Since I founded Circles, I’ve immersed myself in the world of Financial Inclusion in Emerging Markets. I quickly discovered that banks and Fintechs in Emerging Markets have been coming up with innovative solutions to serve the unbanked/underbanked masses. It’s no surprise that banking markets in Africa and Asia are growing at a super fast rate as more people join the consumer classes while digital inequality, in many places, is being shrunk by the advent of smartphones.
Emerging markets have been incentivized to innovate their financial service offerings due to several key factors: large numbers of financially excluded populations that are now joining the ranks of the banked, high smartphone penetration rates, and a general awareness by central banks and regulators of the need to act and create more financially inclusive economies. There is now a race for new technologies and innovations to fill the gap.
Canadian banks, hungry for digital transformation and innovation, should learn from banking innovations in Emerging Markets. Why? Well, Canadian banks are facing a complex set of new challenges. It’s no secret that there are imperatives to rethink the customer experience, competitive pressures from startups and non-traditional players, and ever-changing regulatory demands. The principles and trends adopted by Emerging Market players can be surprisingly eye-opening for execs eager to implement change and increase their organization’s innovation throughput.
Here are two principles that I think are applicable to Canadian banks:
Look “Elsewhere” for Customer Insights
Banking startups in emerging markets are serving clientele with thin files (or in many cases no documented credit history at all), and as such have been coming up with creative solutions to assess creditworthiness. Psychographics, social-media, mobile phone usage patterns, and transaction metadata are some of the promising alternative credit risk assessment techniques that are proving to be effective in some markets.
The point here is not to subject Canadian borrowers to psychometric testing, but to look for new data sources that can tangibly improve services and help create new product offerings. This can mean utilizing previously ignored data within the organization or forging partnerships with other companies and startups to exchange insights and offer bundled services. This can prove to be vital to unlocking new customer segments like students and newcomers or to stay on top of consumer trends.
Integrate into your Customers’ Daily Events
What do you get when most of the population is unbanked and own smartphones? The answer is Fintech services that are accessible, affordable, and most importantly seamless. To serve the unbanked, financial services providers in Emerging Markets had no choice but to innovate away from the traditional bank branch model. In other words, they had to go where customers are…they are simply customer-centric. Bank innovation teams should regularly examine Emerging Market innovations, here are some examples:
- Pay-as-you-go (PAYG) with the Internet of Things (IoT): In some parts of Africa, customers can pay for solar electricity or rent LED bulbs using a PAYG model. No cash, no collections processes, just using their mobile banking services. The combination of payments technologies, financing schemes and IoT has a lot of untapped potentials.
- Microloans on the go: In China, on-the-spot microloan services are being baked into consumers’ shopping experiences. It’s now common for consumers to apply for a small loan while they shop and get approved (or denied) within a few seconds. These services are leveraging AI technologies as well as non-traditional data streams and are integrated into mobile shopping apps, therefore, attending to customer needs at the right time and place.
- Digitize financial cultural practices: Academics have identified and studied over 35 mechanisms of how the poor manage their finances. Some of these mechanisms, such as Rotating Savings & Credit Associations (ROSCA), are so widespread and ingrained in Emerging Market cultures that even the well-off depend on them, bypassing banks altogether. Banks and Fintechs (like mine) are actively digitizing these experiences in Africa, India, and the Middle East. This extends people’s real-life experiences and encourages wider participation in the banking ecosystem. More relevant to Canada, these experiences encourage sound financial practices like disciplined savings habits and timely loan repayments all done digitally while capitalizing on second-nature cultural norms.
The above examples are just a sample of how traditional banking services are being challenged and leapfrogged in Emerging Markets. Canadian banks must think is similar terms, by actively questioning the status quo and being there with the customer. Steve Blanks explains it best here, “get out of the building”.
I’ll cover in future posts how enterprises can encourage a culture of innovation and work closely with startups.