Data plays an integral role in all aspects of financial inclusion. Over the next two days it will feature prominently in deepening our understanding of consumers' needs and behaviour at the 4th MasterCard Foundation Symposium on Financial Inclusion (SoFi) in Kigali, Rwanda. SoFI brings together over 300 stakeholders in financial inclusion to accelerate the rate and scale of innovation in financial products, services and delivering systems that benefit low-income adults in developing countries.
We will attend the Symposium on behalf of the i2i facility with Louise de Villiers and Herman Smit to help shape the role that data can play in keeping clients at the centre in financial inclusion. The workshop provides the opportunity to share insights from our work and learn from others in the space.
In particular, we are interested in understanding what data financial service providers (FSPs) find relevant. One of the recent trends warranting more attention in financial inclusion is big data, specifically the use of alternative data, combined with new computing powers and analytic techniques. New sources of data are enabling FSPs to get information on consumers that used to be invisible to them. For example, M-Kopa, whose CEO will give tomorrow afternoon’s keynote address, offers pay-as-you-go solar systems in Kenya, Tanzania, and Uganda, and uses a customer’s pay-as-you-go payment history in future loan decision making.
Big data allows us to observe patterns amongst consumers to help us better understand, but also through analytics, to more accurately predict their behaviour. InVenture has found that if at least 40% of an applicant’s contact list were organised with both first and last names, they were 16 times more likely to pay bills on time. These types of insights are enabling providers to viably expand small credit to millions of previously excluded adults globally.
We look forward to learning more about how big data is being used to understand consumer behaviour from Paul Kweheria of Kenya Commercial Bank (KCB) Group. Paul will join i2i’s Herman Smit and Rose Roslinga from Pula Advisors on a televised panel on Deploying Data to Understand Clients Better, facilitated by CNBC Africa. Paul will share some of KCBs insights on small-holder farmers in Kenya, based on the transactional data from their M-Pesa account holders and available data from dairy cooperatives.
Alternative data is only one source in the data architecture that FSPs draw on to understand customers. There are also nationally representative demand-side surveys (e.g. FinScope, or Findex), geospatial data (e.g. FSPmaps.com) and qualitative data (e.g. Financial Diaries). We are interested in understanding how these different datasets are already used by providers and what the barriers to access and further use are. For example, the sample size for financial diaries data is often too small to identify statistically significant patterns that can predict future financial behaviour. However, this small data can offer greater insight into how specific groups of consumers act. For example, the Omidiyar Network recently released a report in partnership with Bankable Frontiers Associates on how providers can help close the financial gender gap using the financial diaries methodology and data collected in India, Kenya and Mexico.
i2i’s Louise De Villiers will facilitate a wrap-up session for the Financial Diaries Learning Lab Workshop which will look to identify ways of increasing the impact of Financial Diaries on financial inclusion. By understanding the barriers and opportunities providers have to using different types of data, in isolation, or together, we can start to identify ways to make them more widely accessible and meaningful for financial service provision.
New sources of data is only part of the story. It’s what providers do with it that ultimately determines its usefulness and its impact on financial inclusion. Our team has recently completed a scoping study on the use of data and analytics for business decision making. The scoping study highlighted that innovations in analytical capabilities, such as machines learning, are enabling more decisions to be automated, thus bringing down costs as well as improving accuracy. But are providers in the financial inclusion space ready for these types of innovations? And are these innovations the game changers they promise to be? We will be on the lookout for providers who are adopting these new analytical capabilities to better understand their potential.
As the business case for integrating new data sources into business decision making is demonstrated, more and more providers should take up the call. However, there are still a number of barriers to widespread adoption that need to be addressed. The battle for analytical skills, such as data science, will heat up as the industry struggles to keep pace with the capacity required. Further, the internal changes required to truly embrace new data and analytical models will require executive level champions and change management at the highest level of the organisation to create a cohesive strategy around the use of data. We look forward to hearing how different providers have overcome these challenges within their organisations.
Lastly, with the change in the types and amount of data available and the complexity of data analytics, protecting the privacy of individuals remains a major concern. Early research shows that customers are often willing to sacrifice confidentiality and privacy for access to financial services. Finding the sweet spot between enhancing financial inclusion through innovative data and analytics, whilst simultaneously enhancing data security and data privacy, is gaining increasing attention. We are interested to hear what others in the space think about this balancing act, and if and how, providers are integrating privacy into their business models and how they deal with grey areas in laws and regulations.
We look forward to learning from others and advancing our thinking on these topics at the 4th MasterCard Foundation Symposium on Financial Inclusion, later this month.