIMOSA’s work, using data from a credit bureau in Peru in 2015, we found 26 percent of adults to be borrowers from formal institutions, such as banks, credit cooperatives and microfinance institutions (the measure of “credit penetration”). Meanwhile, in its findings on Peru, Findex reports these figures as 11.2 percent and 14.7 percent in 2014 and 2017 respectively. Similarly, in our 2018 Nicaragua report, relying on data from the central bank and the microfinance supervisory body, we calculate credit penetration of 18 percent, which increased significantly from 2014. Findex reports 11 percent credit penetration in the country, with a significant decrease since 2014.

When a survey captures fewer borrowers than the number reported by the lenders, the survey is probably missing the “shy borrowers” – people who are reluctant to discuss their borrowing history with a stranger, whether on the phone or in person. The practice appears especially prevalent in some Latin American countries with active credit markets. For example, we have not done a MIMOSA report on Mexico, but the country’s 5.8 percent loan penetration rate reported by Findex is simply not believable, placing Mexico – well known for its very active and competitive credit markets – at the same level of credit penetration as countries with far less developed credit markets, like Mali.

The problem is not limited to Latin America. In Morocco, our field survey in 2016 found high reluctance among people to even talk about credit, let alone acknowledge having borrowed themselves. Part of this is religious, following Islamic teachings that prohibit lending on interest, and part is cultural. But whatever the reason, the result is that Findex reports credit penetration in Morocco at 2.6 percent, among the very lowest in the world. Yet its credit bureau shows 10.1 percent of adults having active loans.

And what about Bangladesh, the “cradle of microfinance”? Findex shows an inexplicable drop from 23.3 percent credit penetration in 2011 down to just 9.1 percent in 2017. Yet simply combining the current active loan portfolios of its three largest MFIs implies a credit penetration of nearly 20 percent, and that doesn’t include any other MFIs, banks or other formal lenders. Of course, individuals may hold multiple loans (and MIMOSA has developed a well-tested technique for estimating this practice in the absence of good data), but even the most generous allowance for multiple borrowing cannot account for such a large disparity in Bangladesh between Findex and lender data.


Under-reporting of credit by “shy borrowers” is one scenario where a survey like Findex can go wrong, but over-reporting is also possible. Our current work in Jordan identified approximately 560,000 recent MFI and bank borrowers in the country, representing 8.4 percent of the adult population. Findex reports 16.6 percent, implying about 1 million borrowers instead. Where do all these additional borrowers come from? At least part of the explanation comes from Findex’s sampling. In its methodology, Findex notes that 12 percent of the survey respondents were non-Jordanians. And yet, according to the 2015 census, non-Jordanians (migrants, refugees and others) make up 33 percent of the country’s population, and a recent survey in Jordan conducted by GIZ and BFC found that these households are seven times less likely to borrow from financial institutions than Jordanian citizens. Findex’s under-sampling of these non-citizen residents is one likely reason for the inflated level of credit penetration reported by the survey.

Account Penetration Among Selected Major European Economies, 2011-2017 (Global Findex)

MIMOSA deals mainly with credit penetration, and so all the above examples come from our work. But deviations on other indicators are also possible. There is at least one example concerning the most basic inclusion metric – possessing a bank account – that stands out as remarkably odd. According to Findex data, one of the great financial inclusion success stories of the past six years turns out to be Italy. Yes, Italy – where, according to Findex, account ownership grew from 71 percent to 94 percent between 2011 and 2017. Italy is literally the country where banks were invented. Nothing during this brief period of its storied 600-year banking history accounts for this major shift. Instead, according to the Bank of Italy, the number of bank deposit accounts has grown by 11 percent during the same period, and it’s likely that growth among newly included individuals is substantially lower, given that this growth includes commercial accounts and multiple accounts held by the same individuals (the number of deposit accounts actually exceeds Italy’s entire population, including children). The 2017 figure of 94 percent is probably about right, and in line with other major European countries, but for whatever reason, in both prior years (2011 and 2014), Findex recorded a significant undercount. Just one more example of the fickle nature of survey-based financial data.


Does that mean that Findex should be ignored altogether? No. Indeed, there are some aspects of financial practices that can only be captured by surveys: reasons for not opening accounts, for example, or use of various informal financial products. Likewise, the CFI analysis does a wonderful job of capturing an element that is both notable and real – the growth in the number of bank accounts that go unused. That too, though, can be validated by hard (non-survey) data.

Over the years we at MIMOSA have grown less reliant on Findex data, focusing increasingly on our own database of verified data from 10 countries and counting. Still, a large, multi-year dataset like Findex is invaluable, and will remain so even for the MIMOSA project. Until a better approach comes along, the only way to create a 140-country, multi-year dataset will be through a survey.

But it’s important to use such survey data carefully, recognizing that it can contain significant departures from the truth – departures that themselves can often point to important factors, such as the presence of “shy borrowers” or widespread social discomfort with debt. The Global Findex is valuable not only in those countries where its data is right, but also when its findings produce the kinds of gaps and inconsistencies described above. In those cases, recognizing the gaps can spur further investigation towards what is ultimately the goal of all researchers: the truth.

Image credit: Martin Fisch, via Flickr.

Daniel Rozas is co-founder of the MIMOSA Project and Senior Microfinance Expert at the European Microfinance Platform (e-MFP)

This post was originally published on NextBillion’s website


20 Jun 2018

June 20, 2018, Amsterdam: over 50 global investors and digital finance innovators launched Guidelines for Investing in Responsible Digital Financial Services. The co-founding Signatories are working to collaborate for solutions, refine investment tools or innovate with strategic partners.  All potential, new and current Signatories are encouraged to proactively engage, such as at the 9th Annual Responsible Finance Forum on Oct 2, 2018 in Dar es Salaam.

Why this matters now

Innovations in digital technology have created new and exciting opportunities to reach unbanked and underbanked low-income customers in emerging markets as well as developed countries. Traditionally, these customer segments have been considered too risky and too poor to be of interest to banks and insurance companies. Mobile wallets and mobile money transfers, peer-to-peer and other alternative lending platforms, pay-as-you-go asset finance and digital micro-credit are examples of recent innovations that are reaching hundreds of millions of consumers and small businesses. These innovations are radically changing the financial services landscape around the globe.

While the opportunities have increased, so too have the risks surrounding digital financial services for investors, investees, customers and wider digital ecosystems across markets and regions. An example is the rapid growth of digital lending products, some of which carry risks of overpricing and over-lending to customers. One factor that is holding back investors in inclusive digital financial services is the lack of a framework to help them evaluate these risks. In a world where the old rules are being rewritten daily, it can be hard to know where best to invest your time, energy and money.

Recognizing this, over 50 leading organizations have teamed up to develop a set of guidelines for investors who are interested in funding inclusive digital financial services in a way that looks at risks digital consumers face, and how this drives businesses and the development of digital economies. How these organizations define and handle the issues facing the fintech industry will enable the investor community to better identify new opportunities and manage investment risks.

Ten touchpoints to guide investing in digital finance

The Guidelines for Investing in Responsible Digital Financial Services comprise 10 touchpoints that financial investors and their fintech investees can use to evaluate opportunities, mitigate risks and contribute to a more responsible and inclusive digital finance ecosystem. These include promoting fair and transparent pricing and better disclosure of terms and conditions for customers, preventing people taking on more debt than they can comfortably manage, increasing their financial literacy, establishing customer identity, data privacy and security standards, fostering a proportionate legal and regulatory framework, and enabling the interoperability of digital financial services.

The guidelines will enable investors and investee companies to offer new financial services to millions of consumers by helping them recognize the opportunities and points to consider and mitigate risks. Any investment organization can subscribe to the guidelines and join the community of investors. All they are asked to do in return is to use them as the basis for due diligence and monitoring of their investments, and to share new insights with their fellow investors as the fintech revolution spreads across the globe.

“The guidelines are just that – guidelines,” says Martin Holtmann, Manager of Digital Finance and Microfinance at IFC’s Financial Institutions Group, the private sector arm of the World Bank Group and one of the co-founders of the Guidelines. “They are not new rules or regulations, not a law, not red tape. They are a voluntary framework that organizations can sign up to and use as guidance when they invest in digital financial services. The guidelines will benefit digital financial service providers and their customers by helping investors to better manage risks associated with digital transformation and digitalization.”

Trust is fundamental to success, for digital users

“By teaming up with other leading investors, we want to create a community of practice around responsible fintech that will give more low-income customers easier access to better and more affordable financial products,” says Wim van der Beek, Managing Partner of emerging markets private equity firm Goodwell Investments, also a co-founder of the Guidelines. “As an active investor in digital financial inclusion, we saw a growing need in the marketplace for a framework that could support investors and operators in building sustainable and trustworthy products and services. We’re proud that so many investors have joined us in our efforts to develop the guidelines.”

“From the Netherland’s perspective we would like to compliment Goodwell, IFC and the other investors for initiating these guidelines,” says Hans Docter, Director of the Department for Sustainable Economic Development at the Netherlands Ministry of Foreign Affairs. “In the financial inclusion agenda the developments in digital financial services are very promising. These Guidelines address the issue of awareness and protection of the vulnerable clients at the source of capital, being the investors in these digital technologies.”

“We are very pleased to see that so many fellow public and private investors, lenders as well as equity investors, are subscribing to these Guidelines,” says Christiane Laibach, Managing Board Member of DEG, the German development finance institution, another co-founding signatory. “They aim to streamline the growing digital financial service sector and to support service providers and investors with professional guidance to prevent abuse of inexperienced consumers. The guidelines will help investors and operators build and sustain customer trust and continuously improve the design and delivery of products and services.”

“We are realising the need to be more focused on the customer in the financial services sector,” adds Maria Largey, Director & Head of Financial Institutions team at the UK’s development finance institution CDC Group, also a co-founding signatory. “We, as investors, have a responsibility to ensure that our investees’ customers do not fall through the cracks or are inadvertently put at risk. The Guidelines help us to assume that responsibility in a practical way, and encourage our investees to do the same.”

This is a beginning, digital landscapes are continuously evolving

The guidelines were launched on June 20, 2018 in Amsterdam, The Netherlands, at the Connecting the Dots conference co-organized by Goodwell Investments in partnership with IFC, DEG, CDC and with support from the Dutch Ministry of Foreign Affairs. The launch represents the first of a series of industry engagements, to broaden outreach to strategic partners as signatories, and to build a critical mass of investors and innovators committed to accelerating responsible investments in digital financial services.

In a message shared with signatories, Queen Máxima of the Netherlands, United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA), underlined the important role of investors and innovators:

“As investors, many of you share the view that digital finance is uniquely positioned to bring financial inclusion to millions of people, creating powerful opportunities to improve access, usage, and customer-centricity. Yet the evolution of digital finance comes with risks for both customers and the financial system.

Today’s launch of the Guidelines for Investing in Responsible Digital Financial Services provides an excellent starting point to address and mitigate these risks. Looking forward, I encourage you to build on your momentum, expanding your consultation with investors beyond development institutions and impact investors and implementing time-bound action plans. With the rapid pace of innovation, new risks will arise. It is critical to ensure that the Guidelines are a living document that is continually adapted to our changing landscape.

This launch is the beginning of a journey, not the destination. I look forward to supporting your efforts to build a more responsible and inclusive future for digital finance.”

About the co-founding signatories

The group of over 50 co-founding signatories teamed up to launch the Guidelines in Amsterdam on June 20. The investor community together had invested around USD 1,5 billion in some 200 digital financial services providers. These include banks, insurance companies, mobile money providers and other fintechs. Together, the co-founders form a unique alliance of leading development banks, investment funds, family offices, private equity firms and debt fund managers focused on the financial sector and fintech, as well as banks, digital lenders, service providers and industry organizations. It is a global group of signatories, from Europe, the US, Africa, China and India.   An updated list of signatories are available at www.responsiblefinanceforum.org/signatories, or contact responsiblefin@ifc.org.


Teresa Alameda
18 Jun 2018

Chris Skinner and Carlos Kuchovsky during the event at Torre Espacio, Madrid.

By: Teresa Alameda, BBVA

Fintech expert Chris Skinner shared the stage with Carlos Kuchkovsky, CTO New Digital Businesses at BBVA, at Desafío Ingenia, where they debated the arrival of technologies such as artificial intelligence, the importance of data and new entrants in the financial services market.

Traditional banks have millions of customers, are worth billions and are hundreds of years old. But they are still not digital. Fintech startups, on the other hand, have a purely digital vision, but still struggle to earn customers’ trust. And finally, we have large tech corporations – the so-called GAFAs (GoogleAppleFacebook and Amazon) in the U.S. and BATs in Asia (BaiduAlibaba and Tencent) – which have millions of customers, billions in cash, decades of history and a digital vision.

This is how Chris Skinner outlined the current financial scenario speaking at ‘Desafío Ingenia’, an event organized by Oracle in Madrid. The fintech expert addressed the profound social change triggered by the rise of mobile technologies, and the possibilities they are enabling in terms of global reach and financial inclusion, which banks need to understand if they want to be part of this digital revolution.

“For the first time ever in history, every single human can connect with every other human on earth, and trade, and transact. And that is massively transformational for everything that has to do with money,” said Skinner, who explained how Ant Financial is using technology to drive financial inclusion, after “having understood” the current paradigm shift: “In the future we won’t make money out of loans, payments or credit. We’ll make money thanks to data. Thanks to knowing the customer and offer them customized products enhanced by artificial intelligence.”

“There are banks, like BBVA, that have understood that coding is a new way of banking”

Compared to the new players, born in the digital world, Skinner remarked how the legacy and history of banks makes it harder for them to go completely digital: “Banks were built during the industrial revolution. And that’s when a banking model based on paper and physical distribution was created,” he explained. The subsequent automation of processes built on this model, first through ATMs, then through internet, and finally through mobile technologies. But competing against the new players, said Skinner, requires more than just rolling out new technologies: banks need to completely move away from a model based on the “legacy of the industrial era.”

The last obstacle

And for this, according to the expert, there is still one last obstacle that banks need to overcome: their own internal culture and talent. “The problem for banks is that they still do not have enough digital profiles, how is a bank going to be digital if it does not understand technology?” In this sense, it is necessary that the bank’s professionals understand and embrace the use of digital tools, coding and software as the industry’s new core skills.

“Banks need to completely move away from a model based on the legacy of the industrial era”

But there are exceptions in the sector, according to Skinner: “There are banks that have understood thatcoding is a new way of banking. At BBVA, for example, they are doing all the right things to be a digital bank,” he said. Skinner also praised the way in which BBVA is driving the digital change “from inside” the organization, forging partnerships with fintech startups, “investing and co-creating.”

Also, according to Skinner, a clear indication that a change is needed is the fact that most banking executives, specially executive board members, lack the required technological knowledge or background. And then we have people like BBVA Group Executive Chairman Francisco González, who started his career as a programmer, and understands the importance of technology in operations. “That for me is the big difference, if the bank’s culture doesn’t change, then the bank won’t be digital,” he added.

Also, according to Skinner, a clear indication that a change is needed is the fact that most banking executives, specially executive board members, lack the required technological knowledge or background. And then we have people like BBVA Group Executive Chairman Francisco González, who started his career as a programmer, and understands the importance of technology in operations. “That for me is the big difference, if the bank’s culture doesn’t change, then the bank won’t be digital,” he added.

The arrival of AI

Carlos Kuchkovsky, CTO of New Digital Businesses at BBVA, had the opportunity to pose some questions to Skinner about his take on the convergence of finance and technology. Specifically, he inquired about the impact of artificial intelligence on financial services: What will be the most visible and interesting effects of this technology on the sector?

Skinner noted several practical cases. First, the already widespread use of algorithms to automate fraud detection, risk measurement and customer support through chatbots. He also mentioned the tremendous potential of this technology to make certain industry processes more efficient, such as the analysis of commercial contracts. JP Morgan is already using AI algorithms to juggle these tasks, reducing an activity that used to take more than 300,000 hours per week to a matter of seconds.

However, the expert noted other types of applications that he considers more interesting for the user: smart services.  In this case, he made reference to the possibility that companies can offer better products and services to customers based on what they know about them through their data. “There is where I really believe AI will make a difference: in analyzing people’s financial habits, offering them advice and personalized services”.

This post was written by Teresa Alameda and originally published on BBVA’s website

Bank-Led Digital Finance: Who’s Really Leading?

Stefan Staschen
18 Jun 2018

Photo: Moksumul Haque, 2016 CGAP Photo Contest

In 2006, CGAP distinguished two broad models of digital financial services (DFS) — one led by banks, the other by nonbanks. We quickly realized, however, that many of the so-called bank-led models were not actually led by banks. Rather, nonbanks were taking the lead in establishing and implementing DFS, even though banks remained the legal providers of these services. We therefore began to refer to “bank-based” vs. “nonbank-based” models. Though many more models exist, this dichotomy continues to exist in many markets to this day.

Nonbanks have a crucial role to play in DFS ecosystems, because they can often reach the mass market better than banks. Yet in many countries, they are prohibited from issuing e-money as an independently licensed and supervised entity. We recently published “Basic Regulatory Enablers for Digital Financial Services,” which summarizes our experience with four basic regulatory enablers that have guided our work in creating appropriate DFS regulatory frameworks in 10 countries across Africa and Asia. The first of these enablers is the creation of a specialized licensing window for nonbank DFS providers to issue e-money accounts. Yet four of the 10 countries we worked in decided to allow only the bank-led model.

On the face of it, this means that these countries have not implemented one of the four enablers. In reality, nonbanks have found ways to play a leading role even in these regulatory environments, calling into question whether these “bank-led” ecosystems are bank-led at all and reinforcing the important role nonbanks play in financial inclusion.


Pakistan’s first branchless banking regulations were issued in 2008. They clearly stated that “only [the] Bank-led Model of [branchless banking] is allowed. [The] Nonbank-Led Model will be opened up after the players and stakeholders attain [the] necessary level of maturity and after putting in place necessary controls.” Despite being barred from DFS, mobile network operators (MNOs) were more interested than banks in launching branchless banking services.

Rather than waiting for regulations to change, the leading MNOs either bought a majority stake in an existing bank or set up a new bank that they fully owned. The regulations made this possible by allowing not only commercial banks, but also microfinance banks, to offer digital services. Microfinance banks are subject to much lower absolute capital requirements than commercial banks, which makes it feasible for MNOs to enter the space. As a result, all MNO-owned banks in Pakistan today are microfinance banks.

MNOs are playing a big role in Pakistan’s DFS “bank-led” ecosystem through these banks. The latest data show that the country’s two largest DFS providers are Telenor and Mobilink Microfinance Bank — both fully owned by MNOs until recently, when Chinese tech giant Ant Financial announced its purchase of a 45 percent stake in Telenor Microfinance Bank. Together, these banks account for 88 percent of active accounts, 85 percent of transaction volume and 79 percent of the transaction value. Interestingly, when DFS regulations were revised in 2011, the reference to the nonbank-led model being allowed at a later date was dropped.


Similar to the situation in Pakistan, Bangladesh’s Mobile Financial Services Guidelines (2011) state that “from [the] legal and regulatory perspective, only the bank‐led model will be allowed to operate.” Unlike Pakistan, however, Bangladesh does not allow microfinance banks or other lower-tier banks with lower capital requirements. Nor does Bangladesh permit MNOs or other nonbanks to buy or set up full-fledged commercial banks, because banks are subject to strict single ownership limits that prevent nonbanks from holding a controlling stake. Despite these restrictions, however, nonbanks have found another way to enter the DFS market.

A provision in the guidelines that allows banks’ subsidiaries to operate mobile financial services has opened space for nonbanks to get involved. The country’s top DFS provider, bKash, is 51 percent owned by BRAC Bank, but a nonbank, Money in Motion, has been a minority investor since bKash’s inception. Money in Motion is owned by leading tech entrepreneurs and has had significant influence on bKash’s strategy and operations, even providing its CEO. Other minority investors have also joined: IFC, Bill & Melinda Gates Foundation and, most recently, Ant Financial. By and large, bKash controls its own fate and is a nonbank e-money issuer in all but name. This supposedly “bank-led” entity has acquired a dominant position in the market, with an estimated market share of 80 percent.


Uganda also lacks a licensing window for nonbank e-money issuers, but it allows nonbanks to offer “mobile money services” (the term used in Uganda) in partnership with banks. The country’s 2013 Guidelines require nonbanks to “partner with a licensed institution [a bank or other type of prudentially regulated deposit-taking institution], which must apply to Bank of Uganda seeking approval for the provision of mobile money services in partnership with the mobile money service provider.” This means that even though a bank is behind every mobile money offering as the licensed entity, it is always a nonbank designing the service and issuing customer accounts.


The fourth country that took a bank-led approach, India, is a different story. In 2015, India created payments banks to offer basic payments and savings services to low-income customers in a more cost-efficient way than commercial banks. As limited-purpose banks, payment banks are subject to lower prudential requirements than commercial banks, but are barred from extending credit. Many of these banks are owned by a range of nonbank entities with prior experience in payment services, such as MNOs, the India Post, agent companies and prepaid payment issuers. One question is whether they will have the kind of flexibility and limited prudential controls that have permitted nonbank e-money issuers in other markets to take off. We will soon publish a report comparing these two approaches of creating a regulatory niche for financial institutions to provide basic transaction accounts for low-income people.

Looking at these countries’ experiences, I wonder whether it would have been better to directly license and supervise nonbanks instead of assuming that banks would play the leading role. This would have made it easier for nonbanks to enter the space and allowed regulators to focus on controlling the much more limited risks of e-money issuers in comparison to full-fledged banks intermediating public deposits. Bank-led? With the possible exception of India, where it may be too early to draw conclusions from the payments banks’ experience, digital finance in these countries has been bank-based and nonbank-led.

For more on the licensing of e-money issuers and other basic regulatory enablers of DFS, see “Basic Regulatory Enablers for Digital Financial Services.”

This post was originally published on CGAP’s website

The Biometric Balancing Act in Digital Finance

Paul Makin, Chrissy Martin
15 Jun 2018

Photo: Marie Hortense Raharimalala / IFC

By: Paul Makin and Chrissy Martin, CGAP

Biometric technologies are rapidly changing how financial services providers (FSPs) verify people’s identities and meet know-your-customer requirements as well as customer due diligence (CDD) requirements more broadly. India’s use of biometrics is perhaps the best-known example, but it is not the only one. According to an estimate by Juniper Research, over 600 million mobile devices around the world will use voice and facial recognition by 2021. While biometric technologies have a great deal of potential to reduce error and fraud in CDD, they can also pose risks if not implemented correctly.

As noted in a previous blog post, “KYC Utilities and Beyond: Solutions for an AML/CFT Paradox?” identity verification can be a difficult and costly process. For this reason, FSPs in some countries are finding ways to collaborate and share the burden of CDD. Biometrics, if employed correctly by these collaborative groups, may be a more reliable means of supporting identity verification at a large scale than data generated by human processes. But for a biometric solution to be effective, it must carefully balance several considerations: security, cost, convenience, inclusiveness and accuracy. Often, prioritizing one comes at the cost of another.


Security is a crucial aspect of any biometric solution. Centrally storing biometric data on a national identity authority’s server is convenient because it means people do not have to carry their data with them on a physical device, such as a smartcard or a smartphone. However, if the server is hacked, every registered person’s biometric data could be vulnerable to theft. If a fraudster obtains someone’s information, he or she can be remotely authenticated as the victim and potentially take over their affairs in a so-called replay attack.

There are security measures against these attacks. To start with, the identity verification system can be set up to accept biometric submissions only from trusted devices. Another possible countermeasure is to collect several types of biometric data and store them differently. For example, facial recognition data could be collected and stored in a central location to initially register someone in an identity system. The person’s fingerprint data could also be collected and stored locally, rather than in a central database, to be used for verification purposes whenever they conduct transactions. This way, even if the facial biometric database is hacked, the person’s financial services cannot be accessed.

Cost and convenience

Security is of the utmost importance in a biometric solution, but it is also important to recognize that enhanced security features can be expensive or inconvenient. For example, a trusted device system limits the number of devices that people can use to conduct their financial transactions. Additionally, physical devices such as smartcards that increase security can drive up costs, since issuing cards at scale is expensive and relying on smartphones instead is not an option in many countries. If these costs are passed on to users in the form of a fee for card issuance, it is likely to inhibit adoption. For instance, the high fees charged to users for card issuance (which resulted from many costs, including the cost of the cards) was one reason for the initially slow adoption rates of the SNIC electronic identity cards in Pakistan. Finally, users may feel that physical devices are inconvenient, because they can be lost or forgotten. On the other hand, if prioritizing user convenience, one might rely on behavioral biometrics, such as someone’s gait or patterns of cell phone use, instead of physical ones. These systems, which have yet to be implemented at scale, promise a frictionless user experience but may present other risks, as noted below.


In addition to balancing security with costs and convenience, a biometric identity solution must be as inclusive as possible. Based on India’s experience, we already know that fingerprint scans are not fully inclusive. Those who are over age 50 or under age 6, work in hard labor occupations or have leprosy likely will be unable to successfully scan their fingerprints. This has led Aadhaar to offer a wider array of authentication methods, including iris scans. From July 2018, the options will include facial recognition. The use of behavioral biometrics to improve overall user convenience will inevitably lead to other inclusion issues. One obvious example is that people in wheelchairs will not be able to use gait recognition. Less obvious cases will have to be considered as new biometric modalities are introduced.

Inclusiveness is not only a concern on the demand side; it also is an issue for FSPs. Certain biometric technologies may be out of reach for a wide variety of FSPs, such as FinTech startups, microfinance institutions and financial cooperatives, if those technologies require extensive resources to implement. Such institutions may not be able to afford expensive point-of-sale terminals or sophisticated artificial intelligence software. If a biometric solution is so expensive that it excludes some providers, it could limit competition in the market and even push some FSPs currently serving poor customers out of the market entirely.

Accuracy and reliability

Governments, FSPs and citizens all need to have confidence in a CDD mechanism for it to work. As with security, accuracy and reliability are important factors in establishing confidence, yet they may be more complicated than they first seem. To begin with, a fingerprint scan is not actually a fingerprint; it is a set of data points derived from someone’s fingerprint. This is true of all biometric modalities, and it means that a data profile created from a biometric scan is not guaranteed to be unique or to always work.

Another factor related to confidence is reliability. Aadhaar provides a case in point. The Indian government has successfully registered over a billion people, an impressive feat indeed. However, documents recently submitted to the Supreme Court of India stated a nearly 9 percent failure rate for iris scans and 7 percent for fingerprint scans – arguably, a high percentage for a system that is so ubiquitous and necessary for life in India.

Looking forward

Biometrics hold significant promise and are more than likely the future of identification and identity verification. As FSPs increasingly look toward collaborative methods for CDD, biometrics may offer a way forward to reliable, at-scale identification, verification and authentication that is less subject to human error and fraud than passwords, PIN codes and paper-based identification systems. However, biometric technologies are complex and evolving. Understanding the trade-offs involved will ensure we can make biometrics as trusted, secure, affordable, user-friendly and inclusive as possible.

This post was written by Paul Makin and Chrissy Martin and originally published on CGAP’s website