60 decibels: Customer impact data – the biggest unmanaged risk in Fintech

Positive customer experiences are the lifeblood of any organization – fintech or otherwise. Not properly addressing customer impact data can be detrimental to a company.

Sasha Dichter is co-founder and CEO of 60 decibels, a social impact and customer intelligence company. 60 Decibles helps organizations around the world better understand their customers, suppliers and beneficiaries. Prior to co-founding 60 Decibels, Sasha worked for 12 years at the social impact investor Sense. He has previously worked at GE Capital, IBMand Booz Allen. Talking to Fintech TimesDichter explains how fintechs can ensure they are able to make the most of customer engagement data:

Customer impact data: the biggest unmanaged risk in fintech

The global fintech market was described in a recent HBR article as the investors’ “Goldilocks dream”. This is thanks to the promise of great investor returns and positive social impact. In 2021, a total of 113 new fintech “unicorns” were created. They had the potential to bring the world’s 1.4 billion unbanked customers into the financial mainstream.

But while financial access is increasing at a rapid pace around the world – in Kenya, 82.9 percent of the population had access to high-quality financial services in 2019, up from 26.7 percent in 2006 – access to digital financial products is neutral from a social impact perspective. Some products have a significant positive impact on customers’ lives. But others simply face an immediate need (to make a purchase or pay off a debt). This leads to people being disadvantaged.

Many new digital financial products repackage old business models that pose as much risk as opportunity. Quick, easy credit first became popular in the United States after the Great Depression. Everyone knew that buy-now-pay-later, pawnshops and lenders did as much good as harm to their customers.

With glossy apps and big claims to drive financial access, it’s easy to overlook that some fintech lenders’ 600 percent interest rates match the most aggressive US payday lenders. As recently as 2019, Kenya’s digital lending rates exceeded 400 percent, with several companies charging 100%+ APR – annual percentage rates that caught the attention of the media and regulators.

Fintech’s answer

How should fintechs and their investors react in this context? Most are pushing for growth at all costs, expecting competitive and regulatory forces to play out over time. This approach is short-sighted and ignores the risk of regulatory backlash or a change in public sentiment.

Just last year, headline-grabbing collapses in the crypto markets led to a shift that wiped out $1 trillion in market capitalization, over 50 percent of global market capitalization. Could the fintech market face a potential 10-30 percent decline in market value of $30 billion or more?

There are already signs of a backlash. Google removal of fintech apps from the Google Play Store in India for violating user security guidelines; Kenya’s central bank gains formal regulatory authority over fintech in 2021; multimillion-dollar settlement in the US against fintech players for predatory practices. These may be the first signs of larger, systemic risk. In turn, declining valuations and creating real harm for fintech clients.

The microfinance industry – whose sole purpose is to reach unbanked customers, with less aggressive tactics than fintechs – has recently come under scrutiny. In 2022, Bloomberg published an exposé on the damage caused by microfinance institutions (MFIs) and the large profits accruing to microfinance investors.

The article described aggressive loan recovery methods and forced land sales, and sent shockwaves through the industry. One can imagine similar revelations about harm to fintech customers that would have deeper resonance.

But there is a way forward for fintechs: arming themselves with data to help deliver on their promise to create financial inclusion and protect themselves from unfair accusations of negative impact.

Identify your customer

The industry needs detailed, comparable, customer-based information about who they are reaching. This is in addition to how the products are used, consumer protection practices and the effect of these products on customers’ lives. Both in positive and negative ways.

In 2022, 60 decibels conducted an analysis of the microfinance industry, focusing on comparative social performance and consumer protection. By surveying nearly 18,000 microfinance clients in 41 countries, more than 25 million of the world’s 140 million MFI clients were represented in the results.

The data revealed that six percent of customers say they are significantly worse off because of their microfinance loan. However, the vast majority consider that their lives are the same, better or much better thanks to access to microfinance.

Armed with this data – rigorous evidence from a comprehensive data set collected directly from clients – microfinance institutions and their investors have a compelling argument in the face of criticism, can use it to mobilize and further strengthen consumer protections, and protect themselves from regulation. over reach.

We need to create a similar global dataset of fintech customers and we need to act soon. Without it, the industry and regulators are flying blind. They are unaware of whether the products or rules they create help or hurt customers.

The cost of collecting customer impact data, annually on a global scale, is a rounding error. Especially compared to the potential value destruction that a major loss of confidence or negative regulatory consensus can create.

A fully transparent, comparable customer data set would be the best defense against any ill-informed campaign that threatens to throw the fintech baby out with the bathwater. Especially one that identifies performance by company and by investor. And as a bonus, it happens to be the right thing to do for customers.