Sound Businesses: Profiles of companies and business models we are keeping an eye on.
With apologies to London and regrets to Wall Street, one of the most important developments in finance of the past decade is the product of innovation in the Emerging Markets, not the developed world. From a modest start, digital payments platforms have evolved into full-fledged digital banking models handling the vast majority of transactions and a growing share of the lending market in important EM countries from Kenya to Indonesia to Peru to India. Jeff Stewart is Founder and Chairman of one of the firms driving this revolution, Singapore-based Lenddo. He spoke with Karma Contributing Editor Michael Moran.
Michael Moran: Is digital banking actually driving us toward a cashless society?
Jeff Stewart: We’re certainly seeing a vision of the future with what’s happening in China, where the convenience of digital money is very common. People will QR code money to each other. They’ll use their their phones to check-out. And they’ve developed a robust economy.
I think you’re also seeing its potential with what’s happening with M-Pesa in Africa.
Now they estimate about 10% of the economy is processing transactions through that payment network. And it’s opened up all sorts of opportunities for people to store, move and become economically connected to the planet.
So, I think you’re certainly going to see a lot more digital payment options and use of digital payment in the future as it becomes easier and more widespread.
Michael Moran: How much of a challenge is financial literacy in your model?
Stewart: There’s certainly a tremendous need for greater financial literacy, and I wouldn’t say that any demographic has a monopoly on that. But certainly hundreds of millions of people moving into the middle class in emerging markets are at a disadvantage because they’re substantially wealthier and more connected to the global economy than their parents were and unfortunately for many people, they learn financial literacy from their parents.
So it’s hard to break that chain of a lack of financial literacy when your parents were subsistence farmers, who weren’t exposed to the wide range of financial options and tools available to a modern person, who’s digitally connected to the global financial system.
Michael Moran: What began with payments systems now has morphed into lending. How are you handling KYC in such a diverse and challenging market?
Stewart: Lenddo was founded on the idea that loans can be a really powerful tool for helping somebody increase their financial flexibility. What Lenddo was founded on was this thesis that the community generally knows who is trustworthy. There are certain behavioral elements, how people behave, which is also very predictive.
Why can’t we look at the digital footprint, see how people are interacting with each other? See how people are behaving online? And from that data, which the consumer opts to share with us, why can’t we analyze it to get a sense of the person’s habits and reputation?
It turns out after years and years of extending loans and analyzing digital footprints, you can predict it. So that’s an important component to what we’ve built and what we make available to our financial services partners.
The other element is, is this even a real person?
It turns out that the digital footprint, what’s going on on a phone, has so much data. It’s very hard to fake that. So you get a sense that this person is a real person. And is this person who they say they are? And again, all that data and your digital footprint is very confirmatory that you are who you say you are, so it’s a form of KYC-AML.
What we’ve found is that people are very similar across markets. Their behaviors, their network, the way they interact with people, the way they create their digital footprint. We like to think that our technology scales nicely across multiple countries, so I think that these are solvable problems.
They are absolutely fascinating problems, and it’s going to be interesting.