Policy-makers and innovators the world over have been turning their attention to the potential of data and “big data” as a tool to bring access to financial services to those formerly financially excluded. As noted in a previous Mondato Insight, the digitization of everything that can be digitized, along with the growing ubiquity of mobile phones, means that consumers globally are leaving a digital footprint of information that can be mined for pointers towards their likely financial and other behaviors. This can range from the ability to personalize offers and coupons in order for them to have a better retail experience, to the creation of alternative credit scoring models, whether at the individual or community level, that may open up lines of credit that were previously closed to them.
In developing economies in particular, a number of different models have emerged that highlight the opportunities presented by digital data, “big data”, and the relevant analytics. The most obvious example of this is the use of cell phone usage to translate into a credit score, as developed and widely used by companies such as Cignify and First Access. As Cignify puts it rather succinctly, “Anyone with a mobile phone can be credit scored.” This is clearly good news for many consumers, and indeed businesses who now have an avenue by which they can approve customers who were previously beyond their reach.
The Downside of Data
Nonetheless, some consumer advocate groups in the United States also point to the risks that this may pose to “sub-prime” customers who may struggle to meet their monthly bills on time and who otherwise have little or no credit history. The National Consumer Law Center has argued that by expanding the net of credit scoring to include, for example, utility and phone payments, consumers who currently are to varying degrees financially excluded by their lack of a credit history may in the future find themselves with a negative credit score, which may result in low-income consumers having even greater difficulties in accessing housing or jobs.
The downside of “more inclusive” data analytics for credit scoring is, nonetheless, not so acute an issue in developing economies, where huge swathes of the population are financially excluded and have far more to gain than to lose. A consumer’s digital footprint is a valuable commodity for retailers, something highlighted in the United States by Walmart’s rejection of Apple Pay in favor of CurrentC. Apple Pay lessens retailers’ ability to track shoppers’ behavior, even as it presents new possibilities for enhanced loyalty.
Perhaps even more important, if viewed from an economic development and poverty alleviation perspective, are the opportunities presented to small and medium enterprises (SMEs) to establish access to credit to fund expansion, investment and growth. An example of where the worlds of mobile connectivity, mobile money and data have aligned to good effect is the business model operated by GO Finance and Kopo Kopo. As a merchant aggregator facilitating the expansion of Safaricom’s M-PESA Buy Goods service to SMEs across Kenya, Kopo Kopo also offers value added services, such as record-keeping and accounting, that allowed them to build up a formalized record system that assists their access to traditional sources of financing. Taking that even further, however, Kopo Kopo uses the digitization of payments and records to offer loans directly to merchants, with repayments made as a proportion of revenues rather than on a fixed schedule.
Among of the key elements underpinning the Kopo Kopo model are transparency and accountability, which in this case come from the extant business relationship and the lender’s ability to have access to reliable information about the borrower’s real financial and business situation. To a large extent the same principles apply to the use of consumers’ social networks and online behavior, such as used by Lenddo in Colombia and the Philippines, to predict creditworthiness. In this B2C relationship, the lender has digital access to the borrower’s social network, from where will come some transparency about the borrower’s personal circumstances, and to whom the borrower will owe a degree of accountability. There is even a strong argument to be made that the same principles (as well as the frictionless nature of the transaction) play a large role in the popularity in the US of Venmo (currently being challenged by Square and Snapchat’s ‘Snapcash’).
Transparency and Accountability
It is no coincidence that the common thread connecting these different, but linked, mobile and digital finance models is that they all involve, not merchant payments, but loans and debts. One further area where data and the mobile channel have created a space for increased transparency and accountability is in the area of crowd-funding, which, while neither a loan nor a debt, depends on the same principles. The Kenyan startup M-Changa has been using the mobile channel and the internet to facilitate the Kenyan custom of harambee: a tradition of community fundraising to deal with major life events and shocks, such as hospitalization or a funeral, though also for the payment of school fees or wedding costs.
By digitizing and making records of the transactions, whether via M-PESA, Airtel Money or another payment method, M-Changa offers transparency and accountability to those being asked to donate money to an individual and by extension to the community. It also provides value added to the fundraiser through tools that help them to manage the process. M-Changa’s CTO, David Mark, told Mondato that he believed that it offered “360 degree fundraising: contributors know that the money is being spent and managed properly. It is addressing some of the community’s greatest needs, while providing them with security and convenience.”
Not only does the platform make the data about the fundraiser available to those contributing, it also holds out the promise of providing insights into a previously little understood area of the Kenyan economy and Kenyan consumers’ financial behaviors. As well as the major mobile networks, M-Changa is partnering with Equity Bank to make the service available to customers of its MVNO subsidiary, Equitel. This will allow Equity Bank to gain an understanding of the dynamics, and economics, of harambee in 21st-century Kenya, holding out the potential of the development of a suite of products that may be able to better meet the needs of Kenyan consumers when life events arise. And with potential access to better-suited products, customers’ digital footprints will grow, and with them more opportunities to strengthen their credit history and gain greater financial inclusion.
As flagged by Mondato Insight and elsewhere, these advances represent the vanguard of the second wave of mobile financial services, using data gathered from ‘connected consumers’, even in rural Africa, to close the accountability gap that has hindered economic development and financial inclusion. And by leveraging this information to create specific and relevant products and services that will themselves generate more data, the virtuous circle should grow.
©Mondato 2014. Mondato is a boutique management consultancy specializing in strategic, commercial and operational support for the Mobile Finance and Commerce (MFC) industry. With an unparalleled team of dedicated MFC professionals and a global network of industry contacts, Mondato has the depth of experience to provide high-impact, hands-on support for clients across the MFC ecosystem, including service providers, banks, telcos, technology firms, merchants and investors. Our weekly newsletters are the go-to source of news and analysis in the MFC industry.
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Microchip by David Waschbüsch from The Noun Project