Technology Enables Full Financial Inclusion

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Technology Enables Full Financial

Inclusion

Financial Inclusion 2020 Technology-Enabled Business ModelsWorking Group

September 2013

CreditReporting

FinancialCapability

ClientProtection

Addressing Customer

Needs

Technology-Enabled

BusinessModels


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www.financialinclusion2020.org

Roadmap to Financial InclusionTechnology-Enabled Business ModelsSeptember 2013

bout the FI2020 Roadmap Working Groups

Whatwillittaketoachieveastateoffullfinancialinclusion?In2011,theCenterforFinancialInclusionaskedthis

questioninaglobalsurvey,andover300practitionersgavetheirperspectivesonthekeyopportunitiesandobstaclesto

financialinclusion.

Basedontheresponses,theCenteridentifiedfivepriorityfocusareasthatarekeytoachievingfinancialinclusion,which

havebeenusedasthebasisforabroadconsultativeprocesstowardaRoadmaptoFullFinancialInclusion.Overthe

courseof2012and2013,thisprocessengageddozensofexpertsandindustryparticipantsindevelopinganaction-

orientedblueprintforreachingnewandunderservedmarkets.Thefivefocusareasare:

AddressingCustomerNeeds ,chairedbytheConsultativeGrouptoAssistthePoor(CGAP),focusesondeepeningourunderstandingofclientneedsandtranslatingthatknowledgeintopracticewhileexpandingthe

rangeoffinancialservicesavailabletounderservedmarkets.

Technology,chairedbyVisa,analyzesthepotentialofnewtechnology-intensivechannelstoreachnewcustomers,loweroperatingcosts,increasesecurity,anddiversifyfinancialproductsavailabletolow-incomeclients.

FinancialCapability,chairedbyCiti,focusesonempoweringclientstoknowtheirrightsasconsumers,andhavetheskills,attitudes,aspirations,andconfidencetoexercisethoserights.

ClientProtection,chairedbytheSmartCampaign,outlinesstepstodeepentheimplementationofclientprotectionmeasuresforthebenefitofconsumersandstabilityofmarkets.

CreditReporting,chairedbytheInternationalFinanceCorporation(IFC),promotesextendingcreditreportingsystemsinordertoexpandaccessfornewclientswhilemanagingriskforfinancialinstitutions.

Eachofthefiveworkinggroupshascraftedaroadmapthatasks:Whatisthevisionforthistopic?Whatstandsinthe

wayofachievingthevisionandwherearethegreatestopportunities?Whataretheenablingactionsandcorresponding

actorswhocanadvancethevision?

The Main IdeaTechnologysability to bringservices topeoplewherever theyare andwhenever theyneed them is

possiblytodays biggestdriver of fullfinancialinclusion.

Electronicpayments areacceleratingthis drive now,and newerdevelopments,including bigdata,

ubiquitousinternet accessand cloudcomputing,may haveenormousimpact.

Regulatorsmust openrestrictions inareas thatdisproportionally affect BoPcustomers,such as KYC,

agent bankingand mobilebanking.

Interoperability(every customerable to transactsmoothly withevery othercustomer) cancreate the value tocustomers needed

to attract largevolumes, butinteroperabilitymandates canstifle innovationbefore it begins.

Keeping pacewithtechnologyrequiressignificantinvestments inregulatorycapacity and

changes inregulatoryprocesses(such asinteractionsamong variousagencies).

Governmentscan use theirown resources,such as G2Ppayments anduniversalservice funds,to incentivize

providers tointroducetechnology-enhancedbusinessmodels tolower incomecustomers.


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I.Introduction

Newinformationandcommunicationstechnology(ICT)israpidlychangingthefaceoffinancialservicesacrosstheglobe.Inparticular,ICTpromisestoenablehundredsofmillionsofpeopletoaccessfinancial

servicesforthefirsttime,thankstotheirabilitytoreachpeoplewherevertheyare,atalowerdeliverycost

thaneverbefore.Technologyalsoofferstheprospectofmoreconvenient,tailoredandresponsiveservices,

evenforclients1recentlyconsiderednon-users.ICTisbynomeansnewtofinancialservices:productslike

ATMs,creditcardsanddebitcardshavetransformedconsumeraccesspointsformanyusersaroundthe

world,andnewertechnology-supportedproducts,includingonlinebanking,prepaidcardsandmobile

devicesforpaymentsarepenetratingglobalmarkets,insomecasesveryquickly.Justaroundthecorner,new

technologiesandinnovationspromisetochangebusinessmodelsinwaysthatwillundoubtedlysurpriseus

allbeforethedecadeisover.

ThesuccessfulapplicationofICTisundoubtedlyakeytoachievingfullfinancialinclusion.Torealizeitspromise,solutionsmustbeembeddedinbusinessmodelsthatworkforbothserviceprovidersandclients,

enabledbysoundregulatoryframeworks.Thisroadmapfocusesonelementsneededtofostersuchbusiness

models.

II.TheVision

Ourvisionforclientsisaworldinwhichtechnology-enabledfinancialservicesempowercustomersto

managetheirfinanciallivesviaabroadmixofproducts,providersanduserinterfaces allatatimeand

placeoftheirchoosing.

ICT-enabledfinancialservicesarealreadybringinguserssomeofthefollowingbenefitsandhavethe

potentialtomultiplysuchbenefitsquickly:

UbiquitousAccess.Bymakingarangeofservicesavailableatalltimesandfromalmostalllocations,financialservicesuseandmanagementbecomesconvenientforclients.

LowerCosts.Bymakingtheprovisionoffinancialservicesmoreefficient,technologycanallowservicestobecomeaffordableforclients,whichinturnallowsmoreclientstoparticipate.

Security.Whenuseofcashisreduced,financialservicescanbecomesaferandmoretransparentforindividuals,businessesandgovernmentsalike.

ImprovedProductsandChannels. Technology-enabledbusinessmodelscanopenthedoortonewproductsanddeliverymethodsthatareeasytouseandblendorextendthecharacteristicsoftraditionalfinancialproducts.Forexample,anATMthatusesaudiotoassistilliterateclientsor

personswithdisabilitiesbringsaccesstopeoplewhomightotherwiseremainexcluded.Also,asmore

transactionsmoveintodigitalformat,serviceproviderscanunlockthebehavioraldatathatis

generatedtoimproveproductdesign.

1Whilewerecognizethatshadesofmeaningexist,withinthisdocumentthetermsclient,customerandconsumerare

usedinter-changeably.


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ImprovedProductivity. Ifproductscanbemademoreconvenient,moreintuitiveandbettersuitedtoclientneeds,clientsbenefitfromthatnewproductivity,inthemanagementoflimitedhousehold

andbusinessresourcesalike.

Wearealreadywellintoarevolutioninvolvingbranchlessbankingandmobilemoney.Thesemodelsextend

basicaccountandpaymentservicestopeoplewhocannotbereachedthroughtraditionalbrancheswhile

simultaneouslyloweringcostsandincreasingconveniencetoalreadyreachablecustomers.Regulatory

structuresthatsupportbranchlessbankinghavebeenadoptedinmanyplacesbutnotothers,and

implementationisuneven.

Bytheendofthedecade,weanticipateamajortransitiontowardcash-liteinwhichclientscarryoutmany

ormostoftheirfinancialtransactionsthroughdigitalmeans,reducingtheirdependenceoncash,as

promotedbytheBetterthanCashAlliance.Technology-enabledon-rampswillalsooffernewclientstheir

firstexperiencewithfinancialservices(suchasbillpayment,salaryandbenefitdistribution,nofrillsbank

accounts,ormobilepayments),bringingmanyoftheworldspeopleintocontactwithformalfinancial

services.Thefocusmayturntodeepeningtheproductrangeandincreasingqualitytomeetmoreclient

needs.

Fromtheproviderperspective,weenvisionalandscapewithsharedinfrastructurethatisleveragedby

multiplecompetingserviceproviderstooffertailoredproductsanddeliverychannels.Thislandscapewill

featurebothpartnershipandcompetition,withorganizationsfocusingontheirparticularareasof

competence.Nowisaperiodofgreatexperimentation,asnewplayersenterthefinancialservicesmarket

andnewpartnershipmodelsdevelop.Inhalfadecade,wehavemovedfromanenvironmentwheresingle

companiesmanagedallthecomponentsofthefinancialservicesvaluechaintooneinwhichrolesand

responsibilitiesaresharedbyanincreasingnumberofserviceproviders.Thistrendisexpectedtocontinue.

Severalnewdevelopmentsnowonthehorizonthatmaychangeservicesandbusinessmodelsbefore2020include:

BigData.Creditapprovalprocessesmaybestreamlinedasnewsourcesofdataandnewanalyticmethodsareincorporatedintooperations.Datafromalternativesourcescouldenablemore

previouslyexcludedpeopletoobtaincreditforthefirsttimeandcouldhelpustobetterunderstand

thefinancialneedsandbehaviorsofdifferentclientsegments(seePart3formoreonconsumer

data).

CloudComputingandSoftwareasaService(SaaS). Theavailabilityofdatastorageandserviceprovisioninthecloudensuresquicktransactionprocessingandfullconnectivitybetweenthefront-

endandback-endoffinancialservices.Itcanalsolowerbarrierstoentryforstart-upswishingtotest

newproducts. SmartPhonesandTablets. Mobiledeviceswillbemuchmoreavailabletopeopleatthebaseofthe

pyramidataffordableprices.Thiswillenablegreatereaseofuse,accesstomoreservicesand

interfacesthatcouldbeusedtoprovidemoreinformationandexplanationtoilliterateandpoor

customers.

SocialMedia.Socialmediahasthepotentialtoenhanceusageoffinancialservices,throughinformationsharing,influencinguserbehavioralpatterns,directmarketingoffinancialservicesand

increasedconnectivitybetweenusersandserviceproviders.


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Identification.Lackofidentificationisanongoingchallengeforserviceproviders,particularlywhenservingpoor,ruralorilliteratecustomers,inordertocomplywithKnowYourCustomer/Anti-Money

Laundering(KYC/AML)requirements.Theabilitytoincorporatenationalidentificationsystemsor

adoptuniqueidentifiers,throughbiometricandothermeans,cansimplifycustomeron-boardingandeaseaccesstofinancialservicesfornewusers.

Ifthepromiseoftechnologyistoberealized,twosetsofactorswillhave

keyrolestoplay.First,itwillbeessentialthatthemarketplaceis

governedinawaythatallowsforcompetitiveinnovationwhile

maintainingsafety,integrityandstability.Giventherelentlesspaceof

technologychange,theindustryisunlikelytoreachastaticpoint,and

thusthevisionmustincludearegulatorysystemthatcan

accommodatecontinualchange.Regulatorswillhavetobalance

prioritiessuchasallowingnewtechnologiestoenterwhilealso

maintainingacceptableriskparameters,orpromotingmultiplemeans

ofinteroperabilitywhilenotdiscouragingorpenalizingfirst-movers.It

willbeamajorchallengetoequippolicymakersandregulatorsto

successfullybalancethesecompetingagendasinasettingofrapid

businesschange.

Second,thetechnologyindustryrangingfrominnovativestart-upstotechnologypowerhousesmustbe

onboardtokeepallclients,includinglow-incomeones,atthecenterofproductdesign.Puttingcustomers

first(includingthepoor,vulnerableandsystematicallyexcluded)shouldbeagiven,yet,often,certaingroups

areneglected,especiallywhenlookingattechnology.Thetechnologyindustryneedstomakeaconcerted

efforttokeepthesegroupsinfocus,lesttheyareleftbehindastherestoftheworldmovestowardmore

advancedtechnology.

Avarietyofissuescouldpreventtechnology-enabledfinancialservices(includingmobilemoneyanddigital

financialserviceplatforms)fromreachingtheirfullpotentialtohelpachievefinancialinclusion:

Fearoftechnology(byprospectivecustomers,providersandregulators) Lackofclearvaluepropositionsforproviders,governmentsandindividuals Difficultiesinestablishingeffectivepartnerships Lackofclienteducation(relatedtobothfinancialandtechnologicalinnovation)

Gapsbetweenaccessanduse(aspeoplesignupinitiallybutdonotcontinuetouse) Lackofscaleandlinkages(forexample,creatingmanyunconnectedmobilemoneyplatforms) Regulationthatinhibitnewapplicationsoftechnology

Whilerecognizingthecomplexityandvarietyofchallengestothespreadoftechnology-enabledbusiness

models,thispaperfocusesonfourofthemostimportant:enablingregulatoryframeworks,interoperability,

clientunderstandingandtheaccess-usagegap.

When technology struggles,

its often because it doesnt

take into account different

customer segments. We need

to look at customer needs.

Claire Alexandre, Head of

Commercial & Strategy forMobile Payments, Vodafone

III.WhatHastoBeinPlace?


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1.EnablingRegulatoryFrameworkTechnologychangerequiresthatregulatorsstayabreastoftechnicaltopicsaswellasthecommercial

issuesinvolvedinensuringacompetitivemarketplace,whileensuringthatsafetyispreservedand

consumersprotected.Existingregulatoryframeworkshavebeenbuiltaroundtraditionalmodelsofbankingthatprevailedfordecades.Technologybringschangestothewaycommercialbanksoperate,anditbringsin

arangeofnewplayerssuchastelecommunicationscompanies(telcos)andinternet-basedproviders,to

nameonlytwo.Moreover,thesechangeshavenotcoalescedaroundafixednewmodelbutseemtobein

continualflux.

Regulatorsareaskedtopeerintothefuturewhenassessingthepotentialrisksofnewtechnologies,an

uncomfortablepositionfornormallyriskaverseofficials.Theymustnavigatebetweentwoextremesonone

side,narrow,risk-averseregulationthatmaystifleinnovationandontheother,alighttouchorprinciple-

basedapproachthatmaynotprovidesufficientorderandpredictabilityinthemarket.Thesedecisionsoccur

inacontextinwhichthesignificantpoliticalandcorporateinterestsatstakecancreatepressurestoactina

certainway.Atthesametime,regulatorsandpolicymakersmustrelyuponoftenlimitedinformationfrom

newserviceproviders.

Thus,wecanidentifybroadchallengesforregulators:

Keepingtheirtechnicalknow-howuptodate Managingexistingandnewtypesofserviceproviders Respondingtonewglobalchallenges,(especiallythoserelatedtoterroristfinancingandmoney-

laundering)

Allowingprogressandinnovationwhilekeepingrisksforboththeconsumersandthesystemtoamanageablelevel.

Theseareallareasinwhichglobalandregionalsupportorganizationsmaybeabletoassist.

Amongthecurrentregulatoryquestionsmostimportantforregulatorsarethese(inadditionto

interoperability,discussedinthenextsection):

Easingrestrictionsonwhocanprovidefinancialservicesandactasagents. Technologymakesitpossibletobringfinancialtransactionstoclientswherevertheyare,throughmodelssuchasagentand

mobilebanking.Manycountrieshavestrictrulesonwhichorganizationsmayofferfinancialservicesand

howtheymayofferthem,andtheserulesoftenprohibittheinvolvementofnon-financialcompanies

(e.g.,telcos)orthirdparties(likebankingagents),whichthenpreventtheimplementationofthesenew

models.Oneapproachtoregulatoryreformistoshiftsomeofthebasisforrule-settingfrom

organizationtype(e.g.,bank)toserviceorinterfacetype(e.g.,low-valuepayments). Writingeffectiveregulationsforagentandmobilebanking. Rulesgoverningtheroles,responsibilities

andfinancialmanagementofagentsshouldatthesametimea)provideforcustomersafetyand

recourse;b)betechnology-neutraltoallowforfaircompetitionandinnovation;andc)takebroader

financialsectorconcernsintoaccountallwithoutover-regulatingandrenderingbusinessmodels

untenable.

EstablishinganapproachtoKnowYourCustomer(KYC)thatfacilitatestheinclusionofnew,lessformalclientswhileensuringahighlevelofsecurityandintegrity. Atpresent,inflexibleriskmeasuresinhibita


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tieredapproachtoKYCthatiscompatiblewithfinancialinclusion,suchasflexibilityinacceptableforms

ofidentificationandproofofresidence.Effortstoestablishuniversalidentificationsystemsarealso

helpful.ItisanimportantstepforwardthattheFinancialAccessTaskForce(FATF),thestandard-setting

bodyconcernedwithcombatingterroristfinancialactivityandotherthreats,nowconsidersfinancialexclusionasariskfactor.FATFhasreviseditsguidancetostrikeabalanceinareassuchasagentbanking

andmobilepayments.Whileproportionateregulationisgaininggreateracceptanceamongregulators,

greatvariationremainsinimplementationatthenationallevel.

Ensuringcoordinationamongregulatoryagencies. Manynewfinancialserviceprovidersarenotunderthesupervisionoffinancialregulators,forexample,retailersofferingin-storecreditoractingasagents

andmobilenetworkoperators.Itisimportantthatregulatorsworktogetheracrosssectorstoensurea

cohesiveapproachandlevelplayingfieldforallprovidersoffinancialservices,regardlessofinstitutional

type.

Ensuringthattaxpoliciesdonotdiscourageinvestmentintechnology .Manycountriesheavilytaxelectronicssuchasmobilephonesandlaptopsasluxuryitems.Somecountrieshavealsostartedtaxing

financialtransactionfees.Suchtaxpolicies,whilerevenue-generatingintheshortterm,slowthegrowth

ofaccesstoenablingtechnology,andraisethecoststoprovidersofrollingoutnewservicesandto

consumerforusingthem.Weseeagrowingtrendtowardtaxingdigitalfinancialtransactions.Flatfees

areparticularlypunitiveforpoorcustomerswhosetransactionsaresmall.

2.InteroperabilityWehighlightinteroperabilitybecauseofitscentralroleinenablingscaleandraisingthevalueofnewly

introducedservices.Interoperability,broadlydefined,isastateinwhichanytwopartieswishingtocarryout

afinancialtransactioncanconnectseamlesslywitheachother,particularlyacrossserviceproviders.Because

interoperableservicesallowanyusertoconnectwithanyotheruser,theycandrawinmorepeoplethan

closed-loopservices.Thisfostersthecriticalmassofusersneededforbusinessmodelstofunctionwell.

Interoperabilityisalsoanenablerofinnovation,ifinnovatorscanreadilyconnecttoanexpandingopen

ecosystem.Inaninteroperablesystem,customersarelikelytohaveagreaterchoiceofproviders,settingup

healthycompetition.Often,asubstantialdegreeofinteroperabilityisrequiredbeforeabroadtechnology-

enabledecosystemcanblossom.

Interoperabilitycanrefertodifferentaspectsofthevaluechainandcanoccuratdifferentlevels,fromback-

endinfrastructureandplatforms,tosharingofagentsorATMs,toaccessingmultipleaccountsononemobile

device.Theneedforandchallengestointeroperabilityatthesedifferentlevelsarenotidentical.And

interoperabilitydoesnotrequireallproviderstobeonthesameplatform:itcanexistatanetworklevelwith

standardized,openrules.

Althoughinteroperabilityisbroadlydesirable,thewaystoachieveitarenotalwaysobvious.Theyarepath-

dependent,differingwithlocalcontextandhistory,andtheyinvolvecompetinginterests.Inmanycases,marketplayerswilldevelopinteroperabilitywithoutexternalprompting,particularlyastechnologiesevolve.

Butthisisnotalwaysthecase,especiallyinperiodswhennewtechnologiesareintroducedthatdonotuse

establishedprotocols,ashasbeenseenwiththeadventofmobilemoney.

Therearetechnicalactionsthatcanmakeiteasiertomovetowardinteroperability,suchasthedevelopment

ofenablingapplicationprogramminginterfaces(APIs)thatallowdifferentsystemstoconnect.Investmentsin

nationalpaymentsinfrastructureandunderlyingcommunicationstechnologyalsosupportinteroperability.


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Becausechangecannotbeanticipated,nosinglestandardforinteroperabilitycanbeviewedasfuture-

proof.Therefore,muchcouldbegainedbycreatingbetterprocessesandproceduresforongoingstandards

development.

Perhapsthemostimportantchallengestointeroperabilityarenottechnical,butinvolvetheincentives

surroundingthecommercialagreementsamongparties,suchaspricing,revenuedistributionandcustomer

ownership.Ultimately,customerswillbeaskedtopayfortheabilitytooperateseamlesslyacrossmultiple

providersandplatforms,andtheserevenuesmustbesharedeffectivelyamongallparticipantsina

transaction.Withouteffectivecommercialagreementsamongtheparties,serviceproviderswillnotinvestto

makesuchcapabilitiesavailable.

Governmentsandinternationalfundersthatwishtopromoteinteroperabilityasapolicyprioritycancreate

incentivesforproviderstoworkouttechnicalandcommercialagreements.Thismaybeginsimplybymaking

itknowntoprovidersthatinteroperabilityisagoalandthatregulatorswilllookfavorablyonsuchefforts.It

maybetemptingforregulatorstogofurtherandmandateinteroperability,butthisisnotrecommended:

negativeconsequencesofsuchmandatescanbeserious,suchasdiscouragingnewentrantsfromenteringa

marketorfreezingamarketaroundwhatturnsouttobeapoorstandard.Firstmoverswithnew

technologiesneedthefreedomtotest,buildandreaptherewardsofpioneeringinvestments;asa

technologyisprovenandbeginstoscale,secondandthirdmoverswillalsoneedtocomeintocreatea

competitivemarketplace.

Regulatorscanaligntherulesbywhichvariousserviceprovidersoffersimilarservicesandpreventabuseby

playerswithadominantposition.Balancingtheneedtoencourageinvestmentandsupportearlyinvestors

versustheneedtoenablecompetitionandpromotechoicerequiresregulatorstoexercisediscerning

judgmentbasedonanunderstandingofmarketsandcompetition.Bankingregulatorshavetraditionallybeen

lessfocusedoncompetitionissuesthantheirtelecoms-regulatingcounterparts.

Moredirectincentivescanalsobeused,suchassubsidies,grantsortaxbreaks.Theset-upofgovernment

benefitpaymentsystemsandotherbulkprocurementoffinancialservicesprovideanespeciallygood

opportunitytopromoteinteroperability.

Internationalorganizations,donorsandsupportorganizationscanassistbymodelingthebusinesscasefor

interoperability(estimatingcostsandbenefitsforproviders),disseminatingbestpracticesforcommercial

agreements,orpromotingopeninternationalstandards.


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3.ImprovedUseofCustomerDataIntodaysworldofincreasingdigitizationofinformation,

newaccessdevicesandexpandingbroadbanddata

coverage,theamountofdataavailabletoserviceprovidersandpolicymakersisgrowingexponentially.Itisbelievedthat

theopportunitiesforanalysisandimprovedcustomer

understandingthroughthesemultipledatasourcesare

broadandvaluable,whenusedcorrectly.

Usefuldatacancomefromavarietyofsources.Newdata

sourcestobeconsideredincludetelecommunications

providers,utilities,wholesalesuppliers,retailersand

governments.Mobileoperatorsalreadycaptureandstore

almosteverydetailabouteverycall,textandsearchon

phones,andthisdatacanbeespeciallyrichforfinancial

serviceproviders.Retailerloyaltycardscanprovideinsights

intoconsumersincomeandfamilystructureandthustheir

potentialfinancialneeds.NationalIDcardscanhelpcollecta

widevarietyofdata,includingfinancialaccountinformation.

Andconsumersretailpurchasescanyieldconsiderableinformationontheirrisk-takingpropensityregular

purchasesofsoapandvitaminsmightindicateahealthconsciousnessthatmighttranslateintosafefinancial

behavior,forexample.2

Inthecontextoffinancialinclusion,dataanalyticshastwobroadroles:riskmanagementandunderstanding

clientstodesignbetterproducts.

Accesstocreditandotherfinancialproductsisoftenblockedbecauselow-incomeuserslackformalcredit

histories,eventhoughtheymighthaveothertypesoffinancialactivityrecords(e.g.,mobileusagehistoryor

utilitiespayments)thatcanindicateresponsiblefinancialbehavior.Alternativedatasourcesreveal

unprecedenteddataevenaboutclientswithnopriorfinancialservicesexposure,allowingproviderstodetect

fraudandshapenewproductsbasedontheircustomersneeds.Thisdatamaytransformcreditand

insuranceunderwritingasmoreislearnedabouthowtopredictriskfromclientbehavior.Suchadvances

havethepotentialtoenablemanynewcustomerstobeconsideredcreditworthyorinsurableforthefirst

timepresentinghugeopportunitiesforadvancingfinancialinclusion.

Anothermajorapplicationofbigandalternativedataistobetterunderstandclientsto,inturn,designbetter

products.Consumerdataanalyticscanhelpusbetterunderstandthedemographicsofaparticularsetof

clientsmoreeasilyandcost-effectivelythanthroughothermeanssuchassurveys.Forexample,oneissuewithdemand-sidefinancialinclusiondataisthatitislargelyself-reported.Behavioraleconomicsshowsthat

thereisoftenagapbetweenreportedandactualbehavior.Usingdataabouthowclientsactuallybehave,

financialserviceproviderscanprovidethemwithimprovedproducts.Datacanalsohelpfinancialservice

providersmoreeffectivelytargetfinancialservicestorelevantclientsegments.Innovativenewcompanies

2Baer,Tobias,TonyGoland,andRobertSchiff,Newcredit-riskmodelsfortheunbanked,McKinsey&Company,

March2012.

Using Customer Data for Access to

Finance

The lack of a traditional credit

history does not have to blockaccess to financial services. Cignifi

and DemystData are two start-ups

using alternatives sources of

customer data to expand financial

inclusion. Cignifi helps financial

service providers estimate the

credit risk of prospective customers

based entirely on an individuals

mobile phone usage patters, while

DemystData relies on online, social

and internal big data. Both use

advanced analytic techniques thatgo beyond traditional credit

scoring.


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arealreadyworkingtohelpfinancialserviceprovidersharnessthepowerofdatatoimprovetheservices

theyofferandthetimingofwhentheyofferthem.

Keyquestionsincludewhoownsthatdata,whocanaccessitandhowmightitbeused.Serviceprovidersspendconsiderableresourcesontheproductsanddeliverychannelsthatgeneratecustomerdata,and

understandablywanttoprotecttheirinvestments.Itisourviewthatwhileserviceprovidersshouldbe

entitledtoprotecttheircompetitiveinformation,consumershavetheultimaterighttoconsentordenythe

externaluseofanydatathatmeasuresandrecordstheirbehavior.Shouldthirdpartieswishtoaccessthat

data,doingsoshouldbebasedoncustomerconsent.And,shouldcustomersallowdatatobesharedwith

otherentities(e.g.,creditbureaus),theyshouldbeallowedtodeterminetheextentofthatsharingandto

obtaincopiesoftheirrecords.Note:thesetopicsarealsodealtwithinthecompanionroadmapsonclient

protectionandcreditreporting.

4.TechnologyandtheAccess-UsageGapAsignificantgapexistsbetweenthenumberofpeoplewhohavephysicalaccesstofinancialservicesandthe

numberwhoactuallyusethem.Theaccess-usagegaphasmanyplausibleexplanations.Thisgapappliestoall

kindsofproductsandservices,butitisoftenespeciallyassociatedwithnewtechnologies.Prospectiveclients

maynotknowabouttheservicesorfeelcomfortableusingthedeliverytechnology.Theymaynotperceivea

needfortheservices,ortheymayhaveotherwaystomeettheirneeds.Themostexcludedgroups(those

lesseducatedandlessexperiencedwithtechnology)maynotknowhowtousenewtechnologies.As

technologybecomesmoreandmoreessentialforbasicservices(includingfinancialservices),asignificant

populationsuchastheelderlycouldremainexcludedwhiletherestoftheworldmovesfurtherahead.

Itisincumbentonserviceproviderswhooffertechnology-enhancedservicestodothedetectivework

neededtounderstandtheaccess-usagegapandwiththatunderstandingtodesignproducts,userinterfaces,

andmarketingapproachesthatovercomecustomerreticenceoroffercustomersgreatervalue.

ThecompanionFI2020roadmapsonFinancialCapabilityandonAddressingCustomerNeedsarestrongly

focusedonunderstandingtheaccess-usagegap,andthereforethispaperwillnottreatthetopicindepth.

However,anumberofpointsaresalientinthecontextoftechnology:

Assumptionsderivedfromthefinancialhabitsofmiddleclasspeopleinrichnationsareofteninapplicableforclientsatthebaseofthepyramid. Evensuchabasicconceptasthebankaccountas

afinancialmanagementhubmaynotalignwithclientthinking,andweneedtobetterunderstand

howon-rampsthatappearattractivetosuppliersareviewedbycustomers.Productdesigners

mustcontinuallystrivetojettisonhiddenassumptionsandunderstandclientsontheirownterms.

Deliverytechnologiesoffermanypossibilitiesforapplyinginsightsfrombehavioralsciencestoencourageusageandbuildfinancialcapability ,forexample,insettingupremindersystems,defaultoptionsorrewardsforusage.

Weseeaneedforimprovementsinproductdesignandgo-to-marketstrategies. Technologyprovidesmanydatapointsaboutusagethatcanbefedintotheproductdesignprocess.Evenmore

criticalarestrategiesthatconnectclient-friendlyserviceconceptswithinthecontextofthebusiness

modelanddeliverymechanisms.Andmarketing,whichisessentialforuptakeofunfamiliarproducts

bynewclients,isoftenunder-budgeted.


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EnablingRegulatoryFramework

1. Develop Regulations that Enable the Development and Scale-Upof Technology-Enhanced Business Models

ActionPoint:Alignregulatorytreatmentbetweenbanksandnon-bankserviceprovidersthat

providesimilarproducts,andregulatesimilarproductsaccordingtotheirparticularrisksrather

thancategoryofserviceprovider(e.g.,afunctionalapproach).

ActionPoint:Developsupportiverulesfavorabletotheoperationsofthirdpartiesinhandling

transactionsonbehalfoffinancialserviceproviderswhileensuringsafetyforcustomers.

ActionPoint:Encourageresearchintoperformanceofrecentbranchlessbankingregulationsand

theirimpactoncustomersandindustry.

2. Implement Flexible, Proportionate and Tiered KYC Measu res inConsultation With Industry

Thesemeasuresmusttakeintoaccounttherealitiesoflow-incomecustomerswholackdocumentation.

Simpleandlow-riskproductsmaywarrantsimpledocumentationsuchthatuserscouldeasilyand

quicklyself-activateaserviceimmediatelyatverylowtransactionvalues.

ActionPoint:Allowsmallanonymousaccountsforthosewithoutdocumentation,triggering

KYC/AMLrequirementsonlyifanaccountreachesapre-establishedthreshold.

3. Design Better Alternative Dispute Resolution Systems ThatReflect the Scale and Speed of Digital Finan cial Services, WithFaster and Simpler Recourse Than the Traditional OmbudsmanModel

III.Recommendations

Regulators Research

Agenda

Regulators

Regulators


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4. Improve National Industry Coverage Data

Serviceprovidersshouldcommittosharingsomeminimumdataaroundcustomeraccountusage(e.g.,

activityratesandgeographicalcoverage),forpurposesofnationalaggregationandanalysis.

ActionPoint:Makealigned,consistentreportingmetricspartoftheconditionsofaservice

providerslicense.

Actionpoint:Requireproviderstoreportgeo-coordinatesofallcash-in/cash-outpointsinorder

tomapallfinancialservicepoints.

5. Clarify Regulatory and Supervisory Roles Governin g All FinancialServices

Inmanymarkets,itisnotclearwhoisinchargebetweenbankingandtelecommunicationsregulators,

andthisleadstoinconsistentsupervisionstandards.

6. Governments Should Encourage But Not Mandate BroadInteroperability

Governmentscanpromoteinteroperabilityinwaysthatencouragebutdonotprematurelyforceproviders

todevelopinteroperability.

ActionPoint:Facilitatediscussionamongindustryplayerswhereitisbelievedthatinteroperability

willsolveaspecificproblem.Commissioninteroperabilityviabilitystudiesthatillustratebusiness

modelsthatcouldbenefitallplayersinamarket.

ActionPoint:Governmentsshouldencourageinteroperableormultipleaccesssystemswhen

procuringbulkfinancialservicessuchasbenefitsdistributionorgovernmentpaymentssystems.

Suchinitiativesincreasethevolumeandscaleoftransactions,whichallowsserviceprovidersto

offerlower-costservicesandmoreeasilyjustifythecostofinteroperability.

Regulators

Regulators

Interoperability

Regulators SupportOrganizations


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7. Use Government Resources to Help Develop the FinancialInfrastructure Necessary for Interoperability Where It Is for thePublic Good, Such as in Underserved Regi ons

ActionPoint:Applyexistingfundingsources(e.g.,universalservicefundscollectedby

TelecommunicationsMinistries)tosubsidizeorbuildoutsharedinfrastructureinruralareas.

ActionPoint:Fosteranend-to-endinteroperablepaymentinfrastructuretoensurethatallfinancial

servicesarebroadlyavailablethroughindustryand/orgovernmentlinkages.

ActionPoint:Provideincentivessuchastaxbreaksandsubsidiestoproviderswillingtobuildor

shareinfrastructure(suchastechnologyoragentnetworks)inunder-servedareas.

8. Develop and Use Open International Standards Rather ThanProprietary Systems for Technology Platforms and/or Enable APIsfor Future Interoperability Needs

ActionPoint:Providersshoulduseopeninternationaltechnologystandardsandaccessible

applicationprogramminginterfaces(APIs)whenmakingtechnologydecisionsaroundservice

platforms.

ActionPoint:Regulatorsshouldconsidertheuseofsuchopenstandardsasafactorinevaluatingoperatinglicenses.

9. Encourage Use of Non-Traditional Sources of Fin ancial orBehavioral Data (e.g., Mobile Behavior, Purchase Records) to EstablishFinancial Identities and Histories for the Unbanked

Acombinationofdatafromvariouspublicsourcescouldserveasidentityverificationinmanyless-

developedcountrieswherenationalIDsarenotavailableorarenotwidespread.Thisdata,alongwith

otherfinancialactivityrecordsincludingmobileusagehistoryorretailshoppingrecords,canbeusedasan

alternativecredithistoryforconsumerswithouttraditionalcredithistoriesandcanhelpproviderstobetter

predictrisk.

Support

OrganizationsRegulators

ProvidersRegulators

ImprovedUseofCustomerData

Regulators


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10. Develop Policies to Ensure Customer Access and Control OverPersonal Data Generated by Digital Service Records, Including Rules forSharing With Third Parties

ActionPoint:Makingcustomersindividualrecordsreadilyavailableatlowornocostwhen

requested;Setopt-inoropt-outconditions.

ActionPoint:Balancetheneedforreasonableuseofdatawithimprovedfraudpreventionguidelines

andtoolsthatreflecttherealitiesofdigitaldata.

11. Develop Research Programs Around Best Practice Financial ServicesBehavioral Data Collection and Analysis

ActionPo int:FacilitatethecreationofimprovedGISmappingtoolsandmethodologieswhichcanbe

usedtounderstandclientsfinancialpatternsofbehaviorfromageospatialperspective.

ActionPo int:Conductfurtherresearchtounderstandthebehaviorsmostcorrelatedwithcredit-

worthinesstoextendaccesstofinancetothosewithoutcredithistories.

Regulators Providers

ResearchAgendaSupportOrganizations

12. Leverage Technology to Design Services that Better AddressCustomer Needs

ActionPo int:Applydataanalyticstobetterunderstandcustomerneedsanddevelopusefulmoney

managementtoolsthathelpconsumerstovisualizetheirfinances,managepayments,andbuild

credithistories

ActionPo int:Developsimple,low-costtechnology-basedproductsforthosewhoarelessliterate

and/ortechnologicallycapable.ExamplesincludevoiceoperatedATMsand/oricon-driveninterfaces

atpointsofservices.

TechnologyandtheAccess-UsageGap

Providers


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Thisworkingpaperwascreatedthroughaseriesofconsultationswithanexpertsworkinggroupon

Technology-EnabledBusinessModels.WewishtoexpressourgratitudetotheTechnology-EnabledBusiness

ModelsWorkingGroupmembersfortheiractiveparticipationingroupdiscussionsandthoughtful

contributions.

Wealsothankthemanyadditionalexpertswhorevieweddraftsofthepaperandprovidedinput.Finally,we

wishtothankthemanyCFIandAccionstaffmemberswhoprovidedsupportincludingAllisonBernstein,

MereneBotsio,ElizabethDavidson,AnitaGardeva,SonjaKelly,andAmandaLotz.

TheCenterforFinancialInclusionacceptsresponsibilityfortheviewsexpressedinthispaper.Thoseviewsdo

notnecessarilyreflecttheviewsofindividualworkinggroupmembersortheirorganizations.

ExpertsWorkingGrouponTechnology-EnabledBusinessModels

BillGajda,VisaInc.(Chair)

LorettaMichaels,HMSWirelessConsulting(Facilitator)

ArjunaCosta ,OmidyarNetwork

ClaireAlexandre,Vodafone

DavidPorteous ,BankableFrontierAssociates

JohnStaley,EquityBank

MireyaAlmazan,GSMA

NardaSotomayor ,SBSPeru

SalKarakaplan,MasterCardWorldwide

SeemaDesai,GSMA

StephenRasmussen,CGAP

ThorHauge,WesternUnionDigital

13. Educate Clients on the Use of Technology-Based Financial Productsto Empower Them to Engage More Easily and Actively With T heseServices ActionPo int:Incorporatetechnologyintofinancialeducationprograms,especiallyforoftenless-

technologyliterategroups(suchastheelderlyorverypoor).

ActionPo int:Conductresearchonifandhowlow-income(andothersystematicallyexcludedgroups)

areusingtechnologytobestadapttechnology-basedfinancialproducts.

ProvidersSupport

Organizations

ResearchAgenda


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This publication was produced by Financial Inclusion 2020:

1101 15th Street NW, Suite 400, Washington, DC 20005 USA Tel 202.393.5113

Fax 202.393.5115 www.centerforfinancialinclusion.org

Technology Enables Full Financial Inclusion

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