By: Ganesh Rengaswamy & Jackson Scher
Here at Quona, we’re very excited about the prospects of technology enabling business models that can offer financial services to previously underserved segments. We call it FinTech for the Underbanked, but the word “FinTech” might be misleading. Yes, we’re talking about financial technology, but that isn’t the whole story. In the markets our portfolio companies are serving, the necessary infrastructure for “full FinTech” isn’t always there, leading to creative hybrid models. For instance, e-commerce models face a last-mile delivery problem, while money transfer companies face a cash-out problem. The companies we think will succeed in these markets are those that marry tech and touch in their business model, and we see this theme reflected in several of our portfolio companies. Below, we have shared a few examples of FinTech companies innovating their way around infrastructural shortcomings by effectively bringing tech and touch elements together.
Domestic Money Transfer: Companies like Venmo and their parent, PayPal, make it very easy for individuals to make domestic transfers on a smartphone platform. Simply link a bank account and let the funds fly. But when bank accounts and smartphones are taken out of the equation, this model collapses. Kenya’s M-Pesa is a well-known solution, but we at Quona understand that digital payment solutions are only as valuable as the ability to translate electronic into cash. Would you carry a debit card in your wallet if there were not ATMs readily available to get cash when you need it? That is why we at Quona are excited about the power of agent networks to get past the infrastructural challenges facing these markets. Our portfolio company, Zoona, is a network of agents transferring money on behalf of others through a digital platform not dissimilar to Venmo. The model allows customers to onboard onto a digital transfer system using just their own cash. This tech-enabled model is faster and safer than sending cash on a minibus, but it still requires a marriage of tech and touch. Zoona agents are trusted, friendly and entrepreneurial members of the community, and Zoona’s secret sauce is as much about how it recruits, incentivizes and retains them as it is about the technology with which it equips them. Customers in Zambia and Malawi opt for this higher touch option than some of the sleeker offerings from competitors like Airtel and Orange, in part for the quality customer support Zoona agents provide.
Mobile Card Acceptance: Square is well known for bringing card processing to every corner of the developed world by enabling a smartphone to act like a cash register. The dongles are ubiquitous at farmers’ markets and food trucks, and Square readers are quickly spreading throughout the American marketplace. But how does the model translate to an emerging market like Mexico, where incomes might be lower? A Square lookalike called Clip (a Venture Lab portfolio company) is hoping to bring tech and touch to this model. Unlike Square, its Mexican counterpart offers interest-free, structured payments. These payments are much higher touch than a “typical” card transaction, because they require individualized follow-up from Clip. This practice caters to lower income customers and is common among large retailers in Mexico, but SMEs couldn’t possibly offer such an option without Clip’s assistance. By being customer centric and willing to go high touch in a tech business, Clip is leveling the playing field between large retailers and SMEs.
E-Commerce: Amazon has no trouble moving goods quickly from a warehouse to Quona’s offices in Washington, D.C. But what if we couldn’t provide an accurate street address? What if delivery to our office was difficult due to a failing transportation infrastructure? E-commerce in emerging markets faces a significant last-mile delivery problem that requires another joining of tech and touch. Companies like Copia Global are innovating their way around that problem by instead delivering those goods to partner shops and notifying customers via text message that their goods are ready for pick-up. Thus, customers are able to reap the cost-savings offered by a digital platform, while merchants can avoid paying high shipping costs to difficult locations. It’s an elegant marriage of tech and touch.
These are but a few exciting developments in the world of FinTech for the Underbanked, and they all share the fundamental underpinnings of tech and touch. We do believe that the transformation from traditional touch models to tech driven models in emerging markets will happen over time. In the interim, though, hybrid models intelligently blending tech and touch are the ones that will scale. And to prove the thesis, we are always looking for the next innovative hybrid model to back.