Incredible innovation has been taking place in Financial Services in Developing Countries in recent years.
They realized services that work in the West often do not in Developing Countries, as they face completely different challenges:
- Little if any financial infrastructure.
- Little if any financial history for anyone.
- Sizable percent of the population living in abject poverty.
Two of the most impactful innovations are Mobile Money and Micro Lending.
First: M-Pesa, started by Safaricom in Kenya in 2007.
First: Grameen Bank, started by Muhammad Yunus in Bangladesh in the 70s. Quickly followed by: BRAC and ASA.
Currently, an initial loan for a new borrower is in the region of $100-$200.
Almost all companies offering innovative services to poor people have Closed systems - they do not talk to each other.
An account holder can only easily transact with someone else who also has an account from the same provider.
Most of these companies are now starting to look at connecting their systems together, so that anyone can transact with anyone else regardless of where they have their account.
However, interoperability is a dangerous endeavor, and Developing Countries must proceed with caution.
The poorest people on the planet live on less than $2 per day, with around 3 Billion people living on under $5 per day.
They must be able to do their every-day transactions electronically, which means purchases as low as 10¢.
While this is possible within Closed systems, it is not possible with Credit/Debit Cards which charge a 20-35¢ minimum transaction fee.
So long as transactions take place face-to-face, physical cash and funds transfers are viable.
However, as people start making purchases through their phone and online, there has to be a means for a person to raise a dispute.
What do you do if you receive an empty box or the wrong product?
This requires Purchase Guarantees, which means nothing if there is not Dispute Resolution.