Mobile money services that empower individuals to conduct financial transactions without a formal bank account are already yielding positive economic and social returns in frontier and emerging markets. And the revolution is just getting started.
Some 1.7 billion people and 200 million businesses worldwide still lack access to savings and credit services at formal institutions. As governments, entrepreneurs and private investors work to realize the World Bank’s goal of universal financial access by 2020, new opportunities are surfacing to service a rising class of newly-banked consumers.
Jeff Stewart is the CEO and Co-Founder of Lenddo EFL, which combines behavioral science with data gleaned from social media and mobile phone records to provide credit scoring and identity verification products in emerging markets. On mobile phone proliferation and opportunity he explains, “Hundreds of millions, billions of people... now have access to new markets, new sources of information and really be a part of the global economy.”
The Growth Story: Financial Inclusion Is Expanding Rapidly
Globally, roughly 1.2 billion people have obtained an account through a financial institution or mobile money provider since 2011. Uptake is strongest in Sub-Saharan Africa, where the share of adults with a mobile money account tops 10%. Beyond Sub-Saharan Africa around 20% of adults have mobile money accounts in Bangladesh, the Islamic Republic of Iran, Mongolia, and Paraguay.
A virtuous cycle is created when people gain access to financial services that make it possible for them to borrow, save, and spend efficiently. General well-being improves, enterprise prospers, and economies grow. Economists at MIT and Georgetown found that access to the mobile money service M-Pesa in Kenya increased the daily per-capita consumption levels of 2% of Kenyan households, lifting them out of extreme poverty. Women headed households saw the strongest increase in spending.
The Opportunities: Beyond Plain-Vanilla
The newly-banked are creating demand for financial services tailored to their needs.
Devin Kohli is Co-Head of Emerging Companies at Investec, which invests in and advises early stage companies around the world. “Financial inclusion creates a greater need for diversity of financial products because as you diversify people involved in financial services… They’re looking for different things.” says Kohli. Investec made early stage investments in Monese, a mobile-only bank. Launched in 2015, Monese captured Britain’s migrant market by allowing anyone in the UK to open a current account within minutes. Timeless Capital, parent company of Karma Network, is also an investor. Kohli says, “Today over 300,000 use that platform… The business… is growing at 25%,” speaking of Monese’ performance to date.
A Credit Score in Your Pocket
Jeff Stewart first conceived of Lenddo EFL in the late aughts. He was developing artificial intelligence to monitor the internet for hedge funds and noticed that his team of business analysts in the Philippines couldn’t get credit. His thoughts; “Their incomes were going up but no one would trust them with financial services. So we had a theory that maybe as their digital footprint grew we could use the same techniques we were using to analyze information on the internet to analyze the digital footprint and use that to extend credit and to confirm identity... We now have about 85 financial institutions in over 25 countries using this technology and we're adding a new financial solution about every week now.”
One firm integrating Lenddo’s technology is Port It Global, a business development company striving to bridge the gap between small businesses and newly-banked and underbanked consumers in emerging markets who aren’t in a position to pay for goods in-full at the time of purchase. The app-based service analyzes phone data to determine how likely someone is to repay a loan. If they are creditworthy, Port It Global allows them to pay for goods in installments in exchange for a small fee.
Andrew Kossowski is the Co-Founder & CEO of Port It Global. He adds, “On the retailer side, for the small business once the consumer makes the first payment we pay them 100% of the product. So we're essentially reselling that product to the consumer and taking on the responsibility of that repayment process.”
Bricks & Mortar Play
While some are focused on providing more dynamic financial services, other investors see opportunity in selling physical goods to the newly-banked.
David Storper is Managing Member & Co-Chief Investment Officer at Armory Merchant Holdings LLC. “I’m looking right now in Kenya. There’s an opportunity for a financial restructuring for a retailer… It serves the middle class and we feel that there’s a good opportunity to develop more stores for the more impoverished people.”“I want to be able to have the actual stores and connection when we go up with the mobile payment systems.”
Mobile money investors, entrepreneurs, and regulators are on a learning curve. David Storper had thoughts on this struggle, “I think the space has areas to grow. It just needs to be at a sustainable level… The biggest problem that could ever happen to a local economy is if a payment system goes down and people just can’t get their money out on time.” Devin Kohli adds, “The biggest game changer here… will be regulation… what the regulator wants out of payments.”
As more deals flood the fintech pipeline, investors need a discerning eye. Kohli continues, “There are far more companies that are looking for funding at a much earlier stage, and so the funnel is much larger… Look at what they’re problem solving… Look at the addressable market.”
And when doing business in an unfamiliar geography, it’s always wise to have boots on the ground. “When you invest in a country… wherever it is all over the world, if you don’t really know the system very well and you’re not a local, it pays to have a partner there on the ground so you can joint venture with somebody.” says Storper.
The Karma Factor
When mobile money is done right and responsibly, investors, the poor, and humanity can all win.