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Valentina Assenova:
Well before digital platforms,
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many intermediaries, like
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microfinance institutions, NGOs,
business groups, they tried to
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address these gaps. There have
been a lot of services that
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they've created. However, their
impact was often limited by the
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need for, in many cases,
physical infrastructure, very
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high operational costs and
reliance on many traditional or
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generally accepted credit
scoring methods or social ties,
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in the case of microfinance, in
lieu of collateral requirements.
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- Welcome to <i>The Ripple Effect</i>,
the podcast that takes you on a
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journey through the minds of
Wharton faculty. I'm your host,
00:00:37
Dan Loney, and in each episode,
we'll be diving deep into the
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inspiration behind the
groundbreaking research that
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Wharton professors have
conducted and exploring how
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their findings resonate with the
world today.
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Well, when you speak of
innovation, especially in the
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areas of banking or finance, you
have to think about what can be
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done to bring those with less
access more on level with other
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segments of the population. And
with more banking being done
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through digital platforms, are
those platforms opening doors
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that have been long closed to
the underbanked? Pleasure to be
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joined right now by Valentina
Assenova, who's an Assistant
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Professor of Management here at
the Wharton School. Valentina,
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great to talk to you again. How
are you?
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Doing well, Dan. Great
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to talk to you as well.
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This is obviously
a very interesting
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area. What was it that drew your
attention to it
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in the first place?
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Well, this is a topic that's
garnered a lot of interest
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globally in terms of financial
inclusion, but I've been long
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interested in the challenges
posed by institutional voids. So
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things like the lack of physical
banking infrastructure, lack of
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roads, lack of, in some cases
bank branches, in emerging
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economies, where these formal
institutions, when they're not
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present, they can limit access
to essential services like
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finance. And mobile money
platforms stood out as a
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fascinating phenomenon,
especially in many emerging and
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developing regions like Sub-
Saharan Africa, where
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traditional banking
infrastructure can be very
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sparse. So in addition to that,
my doctoral student, Aparajita
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Agarwal, who is now an incoming
professor at INSEAD, has a deep
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seated interest in digital
platforms. And particularly in
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emerging economies. So what
intrigued us most was how these
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platforms seem to be doing more
than facilitating payments. They
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were enabling financial
inclusion for millions of
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previously unbanked individuals.
And this raised an important
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question. Could these platforms
be filling these institutional
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voids in ways that go beyond
what traditional intermediaries
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have been able to achieve?
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But obviously
it seems like there is
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an element where it is filling
in some gaps. Especially, I
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guess, to a degree, how digital
has kind of overtaken many of
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our lives in general.
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Yes, absolutely. And
particularly, what sets digital
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platforms apart is their ability
to leverage unique mechanisms
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that can now reach many more
customers. And these are— in our—
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in our study, we identified
database certification, unified
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access to distributed services,
and also scaling through network
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effects, a really prominent and
important aspect of these
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digital platforms. And what's
interesting is that these
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platforms don't just connect the
users, they also actively create
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a lot of value by aggregating
data, enabling financial
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services through various
partnerships that they have with
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various financial institutions,
and also scaling rapidly to
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these underserved populations.
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So how do you go about doing
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research in this particular
instance?
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Well, that's— that's a
great question.
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And our approach
was a mix of both quantitative
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and qualitative methods. And in
our case, we used a difference
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in difference design, which is a
way of essentially evaluating
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how changes in— in our example,
some reforms— catalyzed these
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changes in the
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ability of platforms to serve
more intermediaries. So we used
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this design to analyze
regulatory changes in 78
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countries that allowed non-
banks—these are organizations
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such as telecom companies,
fintech startups, to launch
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mobile money platforms. And this
was combined with a lot of data
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from the World Bank's Global
Findex Database, which covers
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over 151,000
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individuals and their financial
access. So to complement this,
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we conducted some interviews
with industry insiders at some
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of the leading mobile money
platforms, and we also analyzed
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secondary sources like company
reports and white papers. And
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this mixed methods approach
allowed us to quantify the
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impact of mobile money platforms
while understanding the
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mechanisms that were driving
these outcomes.
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So when you have
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the different regulatory
landscapes in certain areas, I
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assume that it may help some of
these non-banks— help them to
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operate in this space and to
provide some
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better opportunity?
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Yes, absolutely. The regulatory
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reforms have been essential in
creating this dynamic and in
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several countries that we
observed, central banks allow
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these non banks to issue e-money
and operate mobile money
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platforms. So these changes have
significantly reduced the entry
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barriers and fostered innovation
to address the unmet demand for
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financial services. So for
instance, partnerships between
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nonbanks and formal financial
institutions like banks have
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enabled new credit products and
services, and they've been able
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to reach populations that
traditional banks could not
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serve on their own.
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Is this something
that's primarily
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happening in lower-income parts
of the world?
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Well, the impact is particularly
pronounced in lower-income
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regions, especially in Sub-
Saharan Africa and parts of
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South Asia. But it's not unique
to those regions. What's special
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for those regions is that these
areas have often faced severe
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institutional voids, and there's
been a lack of credit
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infrastructure and physical bank
branches. And for those reasons,
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that is where there's been a
great unmet demand for financial
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services. Our research found
that mobile money platforms can
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significantly increase access to
credit in these regions,
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especially among individuals who
have not historically had great
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access to credit, like women,
low-income individuals, and those
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with limited education.
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What had been the
path to fill in these
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gaps prior to the rush of
digital kind of coming into the
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landscape?
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Well, before digital platforms,
many intermediaries, like
00:06:35
microfinance institutions, NGOs,
business groups, they tried to
00:06:39
address these gaps. There have
been a lot of services that
00:06:43
they've created. However, their
impact was often limited by the
00:06:47
need for, in many cases,
physical infrastructure, very
00:06:51
high operational costs and
reliance on many traditional or
00:06:55
generally accepted credit
scoring methods or social ties,
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in the case of microfinance, in
lieu of collateral requirements.
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So these digital platforms
disrupted this model by
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leveraging data and technology
data from sources like SMS text
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messages, making financial
services more accessible and far
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more scalable.
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And so, like with
a lot of things in the world now
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that we have digital, I'm
guessing the accumulation of
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information becomes one of the
bigger benefits here.
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Absolutely. So digital platforms
generate and analyze vast
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amounts of data. These are from
transaction histories on mobile
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usage patterns. And all of that
data has not been historically
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used to certify or to establish
creditworthiness. These data
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can now serve as a proxy for
that traditional credit-
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worthiness measures, allowing
platforms to certify users who
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lack credit histories. Or in
some cases, in countries where
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it's very difficult to establish
those credit histories. So it's
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been a real game changer for
financial inclusion, because it
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allows the barriers for
individuals to access loans— it
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lowers the barriers for
individuals to access loans and
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other financial services.
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So by having this impact
in some of
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these lower-income parts of the
world, how, then, does this
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shift, in terms of the use of
digital platforms, impact other
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parts of the world?
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These platforms have the
potential to bridge significant
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gaps in financial access across
the globe, and by no means are
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they constrained to just these
emerging economies. So for
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example, they enable rural
populations to save, borrow and
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transact without needing a
physical banking branch. As
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these platforms expand, they can
also serve as a foundation for
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broader economic inclusion, such
as facilitating small business
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growth and also reducing poverty
in areas that have historically
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lacked access to banking and
financial products and services.
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So by having these platforms and
being able to fill in these
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gaps, I assume this is also a
boost to the credit landscape in
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these parts of the world as
well.
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Exactly. So by certifying
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users with these alternative
data, and connecting them to
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formal financial institutions,
these platforms can improve the
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credit landscape. They enable
banks to lend to many previously
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untapped markets, while reducing
the risk through better data-
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driven decision making. And this
ultimately creates a virtuous
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cycle where more people gain
access to credit, and as a
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result, that can fuel
entrepreneurship as well as
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economic development in these
underserved regions and areas.
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So what do you think are the
most important takeaways from
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doing this research?
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The key takeaway
is that digital
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platforms are transformative.
They're transformative
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intermediaries in addressing
these institutional voids. They
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do more than just provide
financial access. They can
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empower individuals and small
businesses, particularly in
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underserved communities that
have lacked access to these
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services. For many policymakers,
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this highlights the importance
of fostering
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a regulatory environment that
can encourage innovation and
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collaboration between both
traditional as well as digital
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intermediaries. And for
researchers, it opens exciting
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avenues to explore the broader
impacts of digital platforms in
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economic development and
financial inclusion.
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Valentina, great to talk with you.
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Thanks very much
for your time today.
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Thank you so much, Dan, it was a
pleasure.
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You got it. Valentina Assenova,
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Assistant Professor of Management
here at the Wharton School.
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00:10:31
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