High-Level Debate

Pathways to Smarter
Digital Financial Inclusion
Ignacio Mas – Senior Research Fellow, Saïd Business School, University of Oxford
David Porteous – CEO, BFA

Abstract increasingly granular understanding of these customers. But the

We can now easily imagine a time within the next ten years when
most people will have a smartphone. We explore new pathways
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people in developing countries who are currently distrustful of
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pathways are based on the assumption that smart phones can be
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ileged customers a stronger voice and enable providers to form an
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these individuals; where individuals are employees and customers
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nancial services; and where individuals are active managers of a
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services.

47

Electronic copy available at: http://ssrn.com/abstract=1858377

The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
INTRODUCTION
The digital age is upon us. Many expect that this will open up a
new world of innovation and opportunity by providing widespread
access to the internet, especially for people whose physical worlds
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fering customers new and convenient ways to manage their money
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large number of people who, today, have neither a smartphone nor
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This paper is in part a vision and in part a thought experiment. It
builds on the assumption that the wide adoption and use of smart-
phones, while slow in places, is inevitable during the next decade.
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2020 Scenarios where it is described as shaping the landscape of
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not be the norm… Overcoming customer caution and resistance to
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that statement, we see even more clearly that adoption of digital
payments is indeed slower than hoped in many places. Often, this
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customer inertia.
In this paper, we set out pathways in which a strong proposition to
clients will help realize the potential of the new digital age and un-
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and relevant for lower-income people everywhere. The pathways
have to start with a value proposition for these future customers.
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willingness to pay for these services will come from, because that
is what will lead to a sustainable business case for providers. While
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which we will spell out.
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ple mobile phones, have shown tremendous value for many people.
But that value has been rather restricted in terms of scope (large-
ly based on remote payments and bill payments, with the addition
48
Electronic copy available at: http://ssrn.com/abstract=1858377
more recently of some tiny loans and insurance contracts) as well
as geography (in the relatively few countries where viable eco-
systems have emerged in areas beyond dense urban centers). We
have the sincere hope that smartphones will not just bring an accel-
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are engaged, and hence how they are used.
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from the recently completed Financial Diaries project in Kenya.
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representative of a national population, they do provide a depth of
insight and precision at the household level, resulting in the abil-
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leged households. This rich factual basis provides a platform for
us to project forward each pathway through the lens of the life of a
lower-income household in a developing country later in this paper.
DESTINATION: FINANCIAL INCLUSION IN THE 21ST
CENTURY
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the population. People will naturally incorporate these services into
their mental models and daily routines, so over time usage of these
services will become less deliberate and more instinctive. People
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or receiving certain payments, but also as a means for organizing
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not presently have.
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support each other, and this will give them a greater sense of being
in control of their circumstances and especially their future. Having
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ed within their communities and beyond, and more involved with
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tunities for commerce will open up in front of them, and they can
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GORQYGTKPIGƛGEVKPKVUGNHHQTVJQUGYJQJCXGDGGPGZENWFGFHTQO
modern economies and society.
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
SMARTPHONES AS GAME-CHANGERS
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and widening use of smartphones is our starting point. In Annex A1,
we posit six inherent characteristics of smartphones that have the
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the ability to attach a variety of peripheral devices to it, and the
lower marginal cost of mobile data communications relative to
traditional mobile channels (voice, SMS, and USSD).
Q The other three are enablers for service providers to construct
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services without requiring the acquiescence or active partic-
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more opportunities to capture more customer data with which
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In combination, these factors mean that the costs of designing for
the needs of lower-income people may fall dramatically, and the
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ers. This should give low-end customers a stronger sense of choice
over the services that are relevant to them, and a voice over how
they wish to be served and treated.
Of course, smartphones are just devices – a piece of technology
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multiple components of the total cost of ownership of smartphones
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A second hurdle along any of the pathways we consider below
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Ensuring convertibility between cash and electronic money will be
essential for people to gain trust in digital money schemes. A sec-
ond assumption across all the pathways we consider below is that
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49
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median active customer (typically one or two transactions per
month). This raises total customer acquisition costs (since
many are acquired who will end up not using the service much
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engaging well. Faced with this reality, providers often choose
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more addressable segments, or concentrate on just one or two
(e.g., remote payments, payday lending).
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nance systems tend to be based on the notion of the monolithic
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channels, a product development roadmap, a customer intelli-
gence capability, etc. It is not surprising that, faced with such
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frequently down, agents are often not properly trained, mar-
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there is little product innovation, and providers get to learn very
little about their customers.
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Only the bigger players have sufficient volume of transactions, not to mention operational
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that aggregate the cash in/out transactions across multiple providers have a hard time
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of efforts across a mish-mash of incompatible though sometimes overlapping cash in/
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independently licensed and managed cash in/out outlets that serve all issuers. In this case,
digital providers would compete strictly on the strength of their digital services and not on
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to thrive.
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
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strued as possible scenarios, but they are not meant to depict the
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can imagine. Instead, they are meant to illustrate how smartphones
can support the development of a healthier and more inclusive dig-
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how might smartphones enable stronger customer value proposi-
tions, leading to much higher levels of customer engagement, lead-
ing to robust business cases for the providers involved, leading to
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smartphones lead to a broader diversity of players coming into the
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In each of the next three sections we posit a distinct pathway to the
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broad service concepts that providers can use to get to those cur-
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necessary mutually exclusive, but each is constructed emphasizing
certain unique elements.
PATHWAY #1: MONEY IS DATA IS MONEY
What industry trends does this pathway leverage?
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use money as a measure of what we have, how much something
costs, how much we owe, how much more we need. Why should
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because money is information, and information wants to escape
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discs. It becomes a lot simpler and safer to exchange and process
the information if it is purely digital.
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that having data about people is a minable treasure, and data about
money matters more than any other data. As a provider, the more
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or tailor the services I present to you, the more I can guess what
products you might be interested in buying, and the better I can
judge whether to trust you with my money (credit). Providers on this
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not so much in handling the transactions, but in seeing the data
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to gaining access to valuable information.
This has always been the case, and that is why there have always
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tion. But now there is potential to use data more extensively than
ever before, driven by three factors. First, the widespread use of
mobile devices means that we naturally generate unprecedented
quantities of data that are readily ingestible by digital data hoovers.
Some of this data we are aware of and enter deliberately (such as
when we issue an instruction to pay a merchant for a trip we want
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a web navigation history which providers can then mine). Second,
the cost of silicon has dropped so dramatically that it is now prac-
tically costless to store an extra bit of data in digital memory. We
no longer need to be choosy about which data to remember; ev-
erything is retained and potentially available. Third, with the inexo-
rable advances in processing power and analytical tools, we now
have the means to sift through massive amounts of data, however
diverse, and gather insights mathematically in the form of correla-
tions. A liberating condition of the big data mindset is that you don’t
really need to worry too much about the quality or validity of individ-
ual data points when you have lots of disparate data points.
How can analytics of individual customer data support
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nomically visible through employment. It then becomes possible to
assess their value and potential as clients. In the meantime, these
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ing in monetary form.
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munity in these types of players, evidenced by the increasing num-
ber of blog posts that refer to the excluded poor. And big data has
the potential not only to leverage the richness of available data for
those already in the system, but for accelerating the transition of
currently excluded people to a serviceably data-rich-enough con-
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The premise here is that the data is out there, though fragment-
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50
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
YJGTGVQNQQMHQTKVCPFJQYVQRWVKVVQIGVJGT2 You could infer an
individual’s income by observing their airtime top-up and utility
bill payment patterns. You might be able to infer their social mi-
lieu and the strength of their social lives by observing their activ-
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by associating them with people who live near them, or if they
have access to information that indicates the people who shop
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Q Accelerating data acquisition cycles. The premise here is that
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very little about in a way that gets them to reveal useful infor-
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of larger loans if they repay promptly.3 You might prompt them
with information, and observe their reactions. You might infer
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questions.4;QWOKIJVEQPFWEV#$VGUVUYKVJURGEKCNQƛGTUVJCV
lead people to classify themselves in interesting ways (e.g., on
price sensitivity).
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individuals or classes of people that generate actionable perspec-
tives. With this pathway, data becomes so valuable that providers
have an incentive to hunt for it, nurture it, and even seed it. Provid-
ers can use this data to build credit scores as well as propensity
models for the purchase of a diverse set of products and services.
They can then capitalize on this data by positioning the right type
and amount of credit, or by cross-selling appropriate products and
services. In this fashion providers become primarily credit provid-
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ECRCDKNKV[ QH VJG RTQXKFGT VJGP DGEQOGU C HWNƜNNOGPV EJCPPGN HQT
these services, rather than a primary revenue source in its own
right.
How can smartphones enable this pathway?
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pathway because providers can use them to harness much larger
amounts of information on a greater number of people than ever be-
%$#WUGU
fore. On the one hand, smartphones generate a rich trail of informa-
tion on customer interests and actions, as customers spend more of
their time online. On the other hand, they present opportunities for
providers to elicit information from customers through online sur-
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VGTHCEGVJGƝCVTCVG
QTXGT[NQYOCTIKPCNEQUVFCVCRTKEKPIVJCV month) and small loan sizes (averaging $15).
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CNNQYURTQXKFGTUVQWRFCVGVJGKTOGUUCIKPIOGPWUCPFQƛGTUCU
frequently as they wish.
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51
Box 1 illustrates how a lower-income person in a developing coun-
VT[PQVVQQWPNKMGVJG-GP[CPƜPCPEKCNFKCTKUVUQHOKIJVGZRG-
rience this pathway in the future.
It’s 2025, and Rachael has turned 35 years old. She is an avid user
of her Amazon Fire smartphone. She remembers vividly how she
UVCTVGFWUKPIKVKPp+YCUWUKPIQPGQHVJQUGQNFRJQPGUs
[QWMPQYVJGQPGUYKVJVJGUOCNNUETGGPsYJGP+JGCTFVJCVVJKU
UJQRYCUQƛGTKPIVJGEJCPEGVQDW[CPGYHCPE[RJQPGNKMG[QW
UGGQP68KPKPUVCNNOGPVU6JKUYCUPGYVQOGsDGHQTG+JCF
YCPVGFUWEJCRJQPGDWVEQWNFPQVCƛQTFKV+PUVGCF+UKIPGF
WRVQRC[-5JRGTOQPVJ6JG[YGTGXGT[UVTKEVKH[QWFKFPQV
RC[VJGPVJG[UYKVEJGFQƛVJGRJQPGUQKVDGECOGNKMGCDTKEM
– dead – and you had to go to the store and pay extra for them
VQUVCTVKVWRCICKPq
Using the new phone, she started to browse the internet, with
the help of friends who had learned before her. It was soon after
VJKU VJCV UJG PQVKEGF C EJCPIG UJG UVCTVGF TGEGKXKPI RTQOQ-
VKQPCN OGUUCIGU CPF QƛGTU XKC GOCKN CPF 5/5 6JG QPG VJCV
TGCNN[UVCTVNGFJGTYCUEQPPGEVGFVQVJGDKTVJQHJGTƜTUVEJKNF
DCEMKP5 She had been to the clinic for a pregnancy test.
Kenyan health clinics had started to accept mobile money pay-
ments before this time, and she had paid the standard fee for the
VGUVWUKPIJGTOQDKNGOQPG[UGTXKEGp9KVJKPCFC[qUJGUCKF
p+TGEGKXGFCPGOCKNCUMKPIOGKH+MPGYVJGVJTGGOQUVRQRW-
NCTPCOGUHQTDQ[UKP-GP[C+VYCUCNOQUVUECT[JQYFKFVJG[
MPQYVJCVCUUQQPCU+JGCTF+YCURTGIPCPVYKVJO[ƜTUVEJKNF
+JQRGFKVYQWNFDGCDQ[CPF+UVCTVGFVQVJKPMCWVQOCVKECNN[QH
PCOGU!6QIGVVJGCPUYGT+LWUVJCFVQTGRN[n;'5oQPO[RJQPG
>>
2 6JGTGCTGCPWODGTQHEQORCPKGUVJCVCTGRKQPGGTKPIETGFKVUEQTKPIHQTVJGWPDCPMGF
DCUGFQPCNVGTPCVKXGFCVCUQWTEGU+P-GP[CVJG%QOOGTEKCN$CPMQH#HTKEC
airtime top-up data from its partner Safaricom as a primary input on M-Shwari loan
requests. In Tanzania, First Access imports mobile usage data from several local mobile
operators, and uses this data to sell credit assessments on individual borrowers to a range
of lenders. Similarly, DemystData and Cignify are startups that combine mobile and online
usage and other corporate data to create customer profiles and credit predictions for
institutional lenders. Some established players in the credit bureau and credit scoring space
such as Experian are also playing strongly in this emerging space for financial inclusion.
3 This is the progressive lending concept that has been a core practice in microcredit. CBA
is driving this notion harder in Kenya with its instant mobile loan product, M-Shwari, which
has faster rotation and hence faster learning cycles given the short loan tenure (up to one
4 An innovator in this space is EFL, which claims to have “a proprietary psychometric
CRRNKECVKQPRTQEGUUVJCVKPEQTRQTCVGUCPGPVTGRTGPGWToUCVVKVWFGCPFQWVNQQMCDKNKV[
DWUKPGUUCEWOGPCPFEJCTCEVGTVQKFGPVKH[JKIJRQVGPVKCNETGFKVYQTVJ[GPVTGRTGPGWTUq
5 This story is based on a real-life situation that involved the retailer Target in the US.
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
>>
6JGPCYJQNGƝQQFQHVJKPIUUVCTVGFCTTKXKPIKPO[KPDQZEQW-
pons to buy baby equipment at the store, discounts for diapers at
VJG0CMWOCVVGXGPQƛGTUVQRWVCUKFGOQPG[KPCFXCPEGHQTO[
EJKNFoUGFWECVKQPDGHQTGJGYCUGXGPDQTP#VƜTUV+YCUQXGT-
YJGNOGFCPFVQQUECTGFVQTGURQPFVQCNNQHVJKU$WV[QWMPQY
YJCVTGCNN[RGTUWCFGFOG!,WUVVJGYGGMDGHQTGO[EJKNFYCU
due, I received on my phone a video message explaining how
the birth of a child can be very expensive (it even told me how
OWEJVQGZRGEVCNVJQWIJKVYCUOQTGVJCP+EQWNFCƛQTFCPF
VJGPQƛGTGFOGCNQCPQPXGT[IQQFVGTOUVQRC[HQTVJGGZVTCU
CTQWPFEJKNFDKTVJ+YCUHGGNKPIVJGRTGUUWTGVJGPUQ+VQQMVJG
NQCPeCPF+JCXGPGXGTNQQMGFDCEMq
p+VKUCUKHUQOGQPGKUYCVEJKPIQXGTOGVJTQWIJO[RJQPGqUJG
concludes. “As long as I follow the rules they tell you when you
IGVCPQƛGT+IGVVQDW[VJKPIU+JCFPGXGTFTGCOGFQHDGHQTG
#NNVJGUGQƛGTUEQOGYKVJCXGT[WUGHWNUEQTGHTQORGQRNGYJQ
JCXG VCMGP VJGO WR DGHQTG OG CPF VJCV IKXGU OG EQPƜFGPEG
that they are good. My parents tell me that they used many dif-
HGTGPVYC[UVQOCPCIGVJGKTOQPG[+WUGGXGPOQTGPQYDWV
the best thing is that they come to me, through the phone; I don’t
GXGPJCXGVQIQVQVJGOq
Box 1: Rachael has a child and gets a gift
PATHWAY #2: BUSINESS METERING
What industry trends does this pathway leverage?
/CU
DJCURQUKVGFVJCVCUƜPCPEKCNUGTXKEGUOKITCVGVQUOCTV-
phones using data communication channels, there will be a much
UJCTRGT HQEWU QP CEJKGXKPI ƜPCPEKCN KPENWUKQP YJGTG DWUKPGUUGU
operate in lower-income communities. The underlying hypothesis,
which is further articulated in this second pathway, is that smart-
phones will have a special impact on micro and small enterprises
/5'UYJQYKNNUGGKPETGCUKPIDWUKPGUUDGPGƜVUHTQOTGEQTFKPI
and transacting more of their business digitally. As their business
FCVC DGEQOGU OQTG XKUKDNG VQ ƜPCPEKCN KPUVKVWVKQPU /5'U YKNN KP-
ETGCUKPIN[ EJCPPGN ƜPCPEKCN UGTXKEGU CPF RCTVKEWNCTN[ ETGFKV VQ
their customers, employees, and suppliers.
Business management runs on data. But today MSE owner-manag-
ers often feel as if they don’t have as much control as they would
NKMGQXGTYJCVIQGUQPKPVJGKTDWUKPGUU7PCDNGVQOQPKVQTVTCPU-
actions closely and in real time, they must place substantial trust
in their employees and associates who carry out business on their
behalf. Since many cash transactions occur, they may lose visibility
QHVTWGRTKEGUQƛGTGFCPFEQUVUKPEWTTGFCUYGNNCUVJGCDKNKV[VQ
monitor inventories tightly against purchases and sales. Business
QYPGTU OC[ PQV JCXG VJG FCVC VQ CUUGUU RTQFWEVKXKV[ QH UVCƛ PQV
WPFGTVJGKTFKTGEVUWRGTXKUKQPQTVQCUUGUUVJGRQVGPVKCNGƞEKGPE[
DGPGƜVUQHDWUKPGUUTGHQTOU
)KXGPVJGNCEMQHCEEGUUVQITCPWNCTDWUKPGUUFCVCCPFOKUVTWUVQH
the data they do have, MSE owner-managers have traditionally fall-
GPDCEMQPCHGYUKORNGTWNGUQHVJWODVQTWPVJGKTDWUKPGUUYJKEJ
RTGXGPVU VJGO HTQO VCMKPI UVGRU VQYCTFU ITQYVJ 6JG TGUWNV KU C
mass of MSEs that provide livelihoods to their owners and employ-
ees but do not constitute engines for economic growth and devel-
opment for their communities.
6JKU EJCPIGU UKIPKƜECPVN[ QPEG /5'U ECP WUG UOCTVRJQPGU CU
basic business tools. Smartphones can be used to harness trans-
CEVKQPCN KPHQTOCVKQP NKPMGF VQ C XCTKGV[ QH UWRRNKGT CPF EWUVQO-
GT TGNCVKQPUJKRU RTQEGUUGU CPF YQTMƝQYU 6JG VTGPF VQYCTFU
providing software as a service (SaaS) rather than as localized
EQORCP[URGEKƜEKPUVCNNCVKQPUJCUOCUUKXGN[TGFWEGFVGEJPQNQI[
adoption costs. Small businesses can access shared services that
were previously only available if they belonged to larger industri-
CN ITQWRU $WUKPGUUGU ECP VCMG CFXCPVCIG QH VJG NCVGUV UQHVYCTG
UGTXKEGUYKVJQWVPGGFKPIDWUKPGUUURGEKƜE+6UWRRQTVUVCƛ%NQWF
based services are generally designed to upgrade easily as busi-
PGUUPGGFUITQYCPFGXQNXGCPFCTGOQTGƝGZKDNGVJCPVTCFKVKQPCN
UJTKPMYTCRRGF UQHVYCTG 6JGUG UQNWVKQPU CTG CXCKNCDNG VJTQWIJ
C DTQYUGT pCP[YJGTG CP[VKOGq YJKEJ HCEKNKVCVGU EQNNCDQTCVKQP
among business partners and employees, and better supports re-
OQVG QT ƜGNF YQTMGTU 6JG[ ECP CNUQ DG KORNGOGPVGF VJTQWIJ CP
CRRFQYPNQCFGFQPUOCTVRJQPGUYJKEJQƛGTUCHCUVGTOQTGEQP-
venient experience to users.
9GTGHGTVQDWUKPGUUOGVGTKPICUVJGUOCTVFKIKVK\CVKQPQHMG[DWUK-
ness transactions that provide MSE owner-managers with instant
information on what is going on in their business. In addition it
provides their creditors with reliable information with which they
can monitor their investments. Business metering goes beyond the
RTQFWEVKQP QH GPFQHOQPVJ ƜPCPEKCN TGRQTVU QT TGEQPEKNKCVKQPU
it is information that business people can readily use to gauge
performance on an individual contract or client site, to authorize
RC[OGPVUQPVJGƝ[CPFVQGXCNWCVGGORNQ[GGRTQFWEVKXKV[QPCP
QPIQKPI DCUKU #U /5'U ICKP C DGVVGT WPFGTUVCPFKPI QH VJGKT MG[
business metrics, managerial capacity and business discipline will
develop and their access to capital for growth will expand.
Resistance to this path of increasing digitization of business infor-
mation is sometimes high, as it often involves changing business
52
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
practices, incurring new fees to new service providers, and po-
tentially exposing more information to tax authorities. Therefore,
DWUKPGUUKPHQTOCVKQPU[UVGORTQXKFGTUPGGFVQOCMGUWTGVJCVVJG[
ECP OCMG VJG XCNWG GODGFFGF KP VJG DWUKPGUU KPHQTOCVKQP OQTG
relevant to the business, which then has a greater incentive to col-
NGEVKV2TQXKFGTUYKNNPGGFVQRCEMCIGDCUKERGTUQPCNRTQFWEVKXKV[
YQTMƝQY OCPCIGOGPV CPF DWUKPGUU KPVGNNKIGPEG VQQNU CPF QƛGT
full sale and operations lifecycle support for the bottom-end of the
OCTMGV
*QYECPFKIKVK\GFDWUKPGUUGUUWRRQTVƜPCPEKCN
inclusion?
As MSEs leave a greater digital footprint, they will naturally tend to
GZRGTKGPEGCPGZRCPFGFCEEGUUVQETGFKVHQTYQTMKPICPFKPXGUV-
ment capital. As documented in Mas (2014a), this could come from
CXCTKGV[QHRNC[GTUDG[QPFVTCFKVKQPCNDCPMU Smartphones in the hands of MSE employees connected to ap-
Q Electronic transaction processors (or merchant acquirers), who
ECP QƛGT VJGKT DWUKPGUU ENKGPVU ECUJ CFXCPEGU VJCV CTG CWVQ-
matically repayable from future electronic payment receipts.6
Q Specialist online enterprise lenders, who are able (and are
properly authorized) to connect directly to their clients’ online
DWUKPGUUUWRRQTVCRRNKECVKQPU
UWEJCU3WKEM$QQMUDWUKPGUU much stronger sense of control and faster business reaction times
CEEQWPVU
UWEJCUCDCPMQT2C[2CNCEEQWPVCPFQPNKPGOCT- VQEJCPIKPIOCTMGVEQPFKVKQPUQTGXGPVU
MGVRNCEGU6JG[ECPWUGVJKUKPHQTOCVKQPVQOQPKVQTVJGKTENKGPVUo
DWUKPGUUGU YJKEJ CNNQYU VJGO VQ TGURQPF XGT[ ƝGZKDN[ CPF
SWKEMN[VQPGYETGFKVTGSWGUVU7
Q 2GGTVQRGGT
22 QPNKPG ETGFKV OCTMGVRNCEGU YJKEJ CTG KP- KPIHWPEVKQP6JGUGCTGNKMGN[VQGODGFTGUVTKEVKQPUQPRTKXCVGWUG
ETGCUKPIN[ WUGF VQ ƜPCPEG TGEGKXCDNGU
HCEVQTKPI QT FKUETGVG
GID[DNQEMKPICEEGUUVQOCP[EQPUWOGTUGTXKEGUQTCHVGTJQWT
investment projects.8
Q Larger business peers or upstream value chain players, with
YJQOOCP[/5'UCTGPGVYQTMGF
As smaller, informal businesses avail themselves of more digital
ƜPCPEKCNUGTXKEGUVJTQWIJUWEJOGEJCPKUOUVJGTGYKNNDGCMPQEM
QPKPETGCUGKPCEEGUUVQƜPCPEGHQTVJQUGNKXKPIKPVJGEQOOWPKVKGU
these businesses serve. As they formalize and create more jobs,
their employees will naturally have access to credit. And these
%#0QHVJG75RKQPGGTGFVJGEQPEGRVQHOGTEJCPVECUJ
DWUKPGUUGUYKNNDGKPCDGVVGTRQUKVKQPVQQƛGTETGFKVVGTOUVQVJGKT
EWUVQOGTUYJQYQWNFQVJGTYKUGƜPFKVFKƞEWNVVQVCRKPVQCƛQTF-
able credit sources themselves. These digitized businesses could,
therefore, become prime conduits for the distribution of formal
ETGFKVVJTQWIJVJGKTUCNGUCPFFKUVTKDWVKQPPGVYQTMU
+P CFFKVKQP VQ RTQXKFKPI ETGFKV VQ VJGUG FKIKVK\GF DWUKPGUUGU Ɯ-
nancial service providers can also provide them with the digital
RNCVHQTO VQ OCPCIG ETGFKV ƝQYU VJTQWIJ VJGKT UCNGU CPF FKUVTKDW-
tion chains. This would consist of a loan management system that
logs credit extended, issues reminders to debtors on amounts due,
53
processes payments, and automatically updates both borrower and
NGPFGTTGEQTFU$[OCPCIKPIUWEJCRNCVHQTOFKIKVCNƜPCPEKCNUGT-
vice providers would be able to develop a credit history on all the
smaller businesses and individuals touched by the digitized busi-
PGUUGU1XGTVKOGFKIKVCNƜPCPEKCNUGTXKEGRTQXKFGTUEQWNFVJGPDG-
IKPQƛGTKPIETGFKVFKTGEVN[VQVJGOCUYGNNQPEGVJG[JCXGGPQWIJ
information to be scoring them individually.
Thus, under this pathway, the base-of-the-pyramid businesses
which adopt business metering practices would spearhead inclu-
sion of other small businesses and people within their communities.
Box 2 illustrates this pathway through the eyes of a hypothetical
-GP[CPƜPCPEKCNFKCTKUV
How can smartphones enable this pathway?
propriate cloud-based applications would play a dual, but related
HWPEVKQPVJG[YQWNFDGCVQQNHQTECRVWTKPIXCNWCDNGDWUKPGUUKPHQT-
mation at source, in real time; and they would be the tool through
which the business intelligence gleaned from that information
would be deployed and operationalized. Therefore, smartphones
would be the prime vehicle through which businesses would gain a
7PFGTVJKURCVJYC[GORNQ[GGUOCTVRJQPGUCTGNKMGN[VQDGRTQXKF-
ed by employers for the purposes of facilitating the business meter-
voice calls), in order to contain communications costs. They are
NKMGN[VQDG)25ECRCDNGIKXGPVJGXCTKGV[QHWUGHWNKPHQTOCVKQPVJCV
might be geo-tagged, and may have a variety of sensors attached
as peripheral devices. The general-purpose smartphone with spe-
EKCNK\GFCVVCEJOGPVUKUNKMGN[VQDGOQTGGEQPQOKECNVJCPURGEKH-
ic-purpose meters.
6 %CRKVCN#EEGUU0GVYQTM
CFXCPEGUCPFKUPQYVJGOCTMGVNGCFGT2C[2CNUVCTVGFKVU5/'NGPFKPIHCEKNKV[9QTMKPI
Capital, in the US in September 2013 and then in the UK in July 2014. Square launched its
lending program, Capital, in the US in May 2014. Kopo Kopo, the leading M-PESA merchant
acquirer in Kenya, launched Grow in May 2014, and in four months provided merchant cash
advances to around 500 stores. See Mas (2014a).
7 Kabbage.com of the US, for example, pulls data from several dozen online sources,
KPENWFKPI'VU[G$C[UVQTGU3WKEM$QQMUEWUVQOGTDCPMCEEQWPVUUJKRRKPIRCTVPGTUCPF
social media accounts, to extend lines of credit based on the health and needs of each
company. It is able to approve funding in minutes for businesses that might not have an
established credit score or who might not have a significant digital merchant payment
stream.
8 An example of a business P2P lending platform is Cumplo of Chile, which was launched in
May 2012. As of early September 2014, Cumplo had over $32 million outstanding in 700 loans.
See Mas (2014a).
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
In addition, smartphones would be the instruments through which
credit arrangements would be formalized across these businesses’
distribution chains and points of sale – the system for logging credit
ITCPVGFCPFHQTOCMKPITGRC[OGPVU
Flora is a former nurse who started Kingsway Medical Services, a
dispensary in a container in a poor rural town not far from Kisumu,
DCEMKP0QYKP-KPIUYC[/GFKECN5GTXKEGUJCUVJTGG
UJQRNQECVKQPUKP0CKTQDKCPFGORNQ[URGQRNGCPCEEQWPVCPV
COCPCIGTCVGCEJUJQRVYQUVCƛYJQYQTMUJKHVUCVGCEJUJQR
CPFCHWTVJGTVJTGGYJQECTT[UVQEMDGVYGGPUJQRUCPFJGNRQWV
at stores as needed. The shops are no longer in a container. Now
VJG[CTGQPGQHUGXGTCNUJQRHTQPVUKPUOCNNNQYTKUGDTKEMDWKNFKPIU
which Flora owns, and she rents out the other spaces to other ten-
ants. “I am especially glad to have that paradoctor practicing in
my building in Zone 4. It means that he can just tell his patients
to go next door to my shop to get their medicine. And it is better
VQJCXGSWCNKV[VGPCPVUPQVNKMGVJGDCTUCPFDTGYJQWUGUYJKEJ
DTKPIFQYPVJGPGKIJDQTJQQFYKVJCNNVJGKTPQKUGCPFOGUUq
+VYCUPQVNKMGVJKUCVVJGUVCTVHQT-KPIUYC[/GFKECN(NQTCTGOGO-
DGTU JGT UVTWIING VQ UGV WR VJG PGY UJQR MGGR KV UVQEMGF UVCƛ
VJGEQWPVGTHQTNQPIJQWTUCPFYQTT[CDQWVVJGUVCƛUVGCNKPIVJG
money or the medicines, or in one case both. “In those days, I was
QPGDKIYQTT[qUJGUC[Up+CNOQUVICXGWRO[FTGCOQHJCXKPI
my own business which could help people to get good medicines
CVIQQFRTKEGUDGECWUGKVYCUUQFKƞEWNV+PGXGTUNGRV+JCFVQ
FQGXGT[VJKPIO[UGNHDGECWUG+EQWNFPoVVTWUVCP[QPGCVƜTUV+LWUV
EQWNFPoVCƛQTFVQNQUGCUKPINGUJKNNKPIQT+YQWNFPoVDGCDNGVQDW[
OQTGUVQEM+EQWNFPoVKOCIKPGITQYKPIO[DWUKPGUUVJGPCUVJCV
YQWNFQPN[GZRQUGOGVQOQTGRTQDNGOUq
Things started to change in 2016 when Flora heard through her
pharmaceutical distributor about applications available on smart-
RJQPGU VJCV YGTG FGUKIPGF HQT UOCNN FTWI UJQRU NKMG JGTU 5JG
CNTGCF[JCFCUOCTVRJQPGD[VJGPCPFSWKEMN[VTKGFQWVQPGUWEJ
CRR 6JG ƜTUV QPG YCU C V[RG QH YCIG RCEMCIG HQT GORNQ[GGU
which enabled them to log in the starting and ending time of their
UJKHVU CPF VJGP VQ ECNEWNCVG YGGMN[ YCIGU p6JCV TGCNN[ JGNRGF
OG+JCFPQEQORNCKPVUHTQOUVCƛCDQWVYTQPIYCIGUCHVGTVJCV
And for me, even better, if ever I had a question about who was on
duty on a particular day when something happened – a customer
Box 2: Kingsway Medical Services
54
EQORNCKPVHQTGZCORNGs+EQWNFIQDCEMVQO[RJQPGCPFECNNWR
VJGPCOGUHQTVJCVFC[/[UVCƛUVCTVGFVQKORTQXGCNQVDGECWUG
VJG[MPGY+EQWNFYCVEJVJGOGXGPKH+YCUPoVVJGTGCNNVJGVKOGq
“Then, I also tried the ordering app. With this one, you could set
WR[QWTRTQƜNGQHFTWIUQPQTFGTYKVJCFKUVTKDWVQTCPFEQWNFTGQT-
FGTCWVQOCVKECNN[CVCRCTVKEWNCTVKOGQTKH[QWNKPMGFKVVQCUVQEM
count, it could even automatically re-order for you if you were low.
So we no longer ran out of drugs as often. I could also be sure that
the drugs we were getting from our suppliers were good ones; you
MPQY VJGTG CTG C NQV QH HCMG OGFKEKPGU QWV VJGTG 9KVJ VJG CRR
I was on top of which medicines were expiring when, which al-
NQYGFOGVQOCPCIGUVQEMUDGVVGTCPF+EQWNFDGUWTGVJCVYGFKF
PQVWRUGVENKGPVUD[UGNNKPIVJGOGZRKTGFOGFKEKPGUq
p$WV[QWMPQYYJCVVJGDGUVRCTVYCU!#HVGT+JCFVTKGFVJKUQWV
HQTCHGYOQPVJUVJGFKUVTKDWVQTQƛGTGFOGVJGCDKNKV[VQDW[QP
ETGFKVHQTVJGƜTUVVKOG0QY+JCFUQOGHTGGECUJTCVJGTVJCPTWP-
ning, running every month to pay for the next month! That’s when
+UVCTVGFVQVJKPMCDQWVGZRCPFKPIVQCPQVJGTUVQTGDGECWUGPQY+
EQWNFUGGVJCVKVYQWNFPQVMKNNOG#PFVJGEQOOWPKV[TGCNN[NKMGF
YJCVYGQƛGTGFq
“Today, of course, all of our stores do so much more than we could
FQDCEMVJGPGCEJQHQWTUJQRCUUKUVCPVUJCUCYQTMUOCTVRJQPG
with which they can do basic patient diagnostics when they come
KPXKVCNUKIPUGXGPDNQQFVGUVU6JG[MPQYJQYVQEQPUWNVJGNR-
lines and websites for more information if needed. We store all
this information about each client so we can remind them to order
OQTGOGFKECVKQPQPVKOG#PFYGGXGPHGNVEQPƜFGPVGPQWIJVQFQ
UQOGVJKPIVJCV+UYQTGKP+YQWNFPGXGTFQYGQƛGTQWTIQQF
clients the chance to buy medication on credit! This helps them
CƛQTF KV YJGP VJG GOGTIGPE[ JKVU CPF DGECWUG YG MPQY VJGO
and they need us, we have experienced very few problems with
FGHCWNVU+GXGPJCFCDCPMEQOGVQUGGOGNCUVYGGMQƛGTKPIVQ
DW[O[NQCPDQQM(CVEJCPEG+FQPoVUGNNO[ENKGPVUq
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
PATHWAY #3: SOCIAL MONEY NETWORKS
What industry trends does this pathway leverage?
Mas (2014c) refers to liquidity farming as the widespread practice
QHEWNVKXCVKPITGNCVKQPUJKRUVJCVOKIJVDGQHƜPCPEKCNCUUKUVCPEGKP
a moment of need. Relationships in one’s liquidity farm are cultivat-
ed through acts of generosity, supporting others when they have
a moment of need (creating a sense of reciprocal obligation), en-
gaging in behaviors that demonstrate and build trust, and showing
commitment to community rituals and practices. Sometimes liquid-
ity farming activities are organized through community action, for
instance through savings groups, burial societies, or ad-hoc joint
fund-raising activities.
Liquidity farming is therefore fundamentally about developing
a range of potential sources for on-demand liquidity in a case of
need. It is about building option value through social capital. Liquid-
ity farming is a constant preoccupation that helps reduce stressful
CPZKGV[CDQWVVJGHWVWTG+VKUCXKTVWCNCEVKXKV[VJCVRGQRNGMGGRKP
VJGDCEMQHVJGKTOKPFU
The relationships in the liquidity farm can go beyond the social and
include one’s employers, local shops, and other local businesses.
In this case this pathway starts merging into the business metering
scenario.
9KVJKPVJKUHTCOKPIQHNKSWKFKV[HCTOKPIFKIKVCNƜPCPEKCNUGTXKEGRTQ-
viders can potentially play a prominent role by becoming a primary,
direct source of access to credit. But this is not the main outcome
considered in this pathway, for three reasons. First, such an ap-
RTQCEJ TGSWKTGU UQOG NGXGN QH MPQYNGFIG QH VJG EWUVQOGToU ETGF-
KVYQTVJKPGUUV[RKECNN[DCEMGFWRYKVJVJGMKPFQHFCVCCPFCPCN[VK-
ECNVQQNUFGUETKDGFKPVJGp/QPG[KU&CVCKU/QPG[qUEGPCTKQ9G
CUUWOGJGTGVJCVUWƞEKGPVEWUVQOGTFCVCKUPQVTGCFKN[CXCKNCDNG
5GEQPFKHVJG[YGTGCDNGVQGPICIGKPFKTGEVNGPFKPIƜPCPEKCNUGT-
XKEGRTQXKFGTUYQWNFV[RKECNN[DGUGGMKPIVQFKURNCEGQVJGTTGNCVKQP-
ships in their customers’ liquidity farm, rather than supporting them.
*GTGYGGZRNQTGCUEGPCTKQYJGTGFKIKVCNƜPCPEKCNUGTXKEGRTQXKFGTU
UGGMVQNGXGTCIGTCVJGTVJCPFKURNCEGRGQRNGoUVTCFKVKQPCNNKSWKFKV[
HCTOU6JKTFHQTOCNƜPCPEKCNUGTXKEGRTQXKFGTUWUWCNN[UKVCYMYCTF-
N[COQPIVJGKTEWUVQOGTUoNKSWKFKV[HCTOUDGECWUGDCPMENKGPVTGNC-
tionships are not premised on a principle of reciprocity, and hence
there is an expectation that any obligations incurred must be extin-
IWKUJGFKPCRTGFGƜPGFHCUJKQP6JKUKUSWKVGFKƛGTGPVVQJQYVJG
NKSWKFKV[HCTOYQTMUYJGTGVJGIGPGTCNRTKPEKRNGKUVJCVIKHVUCPFQD-
ligations should be interweaved and shouldn’t be fully extinguished,
so as to create a sense of ongoing mutual support and dependency.
This gives people a greater sense of hope that they can get more
unconditional, open-ended support in case of need.
55
6JGSWGUVKQPVJGPDGEQOGUJQYECPFKIKVCNƜPCPEKCNUGTXKEGUUKO-
WNCVGCPFGPJCPEGVJGVTCFKVKQPCNPQVKQPQHVJGNKSWKFKV[HCTO!'XGP
KHVJGTGKUPoVOWEJENKGPVƜPCPEKCNJKUVQT[VQIQQPKPQTFGTVQCUUGUU
individual borrowers’ credit standing, digitization helps by leverag-
KPIUQEKCNPGVYQTMUCPFGZRCPFKPINKSWKFKV[HCTOKPICUCƜPCPEKCN
resource. Digital communication technologies have spawned a
JWIGITQYVJKPYJCVYGPQYECNNUQEKCNPGVYQTMKPI6JKUUWIIGUVU
that there should be a large opportunity for supporting the liquidity
farm digitally.
*QYECPUQEKCNPGVYQTMUUWRRQTVƜPCPEKCNKPENWUKQP!
The notion of embedding the trust that people have with each other
YKVJKPDCPMKPIUGTXKEGUKUPQVTGCNN[PGY1PGEQOOQPOGEJCPKUO
KUVJGIWCTCPVGGDCPMUCUMRTQURGEVKXGDQTTQYGTUVQEQOGWRYKVJ
guarantors, i.e., to trawl through their liquidity farm, when they are
PQVUQUWTGCDQWVVJGENKGPVUoETGFKVSWCNKV[$CPMUCTGVJWUCDNGVQ
transfer (at least some of) their trust from the borrowers request-
ing the loans to others in their liquidity farm who have more data
and with whom they have a stronger relationship. Another example
is the group microcredit model developed by Muhammad Yunus,
YJKEJFGOQPUVTCVGFVJCVVJGRTQXKFGTFQGUPoVTGCNN[PGGFVQMPQY
much about prospective borrowers or even any of their relation-
ships within their liquidity farm, as long as the borrowers have a
UWƞEKGPVN[UVTQPITGNCVKQPUJKRYKVJCPFMPQYGPQWIJCDQWVGCEJ
other. By imposing a group guarantee – the notion that groups are
collectively responsible for each others’ loans – then each borrow-
ing member of the group has an incentive to carefully select who
should be admitted into the group and monitor their situation and
loan repayments.
With digital platforms, this idea can be pushed much further. One
RQUUKDKNKV[KUHQTNGPFGTUVQCUMRTQURGEVKXGDQTTQYGTUVQUGGMVJG
endorsement (not a guarantee) of other clients in order to get loans
larger than their individual credit score would allow. The provider
could then observe over time which clients within their base have
CVTCEMTGEQTFQHGPFQTUKPIIQQFNGPFGTUCPFVJG[YQWNFEQOGVQ
DGMPQYPYKVJKPVJGEQOOWPKV[CUVJGRGQRNGYJQVJGRTQXKFGTNKU-
VGPUVQ6JQUGYJQHCKNVQGUVCDNKUJUWEJCVTCEMTGEQTFOKIJVVJGP
DGKIPQTGFD[VJGRTQXKFGTYJGPVJG[QƛGTGPFQTUGOGPVU2TQXKF-
GTUEQWNFGƛGEVKXGN[FGXGNQRCPKPHQTOCNPGVYQTMQHNQCPQƞEGTU
organically – drawn from their clients’ own liquidity farms. Many
QHVJGUGYQWNFNKMGN[DGNQECNUVQTGUYJQUGDWUKPGUUGUYQWNFDG
helped if they could help extend credit to their more trustworthy
customers.
Digital service providers can also support their clients’ liquidity
farming relationships without getting involved in credit extension
VJGOUGNXGU 6JG[ ECP QƛGT EWUVQOGTU FKIKVCN VQQNU VJCV TGRNKECVG
how people come together socially to conduct collective fund
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
TCKUKPIUCPFUWRRQTVGCEJQVJGT6JKUECPVCMGVJGHQTOQHTGIWNCT
savings and loan groups or more ad-hoc fundraisers for a social
occasion (a party, a wedding), or for someone in need within their
community (a funeral, a hospitalization, etc.).9 Digital tools can be
used to manage the end-to-end process of recruiting members, so-
liciting funds from members, accounting for moneys paid in and out,
reporting out to members, etc.
These types of service concepts are, of course, incipient forms of
crowdfunding or P2P lending platforms. In the US and UK, where
these platforms are becoming increasingly popular, these online
HWPFKPI OCTMGVRNCEGU CTG OCKPN[ WUGF VQ RTQXKFG HWPFKPI VQ KPFK-
viduals or projects with whom the funder does not have a prior re-
lationship. In a developing country context, it is possible that these
RNCVHQTOUYKNNVGPFVQYCTFUEJCPPGNKPIƜPCPEKCNUWRRQTVDGVYGGP
people with a prior relationship. In other words, they can be socially
CYCTGNQECNOQPG[OCTMGVRNCEGU
6JGUG V[RGU QH QƛGTU IKXG FKIKVCN ƜPCPEKCN UGTXKEG RTQXKFGTU CP
opportunity to trace customers’ liquidity farming activity, and this
should be a prime source of useful information that can be fed into
customers credit scoring models. Understanding how people man-
age their liquidity farms should be as important as understanding
how they manage their own money from a credit analysis point of
view. Analytical techniques can be applied to understand how li-
SWKFKV[HCTOKPIPGVYQTMUYQTMYJQCTGVJGVTWUVPQFGUJQYGCEJ
person/node can be incentivized to provide truthful information on
QVJGTRGQRNGPQFGUKPVJGKTUQEKCNPGVYQTMUCPFJQYNKSWKFKV[HCTO-
ing behavior relates to individual creditworthiness.
#RTQXKFGTGSWKRRGFYKVJUWEJNKSWKFKV[HCTOKPI
QTUQEKCNPGVYQTM-
ing) analysis tools would then be interested in promoting rather
than displacing people’s own liquidity farming relationships and
activities (albeit, in digital form) in order to maximize data capture.
And it would be optimally placed to extend credit support to its cus-
tomers as an enhancement to people’s own liquidity farms.
$QZRTGUGPVUVJGECUGQHCJ[RQVJGVKECNƜPCPEKCNFKCTKUVNKXKPIWP-
der this pathway.
How can smart phones support this scenario?
1PG QH VJG RTKOCT[ WUGU QH UOCTVRJQPGU KU HQT UQEKCN PGVYQTM-
KPIGPICIKPIYKVJHTKGPFUGZRTGUUKPIQPGoUKPVGTGUVUCPFUJCTGF
KFGPVKVKGUETGCVKXGN[VCMKPIKPVGTGUVKPVJQUGQHQVJGTUCPFUJCTKPI
KVGOUQHEQOOQPKPVGTGUV+VKUPQVCDKINGCRVQVJKPMVJCVUJCTKPI
QH ƜPCPEKCN GZRGTKGPEGU CPF YQTMKPI VQIGVJGT VQ OGGV OWVWCN QT
EQOOQPƜPCPEKCNIQCNUYKNNDGEQOGOQTGCPFOQTGCRCTVQHUQEKCN
PGVYQTMKPI#NTGCF[UGXGTCNDCPMUCTGGZRGTKOGPVKPIYKVJOQPG[
VTCPUHGTUQXGT6YKVVGTCPF(CEGDQQM/CP[UCXKPIURTQFWEVUPQY
56
NGV[QWCPPQWPEG[QWTUCXKPIUIQCNURWDNKEN[QPUQEKCNPGVYQTMU
and solicit contributions to those goals from friends.10
Sam is an older man, now in his early sixties, with gentle but sad
G[GUVJCVUVKNNVGCTWRYJGPJGTGEQWPVUJQYJKUYKHGFKGFDCEM
in 2012. “She was having these pains in her stomach but was
UQDTCXG$[VJGVKOGYGƜPCNN[IQVVQVJGJQURKVCNVJG[VQNFWU
that she needed an urgent operation that would cost KSh500,000.
9GYGTGDQVJPQVYQTMKPIKPTGIWNCTLQDUVJGPUQYJGTGYQWNF
+ƜPFDKIOQPG[NKMGVJCV!+VTKGF+CUMGFGXGT[QPG+MPGYCPF
they agreed to have a harambee in our village to raise funds for
JGT$WVKVVQQMFC[UVQQTICPK\GCPFVJGPGXGPVJQWIJ+MPQY
that people really tried – they loved her too – we could only raise
KSh 225,000 at that time. But, fortunately for her since she was
in such pain, my wife died soon after this, and everyone agreed I
EQWNFWUGVJGHWPFUHQTJGTDWTKCNUGTXKEGq
#EJKOGUQWPFUQP5COoURJQPG*GNQQMUFQYPENKEMUVQQRGP
the new message; and draws breath in sharply. “This is a Face-
DQQMOGUUCIGHTQOO[UKUVGT1PGQHO[EQWUKPUJCUJCFCECT
accident this morning and is in the hospital badly injured. It says
that they are going to start a harambee immediately to raise
funds for her family, since she is the main breadwinner and will
PQV DG CDNG VQ YQTM HQT C YJKNG 0QY CNN + JCXG VQ FQ VQ EQP-
VTKDWVGKUENKEMVJKU)TQWR(WPFDWVVQPQPVJGOGUUCIGCPFGPVGT
CPCOQWPVCPFVJGPVJGU[UVGOVCMGUECTGQHKVCNNKVVCMGUVJG
money from my mobile money account for a very small fee, and
transfers it into the designated account opened by my sister who
ECPVTCPUHGTKVVQVJGHCOKN[CVVJGTKIJVVKOGq
p1HEQWTUG+YKNNJGNRVJGOJQYECP+PQVFQUQ!*QYGXGTCV
this time of the month, I have not yet received my wages, so I will
have to get the money advanced from my online savings club.
6JG[ QƛGT CNN OGODGTU VJG EJCPEG VQ IGV C SWKEM CFXCPEG QP
a share of their funds in emergency. They always did this, but it
WUGFVQDGUNQY[QWJCFVQURGCMVQVJG6TGCUWTGTYJQJCFVQ
consult with the Chair, and then you had to go to get the money
from them if they agreed. Now, all I have to do, through the page
QHO[ENWDKUOCMGVJGTGSWGUVYKVJO[RCUUYQTFCPF+UJQWNF
>>
9 For instance, in Kenya, ChamaSoft manages the process for savings groups to occur
entirely virtually, while M-Changa allows people to organize informal harambees (Swahili
name for a fundraising event where a community contributes to a common cause).
10 6JKUKUVJGECUGYKVJVJGK9KUJEQOOKVOGPVUCXKPIURTQFWEVKUUWGFD[+%+%+$CPMKP+PFKC
YJKEJKURQYGTGFD[VJGRNCVHQTOQH75DCUGF5OCTV[RKI+PPQXCVKXGDCPMKPIUVCTVWRU
Moven and Simple in the US both have this feature as well.
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion

MULTIPLE CUSTOMER PATHWAYS TO FINANCIAL

>>
IGV C OGUUCIG DCEM YKVJKP C HGY OKPWVGU KH + JCXG VJG HWPFU
available. Then, the funds are transferred to my mobile account
and that means when I push the GroupFund button to contribute
VQO[EQWUKPVJGTGYKNNPQYDGOQPG[VJGTGVQVCMGq
6CRRKPICVVJGUETGGPCPFRGGTKPIVJTQWIJVJKEMNGPUGUCUVJG
OGUUCIGU EQOG KP CFXCPEKPI QT EQPƜTOKPI VJG RTQEGUU 5CO
HWNƜNNUJKUEQOOKVOGPVU*GNQQMUWRp;QWMPQYKHYGJCFCNN
VJKUDCEMVJGPOC[DGKVYQWNFJCXGUCXGF(CKVJ1HEQWTUGVJG
amount was too large for my local community alone then. But
now I also participate in a borrowing and lending club where if
[QWPGGFOQPG[SWKEMN[NKMG+FKFVJGPKP[QWECPRWVQWVC
request to borrow and other people respond. Equally, if you have
GZVTCOQPG[[QWECPQƛGTKVVQQVJGTRGQRNGYJQ[QWOC[PQV
MPQYRGTUQPCNN[DWVVJGU[UVGOMGGRUVJGOJQPGUVCPFOCMGU
UWTGVJCVVJGTGRC[OGPVUEQOGDCEM+TGCNN[NKMGVJKUO[OQPG[
KUYQTMKPIDWVKVKUCNUQJGNRKPIRGQRNGYJGPVJG[PGGFKV/C[DG
UQOGQPGGNUGECPUCXGVJGKTNQXGFQPGPQYq
INCLUSION
The pathways are summarized in Figure 1, along with a broad char-
acterization of the current situation (status quo) which, as outlined
above, requires the emergence of one or more superheroes in each
country willing and able to persevere with roll-out of mass-mar-
MGVFKIKVCNƜPCPEKCNUGTXKEGUFGURKVGVJGCDUGPEGQHCEQORGNNKPI
business case and the large and diverse operational challenges
involved.
6JGVJTGGRCVJYC[UCTGUVCTMN[HTCOGF6JG[JCXGDGGPRTGUGPVGF
in pure-play, even caricature, fashion in order to stress the diversity
QH YC[U KP YJKEJ RGQRNG OKIJV DG KPENWFGF CU KPFKXKFWCNU CDQWV
whom providers go out of their way to collect data; as employees
and customers of local businesses through or with the support of
YJQO VJG[ CTG CDNG VQ CESWKTG TGNGXCPV ƜPCPEKCN UGTXKEGU CPF
CUCEVKXGOCPCIGTUQHCYGDQHUQEKQƜPCPEKCNTGNCVKQPUJKRUVJCV
enables them to leverage those that are fortunate enough to have
CEEGUUVQHQTOCNƜPCPEKCNUGTXKEGU

Box 3 – Sam remembers $WVVJGYQTNFYKNNNKMGN[PQVIQQPGYC[QTVJGQVJGTCNNVJTGGRCVJ-

YC[UCTGNKMGN[VQEQGZKUVQTRNC[QWVVQFKƛGTGPVFGITGGUHQTFKH-
HGTGPVUGVUQHRGQRNGCVFKƛGTGPVRQKPVUKPVKOG9GECPVJGTGHQTG
represent the three scenarios as overlapping circles, as in Figure 2.

Name Big picture trend Key drivers Anchor financial services Main inclusion actors

Status quo Continued limited competition
Looking for a and innovation, as the search
superhero goes on for a business case for
financial inclusion
Pathway 1 $KIFCVCCPCN[VKEUOCMGKV
Money is data is possible to address previously
money WPMPQYPEWUVQOGTUYKVJ
targeted offers
Pathway 2 As MSMEs digitize, they
Business metering become addressable by a range
of new providers offering fuller
business solutions
Pathway 3 Personalizable digital money
Social money VJCVUKIPCNUUQEKCNTCPM
networks shared collective identity, and
DNQEMEJCKPVYKVVGT
individuality
• No clear customer value • Remote payments A range, but mainly the
proposition • Bill payment individual
• Restrictive operator data
tariff plans
• .CEMQHRNCVHQTO
interoperability
• Underinvestment
• Digitization of a diverse range • Credit decisions based on Individual and large business
of information sources big data
• Analytics tools become • Payments as loss leaders
widespread
• Cloud services • Payments bundled with data Businesses especially MSEs
• Platform APIs management
• Downscaled IT sales & • Individual credit exten-ded
support channels by/thru businesses within the
• Pricing models community
• 5QEKCNPGVYQTMKPI • Peer-to-peer, crowdfunding +PFKXKFWCNUXKCUQEKCNPGVYQTMU
• Liquidity farming • Public transaction records
• Identity
• Individual credit extended
thru referees within the
community

Figure 1 – Key characteristics and drivers of the status quo and each pathway

57
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion

Smartphone scenarios All three pathways put credit as the prime service that entices
RGQRNG KPVQ JCXKPI C UWUVCKPGF TGNCVKQPUJKR YKVJ HQTOCN ƜPCPEKCN
Business Social service providers. Credit, or, more broadly, the option of reliable
relationships relationships
access to credit when needed, is of immediate value for people.
Inclusion
through others
6JGRCVJYC[UCTGCNUQCNNDCUGFQPVJGCUUWORVKQPVJCVGƛGEVKXG
Business
Business & social Social competition can come to the base of the pyramid, triggering an in-
metering networks money
networks novation spurt, only if providers can get to that level of granular
The full customer understanding. Exclusion results in no small degree from
customer
view the invisibility of large classes of customers. Inclusion depends on
Push Me & my
& pull network removing the veils of opacity that prevent providers from feeling
EQOHQTVCDNGYJGPQƛGTKPIUGTXKEGUVQVJGDWNMQHVJGRQRWNCVKQP
Money is
The data is
excluded money Directly Customers will also feel more empowered when they have the
included OGCPUVQDGDGVVGTWPFGTUVQQFD[ƜPCPEKCNUGTXKEGRTQXKFGTU1P
VJG QPG JCPF VJG[ YKNN TGEGKXG OQTG QƛGTU DGVVGT UWKVGF VQ VJGKT
needs. On the other hand, they will have more options when choos-
Figure 2: Customer views and financial inclusion
KPIKPUVKVWVKQPUVQJGNRYKVJVJGKTURGEKƜEƜPCPEKCNPGGFU

Outside the three circles are the excluded. At the center are those
HWNN[KPENWFGFYJQCTGTGEQIPK\GFHWNN[HQTYJCVVJG[CTGCUKPFKXKF-
uals with particular desires, aptitudes, attitudes, and histories, but
also as members of an economy that is increasingly interconnected
and as social creatures who form webs of support with friends and
family, and actively manage their relationship with a myriad of com-
munities they feel a part of. These are all facets of their humanity,
CPF GCEJ FTKXGU C RCTVKEWNCT UGV QH ƜPCPEKCN PGGFU TKUMU CPF QR-
RQTVWPKVKGU#VVJGEGPVGTƜPCPEKCNKPUVKVWVKQPUJCXGCPQRRQTVWPKV[
to develop a full customer view, and engage with their clients in a
variety of ways and at a number of levels. At the center, customers
also feel empowered in a personal, social, and business sense.
The circles then represent a variety of ways of getting from the out-
side (exclusion) to the inside (full inclusion). This includes all the hy-
DTKFQRVKQPUYJGTGVJGEKTENGUQXGTNCR$CPMUOC[UGGMVQKPENWFG
me by understanding how I manage my money and my traditional
NKSWKFKV[HCTOKPITGNCVKQPUJKRU
OGO[PGVYQTM1TVJG[UGGMVQ +PEQPVTCUVVJGVJKTFp5QEKCN/QPG[0GVYQTMUqRCVJYC[GPCDNGU
include me by understanding how I manage my money and where
+GCTPCPFFGRNQ[KV
RWUJRWNN1TVJG[OKIJVPQVUGGMVQWPFGT-
UVCPFOWEJCDQWVOGRGTUQPCNN[QVJGTVJCPJQY+NKPMKPVQQVJGT
CEVQTUVJCVVJG[WPFGTUVCPFDGVVGT
DWUKPGUUUQEKCNPGVYQTMU nancing opportunities, following the advice and lead of peers. The
There are some things that are common across all inclusion path-
YC[U 6JG[ CTG CNN DCUGF QP KPHQTOCVKQP FKUEQXGT[ QP NGCTPKPI
enough about excluded customers so that the right propositions
can be put in front of them, such that the customers can infer con-
crete value and providers can feel comfortable with the costs and
TKUMUKPXQNXGF
QTpUQNFqRTQFWEVUCPFRWNNGF
QTpDQWIJVqRTQFWEVUCPF
6JG MG[ FKƛGTGPEG DGVYGGP VJGUG RQVGPVKCN RCVJYC[U FGRGPFU QP
YJGVJGTRGQRNGCTGKPENWFGFDGECWUGQHYJCVRTQXKFGTUMPQYCDQWV
these individuals and others they relate to (the vertical dimension
in Figure 2) or whether the information is fundamentally about their
business or social relationships (the horizontal dimension).
6JKU JCU C ENGCT RQVGPVKCN VQ ETGCVG FKƛGTGPEGU CETQUU VJG RCVJ-
YC[UTGICTFKPIVJGGZVGPVVQYJKEJƜPCPEKCNUGTXKEGUCTGpRWNNGFq
D[ EWUVQOGTU YJQ OCMG VJG EJQKEG VJGOUGNXGU QT pRWUJGFq D[
providers.11 6JG ƜTUV p/QPG[ KU &CVC KU /QPG[q RCVJYC[ GPVCKNU
providers collecting and analyzing information on a broad pool of
CEVWCN CPF RTQURGEVKXG EWUVQOGTU CPF JGPEG KV KU OQTG NKMGN[ VQ
yield a product push towards those customers who are deemed
UGTXKEGCDNG D[ VJG RTQXKFGTU +V KU VJGTGHQTG CV C ITGCVGT TKUM QH
abusive practices leading to episodes of overindebtedness, which
we have seen so often in the past (see Annex A3).
VJGEWUVQOGTVQUETWVKPK\GUQEKCNPGVYQTMUHQTNKPMCIGUKPVQCXCKN-
CDNG ƜPCPEKCN UGTXKEGU CPF KU OQTG NKMGN[ VQ [KGNF C RTQFWEV RWNN
HTQO VJQUG EWUVQOGTU YJQ YCPV VQ VCMG CFXCPVCIG QH UWEJ Ɯ-
p$WUKPGUU /GVGTKPIq RCVJYC[ NKGU UQOGYJGTG KP DGVYGGP YKVJ
providers pushing services based on their understanding of digi-
VK\GFDWUKPGUUVTCPUCEVKQPƝQYUCPFDWUKPGUUGURWNNKPIUGTXKEGU
DCUGFQPVJGKTƜPCPEKPIPGGFU
11 6JGFKUVKPEVKQPDGVYGGPRWUJGF
its implications for the business case for service provision is articulated in BFA (2013).

58
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
IMPLICATIONS OF THE PATHWAYS FOR MARKET
STRUCTURE AND REGULATION
6JGTKUKPIRQYGTQHFCVCKUQRGPKPIWRVJGƜPCPEKCNUGTXKEGUURCEG
to a new breed of innovative players who are able to collect and
FKUVKNNFCVCCPFVWTPKVKPVQCEVKQPCDNGETGFKVQTOCTMGVKPIKPHQTOC-
VKQP6JGVJTGGRCVJYC[UTGRTGUGPVFKƛGTGPVYC[UVJTQWIJYJKEJ
a more data-intensive approach can be applied to serve lower-in-
EQOGCPFOQTGGZENWFGFRQRWNCVKQPU6JG[FKƛGTOCTMGFN[KPVGTOU
of who owns and uses the customer data. This has important impli-
ECVKQPUHQTOCTMGVUVTWEVWTGCPFTGIWNCVKQP
6JG p/QPG[ KU &CVC KU /QPG[q RCVJYC[ RTGUGPVU VJG OQUV EJCN-
lenging situation both in terms of competition policy and consum-
KVJGTGKUNKMGN[VQDGOQTGQHC
er protection regulation because the information on customers is
NKMGN[VQDGOQTGEGPVTCNK\GFYKVJKPHGYGTNCTIGTRNC[GTU6JGTGCTG
strong economies from information aggregation, and those who
IKXGP VJG TGNCVKQPUJKR
CTGCDNGVQETGCVGVJGOQUVEQORNGVGRTQƜNGQHEWUVQOGTUOC[ICKP
UWDUVCPVKCNOCTMGVCFXCPVCIG
Today, we already see data powerhouses, such as Google, Amazon,
(CEGDQQMCPF#RRNGVQYGTKPIQXGTQWTFKIKVCNNKXGU6JG[CTGCDNG
to extract a rich stream of data from customers who use their soft-
ware experiences and consume the content they channel. These
companies use this data to further improve their software-mediat-
ed experience and channel ever more targeted content. Thus, they
harness a virtuous circle of more frequent usage, more granular
data extraction, and continuous service enhancement.
#UVJKUFCVCEGPVTKEOQFGNKUKPETGCUKPIN[CRRNKGFVQƜPCPEKCNUGT-
XKEGUYGOC[GZRGEVCEQPVGUVDGVYGGPVTCFKVKQPCNƜPCPEKCNRNC[-
GTUYJQCTGUVTQPIQPDTCPFIGQITCRJKEEQXGTCIGCPFOCTMGVKPI
reach, and these new information powerhouses who are strong on
EWUVQOGTKPUKIJVCPFTKUMCUUGUUOGPV
7PFGTVJGp/QPG[KU&CVCKU/QPG[qUEGPCTKQVJGNCVVGTCTGCDNG
VQVCMGOQUVQHVJGRTQƜVRQQNHTQOƜPCPEKCNKPENWUKQPCEVKXKVKGUDG-
ECWUG VJTQWIJ VJGKT CPCN[VKEU VJG[ GƛGEVKXGN[ OCMG OCUUOCTMGV
EWUVQOGTUKPFGXGNQRKPIEQWPVTKGUOCTMGVCDNGHQTVJGƜTUVVKOG6JG
TGUWNVOC[DGVJCVCHGYNCTIGRNC[GTUECPKPƝWGPEGKHPQVFGVGT-
OKPG VJG ƜPCPEKCN QRVKQPU QRGP VQ OKNNKQPU QH RGQRNG /QTGQXGT
VJGRNC[GTUYKVJRTKXKNGIGFCEEGUUVQVJKUKPHQTOCVKQPOC[UGGMVQ
monetize the data directly by pushing services aggressively on their
customers or indirectly by selling access to the data. Either way,
VJGRTGUUWTGVQOQPGVK\GVJGXCNWGQHVJKUFCVCGPJCPEGUVJGTKUMQH
ETGCVKPIQXGTKPFGDVGFPGUUE[ENGUCUFGUETKDGFKP#PPGZ##MG[
TGIWNCVQT[EQPEGTPYKVJVJKURCVJYC[YQWNFVJGTGHQTGDGVJGTKUM
of widespread overindebtedness and the consequent implications
for system stability. This could happen if the credit models used by
59
the new breed of big data players turns out to be less robust than
anticipated.
7PFGTVJGp$WUKPGUU/GVGTKPIqRCVJYC[DWUKPGUUEWUVQOGTUYQWNF
retain substantial control over the sharing of digitized business infor-
OCVKQPYKVJƜPCPEKCNUGTXKEGRTQXKFGTU7PNKMGVJGRTGXKQWURCVJYC[
where customer data are assembled by the provider without neces-
sarily involving customers in question, in this case much of the data
would have to be shared voluntarily by the customer.
When deciding with whom to share this information, customers are
NKMGN[ VQ RNCEG CU OWEJ XCNWG QP TGNCVKQPUJKRU CPF EWUVQOGT UGT-
vices as the sheer analytical power applied to the data. This means
VJCVTGNCVKXGVQVJGƜTUVRCVJYC[
DCNCPEGQHOCTMGVRQYGTDGVYGGPVJGXCTKQWURNC[GTUKPVJGXCNWG
chain (e.g., service provision versus data analysis) and (ii) there
CTG NKMGN[ VQ DG HGYGT GEQPQOKGU QH UECNG
aspects).
6JGp$WUKPGUU/GVGTKPIqRCVJYC[KURTGOKUGFQPVJGFGXGNQROGPV
QH DTQCF FKIKVCN KPHQTOCVKQP CPF RC[OGPV PGVYQTMU VJCV KPVGITCVG
CETQUUDWUKPGUUFKUVTKDWVKQPEJCKPU6JGDGPGƜVUYKNNDGFKOKPKUJGF
KHVJGUOCTVRJQPGRTGUGPVUQPN[CXGT[NKOKVGFGZRQUWTGVQPGYƜ-
nancial options, or if the experience becomes too complicated for
RGQRNGVQƜPFƜPCPEKCNUQNWVKQPU6JGMG[RQNKE[GPCDNGTUHQTVJKU
UEGPCTKQCTGNKMGN[VQEQPEGPVTCVGQPKPHTCUVTWEVWTGCPFUGTXKEGKP-
VGTQRGTCDKNKV[KUUWGUKPENWFKPI
Q Network interconnection. If the digital payments systems of-
HGTGFD[FKƛGTGPVRTQXKFGTUCTGPQVKPVGTEQPPGEVGFVJG[CRRGCT
VQEWUVQOGTUCUCDWPEJQHFKUEQPPGEVGFPGVYQTMUQTENQWFU
In this case, the value of belonging to any one cloud is reduced
and maintaining full payment options requires membership of all
clouds, which may be prohibitively expensive and impractical.
There is, therefore, a solid economic argument for policies that
lead to the interconnection of all digital payment systems.
Q Application Programming Interfaces (APIs). APIs enable devel-
opers and solution providers to build more sophisticated, high-
GTNGXGNUQNWVKQPUQPVQRQHGZKUVKPIRNCVHQTOU+VKUWPNKMGN[VJCV
CP[RC[OGPVPGVYQTMECPHWNƜNNVJGPGGFUQHGXGT[DWUKPGUU#
RNCVHQTO VJCV QƛGTU CFGSWCVG #2+U ECP VJGP GPNKUV VJG JGNR QH
third-party developers to create services that cater to narrower
business segments, for example MSEs.
6JGp5QEKCN/QPG[0GVYQTMUqRCVJYC[IKXGUEWUVQOGTUUWDUVCP-
VKCNEQPVTQNQXGTJQYVJG[JCTPGUUVJGKTUQEKCNPGVYQTMUVQCEEGUU
ƜPCPEKCN UGTXKEGU *QYGXGT VJQUG KP VJG UQEKCN PGVYQTM YKVJ
VJG ITGCVGUV CDKNKV[ VQ CEEGUU ƜPCPEKCN UGTXKEGU YQWNF DG VJQUG
QP YJQO VJGKT ƜPCPEKCN UGTXKEG RTQXKFGT JCU OQUV KPHQTOCVKQP
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
Moreover, because data analytics would be applied at the social
PGVYQTM NGXGN TCVJGT VJCP CV CP KPFKXKFWCN EWUVQOGT NGXGN VJGTG
CTGNKMGN[VQDGNCTIGGEQPQOKGUQHUECNGHQTFCVCEGPVTKERNC[GTU
6JGTGHQTGQPDCNCPEGVJGOCTMGVKUNKMGN[VQDGCUEQPEGPVTCVGFCU
WPFGTVJGp/QPG[KU&CVCKU/QPG[qRCVJYC[
The most distinctive feature of this pathway is that it envisions sub-
stantial scope for peer-to-peer (P2P) lending and crowdfunding. Fi-
nancial institutions would not always be intermediating funds, some-
times they would be mere facilitators for direct transactions between
their customers on terms agreed bilaterally. This introduces a host of
consumer protection concerns, where regulators will need to get up
VQURGGFKPENWFKPI
KVJGNGICNKV[QHKPFKXKFWCNUCPFDWUKPGUUGUUQNKE- ECVGFKPRWVQWVRWVOGEJCPKUOUCNCTIGTUETGGPVJCVEQPXG[UEQNQT
iting investments directly from the general public and (ii) the report-
KPI TGSWKTGOGPVU QP VJG OCTMGVRNCEG RNC[GTU 6JGUG CTG EQPEGTPU
DGECWUGWPEJGEMGF22RNCVHQTOUOC[NGCFVQQXGTKPFGDVGFPGUU
as individuals gain such easy, direct access to borrowing.
FINAL THOUGHTS
UWEJCU$NWG-
In the world of simple mobile phones, we have tended to associate
FKIKVCNƜPCPEKCNKPENWUKQPYKVJVGTOUUWEJCUEQPXGPKGPEGUKORNKE-
ity, reliability, ubiquity, and privacy. It is on this basis that most mo-
bile money providers today promote their service. As we move to a
world where smartphones become the prevalent type of mobile de-
XKEGKPRGQRNGoURQEMGVUVJGQRRQTVWPKV[KUHQTUGTXKEGUVQDGOWEJ
more aware of people’s circumstances and needs. This awareness
may come partly from inherent sensing capabilities embedded in
the smartphone, but will be derived mostly from the analysis of the
data generated from richer and more frequent interactions with
customers.
6JG RCVJYC[U VJCV YG JCXG EQPUKFGTGF FKƛGT HWPFCOGPVCNN[ FG-
pending on the data most helpful to those currently excluded,
where it will come from, and who will control it. But the pathways
KGRGTRCEMGVQTRGTMKNQD[VGQHFCVC
share the same driver for inclusion, namely, building up reliable
QRVKQPU HQT ETGFKV # OWEJ FGGRGT NGXGN QH EQPUVTWEVKXG ƜPCPEKCN
engagement with lower-income people is possible if providers are
there not only to help them manage money when they have it, but
also to get the money when they really need it. Smartphones will
DTKPIDCEMETGFKVNGFUVTCVGIKGUHQTƜPCPEKCNKPENWUKQP
+PVGTGUVKPIN[ VJGUG UVTCVGIKGU CTG JQY ƜPCPEKCN KPENWUKQP KP VJG
modern era started with the rise of microcredit from the 1970s. So,
KVoUDCEMVQVJGHWVWTGKPUQOGYC[UDWVPQVKPQVJGTUsUOCTVRJQPGU
OC[GORQYGTKPFKXKFWCNUCPFVJGKTPGVYQTMUKPYC[UVJGGCTN[OK-
crolenders could only dream.
60
ANNEX: SOME SPECIFIC OPPORTUNITIES, CONSTRAINTS,
AND RISKS UNDERLYING ALL THREE PATHWAYS TO
FINANCIAL INCLUSION
A1. Unbundling the smartphone: How does it change the
nature of the game?
We identify six ways in which smartphones can change the dynam-
KEHQTOQDKNGDCUGFƜPCPEKCNUGTXKEGU6JGƜTUVVJTGGTGNCVGVQEWU-
VQOGTHCEKPIKORTQXGOGPVU
Flexible, user-friendly interface. Smartphones have more sophisti-
and that is responsive to touch, and maybe also a full alphanumeric
MG[DQCTF 6JG[ CTG VJGTGHQTG CDNG VQ KORNGOGPV ITCRJKECN WUGT
interfaces to display choices and results in a more engaging and
KPVWKVKXGHCUJKQPCPFVCMGKPRWVHTQOWUGTUKPCPWODGTQHEQPXG-
nient ways.
Device extensibility. Smartphones can be augmented by periph-
eral devices connected to through a number of standard ports and
LCEMUQTGXGPD[UJQTVYCXGNGPIVJTCFKQKPVGTHCEGU
tooth or NFC). They can, therefore, become standard computing
hubs for a range of devices around them; their use is not restricted
to the set of in-built software or hardware features and capabilities.
Lower marginal cost of interactions. Smartphones have an open
data connection to the internet, so all data and applications can be
JCPFNGFCUCPWPFKƛGTGPVKCVGFUVTGCOQHFCVCRCEMGVU+VDGEQOGU
FKƞEWNV HQT OQDKNG QRGTCVQTU VQ RTKEGFKƛGTGPVKCVG VTCPUOKUUKQP
costs based on the value of the underlying data or applications to
the customer or to a third-party provider. Smartphones, therefore,
naturally push mobile operators to switch from a strategy of max-
imizing margin per connection or per service to one of maximizing
total customer value, which they typically implement through vol-
ume-based data bundles. The practical implication is that the mar-
IKPCNEQUVRGTKPVGTCEVKQP
will tend towards zero. That is not to say that the total cost of data
YKNNDG\GTQDWVVJGKPETGOGPVCNEQUVRGTPGYRCEMGVQTOGUUCIG
will be vanishingly small.
6JGPGZVVJTGGFKƛGTGPEGUKPVTQFWEGFD[UOCTVRJQPGUJCXGVQFQ
YKVJUGTXKEGGPCDNGTUVJCVDGPGƜVOQDKNGƜPCPEKCNUGTXKEGRTQXKF-
GTU
Telco independence. Smartphones can communicate over open
data channels with any node on the internet, in a way that mobile
operators cannot easily restrict or control. Moreover, third-party
service providers can drop an app on the smartphone’s memory,
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion
YJKEJECPCEVHWPEVKQPCNN[NKMGVJGOQDKNGQRGTCVQToUQYPCRRUQP
the SIM card. In particular, third-party service providers can embed
VJGKTQYPUGEWTKV[MG[UQPCWUGToURJQPGVJTQWIJYJKEJVJG[ECP
CWVJGPVKECVGVJGWUGTCPFGPET[RVVJGFCVCVTCƞE6JKUOCMGUVJG
communication between the smartphone user and the third-party
provider inscrutable to the operator.
Optimized service architectures.9KVJUOCTVRJQPGUQƛGTUGTXKEG
providers have full control over which service elements are deliv-
ered from centralized servers and which are better delivered from
a client-side (i.e., phone-resident) app. Providers can, therefore,
create more streamlined user experiences that implement various
VTCFGQƛU
GIDGVYGGPCXCKNCDNGHWPEVKQPCNKVKGUEQUVURGGFƝGZ-
ibility, etc.). Moreover, apps and their menus are easily upgradable
on smartphones, so providers will be able to experiment with and
GXQNXGVJGKTQƛGTQPCOWEJOQTGVCTIGVGFƜPGVWPGFDCUKU
Opportunities for more customer data capture. All these factors
combined will increase opportunities for service providers (wheth-
er the mobile operator itself or third parties) to glean more informa-
tion about their customers. As customers have more frequent inter-
actions and as providers experiment with more engaging graphical
TGPFKVKQPUQHVJGKTUGTXKEGCPFKPEQTRQTCVGICOKƜECVKQPRTKPEKRNGU
there should be opportunities to develop higher levels of intimacy
between customers and providers.
(QTVJGUGDGPGƜVUVQCEETWGYGCTGCUUWOKPIVJCVOQDKNGQRGTC-
VQTUFQPQV
KKORQUGUVTKEVYCNNGFICTFGPURTGXGPVKPIVJGKTUOCTV- 5OCTVRJQPGUOKIJVDGEQOGCVQQNHQTGƛGEVKXGƜPCPEKCNKPENWUKQP
phone users from navigating to the broader internet; or (ii) imple-
OGPV FGGR RCEMGV KPURGEVKQP VGEJPQNQIKGU VJCV YQWNF CDNG VJGO
VQ FKUETKOKPCVG KP VJG VTGCVOGPV QH XCTKQWU V[RGU QH RCEMGVU
GI month (which would roughly mean a doubling in the current mobile
reducing the quality of service or increasing the cost of transmitting
RCEMGVUGPET[RVGFD[VJKTFRCTVKGU
#6JGVQVCNEQUVQHQYPGTUJKRQHƜPCPEKCNN[EQPPGEVGF
smartphones
6JGTGCTGVJTGGUGVUQHWUGTEQUVUVJCVOC[FKUEQWTCIGVCMGWRQH
UOCTVRJQPGUCUCƜPCPEKCNKPUVTWOGPV
Fixed device cost. Acquiring a smartphone currently represents
a high upfront cost. The fact that smartphones can be used for a
XCTKGV[ QH WUGU
EQOOWPKECVKQP UQEKCN PGVYQTMKPI VCMKPI RJQVQ-
graphs, etc.) helps users to justify the cost of buying one. The ability
VQ EQPFWEV ƜPCPEKCN UGTXKEGU VJGTGHQTG QPN[ PGGFU VQ EQPVTKDWVG
KPETGOGPVCNN[VQVJGLWUVKƜECVKQPHQTDW[KPICUOCTVRJQPG5VKNNVJG
cost can be prohibitively expensive for lower-income people, even
KHVJGDGPGƜVUCTGOCP[6JKUDCTTKGTYKNNVGPFVQTGUQNXGKVUGNHPCV-
WTCNN[QXGTVKOGYGECPGZRGEVUOCTVRJQPGRTKEGUVQEQPVKPWGVQ
decline steadily as we ride down a global device cost curve. In the
OGCPVKOGOQDKNGQRGTCVQTUCPFƜPCPEKCNUGTXKEGRTQXKFGTUOC[DG
CDNGVQGZVGPFƜPCPEKPIHQTRGQRNGVQDW[PGYUOCTVRJQPGU
1RGTCVQTFCVCVCTKƛRNCPUHow mobile operators price data will be
MG[6JGTGKUOWEJGXKFGPEGVJCVNQYGTKPEQOGEQPUWOGTURTGHGT
RC[RGTWUG RTKEKPI VJCP ƜZGF UWDUETKRVKQPU VQ CXQKF TGEWTTKPI
commitments. But users may not have an intuitive understanding of
the data consumed by their smart phones, so pay-per-use can lead
to substantial bill variability. Thus, pay-per-use pricing, which is
normally designed to give users a sense of control over their spend,
OC[KPHCEVJCXGVJGQRRQUKVGGƛGEVCUGPUGQHNCEMQHEQPVTQNCPF
GZRQUWTGVQDKNNUWTRTKUGU1RGTCVQTUVJGTGHQTGVGPFVQQƛGTƝCVTCVG
data bundles. But this reintroduces a sense of spend hurdle rates,
which may not be attractive to lower-income people, especially in
the early phase when they are not clear on what they will use the
phones for or what value they will get out of them. Bundles may
also dissuade users who notice that they regularly don’t use the full
DWPFNGCPFJGPEGHGGNNKMGVJG[CTGPQVIGVVKPIVJGHWNNXCNWGHTQO
what they are paying.
Power recharging. Due to their enhanced capabilities (color
screen, more memory, faster processor), smartphones are much
more power-intensive and need to be recharged much more fre-
quently than low-end phones. Therefore, the cost of recharge may
DGXGT[UKIPKƜECPVHQTRGQRNGYJQFQPQVJCXGGNGEVTKEKV[KPVJGKT
homes or even in their villages.
YJGPTGNKCDNGFGXKEGUECPDGJCFHQTWPFGTUWƞEKGPVN[ƝGZK-
DNGFCVCVCTKƛRNCPUCTGCXCKNCDNGCVCEQUVQHPQVOQTGVJCPRGT
average revenue per user), and phone batteries can last for three
days or more.
A3. Could over-indebtedness overshadow digital
ƜPCPEKCNKPENWUKQP!
(KPCPEKCN CEEGUU KU CNN CDQWV OCMKPI PGY ƜPCPEKCN EQPPGEVKQPU
RQUUKDNG HQT RGQRNG &KIKVCN ƜPCPEKCN CEEGUU KU CDQWV IKXKPI VJGO
VJGOGCPUVQKPUVCPVN[UGPFOQPG[CPFUKIPƜPCPEKCNEQPVTCEVUYKVJ
third parties. That is a potentially transformative tool – for good and
for bad.
(KPCPEKCNKPENWUKQPFQGUJCXGKVUFCTMUKFG5QOGRGQRNGOC[VCMG
TCUJƜPCPEKCNFGEKUKQPU5QOGRGQRNGOC[DGOKUNGFVJTQWIJHCNUG
CFXGTVKUKPI QT QRCSWG EQPVTCEVWCN VGTOU QƛGTGF D[ QDUEWTG VJKTF
RCTVKGU 5QOG RGQRNG OC[ UWƛGT HTQO RTKEKPI OQFGNU VJCV GZRNQKV
VJGKTNCEMQHQRVKQPU%QPUWOGTRTQVGEVKQPTWNGUCTGOGCPVVQIWCTF
against such situations, but regulators may be slow to adjust con-
sumer protection rules to a remote, digital setting.
61
The Capco Institute Journal of Financial Transformation
Pathways to Smarter Digital Financial Inclusion

#DKIDQQOKPƜPCPEKCNKPENWUKQPEQWNFVJGTGHQTGTGUWNVKPCEEGN-
erated cycles of overindebtedness, which would put many people
$(#$KI$CPMUCPF5OCNN5CXGTU#PGYRCVJVQ
WPFGTƜPCPEKCNFWTGUU5JCF[CPFWPUETWRWNQWUNGPFGTUJCXGCN-
ways been around. But the fact that it becomes so easy for so many
VQIGVKPXQNXGFKUCPGYEJCNNGPIG9GYKNNNKMGN[UGGCPKPETGCUG
KPVJGTCPIGQHRTQXKFGTUQƛGTKPIXCTKQWUETGFKVOQFCNKVKGUGCIGT
to sign up customers instantly on the basis of little information ex-

EJCPIGCPFWPFCWPVGFD[ETGFKVTKUMUCUNQPICUVJG[ECPEJCTIG
UWƞEKGPVN[JKIJTCVGU
6JKU ECP JCXG C FCORGPKPI GƛGEV QP ƜPCPEKCN KPENWUKQP 2GQRNG
OC[ EQOG VQ FKUVTWUV PGYN[ CXCKNCDNG ƜPCPEKCN UGTXKEGU VJCV CTG
pushed too aggressively, and which appear too good to be true.
REFERENCES
• $CPMCDNG(TQPVKGT#UUQEKCVGU
RTQHKVCDKNKV[2TQLGEV4GRQTVHQTVJG$KNN/GNKPFC)CVGU(QWPFCVKQP)#(+5#XCKNCDNGCVJVVR
DCPMCDNGHTQPVKGTEQOYREQPVGPVWRNQCFUFQEWOGPVU)#(+5ATGRQTVA&GEGODGTRFH
• /CU+C7UKPI$TQCFDCPFVQ'PJCPEG(KPCPEKCN+PENWUKQP$CEMITQWPF2CRGT
+PVGTCOGTKECP&GXGNQROGPV$CPM#XCKNCDNGCVJVVRRCRGTUUUTPEQOUQNRCRGTU
EHO!CDUVTCEVAKF
• /CU+Dp5JKHVKPI$TCPEJNGUU$CPMKPI4GIWNCVKQPHTQO'PCDNKPIVQ(QUVGTKPI
%QORGVKVKQPq$CPMKPI(KPCPEG.CY4GXKGY
• /CU+E/QPG[4GUQNWVKQPU#5MGVEJDQQM9QTMKPI2CRGT%)#2#XCKNCDNGCV
JVVRYYYEICRQTIUKVGUFGHCWNVHKNGU9QTMKPI2CRGT/QPG[4GUQNWVKQPU5MGVEJDQQM
Jan-2015_0.pdf
• 2KEMGPU/&2QTVGQWUCPF54QVOCPp5EGPCTKQUHQT$TCPEJNGUU$CPMKPIKPq
(QEWU0QVG%)#2#XCKNCDNGCVJVVRUYYYEICRQTIUKVGUFGHCWNVHKNGU%)#2(QEWU
0QVG5EGPCTKQUHQT$TCPEJNGUU$CPMKPIKP1EVRFH
• 5EJOKFV'CPF,%QJP6JG0GY&KIKVCN#IG4GUJCRKPIVJG(WVWTGQH2GQRNG0CVKQPU

This might be triggered by coverage of individuals falling into se- CPF$WUKPGUU.QPFQP,QJP/WTTC[

• <QNNOCPP,p-GP[C(KPCPEKCN&KCTKGU5JKNKPIK-YC5JKNKPIKsVJG(KPCPEKCN.KXGUQHVJG
XGTGFGDVVJCPMUVQJKIJKPVGTGUVNQCPU#PFKVEQWNFDGGZCEGTDCVGF
2QQTq4GRQTV(5&-GP[C#XCKNCDNGCVJVVRYYYHUFMGP[CQTIRFHAFQEWOGPVUA
by the sudden demise of online lenders who fail to judge adequately Financial_Diaries_report.pdf
their credit exposure. The recent troubles of online payday lender
9QPICQHVJG7-YJKEJJCUDGGPHQTEGFVQYTKVGQƛNCTIGCOQWPVU
of credit to borrowers, shows how much reputational damage one
player can cause.12

Concerns over widespread abuse may lead regulators to apply re-

UVTKEVKXG TGIWNCVKQPU VJCV FGNC[ VJG GOGTIGPEG QH FKIKVCN ƜPCPEKCN
services. For example, prescriptive consumer protection rules,
burdensome reporting requirements, tough credit rating and provi-
sioning rules, or outright price caps. While this may help customers
adapt more gradually to new opportunities, others may see it as
regulatory overreaction.

12 In early October 2014, Wonga announced that it will write off £220m of debts for 330,000
customers, and forego interest payments from a further 45,000 customers. This was
CHVGTKVRWVKPRNCEGPGYCHHQTFCDKNKV[EJGEMU5QWTEG$$%
JVVRYYYDDEEQOPGYU
business-29457044).

62