Open Data, Smart Investments Needed for Fintech to Serve Needs of the Poor in the digital economy

CGAP CEO Greta Bull Addresses Afro-Asian Fintech Festival

NAIROBI, Kenya, July 15, 2019 

Financial technologies are playing an outsized role in disaggregating the financial services value chain. They are making it more customer centric, nimble and efficient. These changes open up huge potential for providing low-income people and small businesses with tailored and cost-effective financial products and connecting the poor to the global marketplace.

But if the poor are to fully realize the potential of the digital economy, more progress is needed in making smart investment in fintech innovations and in opening up digital data so that it can better serve low-income customers, Greta Bull, the CEO of the Consultative Group to Assist the Poor (CGAP), told the Afro-Asian Fintech Festival in Nairobi on July 15, 2019.  

In emerging markets, three forces are driving the technological transformation in financial services: distribution, digital connectivity and data, said Bull, who heads the global think tank on financial inclusion that is housed at the World Bank. Mobile phones and the Internet have succeeded in digitally connecting hundreds of millions of poor people to financial services. Meanwhile, companies are connecting the digital world to the analog world through innovations in distribution, she said. M-PESA, the mobile money service in Kenya, uses agent networks to reach millions of previously unbanked people, while Alibaba in China solved distribution by launching Alipay as a payments mechanism for its e-commerce platform. But harnessing the troves of data generated by the billions of digital transactions that online payments and sales generate and using it in support of inclusive growth remains in its infancy, especially in developing economies, Bull said.

“Although it is widely understood that data is the fuel that will drive the digital economy, we are still in the early stages of figuring out how to build the engine in most emerging markets,” she said.

“Business models trying to harness data in Africa today face a few challenges,” Bull said. “Firstly, although there is an abundance of data and that abundance is growing exponentially, it is unevenly distributed. Low-income consumers tend not to be well represented in digital data trails. Secondly, the providers who are gathering data on low-income consumers are generally inclined to hoard that data, understanding that it is potentially a valuable resource. And this leads to a third challenge – those who have the data don’t necessarily know what to do with it. This may be because they lack the skills to effectively structure and extract insights, but they may also lack clear use cases.”

As a result, the full potential of digital connectivity, distribution and data are not yet being realized, Bull said. Serving the large numbers of the poor people in emerging markets with a well-rounded set of financial services that meet their needs will require more effective usage of digital data to better identify customer segments, bring down the unit costs of products so that financial service providers can build sustainable business models, and improve the customer experience in ways that crowd the poor into the digital economy, she said.

“This is a challenge, but the good news is that there are companies out there working hard to crack the code. This is doable. But it will take time and continued investment,” the CGAP CEO said.

To make advances, Bull called for three actions: continued work on building the digital market infrastructure to connect the poor with financial services and broader e-platforms; opening up data troves in service of the poor while ensuring guardrails are in place for its responsible usage and consumer control over their data; and smart investments to ensure adequate capital from angel to venture rounds is supporting a broad range of fintechs.

About CGAP

CGAP is an independent think tank that works to empower poor people to capture opportunities and build resilience through financial services. We test, learn and develop innovative solutions through practical research and active engagement with our partners on building responsible and inclusive financial systems that help move people out of poverty, protect their gains and advance global development goals. Housed at the World Bank, CGAP is supported by over 30 leading development organizations committed to making financial services meet the needs of poor people.