Financial Inclusion Keeps Fintech from Failing
By Nicole Casperson
Suppose you wanted to lend $1,000 to a stranger that passes you on the street. What would you need to know about that person before you’d feel comfortable?
Typically, banks use credit scores to determine if a consumer is trustworthy, but Shivani Siroya, founder and CEO of Tala, has built her fintech company with a new mentality.
Shivani’s mom came to the US from India in her late 30s. As a doctor in Brooklyn, she often lets friends and neighbors come to see her for health services, whether they can pay immediately or not.
“I remember running into her patients with her at the grocery store or on the sidewalk, and sometimes they would come and pay her right on the spot for previous appointments,” she shared during a TED Talk.
“She would thank them and then ask them about their families and health. She gave them credit because she trusted them. Most of us are like my mom.”
But 2.5 billion people worldwide don’t have a credit score. That’s a third of the world’s population.
They don’t have a score because there are no formal public records. And because they don’t have a score, they don’t have access to credit or financial products that can improve their lives.
They are not trusted.
So Shivani created Tala, a mobile application that builds credit scores using mobile data.
There are currently over 1 billion smartphones in emerging markets, and people use them the same way we do. They’re texting their friends, looking up directions, browsing the internet, and making financial transactions.
Over time this data is getting captured on our phones, providing a vibrant picture of a person’s life. Tala’s customers give access to this data.
It helps Tala understand the creditworthiness of people who typically have to turn to microloans or loan sharks with interest rates well above 300%.
For example, Tala uses data such as phone calls, travel, and communication patterns to understand a person.
Research shows a 4% increase in repayment among people who consistently communicate with a few close contacts.
There is a 6% increase in repayments among customers who are consistent with where they spend most of their time. And data shows that people who communicate more are likelier to be good borrowers.
These are just some of the 1000s of different data points that Tala looks at to understand a person’s creditworthiness. This alternative data would not find its way on a paper trail or in any formal financial record.
By looking beyond income, we can see that people in emerging markets that may seem risky and unpredictable on the surface are willing and can repay.
With something as simple as a credit score, Tala is giving people the power to build their futures.
Now, Tala is focusing on what a holistic set of products – beyond credit – can look like for the emerging markets it serves, including Mexico, Kenya, the Philippines, and India.
Shivani shared on the Money 20/20 stage that Tala started this journey in the Philippines before exploring other markets.
For Tala, it always starts with customer trust. 85% of customers in emerging markets are operating in cash. So it’s fighting with money under a mattress and trying to bring them into the system.
Customers have to trust you as opposed to the top-down mentality of ‘we should trust them.’
Establishing trust is easier said than done.
For Mary Ellen Iskenderian, President of Women’s World Banking (WWB), she’s heard thousands of women say ‘that bank isn’t for me’ because they don’t believe that financial institution understands them.
Mary Ellen says WWB has found success by not forcing people to go too far out of their comfort zone.
“We love to use things that people are already doing and then maybe adapt it to digital or a different product,” she said.
One of the most successful examples, Mary Ellen shared, is rural women in Indonesia, where it’s a longstanding custom that when a woman gets pregnant, she will save every month with her midwife towards the delivery and the postnatal care of her baby.
So WWB digitized that entire process and made the midwife the banking agent in her village. So she had an additional source of revenue coming in.
“It’s been amazingly sticky,” she said. “The women have continued to save and engage with the digital financial service provider we’re working with long after the baby was born.”
Seeing these types of successes in a fintech company starts with your team leading with empathy.
Before starting Tala, Shivani interviewed over 3,500 individuals in nine different countries. She took the time to understand their daily life and walked in their shoes with them.
From there, it’s about building that culture so that other team members will have the same values and ethos.
With the customer, it’s about building an ecosystem that says, ‘we trust you, and now we want you to gain value.’
Trust is a feedback loop, but somebody has to start to create it.
This approach has led to word of mouth as Tala’s largest source of acquisition.
If a financial service works for one woman, they will tell ten other women in their community.
Fintech companies are seeing enormous investor interest on the back of promises of providing services to the financially underserved — a clear example of a social enterprise that can do well by doing good.
Yet while the industry has increasingly become synonymous with impact potential, fintech companies have to identify and measure impact intentionally.
Additionally, as we’re charting new territory using technology, it’s crucial to be proponents of regulation.
So if we need to be the change we want to see, what difference do Shivani and Mary Ellen wish to see, and how do they embody it?
For Shivani, it’s Tala’s founding value of radical trust. “It means being open and curious to all points of view, and if we start with that, we can see a huge change,” she said.
For Mary Ellen, it’s about bringing more capital to make fintech companies genuinely live up to their potential to get so many more people into the economy and, as a result, grow the economy.
She’s been in the development world for far too long not to believe that an individual can have an enormous impact.
“I am a great believer in the individual’s impact and the individual impact on the system to change that system,” she shared in an interview with Big Think.
There’s always an opportunity to give money if that’s an option.
But more than giving money is needed.
“You’ve got to make sure that the people that you’re giving your money to are keeping their eyes on the things that matter to you,” she said.
“If you are passionate about women’s empowerment, making sure that the organization that you’re supporting is paying particular attention to the things that might stand in women’s way.“
This story is part 2 following the last newsletter so ICYMI, read Part 1 to the story here.
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