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