FinTech for the Poor: Not All Virtual, Not All Apps

Think of the word “FinTech,” and you may imagine people changing their investments portfolio with a few clicks and swipes on their smartphones while rushing through their day. Like in every other sphere, digital technologies are bringing a wide range of financial services like retail banking and investments to our fingertips, and making our financial lives more customizable and more connected than ever before. But for low-income customers in developing countries, FinTech is not always about rolling out a dazzling new smartphone app. As CGAP has seen in African countries where we’ve been working with FinTech innovators, it usually means something quite different, though no less impactful.

This past summer, CGAP partnered with several FinTech companies in Africa to learn from their experiences with piloting and scaling digital solutions for low-income customers. Four of these partnerships test how digital technologies can improve the value propositions of existing services such as pensions, credit and savings groups for customer segments as diverse as cocoa farmers in Ghana, to dairy cooperatives in Uganda. They are using digital technologies to combine varied financial services in one package (bundling), build greater variations and flexibility in the same product (customization) and facilitate person-to-person interactions for financial transactions (connections).

As we began to draft pilot plans and success metrics with each company, we expected to find similarities between how FinTechs operate and build solutions in Silicon Valley and parts of Africa. After all, FinTech innovation has been the rage for years across tech hubs in the West and increasingly in Asia. Surely, innovators in Africa would be inspired by it. But as we visited our partners in Ghana, Uganda and Senegal to observe their services on the ground and meet their potential customers, we realized that FinTech companies serving low-income customers in Africa are navigating very different markets and customer segments that change how companies can harness and deliver FinTech solutions.  

Two key observations have stayed with us.

Solutions are digital, but they rely on USSD phones

Smartphone penetration in many parts of Africa is low, and low-income customers use basic phones. So FinTech companies today need to build solutions that rely on these older phones’ SMS and USSD technology. For MaTontine, an online savings group platform in Senegal aimed at low-income rural women, this means creating a virtual tontine (as savings groups are known in Francophone Africa) that is accessible through USSD menus. It also means using SMS to remind all savings group members (and sometimes there are as many as 120!) to make regular payments, identify defaulting members and reward lump sum winners every month. Customers make payments using a popular payment provider’s USSD menus, and they track their eligibility for additional loans and insurance by SMS or by dialing a call center.

Even when solutions are app-based, they are often designed to help the company’s field agents enroll and register customers in-person. In Kenya, for example, Tulaa offers a mobile wallet that smallholder farmers can use to access loans for inputs before planting season. The wallet connects them to a credit company, and if they qualify for a loan, they are asked to deposit collateral. The loan amount goes directly to the purchase of inputs and the inputs are delivered to the farmer. If farmers don’t have enough in savings, the wallet connects them to a credit company for a loan. Tulaa Product Manager Alex Royea stresses how important the app is for agents who need to capture and sync detailed information to their databases for credit checks. He also points out that it is important for Tulaa’s customers, who may have never bought inputs remotely, to be able to see their inputs on a screen. USSD doesn’t have these capabilities, so Tulaa uses agents with a tablet or smartphone app for customer registration, input selection and loan application. Customers then use their basic phones to make USSD-based payments and to interact with Tulaa via SMS.

Solutions are digital, but not all engagement is virtual

FinTech companies in Silicon Valley and increasingly in China offer a fully virtual experience, in which customers register for a service with a click of a button and conduct their entire relationship with the provider virtually. Customers in these markets often trust digital financial services, so this kind of “low-touch” approach to customer relations is possible. In Africa, however, digital finance often has a low profile or a negative reputation. How can you convince customers to go digital in markets where payment errors are frequent and the customer experience has been less than satisfactory? As many companies have figured out, one option is to take a more “high-touch” approach that includes in-person interaction. Our partners are spending significant time and effort on face-to-face engagement, especially to acquire new customers.

People’s Pension Trust (PPT) in Ghana is a good example. PPT is piloting a mobile pension service that incorporates digital rewards, fixed mobile payments and flexible withdrawals to help low-income Ghanaians save for the future while working in the informal economy, with unpredictable earnings. While we were driving to Fanteakwa, Ghana, one morning to meet cocoa farmers, PPT CEO Samuel Waterberg told us why building trust is so crucial.

“Imagine being asked to save your hard-earned money digitally with a pensions company you don’t know and all year, you’ve heard of mobile payments frauds. You will get this money when you are 60, and you are told it’s not entirely certain how much you will get. Why would you save? We need to build a value proposition that is based on some transparency and flexibility of taking money in and out. Without the right incentives, we would be at a dead end,” he said.

That day, we watched Samuel spend two hours answering questions about the product, never once losing his enthusiasm. Later PPT staff spent an hour explaining each feature in smaller groups.  

Beyond customer acquisition, face-to-face engagement is also important to understand customers' digital capabilities and needs and when training them on how to use a complex solution.

Bernie Akporiaye, who started MaTontine, says this kind of engagement is necessary when finance is closely linked with strong communal ties and relationships, as it is in savings groups and associations. Financial decisions are often done in the context of a group. “If the group doesn’t trust you, the solution doesn’t work,” he says.

CGAP's focus in the coming months

How similar are Silicon Valley’s FinTech innovations to what we’re seeing in Africa? In both places, products’ value propositions rely on digital technologies. But our partners are designing solutions for USSD phones and using more traditional methods to get to know their customers and meet their needs. These differences reflect the conditions in their markets.

Do these differences mean that FinTech start-ups in Africa will necessarily struggle with higher operational costs or barriers to scaling up? For now, we see these young FinTech companies partnering with external organizations, such as farmer associations and savings associations, to build trust among customers in large groups and save costs through en masse registration. After registration, customer interaction continues to be facilitated through these nongovernment organizations or group leaders. Is this a sustainable business model that can be scaled? Can they use such a model not just for initial customer acquisition, but to slowly nudge deeper engagement with digital financial services and more remote communication? This is an area into which we would like to build more insight in the future.

In a follow-up blog, "FinTech Partnerships: Choose Carefully, Then Evolve," we talk about how FinTech start-ups in Africa select and build partnerships that leverage their business model to serve high-touch customers. Let us know other ways FinTechs are or should be adjusting their business models to fit the realities of markets with low smartphone penetration and low trust in digital technologies, especially with complex products such as pensions, insurance and credit.