The Challenges of Governing in a Digital World

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Date Published: 
Sep 2017
Author: 
Piskadlo, D. & Morpeth, R.

How can boards and regulators keep up with evolving business models and technologies?

Market in Tanzania. Photo credit: Junior Masanja, 2016 CGAP Photo Contest.

Danielle Piskadlo is Director of the Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion. Rachel Morpeth is Analyst at the Center for Financial Inclusion at Accion. 

As a hub of technology-based innovation, sub-Saharan Africa (SSA) leads the world in mobile money accounts. 12% of adults in the region have a mobile money account, compared to 2% globally. In a recent global survey measuring progress towards financial access and usage, five of the ten highest scoring economies hailed from SSA. However, financial exclusion remains acute.

The fact that most of Africa’s population lacks access to formal banking services but has one of the highest mobile penetration rates in the world provides the perfect breeding grounds for the use of financial technologies to grow a customer base. However, as disruptive technologies and business models continue to revolutionize the financial inclusion landscape in Africa, they present new challenges to leaders and boards.

These challenges can only be overcome through creative, forward-thinking solutions and active dialogues across governance bodies – boards and regulators. Board members, CEOs, regulators and fintechs will come together to advance these issues in Ethiopia on October 12-13 at the Center for Financial Inclusion at Accion’s (CFI) Governing in a Digital World roundtable, a side event to African Microfinance Week. In the meantime, let’s take a quick look at a few of the challenges to be discussed, and their respective solutions.

Challenge #1: Creating a level regulatory playing field for providers of financial services.

Regulators of financial institutions are charged with the vital mandates of safeguarding the stability of the financial system and protecting consumers. It therefore follows that financial regulators would impose strict controls on large, deposit-taking institutions. Anytime a financial service provider goes into government control or closes, it creates a mistrust of formal financial services and clients react with: “this is why we are going to put our money under the pillow.”

Clients may be scared of banks and microfinance institutions (MFIs), but many have phones and money to send, so they like the idea of cash in, cash out solutions. This presents an opening in the market for fintech companies such as Zoona and M-PESA, who now provide large-scale and important financial services such as money transfers and payment options. These digital financial solutions help promote key financial inclusion goals of reaching more remote populations, increasing convenience and reducing costs.

Fintechs, however, by virtue of their partnerships with mobile network operators (MNOs), are regulated by the information, communications and technology (ICT) regulators instead of central banks. Therefore, banks and MFIs looking to provide clients with similar digital financial solutions may face more stringent regulatory or licensing requirements than fintechs. 

To help level the playing field, the Center for Global Development recommends regulating based on activity, not institution type, and by level of risk to clients and the financial system. 

On the phone in Bangladesh. Photo credit: Md Shafiqur Rahman, 2016 CGAP Photo Contest.Challenge #2: How can boards get the information they need about potentially disruptive technologies that may drastically impact their business?

To remain relevant in an evolving financial landscape, the boards of financial service providers need to develop strategies to stay competitive and keep pace with new financial technology solutions. For instance, Venmo, a popular app for payments and money transfers which managed over USD 17 billion in transactions last year, is having the effect of loosening many customers’ ties to the traditional banks that previously provided these services.

Technology is so important to all businesses that boards of financial service providers have to think about how they get information about technology. When looking at board composition and skill sets, they should consider including a technology expert who is able to advise strategically on technology considerations and projects. Alternatively, boards can contract technology experts to provide independent advice and share learnings from other projects.

A 2016 Pew research survey found that millennials (ages 18-34) are the highest reported users with every technology, far-outperforming all other age groups. However, a BoardSource survey found that about half of board members are between the ages of 50-64. Given this generational divide, some boards are more seriously considering age diversity when recruiting new board members. In addition, boards should be regularly meeting with clients to understand first-hand the technologies clients have and how they use them. Market research and client focus groups can also help to inform boards about upcoming technologies. Boards need to be receptive to what they are hearing and understand how best to react.

Challenge #3: How to differentiate where clients prefer the speed of technology versus the quality of person-to-person (P2P) customer support?

Effective board governance and leadership involves determining how to allocate limited resources. Although digital financial services allow for speed, lower costs and convenience, there are some financial services that ultimately require more human touch.

Research conducted in Kenya by a CFI fellow concluded that there are three areas in which customers prefer P2P interaction: 1) to establish legitimacy of a product, 2) to fully understand the product, and 3) to resolve problems. Clients prefer digital services for inquiries or services that can be automated, such as loan renewals or account-to-account transactions. In addition, women, elderly, and rural residents tend to favor more “high touch” service, while men, youth, and urban dwellers tend to be more comfortable with “low touch” approaches.

Finally, there are activities that attract mid-range levels of human interaction, such as call centers, personal emails and texts, and in-app chats. Companies are finding that the most effective digital services deliver a “human” experience. Juntos, for example, is a platform that allows financial institutions to carry on personalized, electronic conversations with customers through text messages using powerful data analytics that tailor messages to customer behavior. The texts are so personalized and friendly that many clients in Colombia wish Juntos a Merry Christmas via text during the holidays.


2017 SAM Conference BannerThe Microfinance Gateway is proud to be an outreach partner for African Microfinance Week 2017, with the theme of Creating Values for SMEs: A New Key Role for Microfinance?

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