Can The ‘Digital Banking Fantasy’ Become A Reality?

A blonde woman looks at the camera.
Satsun Photography

The past decade has brought about big changes in financial inclusion. Digital platforms like Ant Financial went from idea to, by some valuations, the world’s most valuable private company worth $150B. While Ant was changing credit in Asia, Tala came onto the scene in Africa, Latin America, and South Asia. In the midst of all of that change, Andree Simon thought to herself, “This is the grand financial revolution that we’ve been waiting for.”

This revolution promised that a woman in a village in Tanzania could access a broad portfolio of financial services from her phone and get a loan at the click of a button that would transform her from a subsistence farmer to an agribusiness entrepreneur. In the case of drought, she would be protected by a micro-insurance product purchased digitally. If cash was short for school fees, she could crowdsource funds globally. The fact that she lived at the “last mile” or in poverty would have no implications for her access to financial services. In 2019 though, Simon has acknowledged that this “digital banking fantasy has not panned out that way.”

Simon is the President and CEO of FINCA Impact Finance, a network of 20 community-based banks offering savings and loans products to more than 2 million people globally. Today’s FINCA is very different from the FINCA of the past. FINCA International was founded in 1984 as a traditional financial inclusion non-profit, funded by donor agencies. Today, FINCA Impact Finance is a for-profit, impact-centric bank. FINCA International continues to operate as a shareholder and a non-profit organization. Simon was at the center of this transformation.

According to Simon, one of the downsides of being a traditional non-profit is that funding is highly political. Survival is tied to the whims of the funders. When USAID money began to die off during the financial crisis and its aftermath, FINCA decided to make a big pivot. In 2012 they restructured, offered equity, and used this equity to lever up the balance sheets of their banks in the field. After all, micro-finance’s grand promise has always been that it could attract commercial capital and be self-sustaining. FINCA set out to prove it.

This for-profit model has brought about a lot of positive changes for the bank and their customers. Human capital has always been a bottleneck for traditional micro-finance agencies. It’s hard work. It involves bankers physically reaching the “last mile” and getting there involved riding motorcycles for miles down bumpy dirt roads under the hot sun or torrential downpours. The industry attracted young, inexperienced bankers who after a few years would trade in their motor-bike helmets for a suit and a job in an office with air conditioning.

Since FINCA Impact Finance is a for-profit bank, they’ve been able to attract and retain a higher-skilled workforce. They went from Returned Peace Corps Volunteers to former bankers, trading in those with great community-building skills but no banking experience for those with more technical skills when it comes to assessing credit.

This experienced workforce with their “double-bottom-line” orientation has made many efficiency gains. In one of their banks, the typical time it took for an application to get approved went from 1 to 3 weeks to less than 2 days. In the best cases, it can take as little as 20 minutes. In another bank, the direct labor cost for renewing a loan dropped from $17 to $2.

At the same time, being a for-profit bank has brought new challenges. There is a tension between making money and providing inexpensive services to customers that are traditionally expensive to serve. Simon tries to balance this tension by making impact a “constant conversation,” but admits that it is hard. In the race towards digital transformation, conversations that used to be focused on the bank’s core values of warmth, trust, and responsibility towards clients have shifted towards technology, mobile network operator partnerships, and digital lending. She’s actually seen the impact this has had on her team and has recently brought back their core values to the center. On the occasion of “Customer Experience Day”, celebrated every October 1st, she sent out a message to her whole company re-centering them to the fact that “relationships with people are the power of this organization.”

FINCA is investing in technology, but in the face of increasing competition from wholly-digital players, they are making a bet that face-to-face interaction with their customers is a winning differentiator. For their customers in Sub-Saharan Africa, the infrastructure for a purely digital financial system just isn’t there yet. According to the Alliance for Affordable internet, the cost of 1GB of data was 17.58% of per capital GNI in Malawi, 21.04% in Mali, and 32.97% in Zimbabwe. Consumers in these countries think twice before turning on their phone’s data. Even in countries where data is affordable or for consumers who are making more than their average compatriot, penetration of high-speed networks remains an issue. And at the end of the day, with the exception of a few outliers, customers in sub-Saharan Africa just prefer cash.

I haven’t seen a digital solution that lets you look into your client’s eyes.

Andree Simon

Even when the infrastructure and costs get to an acceptable level, Simon still believes in the importance of the human relationship. “I haven’t seen a digital solution that lets you look into your client’s eyes,” she said. The next ten years will surely bring about more changes in the financial inclusion landscape, but no matter what new business models and technologies come into play, micro-finance is about trust, about knowing your customer, and about being together in a community. Technology isn’t going to change that.

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The past decade has brought about big changes in financial inclusion. Digital platforms like Ant Financial went from idea to, by some valuations, the world’s most valuable private company worth $150B. While Ant was changing credit in Asia, Tala came onto the scene in Africa, Latin America, and South Asia. In the midst of all of that change, Andree Simon thought to herself, “This is the grand financial revolution that we’ve been waiting for.”

This revolution promised that a woman in a village in Tanzania could access a broad portfolio of financial services from her phone and get a loan at the click of a button that would transform her from a subsistence farmer to an agribusiness entrepreneur. In the case of drought, she would be protected by a micro-insurance product purchased digitally. If cash was short for school fees, she could crowdsource funds globally. The fact that she lived at the “last mile” or in poverty would have no implications for her access to financial services. In 2019 though, Simon has acknowledged that this “digital banking fantasy has not panned out that way.”

Simon is the President and CEO of FINCA Impact Finance, a network of 20 community-based banks offering savings and loans products to more than 2 million people globally. Today’s FINCA is very different from the FINCA of the past. FINCA International was founded in 1984 as a traditional financial inclusion non-profit, funded by donor agencies. Today, FINCA Impact Finance is a for-profit, impact-centric bank. FINCA International continues to operate as a shareholder and a non-profit organization. Simon was at the center of this transformation.

According to Simon, one of the downsides of being a traditional non-profit is that funding is highly political. Survival is tied to the whims of the funders. When USAID money began to die off during the financial crisis and its aftermath, FINCA decided to make a big pivot. In 2012 they restructured, offered equity, and used this equity to lever up the balance sheets of their banks in the field. After all, micro-finance’s grand promise has always been that it could attract commercial capital and be self-sustaining. FINCA set out to prove it.

This for-profit model has brought about a lot of positive changes for the bank and their customers. Human capital has always been a bottleneck for traditional micro-finance agencies. It’s hard work. It involves bankers physically reaching the “last mile” and getting there involved riding motorcycles for miles down bumpy dirt roads under the hot sun or torrential downpours. The industry attracted young, inexperienced bankers who after a few years would trade in their motor-bike helmets for a suit and a job in an office with air conditioning.

Since FINCA Impact Finance is a for-profit bank, they’ve been able to attract and retain a higher-skilled workforce. They went from Returned Peace Corps Volunteers to former bankers, trading in those with great community-building skills but no banking experience for those with more technical skills when it comes to assessing credit.

This experienced workforce with their “double-bottom-line” orientation has made many efficiency gains. In one of their banks, the typical time it took for an application to get approved went from 1 to 3 weeks to less than 2 days. In the best cases, it can take as little as 20 minutes. In another bank, the direct labor cost for renewing a loan dropped from $17 to $2.

At the same time, being a for-profit bank has brought new challenges. There is a tension between making money and providing inexpensive services to customers that are traditionally expensive to serve. Simon tries to balance this tension by making impact a “constant conversation,” but admits that it is hard. In the race towards digital transformation, conversations that used to be focused on the bank’s core values of warmth, trust, and responsibility towards clients have shifted towards technology, mobile network operator partnerships, and digital lending. She’s actually seen the impact this has had on her team and has recently brought back their core values to the center. On the occasion of “Customer Experience Day”, celebrated every October 1st, she sent out a message to her whole company re-centering them to the fact that “relationships with people are the power of this organization.”

FINCA is investing in technology, but in the face of increasing competition from wholly-digital players, they are making a bet that face-to-face interaction with their customers is a winning differentiator. For their customers in Sub-Saharan Africa, the infrastructure for a purely digital financial system just isn’t there yet. According to the Alliance for Affordable internet, the cost of 1GB of data was 17.58% of per capital GNI in Malawi, 21.04% in Mali, and 32.97% in Zimbabwe. Consumers in these countries think twice before turning on their phone’s data. Even in countries where data is affordable or for consumers who are making more than their average compatriot, penetration of high-speed networks remains an issue. And at the end of the day, with the exception of a few outliers, customers in sub-Saharan Africa just prefer cash.

I haven’t seen a digital solution that lets you look into your client’s eyes.

Andree Simon

Even when the infrastructure and costs get to an acceptable level, Simon still believes in the importance of the human relationship. “I haven’t seen a digital solution that lets you look into your client’s eyes,” she said. The next ten years will surely bring about more changes in the financial inclusion landscape, but no matter what new business models and technologies come into play, micro-finance is about trust, about knowing your customer, and about being together in a community. Technology isn’t going to change that.

Follow me on Twitter or LinkedIn.

I am the CEO & Co-founder of OZÉ, a mobile platform that equips small business owners in Africa to make data-driven decisions to grow their business and access capi

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