Michael Wiegand was far and beyond the most engaging and worthwhile keynote of the entire fintech festival for me, and perhaps the most relevant speaker I have heard in quite some time. As the Director Financial Services for the Poor at the Bill & Melinda Gates Foundation, Mr. Wiegand is well placed and deeply knowledgeable, with real-world relevance. Hearing him speak, and framing how life is for the majority of people in the world, and defining the structure of a digital payments solution that could appropriately cater to them, left eerily as though he was reading pages out of our own pitch deck. It was great to see someone with substantial people and financial resources looking to tackle the same challenges we have set our sights on solving. We often struggle to get people who exist and invest in the fintech ecosystem to look beyond problem/solution dynamics and profits to really grasp the value of positively impacting the lives of the poor. Even impact investors often times fall into the trap of searching for relevant metrics and traction, and that to me is the shortsightedness that can unintentionally dampen the true entrepreneurial spirit for doing things differently than others have.
Starting with obvious, Mr. Wiegand defined the challenges that many of those who are unbanked (over 2 billion people) or generally live in a world of informal financial structures struggle with to grow their lives. “Financial exclusion is the driving factor of global poverty and inequality”. Anyone who visits countries in Africa to cities in India can bear witness to the gross imbalance of life around the world. This is perhaps the most unfortunate reality of the fintech world. There are literally just a handful amongst thousands who are up for the challenge of solving inequality. That being said, poor people do not sit around. “Poor people live very active financial lives … the number of transactions they make is quite large, [however]… hidden costs, risks, informal networks are not reliable and … can kick the ladder out from under anyone trying to climb out of poverty. “
Stories of Kenya’s mPesa have been around for years, as one of the early innovative solutions that came forth to attempt to bridge this divide between the needs of the less fortunate with the strength that connected technology inherently holds. mPesa has a greater digital payments volume today than all the Kenyan banks combined. But this connectivity is often easier said than done, and even with technology, comes the struggle of profit for these technology providers, which often sees them creating walled-gardens in order to retain customers and market share.
Mr. Wiegand shared a little story about a dairy farmer in Kenya – with two cows and three SIM cards! Different payment networks and wallets meant that the farmer had to keep swapping his three SIM cards in and out of his phone in order to pay people, sell his dairy to various customers and repay his loans. The transaction cost of shifting money between systems, multiple balances, are all common issues that create friction and move people away from technology and back into cash.
What I personally find a commendable strength of organisations such as the Bill & Melinda Gates Foundation is that they do not simply report the world’s problems and issues that they come across; they actively invest time, money and effort in order to find the solution that will meet these challenges head on and provide, if nothing else, a framework to resolve them. Mr. Wiegand further understood that in order for fintechs and other financial institutions to be able to direct their energies towards creating innovating solutions, that needed to be able to generate revenue, even if in small amounts.
“We shouldn’t limit ourselves to seeing digital financial services strictly as an anti-poverty tool, it’s an extraordinary catalyst to sustainable economic development across the board”. The McKinsey Global Institute estimates that digital financial services will add $3.7 trillion to the GDP of emerging markets by 2025. That is a number currently over six times larger than the current P2P payments market globally. The opportunity is tremendous, and clearly, the key to that is unlocking the power and value that the unbanked can bring to the digital economy.
Mr. Wiegand defined five traits needed to achieve this: 1. Accessible 2. Reliable 3. Valuable 4. Affordable 5. Profitable. More relevant and relatable I found were the three conditions he defined as critical to achieving a more inclusive world of payments –
- Real-time push payments – push payments initiated by the payer as opposed to the sender/merchants that are irrevocable by the sender are “…important if you want to replace cash”. This will also dramatically alter the risk and cost of compliance for all players involved, particularly financial institutions. “Push payments initiated from the customers institution, unlike a typical credit card payment where the transaction request comes from the merchant’s system and institution”.
- Range of participants – The pie is large, huge infact. The more participants, the more innovation, the better cost vs. value that follows. Simple. Fintechs and telcos have an inherent advantage here over banks and more formal financial institutions. These platforms already ‘own’ the customer and their infrastructure can affordably reach the poor and rural areas better than banks, and the cost for adding new features is much cheaper than for a bank.
- True interoperability – We see constantly, the limitations that a walled-garden approach to digital payments creates. From cellular providers having their own wallets, to wallet platform treating your money like Hotel California…“You can check out anytime you like, but you can never leave”. An example I often used is that of PayTM in India. You could load money into your wallet through thousands of places and payment systems, but for spending, you used their medium and their partners, and could never withdraw the money as cash that someone sent you. As a matter of accuracy, this is only now being addressed as PayTM move into the retail banking space. “Parallel closed loop payment providers restrict this growth of digital payments.”
In his closing, Mr. Wiegand had sage advice for the financial regulators and established banking networks around the world. It is key for these institutions to actively regulate and protect the innovative payments environment that will revolutionise payments in the future. Regulators and banks until recently had a highly contested relationship with fintechs. Even today, we see a cautious approach by regulators to distributed ledger technology. And with banks, they have been tarred and feathered by new-age-banks like TransferWise who have plainly attacked them as being bloated, expensive and downright fleecing consumers. But Mr. Wiegand’s suggestions made sense. “Banks should view Fintechs as partners and not competition; to bring more people into the space of banks and banking.” There will always be a need for banks, and the sooner collaboration is the intent over competition, the poor in particularly, will see a positive explosion in their financial realities, with the empowerment to have greater control over their family’s income.
Let me leave you with his three most important statements made –
Let me leave you with his three most important statements made –
Everyone benefits from an economy that includes everyone
Everyone stands to gain from the participation of the poor in the formal economy.