The views expressed in this presentation

are the views of the author and do not

necessarily reflect the views or policies of
the Asian Development Bank Institute
(ADBI), the Asian Development Bank
(ADB), its Board of Directors, or the
governments they represent. ADBI does
not guarantee the accuracy of the data
included in this paper and accepts no
responsibility for any consequences of
their use. Terminology used may not
necessarily be consistent with ADB
official terms.

Fintech and Financial

Inclusion for Households
How can Fintechs truly reach LMI
segments?
ADBI Annual Conference, Tokyo
November 28-29, 2019
Changing with time and technology
“New Digital Economy”
An innovation economy framed around globally connected technologies has emerged in which powerful tech companies leverage
these new technologies to develop business models that deliver a different kind of consumer experience.
United Nations observes:
• There are over 2.1bn youth globally
• Asia and Africa have over 1.2bn youth
• Youth and millennial by contrast are digital natives
and have affinity to adopt digital much faster than
Youth and
Millennials
other age groups
• By 2030, the number of youth in Asia and Africa will
Lets Talk Payments reports: be over 2bn
• 8,000+ fintech startups serve
Drivers of
users across 16 financial services
Digital
categories globally GSMA’s SOTIR 2017 reports:
Financial
• USD 283.5 bn credit volume Inclusion • There are 276 deployments, over
• USD 45bn in capital 690m registered mobile money
• Resulting in fundamental changes in accounts
Fintechs Mobile Money
the core infrastructure of the finance • Mobile money industry is processing over
industry $1bn per day

2 All rights reserved. This document is proprietary and confidential.

Fintechs are transforming financial services globally

Fintech combines innovative Fintech disrupts established

business models and technology business models by creating new
to enable, enhance and disrupt and efficient means of
financial services providing services

8,000+ Fintech start- USD 45 billion in

ups serve users across capital has been
16 financial services invested in the Fintech
categories globally start-ups globally

Fintechs are leveraging on Fintechs have led to the

technology and creating emergence of new
new distribution channels customer segments
previously unreached
Source: We are Digital, 2017

3 All rights reserved. This document is proprietary and confidential.

Current fintech landscape and investment trends suggest growing influence
of fintechs in India

1 2 3
Fintech market in India is growing rapidly
$73B Investment in the fintech sector has also
1,500+ Fintechs in India Transaction value for fintechs by 2020 seen growth

New fintechs created Transaction value (USD in billions) 2500 Deal value (In USD M) 180
No. of deals $2,173
99 150
600+ 2000
116 120
73 103 110
1500
400+ 90
$1,346
1000
$791 60
44
33
174 500
30
$190
2015 2016 2017 2015 2020(F) 2022(F) 0 0
2014 2015 2016 2017

Source: Tracxn, MicroSave Analysis, Redrawing the lines, PwC, 2017;

4 All rights reserved. This document is proprietary and confidential.

Growth, however, is specific, and limited to certain pockets, product
offerings, and even the funding received
Three metro cities have the highest Payments and credit have attracted most
concentration of fintechs attention; savings and insurance far behind1

~82% fintechs located in 3 metro cities 74%

of investments in credit and
Delhi-NCR payments fintech
20%

Credit 32%

Payments and transfers 25%

57%
Mumbai
30%
Saving and Investments 20%
Bangalore
32%
Insurance 7%

Source: Tracxn, MicroSave Analysis

5 All rights reserved. This document is proprietary and confidential.

Indian households - the top of the pyramid is financially well-served; the
bottom-most segment is currently not ready for fintech solutions
Daily household
Income Categories Population
income
3% ~30 M
Elite > USD 50 Top of the pyramid – 300M
Financially well-served by fintechs and
incumbents
Easy access to multiple financial solutions
20% ~270 M
Affluent USD 10 – 50

34%
Aspirers USD 4.5 – 10 ~440 M

13%
Strugglers USD 2 – 4.5 ~160 M ‘Poorest of the Poor’ – 400M
Highly dependent on social security
schemes
30% Do not own a feature phone
Ultra-poor < USD 2 30% ~400 M Reside in areas with limited or no data
connectivity

6 All rights reserved. This document is proprietary and confidential.

The LMI segment…..an untapped market for fintech
Personas in the Share of population Rate of LMI
LMI segment adoption of DFS

Money hawks 09%

• Urban
• Financially independent
Income Categories Daily household income
• Prefer convenience
Emergents 17%
34% • Aspirational millennials
Aspirers USD 4.5 – 10 • Mobile-first
LMI segment – 600M • Quick to learn
• Addressable market: ~380 M
Dependents 11%
Smartphone users
13% •
Strugglers USD 2 – 4.5 • New Internet users
• Passive DFS users
Vagrants 36%
• Floating masses
• Late adopters
• Prefer assistance

Sceptics 27%
• Mostly rural
• Prefer cash
Source: NCAER-CMCR, SEC classification, MicroSave analysis

7 All rights reserved. This document is proprietary and confidential.

The LMI segment offers a blue ocean for fintechs
High savings potential:
Huge untapped • USD 11 bn. mobilized in basic banking accounts; USD 2.5 bn by community groups
potential Huge unmet market in credit:
• Micro-enterprise debt gap ~USD 46 bn.

Intense competition in the non-LMI segment

Less competition Huge cash-burn makes it an expensive game
USD 400 mn. in the e-tailing industry (Festive sales)

Increasing uptake of digital solutions by MFIs

Positive experience 8.5 M SHGs with ~USD 6 bn. annual loan offtake and NPA of 6.5%
of existing players
Better portfolio performance: PAR 30 of MFIs at 5.4%

Source: Stakeholder interviews; MicroSave analysis

8 All rights reserved. This document is proprietary and confidential.

The LMI segment is willing and able to pay for convenience

Favors convenience Has higher stickiness Has the ability and

over affordability relative to non-LMIs willingness to pay

Affordability

Convenience

Source: Stakeholder and demand-side interviews; MicroSave analysis

9 All rights reserved. This document is proprietary and confidential.

Fintech ecosystem is growing, yet most business models are struggling
Financial services, competition, and
telecommunications regulators

Accelerator firms and incubation centers Commercial, philanthropic, and impact

aimed at affluent segments of the society investors
Regulators
Incubators
and Investors
accelerators

End users and consumers of Fintech Media and Virtual spaces, digital media,
Fintech
products, services, and solutions Users networking associations and peer groups
ecosystem organisations

Technology Private sector

service players
providers
Technology vendors and services providers Banks, financial institutions, FMCG, and other
Research
for cloud computing, Artificial Intelligence, institutions private sector players tapping into Fintech
IoT, Big data analytics, Software as a services
Services, Data as a Service

Institutions providing research insights to

Sources: Devie Mohan, Irrational Innovations, Lets talk payments, Disrupt Africa, GSMA help Fintechs perfect their solutions

10 All rights reserved. This document is proprietary and confidential.

Limited understanding of the unbanked segment and its potential creates
barriers

Limited understanding of segment Product design limitations Challenging business model ROI expectation mismatch

Limited to no familiarity with Product range limited to High cost of acquisition Long gestation period in
unbanked population small value/low ticket sizes and service serving the financially
Uncertainty about market Product offerings limited to Uncertain long-term value excluded segment
readiness simple, easy to understand Limited digital footprint
concepts

Source: Stakeholder interviews, MicroSave analysis

11 All rights reserved. This document is proprietary and confidential.

Limited financial and human capital further constrain the growth

Lack of funding Lack of adequate human Poor risk / regulation Limited support on
resources and skills preparedness business skills building
Limited avenues for funding Primarily entrepreneur Lack of adequate Limited understanding of
Limited investment from the (most likely a tech preparedness for risk business viability, scalability
entrepreneur evangelist) driven management and sustainability
Lack of skilled management Lack of understanding of Lack of sounding board for
and staff the regulatory environment concepts/ ideas

Source: Stakeholder interviews, MicroSave analysis

12 All rights reserved. This document is proprietary and confidential.

Specific to the LMI segments, fintechs have distinct mindsets and vision

1 2
User-centric Pricing Marketing and Responsibility
Design customer acquisition
Fintechs create Fintech pricing is not Marketing does not Fintechs are purely

3 4
solutions in search easily understood and communicate the uses and commercial entities and
of a problem is not perceived benefits as well as the risks they do not have
affordable by the end to the end users. Often embedded aspects of
users fintechs are alleged to be social performance and
using predatory marketing client protection within
techniques the products and services
delivery

13 All rights reserved. This document is proprietary and confidential.

The LMI segment also struggles to on-board digital platforms

Unsuitable products
Product and channel
Limited access

Trust deficit
Trust and security
Ineffective recourse mechanism

Limited awareness and ability

Attitude and perception
Preference for ‘tangible’ cash

User interface (UI) Non-intuitive UI

Absence of interface in vernacular

Send money

Source: Demand-side interviews, MicroSave analysis

14 All rights reserved. This document is proprietary and confidential.

We are staring at the growing digital divide…

Fintech’s tend to focus on easier to Connectivity in rural/remote areas

6. 1.
reach and profitable segments and remains a challenge in many
Products not Inadequate
consequently product features and digital geographies. Ironically, these are the
suited for rural
interfaces are not customized for low places where the most excluded live.
poor infrastructure
digital/financially literate segments

5. 2.
Regulations and consumer Weak Low Smartphone penetration is low
protections remain weak to customer Digital divide smartphone even among poor in urban areas
protect the poor protection penetration restricting the services offered by
fintech
4.
3.
Poor value personal relationships, Value More than 1 billion people globally
Low digital
especially in financial matters, over personal cannot read or write long number strings
literacy
pure digital interfaces relationships required to transact on mobile phones

15 All rights reserved. This document is proprietary and confidential.

How might the industry help in bridging the digital divide?

Identify right use cases linked to the Focus on enhancing financial

real, contextual micro-economy: and digital literacy:
Better understand digitally Use technology-enabled
excluded population’s needs, solution delivered through
Create right use cases human means to help digitally
design financial management excluded populations better
tools to deliver value to the user understand financial options
bundle a range of agricultural,
heath, bill pay, e-government
1 2
and other services

Leverage agent networks: Appropriate user interfaces:

Agents are widely trusted Develop user interfaces keeping
4 3
members of the community and in mind the cognitive usability
often important opinion leaders constraints of oral segment.
and sources of guidance

16 All rights reserved. This document is proprietary and confidential.

Navigating the LMI market – How can fintechs unleash the potential

Redesign products and services from the ground-up Develop a phygital1 distribution channel
Understand the LMI customer Build a hybrid model to reach and serve the LMI
Develop customer value proposition for LMIs segment
• Customized solutions • Human touch at the front-end
• Focus on entry and hook products • Build robust technology
• Geo-cloned products may not work Explore aggregator model in the beginning; Transition
Design user-experience for LMI to direct customer servicing in the long-run
Offer bundled services to make unit economics work • Partner with players with wide reach, (FMCG
Target early adopters in the identified segments companies, ANMs, community groups)
Rapid prototyping is key

Developing such a product could be a win-win situation for both -

Fintechs get access to a major untapped market The population gets access to several tailored financial products

Source: stakeholder interviews, MicroSave analysis

17 All rights reserved. This document is proprietary and confidential.

Making the value chain economically viable can help create disproportionate
impact
Robust ICT infrastructure
Safe, efficient and widely reachable

Awareness and 01
Financial/Digital Literacy Conducive legal and
Effective awareness and
financial/digital literacy efforts
06 02 regulatory framework
A robust legal and regulatory
e.g. Bangladesh framework that allows fair-play to all
entities e.g. India, Kenya

Access to interoperable Digital transformation of

channels incumbents
Availability of a broad network of
access points and interoperable access
05 03 Existing players (banks/MFIs) have a
unique advantage to bring in inclusion
channels e.g. Kenya and India provided they go digital e.g. Equity
04 Bank, Kenya
New business models
Partnerships across firms and market determined
pricing e.g. M-shwari in Kenya, Alipay & Wechat, China

18 All rights reserved. This document is proprietary and confidential.

MSC is recognized as the world’s local expert in economic, social
and financial inclusion
Some of our partners and clients

International financial, 180+ staff in 11 Projects in ~50

social & economic inclusion offices around the developing countries
consulting firm with 20+ world
years of experience
Our impact so far

300+ >750
clients publications

Assisted development of digital

G2P services used by Implemented
700 million+ >750 DFS projects
people

Developed
250+ FI products Trained 8,000+
and channels now used by leading FI specialists globally
50 million+ people

19 All rights reserved. This document is proprietary and confidential.

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