This paper cites several financial service providers (FSPs) in emerging markets in exploring how recent advancements in digital technology have enabled new business models, transforming the market for financial services. The authors argue that these FSPs have deconstructed the financial services market into separate modules, allowing these modules to be reassembled in innovative ways. These modules include: products, customer relationship management, distribution and the “balance sheet layer” – including managing risk and complying with financial regulations.
Upon its release, Daviplata, a service of Colombia’s Banco Davivienda, offered payment services targeting underserved customers. Over time, the service grew to enrol two out of five adults in the country, emboldening the bank to expand Daviplata’s package of financial services. Boasting a solid balance sheet layer, Daviplata owed a significant part of its growth to its partnerships with organisations that could complement its distribution and customer relationship modules.
Grab is a Southeast Asian ride-hailing company that launched its own payment system, GrabPay, in 2017. GrabPay has since grown to offer insurance, lending and investments, with plans to establish digital banks in multiple countries. Much of this expansion was enabled by Grab’s extensive collaboration with banks and financial technology (fintech) firms to strengthen its balance sheet layer.
The Indian fintech Kaleidofin launched with a focus on savings services for informal workers. Its success was limited due to factors including its customers’ low levels of financial literacy. The company pivoted to providing credit scoring software to other organisations, such as microfinance institutions and non-bank financial companies, which were stronger at working with customers. This enabled Kaleidofin to focus on its product layer while offloading tasks related to the other three modules.
M-Pesa, is a mobile money company based in Kenya that began to utilise user payment histories to make credit decisions. It eventually made its credit scoring algorithms accessible to other FSPs. While M-Pesa possesses formidable customer relationship and distribution modules, it deploys the products of its partner FSPs while making use of their balance sheet layers.
Paytm, an India-based fintech, offers buy-now-pay-later and other credit services to both individuals and merchants. The company found success building customer relationships, expanding its customer base, estimating customer risk, and acquiring and building upon user and third-party insights. Paytm has established partnerships with numerous non-bank financial companies whereby these partners handle Paytm’s balance sheet module tasks while it focuses on front-end processes.
Based on demand-side research conducted in partnership with Grab and Kaleidofin, the authors find limited evidence that modular banking positively affects both outreach headcount and the depth of impact of organisations seeking to increase financial inclusion.
This is a summary of a paper by Aiaze Mitha, Faith Biegon and Peter Zetterli; published by CGAP (the Consultative Group to Assist the Poor); July 2022; 38 pages; available at https://www.findevgateway.org/paper/2022/07/banking-layers-five-cases-illustrate-how-market-structure-financial-services-evolving.
By Saulius Simonas Ramanauskas, Research Associate
Additional Resources
CGAP homepage
https://www.cgap.org
Daviplata homepage
https://www.daviplata.com
Grab homepage
https://www.grab.com
Kaleidofin homepage
https://kaleidofin.com
M-Pesa homepage
https://www.vodafone.com/about-vodafone/what-we-do/consumer-products-and-services/m-pesa
Paytm homepage
https://paytm.com
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