NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, November 9, 2015

Last week’s Money20/20 conference delivered further evidence that it really is a new day in the financial industry . There is not just a technological change afoot but an ethical change: a feeling that finance can do more for people than simply move their money around .

I was lucky enough to sit down with four of the exhibitors and presenters who operate at the intersection of finance and philanthropy and ask them for their perspective on this trend and what further developments we might expect to see in the future:

Kosta Peric, Deputy Director on the Financial Services for the Poor team at the Bill & Melinda Gates Foundation. Peric has a dream job leading the Level One Project, an initiative focused on working with developing countries worldwide to build interoperable digital financial systems that include and benefit everyone.

Konstantin Peric PortraitMichael Thiemann, CEO, Zebit. Thiemann is the ‘poacher turned gamekeeper’ of the financial industry having built a number of hugely successful solutions for banks and card providers including Falcon and ProfitMax before creating Zebit to promote financial wellness and offer as fee-free financing to the underserved.

Andra Tomsa, CEO, SPARE. SPARE is a smartphone app that takes a leaf out of the Bank of America ‘keep the change’ playbook but uses this spare change, specifically on dine-out purchases, to feed the hungry via direct donations to food banks and other charities at the front line of hunger relief. A former financial advisor, Tomsa, is determined to use her finance and economics background for good.

Arjuna Costa, investment partner at Omidyar Network where he focuses on the firm’s investments in emerging markets financial services. He leads Omidyar Network’s investments, and has a board role in a number of innovative financial services companies, including Cignifi, Lenddo, MicroEnsure, Pagatech,RUMA, Segovia Technology, and Zoona. He also leads the engagement with several policy and research initiatives, such asAFI Global, GSMA’s Mobile Money for the Unbanked program and the Better Than Cash Alliance.

Dan: Having been to financial conferences for 15 years it really feels like in the past 4-5 years a lot more of the conversation has been on ‘beneficial’ or ‘philanthropic’ finance – that is to say products or solutions which – in addition to making money – also promote some sort of social good. Whether it’s the idealistic promise of blockchain or Bitcoin, or apps to help savers, the underbanked or undeserved, or products to educate investors or make finance more inclusive we seem to be seeing a growth in this part of the industry. Would you agree?

Michael: Absolutely! Banks have neglected or abandoned the underserved market . That created incredible opportunity for innovative new solutions. At first we saw a plethora of not-so-great options taking advantage of underserved consumers desperate for liquidity. We’ve all seen the high interest rates and penalty “Gotchas!” that often turn into a cycle of debt. More recently, firms have leveraged technology and creative distribution strategies to offer superior service at lower cost. Examples include Puddle for social borrowing, Propel for government services, and (of course) Zebit for financial wellness. These firms are putting profit second to consumer needs and benefits.

Kosta: Absolutely. I first noticed this trend when I was running Innotribe, the innovation arm of SWIFT. The industry overall really didn’t know how to think about financial inclusion-and its impact from a business standpoint-beyond the occasional corporate social responsibility initiative. But over the past few years, the topic kept popping up-it was one of the highlights of Innotribe at SIBOS 2012 in Tokyo, and at SIBOS 2014, where Bill Gates gave the keynote. He really cemented it as a strategy unto itself and positioned it squarely as an opportunity for new business models.

Andra: I believe there are two complementary trends in process. Traditional capitalist institutions are utilizing increasingly competent technologies to facilitate philanthropic contributions i.e point of sale systems, websites and now apps integrating versions of the ‘check out charity’. On the other hand, you have non for profit institutions who have begun to shift across the spectrum toward more capitalistic models, i.e the ‘B Corp’ whereby claiming greater financial self sufficiency. It’s as if both sectors are shifting toward a more stable equilibrium that is both profitable and socially conscious.

Arjuna: Yes, we are in fact very encouraged by this movement and credit it to the convergence of some big global trends. The first one is the high priority in which financial inclusion has been placed in the global policy landscape. As more nations work to create a sustainable and inclusive financial system and join initiatives such as the Maya Declaration or adopt and execute against the United Nations Sustainable Development Goals, they generate greater tailwinds that push other sectors of society in this direction.

The second one is a saturation and greater competition on the higher net worth consumer segments, while at the same time emerging markets are showing greater economic growth driven by an underserved aspiring middle class. Combined with ubiquity of mobile phones—which are helping to make middle- and low-income consumers discoverable and reachable—incumbents in the financial sector are realizing that there are good business opportunities in the mass market.

The final trend driving this movement is the coming of age of “millennials” and their venturing into entrepreneurship. The trademarks of this generation—connectedness, sense of global community, greater use of technology, desire for purpose and impact—are now translating into approaches to tackle big challenges and how they conduct business.