Fintech Startup Scaling Financial Inclusion

Case study

Issue:

A fintech startup in Nigeria aimed to provide financial services to the unbanked population, particularly small traders and individuals in rural areas. The startup developed a mobile wallet that allowed users to send and receive money, save, and access small loans using their mobile phones. Despite the potential to improve financial inclusion, the startup faced challenges in scaling its user base, especially in rural regions where smartphone penetration was low and there was skepticism about digital finance.

The company also struggled with regulatory hurdles and compliance issues in the highly-regulated financial services sector. Additionally, they faced competition from larger fintech players with established brands, making it difficult to convince people to trust their platform.

Hypothesis: The startup hypothesized that by offering tailored financial products that catered to the specific needs of the unbanked and underbanked populations (e.g., small business loans, savings products with attractive interest rates), and leveraging partnerships with mobile network operators (MNOs) to increase reach, they could build trust and scale their user base.

Counter-Argument: Some stakeholders were concerned that the startup might not be able to navigate the regulatory complexities of Nigeria’s financial sector. There were also fears that low smartphone penetration in rural areas would limit the potential user base, as many people might not be able to access the mobile wallet. Moreover, larger competitors with more resources could outspend the startup in marketing and user acquisition.

Solution 1
Solution 2
Solution 3

Offer Financial Products Tailored to the Needs of the Unbanked:

Actionable Step: The startup developed micro-loans and flexible savings products specifically designed for small traders and rural users. The loans were small, short-term, and required minimal collateral, while the savings products offered competitive interest rates with low minimum balance requirements. These products were marketed as tools to help individuals grow their businesses or secure their financial futures.
Result: The tailored financial products resonated with small traders and farmers who previously lacked access to formal banking services. The startup saw a surge in user sign-ups, particularly among market traders, who used the platform to access working capital loans. Loan default rates remained low due to the company’s use of credit scoring algorithms that assessed borrowers’ repayment ability based on transaction history.

Leverage USSD Technology to Overcome Smartphone Penetration Issues:
- Actionable Step: To address the challenge of low smartphone penetration in rural areas, the startup integrated USSD (Unstructured Supplementary Service Data) technology into their platform. This allowed users to access the mobile wallet using basic feature phones, without the need for internet access. Users could perform basic transactions, such as sending and receiving money or checking their balances, through a simple code.
- Result: The integration of USSD technology greatly expanded the startup’s reach in rural areas, where most people still used basic phones. This allowed the company to scale its user base quickly, particularly in regions where traditional banks had no presence. Within a year, over 200,000 new users had signed up for the mobile wallet, many of whom were first-time participants in the formal financial system.

Form Strategic Partnerships with Mobile Network Operators (MNOs):

Actionable Step: The startup formed strategic partnerships with leading mobile network operators (MNOs) in Nigeria, such as MTN and Airtel, to leverage their extensive distribution networks and customer bases. MNOs helped the fintech startup reach rural users through joint marketing campaigns, and the wallet service was bundled with airtime and data offers, making it more appealing to potential users.
Result: The partnerships with MNOs helped the startup scale rapidly, as they could tap into the MNOs’ large customer bases and use their network of agents for cash-in and cash-out services. The MNOs also provided co-branding opportunities, which boosted the startup’s credibility and trustworthiness. This partnership model allowed the fintech startup to compete with larger players and increase its presence in underserved areas.

Outcome: By offering tailored financial products, using USSD technology to reach rural users, and partnering with MNOs, the fintech startup was able to scale rapidly, reaching over 500,000 users within two years. Their focus on financial inclusion and innovative use of technology allowed them to build trust in rural communities and make financial services more accessible to those previously excluded from the formal banking system. The startup's success also demonstrated the importance of collaboration and customer-centric solutions in scaling financial services in Africa’s underserved markets.

Description

A fintech startup in Nigeria aimed to provide financial services to the unbanked population, particularly small traders and individuals in rural areas.