technology enables full financial inclusion
TRANSCRIPT
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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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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
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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
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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
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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.
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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