The Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge Judge Business School, together with the World Bank Group and the World Economic Forum, launched a survey during the second half of July into the impact of Covid-19 on the global fintech market.
While fintechs seek opportunities to scale and expand, as the digitalization of financial services accelerates in the wake of the coronavirus pandemic, the researchers’ aim is to collect data from 15,000 fintech firms and digital financial services providers in over 190 jurisdictions to inform evidence-based regulation, policy and business decision-making,
|Ana Fiorella Carvajal,
World Bank Group
“Fintech and digital financial services play a vital role in extending the reach of, and widening the access to, financial services – especially for millions of underbanked or unbanked people,” says Ana Fiorella Carvajal, lead financial sector expert at the World Bank Group. “There is an urgent need to undertake this rapid assessment study to see how public and private sectors can work together to ensure the continued delivery of digital financial services to some of the poorest and most vulnerable populations in the world.”
The World Bank suggests at least 1.7 billion people remain unbanked, close to 22% of the world’s population. Most are in emerging markets.
The survey results are due to be released later in the third quarter.
It’s to be hoped the compilers speak to Venio, a company founded in 2018 to provide nano-credit facilities to consumers in emerging markets accessed via a smartphone app. In July, it began offering easy-to-access credit to unbanked consumers in its maiden emerging market, the Philippines.
Warren Platt, founder and chief executive of Venio, is a telecoms technology entrepreneur who had been working in the Philippines on ways for the leading operators to take payments for services consumed on mobile phones when he saw an urgent market need for the opposite: technology to extend credit to consumers.
|Warren Platt, Venio
In the Philippines, 54 million adults are unbanked, which is over 81% of consumers in the country.
Venio offers short-term loans of between P50 and P250, that is between $1 and $5, that consumers can access through an app on their mobile phones and spend like cash on such basics as food from participating local stores, medicines, train tickets or mobile-phone airtime.
“I’ve worked in mobile-phone technology for nearly 30 years, and the Philippines has always been an incredibly dynamic market,” Platt tells Euromoney. “Back in the 1990s, Manila was the SMS capital of the world, way ahead of the US and Europe. And it has always been an advanced market for mobile payments and remittances. That is out of necessity for an island nation some 10% of whose population works abroad.”
Venio uses algorithms that take permissioned data from mobile phones that download its app to search for key indicators of credit quality. It is learning as it goes.
There’s about 60 fields that we’ll look at. There’s some obvious initial signs. The app can be downloaded in English or Tagalog. A download in English would suggest higher education and so earnings potential
-Warren Platt, Venio
“There’s about 60 fields that we’ll look at,” says Platt. “There’s some obvious initial signs. The app can be downloaded in English or Tagalog. A download in English would suggest higher education and so earnings potential. Educated users are likely to store contacts with capital letters at the start of their names. Geolocation data showing the person goes to the same place five days a week for eight hours would suggest they have a job. Having a lot of contacts with post-paid phone numbers would suggest they move in a circle of people with money.”
The Philippines is a test ground for a business model Platt and his team have developed that ends with a long-term vision of unbanked consumers building credit files that lead to delivery of broader financial services – perhaps from Venio, maybe from third parties – but starts with partnerships based on his experience in the mobile-phone world.
He says: “What the mobile-phone operators learned over 15 years ago was that the key to air-time distribution in the Philippines were the sari-sari stores, local shops that you find every 20 feet in Manila. These may have battered fronts, basically on someone’s house, and look quite low-end, but they have high-end signage, branding and exposure due to their distribution of mobile-phone operator products, which Venio has been successful in leveraging.
“We have signed over 3,000 Sari-Sari stores to date to accept digital payments for basic goods on our app. That is revenue they can then choose to cash out via a mobile wallet or load as value onto a Venio visa credit card.”
The stores can also earn margin by acting as repayment centres. Venio charges a rate of around 15% for the term of the credit line, typically from three days up to a week. Borrow P50 to pay for airtime or some rice when you have no cash and you have to pay back P58.
Consumers can do that by walking into participating Sari-Saris stores, or into 7-11s running repayment kiosks, handing over cash and having their loan updated as being repaid.
So far, both the demand for nano-credit and repayment rates have been far higher than Platt expected. He feared the first vintage of loans would be a down payment for algorithms to learn the indicators of good and bad credits.
Once users have downloaded the app and filled in a few fields, they can start to access small credits 90 seconds later. But he sees borrowers understanding the benefit of repaying: chiefly being able to buy on credit again at the same store.
“The Covid pandemic increased the demand for small lines of credit for those excluded from the cashless world, the people who earn cash day-to-day and for whom a small line of credit can be a lifeline,” Platt says. “To me or you, $1 or $5 is a minimal amount. But if you get ill and have no cash, being able to borrow $1 for airtime to call your boss and say you can’t make it in might mean the difference between losing your job and keeping it or, in fact, being able to get to a job when using the credit for transportation.”
Our longer-term aim is to be an Uber-like business. Building that requires the right local partnerships
-Warren Platt, Venio
He adds: “One thing we hoped this might do is teach unbanked consumers about handling credit – and its value. Preserving a good credit history and keeping access to credit can be a get-out-of-jail card in times like these. The pandemic has emphasized that.”
Platt has lived in the Philippines and knows it well, but his career has taken him across the emerging markets – and this is just a first move.
“Our next obvious step is into Mexico where we are already establishing contacts, and which has the same dense network of small local changarro stores and many similarities to the Philippines,” he says. “After that will be Colombia and then maybe back to Asia, perhaps Malaysia or Thailand. India would be the holy grail.”
It is clear that it is possible to want to deliver social impact and have the ambition to build a big business.
“What we have done in the Philippines can be replicated and is highly scalable,” says Platt. “Our longer-term aim is to be an Uber-like business. Building that requires the right local partnerships.”