Plug-and-play digital finance?

What will small-medium banks, MFIs, credit unions etc. do when digital finance takes off and they are being outpaced by innovators and big players?

Kenya: A pioneer grabs the market

In the last 2–3 years a corporate bank with relatively few retail customers or branches (Commercial Bank of Africa or CBA) has suddenly become the largest retail bank in Kenya… thanks to the MShwari product that CBA deployed in partnership with Safaricom. FSD Trust data indicates that MShwari mobile loans are now more popular than credit cards and MFI loans in Kenya.

See the second column from the right for each of the segments in the chart below.

Source: FSD Trust, Kenya

Why are most financial institutions at a disadvantage?

Most mid-tier or small banks or lenders have at best 4 of the requirements to deploy digital financial products:

1. A license(i.e. bank license or non-banking finance company license)
2. A forward-thinking board (or one that’s responsive to the market)
3. Strong management and execution capability
4. Capital (for lending)
5. Know-how

What kind of know-how is needed?

Any financial product requires market research, design and testing, technology development, and changes to accounting and monitoring systems and procedures.

But digital financial products (like MShwari mobile loans) require functions and skills that most financial institutions and lenders have never needed before, such as:

1. Experience with new kinds of product rules (i.e. algorithm-driven)
2. New customer interface channels (i.e. chat, call center)
3. Tech product and UX (app) design, prototyping, and testing
4. Adapting / training the customer service function
5. Integrations with new external parties (i.e. identity, credit bureaus etc)

They may also need tolerance to bear higher losses than ever before, until the lending methodology is stable and portfolio quality hits desired levels.

Room for a plug-and-play solution?

I wonder if there is a way to develop a sort of plug-and-play digital finance toolkit / process / platform that can be sold to these banks and lenders, to fill their gaps and allow them to quickly compete with innovators and big players. Such a solution would require specialized skills and technology including:

1. Digital product research and design
2. Digital product process development and setup
3. High volume, automated technology platform and integrations