If you take a close look at any booming fintech market, you will notice that most companies are moving full steam ahead with the formation of credit and payment products. This means that all focus has been placed on products that scale quickly instead of more customer-focused financial solutions like savings and insurance. Developed markets like Silicon Valley may offer a fair share of auto-investment solutions and insuretech products, but this is not the case in emerging markets where such products are either nonexistent or in early stage development at best. Investing in early stage fintech solutions may contain some risk for investors looking for short-term ROI.
Can Funders Expect Any Returns in the Fintech Space?
There may be a lot of potential gains by providing patient funding to Fintech companies exploring innovative products, even if they do not achieve success overnight. The Consultative Group to Assist the Poor (CGAP) piloted 18 Fintech startups throughout South Asia and Africa over the past couple of years. While the majority of these companies concentrated on credit and payment products, there were some that attempted to come up with ideas for pensions as well as ways of making farm and health insurance more accessible to excluded communities.
Making products like these work for customers with lower incomes can be challenging. At first, the economics may not make sense, their value may not be clear, and there may be regulatory hurdles to overcome. Some of the CGAP pilots simply did not achieve the desired results. Nevertheless, the projects were successful overall in terms of learning how products may be reworked to become more suitable and effective.
People’s Pension Trust (PPT)
An excellent example is the People’s Pension Trust (PPT) project in Ghana. The PPT product was a pension into which customers could make deposits through an agency or digital payments. Once PPT’s management realized that customers were reluctant to pay into a pension because of a lack of knowledge and trust, it began offering instructions and incentives on how to use the service across digital channels. The assumption was that digital payments are more convenient and faster and therefore would be more attractive to rural customers.
CGAP and PPT encountered disappointing results, however. After conducting a range of tests with around 1,600 customers, digital nudges such as phone calls, SMS messages, contests, and goal setting were found to have only marginally increased payments made into pension accounts. In fact, very few customers were willing to make digital payments. Even with attractive financial incentives offered to those who use their digital wallets, only 7% made the shift from cash to digital payments. Although this pilot may be deemed a failure based on low numbers, CGAP and PPT believe that the insights gained from it were invaluable.
Taking PPT in a New Direction
One of the most valuable insights gained in PPT’s digital campaign was that it had been more successful with small-business owners based in cities than farmers based in rural areas. Urban customers were happy to make digital deposits and receive digital statements. Rural customers hesitated to go digital because of a fear of fraud. PPT determined that it would need to hire agents within farming communities to gradually introduce these customers to digital options. This deeper understanding of market dynamics led to a new strategy that involves a balance of personal and virtual interaction.
Tackling Health and Farmers’ Insurance
In addition to working with PPT, CGAP also worked with Fintech pilot projects such as MicroEnsure and Pula. MicroEnsure offers a bundled health insurance product called Fearless Health. Based on a greater understanding of customers, MicroEnsure was able to recalibrate its marketing strategies, just like PPT. Changes required for marketing the product were discovered during the pilot and they included directing efforts at customers prior to their arrival at medical clinics rather than at the clinics themselves.
Pula offers yield-based insurance geared toward the farming community, potentially opening doors to improved access to agricultural insurance. By using yield and satellite data, Pula creates predictive models that reduce the costs of yield assessments. The pilot project revealed that most data sets in countries where Pula was used focused on large farms, thus leaving small farms and more vulnerable farmers out of the equation. This and a lack of availability of yield data across a range of climatic regions reduced predictability. Despite the challenges, Pula holds tremendous potential as long as there is space for further research.
Fintech Is Still Trying to Figure It All Out
Delivering financial services such as pensions and insurance to poorer communities is still a conundrum. The service now needed to make exploring and learning possible is patient capital. Because this is not usually available from private investment, it is crucial that funders make this possible so that the industry may draw the right lessons and ultimately succeed.