By Marina Dimova, Managing Director of Design and Innovation and
Diana Boncheva Gooley, Manager of Digital Financial Services, Women’s World Banking
The Covid-19 global pandemic has heightened the strategic importance of integrating digital channels into how financial services providers engage with customers. How can financial services providers respond to the challenge and find opportunities to remain relevant to low-income women, as they navigate the economic consequences of Covid-19?
Digital financial services are the new normal, and for good reason. Financial services providers, governments, and civil society see the benefits of digital for consumers at all income levels. Digital is driving economies—in one year, e-commerce transactions facilitated by e-wallets grew by 79 percent worldwide. Last year, the mobile money industry hit a major milestone as digital transactions superseded cash-in/cash-out values. By 2025, digital financial services will give the world a $3.7 trillion (or 6 percent) GDP boost, creating 95 million new jobs, $2.1 trillion in new credit, and $4.2 trillion in new deposits, according to McKinsey.
For financial services providers, integrating digital channels into existing processes promises to enhance customer acquisition growth, deepen engagement, and lower costs. CGAP found that for providers who move to digital, the cost of customer acquisition falls to around 5-15 percent of what a traditional retail bank pays, and the cost-to-income ratio drops by more than 20 percent. One Acre Fund cut repayment collection times by 24 percent and costs by 80 percent when it digitized agricultural loan repayments. A deployment of digital payments to coffee farmers in Uganda found that digital payments are 45 percent cheaper than cash.
The Covid-19 global pandemic has heightened the strategic importance of integrating digital channels into how financial services providers engage with customers. With half of humanity under stay-at-home orders during the peak lockdown phase in April, as 90 countries implemented confinement measures, customer engagement models relying on face-to-face interaction were deemed unsafe overnight. This has had an especially strong impact on the microfinance sector, and especially on women-focused group lending, where loan disbursements and repayments rely on in-person interactions. In India, retail lenders have suspended physical loan collection altogether as a result of the national lockdown. How can financial services providers respond to the challenge and find opportunities to remain relevant to their customers, and in particular low-income women, who are likely to be even more vulnerable to the economic consequences of Covid-19?
During a health crisis, timely digital payments can save customers’ lives, and digitizing loan processes can create a much-needed lifeline for financial services providers. At the height of the Ebola crisis, Sierra Leone turned to mobile wallets to make fast and secure payments to frontline health workers. Better than Cash Alliance found that going digital cut payment times from over one month to around one week—putting an end to payment-related strikes—and contributed to more than US$10 million in cost savings by eliminating double-payment, reducing fraud, and removing the costs of physical cash transportation and security.
Framework for Digitizing Loan Disbursements and Repayments
At Women’s World Banking, we understand that even though going digital is on the minds of many financial services providers during the pandemic, they might struggle to implement their vision. This is why we have developed a framework for how to approach digitizing loan payments. We hope it will guide financial services providers on the digitization journey, as they create a much-needed channel for disbursing and collecting payments to customers in need.
First, financial services providers will need to choose between two main options for digitizing loan payments:
- Launching their own app or wallet
- Partnering with an existing digital provider
Each option has its pros and cons. Launching an app or wallet requires a substantial financial and time investment but offers value for large organizations that can take deposits, have strong cash-in-and-out infrastructure, and/or operate in a market with a significant number of banked smartphone users. Still, in a time when urgent action is of the essence, partnering with an existing digital provider would be the most efficient route.
This framework lays out the key components to consider in selecting the right digital provider partner. We have grouped key considerations into three main themes:
- User requirements
- Internal operations
- Partner requirements
|User Requirements||Brand awareness and trust||– What are the provider options in your market – mobile money, agent banking, etc.?
– Which provider is most well-known and trusted with your customers? Does the provider offer assisted channels and agents? Do their staff connect with your customer base, and effectively “speak her language”?
|Account registration||– What are the requirements for opening a new account? ID, phone SIM card, address, minimum opening balance? How would these affect your customer base?
– Does registration entail remote or in-person KYC?
– If the provider offers a bank wallet, does that require a bank account, which has its own opening requirements? If yes, what are they?
|Accessibility||– How many locations does the provider have?
– How many CICO (Cash-in/cash-out) agents does your provider have?
– How accessible are these to your customers?
|Affordability||– What is the transaction cost for the customer? How does it compare to the average cost your customers currently incur (for transportation, etc.) in making a payment?
– Would you consider covering the transaction cost for your customers?
|Ease of use||– What is the interface used by the provider? USSD, app, etc.? What phone does your customer base most use and the provider support it?
– How easy and intuitive is the user interface?
– Are there phone ownership or literacy barriers to usage?
|Transaction receipt||– Does the interface provide a transaction receipt? Customers often prefer receiving proof of payment.
– Is the transaction receipt digital or physical? Customers might need to learn to trust digital receipts such as an SMS confirmation.
|Internal Operations||Staff capabilities||– How prepared is your staff for the transition to digital payments?
– What new skills would your staff need to learn?
– How do you plan to train your staff, as well as motivate them to embrace the change?
|Marketing||– Do you have capabilities to reach out to your customers to communicate the benefits of the new digital payments method and show them how, when, and why to use it?|
|MIS capabilities||– What capabilities does your MIS system have?
– How flexible is your MIS system?
– How would you do data and backend integration with your digital provider?
– Do you have the capability to share loan informational digitally with your provider?
|Partner Requirements||Partnership||– How many partners do you need?
o If your provider is a mobile wallet or a bank, you might need a second partner, unless they are interoperable and there is an aggregator you can use.
o For an e-payments over-the-counter network, you can use one partner.
|Transaction limits||– What are the transaction limits of your partner? Do these satisfy the transaction needs of your customers?
o Some wallets might have limits that are too low for loan disbursements.
|Reconciliation time||– What is the average time from when the customer transaction is completed to when the payment is transferred to your account? The shorter the time, the better.|
|Reporting capabilities||– Can the provider issue immediate notifications for loan repayments? This feature would protect customers from being labeled delinquent as their payment is being processed.
– Does the provider have a digital dashboard to monitor customer transactions?
|Additional services||– What other services could your provider offer to customers? Especially for microfinance institutions, partnering with a provider who takes savings deposits could be very beneficial.
– Would these services benefit your customers? Do they serve their needs?
Lessons from Lead Foundation’s Digitization Journey
In 2019, Women’s World Banking partnered with Lead Foundation Egypt to design a loan disbursement and repayment digitization approach for the organization. Using the above framework, our team assessed the market conditions and potential digital providers in Egypt, the institutional capabilities and requirements at Lead Foundation, and the needs of their loan customers. Based on our findings, we concluded that digitizing loan repayments via an e-payments over-the-counter network made the most sense for Lead Foundation. The team chose to partner with e-payments network Fawry, the most well-known and widespread digital payments network in Egypt, with over 25 million customers and established trust among low-income women customers. Mobile wallet providers were considered, but ultimately they had limited experience with the market segment to which Lead Foundation’s women customers belong.
Lead Foundation launched the partnership with Fawry in a pilot involving three of its branches in March 2020. Just a week after the launch, the growth of Covid-19 cases in Egypt drove Lead Foundation to extend the Fawry-facilitated digital loan repayment option to all of its 25 branches. In an era of national curfews and business restrictions, the new digital channel has allowed Lead Foundation to offer an alternative way of safely and efficiently serving its 200,000 or so active customers. By doing so, the organization is making good on the promise of digital financial services to nimbly adapt to the needs of customers and institutions, in times of change and into the future.