It Pays to Be Patient with Fintech Innovation

Take any booming fintech market and chances are that most companies are building payments and credit products. These business models tend to scale before savings, insurance and other types of financial solutions that meet important customer needs. Robo-investors and insuretech solutions may be prominent in Silicon Valley and other developed markets, but in emerging markets, they are in the development stage or entirely absent. And funding these early-stage solutions can be risky if your primary concern is a short-term return on investment, whether monetary or in the form of social impact.

Photo: FINCA International / Alison Wright, 2018 CGAP Photo Contest
Photo: FINCA International / Alison Wright, 2018 CGAP Photo Contest

But should financial inclusion funders expect quick wins in the fintech space?  I would argue that there’s a lot to be gained by providing patient capital to fintechs that explore new types of products, regardless of whether they turn into success stories overnight – or at all.

Over the past two years, CGAP conducted pilots with 18 fintech start-ups across Africa and South Asia. Many of them focused on payments and credit, but a few of them tried innovative ways to make products like health insurance, yield insurance for farmers and pensions more accessible to excluded communities. Getting products like these to work for low-income customers is not easy. The unit economics often don’t make sense in the beginning, the value proposition can be unclear to customers and regulations can pose major hurdles. Some of our pilots didn’t achieve the results CGAP or the provider had initially expected, but together we learned valuable lessons about how these types of products could be reworked to be more effective.

A good example is our pilot with People’s Pension Trust (PPT) in Ghana. PPT's pension product allows customers to make deposits in person via an agent or digitally. When PPT discovered that many of its customers hesitated to use the product because they didn’t understand or trust pensions, it figured that providing the right information about the product and how to use it — along with financial incentives — over digital channels would significantly increase payments into pension accounts, in particular digital payments. After all, digital payments would be faster and more convenient, especially for rural customers.

The results were not quite what CGAP or PPT expected. Behavioral testing with 1,600 customers showed, among other things, that digital nudges like SMS messages, phone calls, weekly goals and contests increased payments into pension accounts — but only modestly. Further, even if customers were willing to pay more into their pension accounts, very few were willing to do so digitally. In fact, even with strong financial incentives of up to GHS 50 (about $10) to use their mobile wallet, only 7 percent changed from cash payments to mobile payments.

Some companies and funders might have considered the pilot to be a “failure” based on this low number. But PPT CEO Samuel Waterberg and his team further analyzed the results and conducted in-person research with a subset of customers and agents, and they came away with valuable insights that took their business in a new direction.

In particular, they found that the digital campaign had been more successful with some customer segments than others. For instance, urban small-business owners in Accra deposited large amounts digitally 100 percent of the time and wanted digital statements. By contrast, rural cocoa farmers in the Fanteakwa region feared fraud and hesitated to go digital right away. PPT determined that it would need to hire agents to reach this group, but that it could keep costs down by hiring agents from within farmers’ associations to take deposits and gradually introduce farmers to the digital option. Ultimately, it realized that going 100 percent digital on day one may not be possible or desirable. It adopted a differentiated channel strategy that was grounded in a deeper understanding of its customer and sought the right balance of virtual and in-person outreach for each segment. The strategy is now helping the company to keep costs down while it scales.

CGAP has engaged in other fintech pilots that yielded unexpected yet valuable results. Our work with MicroEnsure on its “Fearless Health” bundled health insurance product also underscores the importance of selecting the right channels to bring an innovation to customers. While the pilot revealed bundling insurance with credit and digital payments was a good idea, lower-than-expected uptake showed that the company would need to market it to patients well before they showed up at a clinic in need of service, and not at the clinic. Like PPT, MicroEnsure recalibrated its marketing strategy based on a deeper understanding of its customers.

Similarly, our work with Pula on yield-based insurance for farmers brought some challenges into focus that, if addressed, could open up possibilities to expand smallholders’ access to agricultural insurance. Pula uses satellite and yield data from various public and private actors to create predictive models that reduce the cost of assessing yields in countries across Africa and Asia. Our pilot with Pula revealed that most data sets in the countries where Pula works still focus on larger farm sizes, not the very small farms of poorer, vulnerable farmers, which reduces variation in the model. Additionally, if yield data are not available for a long period or across climatic regions, the predictability of the model is further reduced. This innovation holds tremendous promise for inclusion but will need space for experimentation to perfect.

The financial inclusion community is still figuring out how to deliver financial services like pensions and insurance to the poor at scale. As pointed out in CGAP’s recent publication, “Fintechs and Financial Inclusion: Looking Past the Hype and Exploring Their Potential,” fintechs experimenting with such services need patient capital to test and learn, which is rarely available through private investments. Funders have a crucial role to play in making this possible, not only for the firms to succeed, but for our industry to learn from robust lessons.



Based on pilots with 18 fintechs across Africa and South Asia, this paper identifies emerging fintech innovations with potential to improve the lives of the poor. It also highlights common challenges faced by early-stage fintechs.

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