By Mike Singh
THE discourse around fintech is generally future-focused, including in the Philippines. Founders will discuss how their solutions will change their particular sub-sector of fintech — be it remittances or mobile payments — while journalists will opine how these technologies will upend entire industries. Our collective gaze, in short, is firmly fixed toward the horizon ahead.
The problem with this approach is that many people will be unfamiliar with the alternative: In other words, what came before you? In his seminal book Zero to One: Notes on Startups, or How to Build the Future, venture capitalist, serial entrepreneur, and PayPal cofounder Peter Thiel argues that new products must represent an exponential improvement, rather than only an incremental one from previous solutions, in order to attract customers. But showing your product is leaps and bounds above everything else only possible if you establish the baseline: What are most people using now, and why is it less than ideal? You cannot take this knowledge as a given, particularly in emerging markets. Your market education needs to extend back into your sub-sector’s history just as much as it documents the present and projects into the future.
I’ll use my field as an example. At AsiaKredit, we provide short-term credit for people across Southeast Asia who would otherwise be unable to, owing to their little to no credit history. It would have been easy for us to keep our messaging to that value proposition. Instead, we try to consistently explain how AsiaKredit is an exponential improvement over the two most common alternatives.
The first alternative is the status quo: They remain unbanked. In the Philippines alone, there are over 71 million people who are unbanked, and in a publicly released study we did through our local short-term loan app pera247, we uncovered some of the most common reasons they remain in this state: They lack financial literacy, they cannot furnish the required documents to create an account, or they would be unable to maintain a minimum balance. As a result, they cannot avail themselves of a loan to pay everything from their small business costs and children’s needs to their health expenses and tuition fees.
The second alternative is arguably even worse than remaining unbanked. Out of an urgent need for capital, many of these consumers will turn to informal lenders common in emerging markets like the Philippines. Unfortunately, many informal lenders are notorious for unscrupulous practices, among them, charging annualized interest rates in the thousands, employing hostile/harassment collection tactics, and filing criminal complaints against borrowers.
It’s important for fintech companies to take this kind of macro-level view of their market education, rather than keep a tunnel vision on their product alone, no matter how tempting it is to do so. Though it may seem counterintuitive, the broader your market education is, the more consumers will turn to your product as the solution to their problem. We’ve had the privilege of experiencing this firsthand at AsiaKredit: We’ve processed more than 170,000 applications through pera247, and are on target for an even larger milestone later this year, as Filipinos who have no credit history turn to us for their lending needs.
We treat educating our customers just as seriously as educating the market. Under an overall philosophy of transparency, AsiaKredit is upfront with our terms — it’s stated in black-and-white on the pera247 app — and clear about our lending disclosures. We also place an emphasis on finance 101, since we know from our market study that a lack of financial literacy is what keeps many people from opening a bank account in the first place. Our customers, in short, are equipped with the knowledge they need to not only make sound financial decisions, but to also exercise responsible borrowing.
Given AsiaKredit’s success with market education, financial literacy, and brand transparency, I would like to call on everyone in the fintech community in the Philippines and in Southeast Asia to reevaluate how we communicate about our space and our solutions. We need to cut back on the hype, the pyrotechnics, the prognostications, and get back down to the basics: How are we helping the people around us live better today than they were yesterday?
Mike Singh is the CEO and cofounder of AsiaKredit, which operates the pera247 mobile app in the Philippines.