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Responsible digital transformation
of financial institutions
Panel discussion
April 2019
All rights reserved. This document is proprietary and confidential.
2
Is microfinance industry facing an existential crisis?
The microfinance industry is impacted by a confluence of factors and the emergence of digital credit and fintech
Limited innovation
Cultural shift from digital
aliens to digital natives
Lack of user level
personalization
Limited use of data
analytics
Limited digital adoption or
digital self-exclusion
Limited customer
relationship management
Is this a race to the bottom? And unless MFIs adapt, they are in the suicidal race, and so the investors funding them.
Factors Impact
Digital credit has
begun to displace
microfinance
Digital credit providers
will eventually cream
off the high value
customers
Digital credit
undermining the credit
discipline in the
market
All rights reserved. This document is proprietary and confidential.
3 All rights reserved. This document is proprietary and confidential.
01 04
02 05
03
Poor understanding of
changing clients’ expectations
and hyper competition
Limited understanding or
experience of digital
transformation
Low to moderate
technical skills
Lack of institutional
commitment and focus
Limited resources for
digital transformation
Limited external support
to transform 06
Microfinance industry by and large lacks capacity to transform digitally and adopt
technology
All rights reserved. This document is proprietary and confidential.
4 All rights reserved. This document is proprietary and confidential.
Digital financial
inclusion or exclusion
Digital divide on account of illiteracy, lack of
technology understanding, economic
inequality, lack ownership of devices, or lack
of trust on digital means
Fintechs do not
essentially have social
goals and have limited
understanding of low-
and moderate-income
Fintechs are displacing
microfinance institutions
Microfinance institutions are facing
huge losses consequently the
investors’ value of microfinance
investment portfolio will decline
Microfinance institutions
are rapidly losing urban
and high value
business, how will they
cross subsidize rural and
low-value business
Why should investors worry?
All rights reserved. This document is proprietary and confidential.
5
Microfinance industry needs to re-invent itself to remain relevant
For microfinance industry to remain relevant, it needs to transform digitally and adopt technology. It may do so by:
Reinventing its culture
Cultural change and
adopting innovation
mindset
Evidenced by a renewed
focus on improving
products and services,
processes and policies,
systems and approaches
Better integrate
technology for service
delivery, monitoring,
data analytics
Developing solutions
aligned with users’
expectations
Delivering innovative
solutions within time
and space transitions
Driving the institutional
focus based on user
experience
Managing emerging
institutional and user-
level risks
The microfinance industry
faces risks of relevance and
sustainability by not
transforming or replicating
others. The ones
transforming face risks such
as:
• Institutional risks such as
technology, partnerships,
operational risks
• Client risks such as
pricing, agent-related
risks, fraud, recourse,
and data privacy
User experience is
fundamental to adoption.
This can be achieved
through:
• Mimicking users’
behaviours and attitudes
• Clear, obvious, and
intuitive services
• Assessing adoption
bottlenecks and resolving
them
• Implementing design
thinking to personalise
experience
Digital finance eliminates
human touch,
physical touch points, innate
customer awareness, and a
humane approach to customer
problem.
A high-tech and human
touch model is a key
opportunity for
microfinance as MFIs have
the relationships, data,
innate customer awareness,
and local understanding
Users expect
• Efficient services
• Fair pricing
• Explanation in user
language
• Access to services as and
when required
• Easy to understand
services
• Immediate recourse in
case of a problem
• Transparent processes
• Trust in processes
• Human touch at key
moments (especially in
decision making and if
there are problems)
All rights reserved. This document is proprietary and confidential.
6
Responsible digital transformation – What investors need to know?
► Change has to happen for institutions to remain competitive, much of this change will be digital
► Clients need to be at the very centre of the change in terms of improved services and channels, and in
solutions which meet real needs, some clients will need very different solutions
► Institutions have to see the need for change, desire change, and be prepared to invest in change
► Institutional change needs to be backed up by an enabling policy and regulatory environment and an
evolving digital ecosystem
► Digital transformation is a journey, not a destination. This means, that there are many paths to
digitisation, some faster, some slower, some more costly, some less expensive
► Not being on a digital transformation journey is an untenable position for almost all institutions – the
scope, scale and timelines may vary
► Each institution starts at a different point on the journey and has different capacity to implement digital
transformation
► Digital transformation need to account for and mitigate client risks
All rights reserved. This document is proprietary and confidential.
7
Responsible digital transformation of financial institutions entails
Responsible
digital
transformation
Support institutions
to transform
Build strategic
partnerships
Design around users’
needs and aspirations
Leverage technology
and infrastructure
Responsible digital transformation
strategy pillars
Drive customer trust
Enhance awareness of financial
products and services
Incorporate human access points
Build right technology architecture/
platforms and data structure that
facilitate analytics
Partnerships to operationalize digital
banking (including FinTechs)
Use data for decision making
Emphasize on responsible elements
within services, channels, processes,
technology, and user experience
Financial institutions will have to leverage on investors, donors, infrastructure players, third-party
service providers, and others as they carry out digital transformation responsibly and sustainably.

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190328_Responsible_digital_transformation_of_financial_institutions_Anup_Singh.pptx

  • 1. Responsible digital transformation of financial institutions Panel discussion April 2019
  • 2. All rights reserved. This document is proprietary and confidential. 2 Is microfinance industry facing an existential crisis? The microfinance industry is impacted by a confluence of factors and the emergence of digital credit and fintech Limited innovation Cultural shift from digital aliens to digital natives Lack of user level personalization Limited use of data analytics Limited digital adoption or digital self-exclusion Limited customer relationship management Is this a race to the bottom? And unless MFIs adapt, they are in the suicidal race, and so the investors funding them. Factors Impact Digital credit has begun to displace microfinance Digital credit providers will eventually cream off the high value customers Digital credit undermining the credit discipline in the market
  • 3. All rights reserved. This document is proprietary and confidential. 3 All rights reserved. This document is proprietary and confidential. 01 04 02 05 03 Poor understanding of changing clients’ expectations and hyper competition Limited understanding or experience of digital transformation Low to moderate technical skills Lack of institutional commitment and focus Limited resources for digital transformation Limited external support to transform 06 Microfinance industry by and large lacks capacity to transform digitally and adopt technology
  • 4. All rights reserved. This document is proprietary and confidential. 4 All rights reserved. This document is proprietary and confidential. Digital financial inclusion or exclusion Digital divide on account of illiteracy, lack of technology understanding, economic inequality, lack ownership of devices, or lack of trust on digital means Fintechs do not essentially have social goals and have limited understanding of low- and moderate-income Fintechs are displacing microfinance institutions Microfinance institutions are facing huge losses consequently the investors’ value of microfinance investment portfolio will decline Microfinance institutions are rapidly losing urban and high value business, how will they cross subsidize rural and low-value business Why should investors worry?
  • 5. All rights reserved. This document is proprietary and confidential. 5 Microfinance industry needs to re-invent itself to remain relevant For microfinance industry to remain relevant, it needs to transform digitally and adopt technology. It may do so by: Reinventing its culture Cultural change and adopting innovation mindset Evidenced by a renewed focus on improving products and services, processes and policies, systems and approaches Better integrate technology for service delivery, monitoring, data analytics Developing solutions aligned with users’ expectations Delivering innovative solutions within time and space transitions Driving the institutional focus based on user experience Managing emerging institutional and user- level risks The microfinance industry faces risks of relevance and sustainability by not transforming or replicating others. The ones transforming face risks such as: • Institutional risks such as technology, partnerships, operational risks • Client risks such as pricing, agent-related risks, fraud, recourse, and data privacy User experience is fundamental to adoption. This can be achieved through: • Mimicking users’ behaviours and attitudes • Clear, obvious, and intuitive services • Assessing adoption bottlenecks and resolving them • Implementing design thinking to personalise experience Digital finance eliminates human touch, physical touch points, innate customer awareness, and a humane approach to customer problem. A high-tech and human touch model is a key opportunity for microfinance as MFIs have the relationships, data, innate customer awareness, and local understanding Users expect • Efficient services • Fair pricing • Explanation in user language • Access to services as and when required • Easy to understand services • Immediate recourse in case of a problem • Transparent processes • Trust in processes • Human touch at key moments (especially in decision making and if there are problems)
  • 6. All rights reserved. This document is proprietary and confidential. 6 Responsible digital transformation – What investors need to know? ► Change has to happen for institutions to remain competitive, much of this change will be digital ► Clients need to be at the very centre of the change in terms of improved services and channels, and in solutions which meet real needs, some clients will need very different solutions ► Institutions have to see the need for change, desire change, and be prepared to invest in change ► Institutional change needs to be backed up by an enabling policy and regulatory environment and an evolving digital ecosystem ► Digital transformation is a journey, not a destination. This means, that there are many paths to digitisation, some faster, some slower, some more costly, some less expensive ► Not being on a digital transformation journey is an untenable position for almost all institutions – the scope, scale and timelines may vary ► Each institution starts at a different point on the journey and has different capacity to implement digital transformation ► Digital transformation need to account for and mitigate client risks
  • 7. All rights reserved. This document is proprietary and confidential. 7 Responsible digital transformation of financial institutions entails Responsible digital transformation Support institutions to transform Build strategic partnerships Design around users’ needs and aspirations Leverage technology and infrastructure Responsible digital transformation strategy pillars Drive customer trust Enhance awareness of financial products and services Incorporate human access points Build right technology architecture/ platforms and data structure that facilitate analytics Partnerships to operationalize digital banking (including FinTechs) Use data for decision making Emphasize on responsible elements within services, channels, processes, technology, and user experience Financial institutions will have to leverage on investors, donors, infrastructure players, third-party service providers, and others as they carry out digital transformation responsibly and sustainably.

Editor's Notes

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