Five key insights to consider if you’re thinking about investing in data analytics

Published on

January 14, 2019

In early December, the Lab pulled together key stakeholders from across the rural and agricultural finance community to learn more about the opportunity for data analytics (DA). Rooted in the Lab’s 2018 research, Big data could mean big opportunity, the workshop explored key themes around barriers to implementing DA solutions, the business case for DA, and opportunities to enable more investments to move the sector forward.

Coming out of the full-day workshop – which included key decision makers from financial service providers (FSPs), digital service providers (DSPs), and funders – five key insights emerged. 


1. DA for smallholder finance is still early stage, but it’s moving faster than we think.

In our September 2019 Learning Brief, we noted that data analytics (DA) had made significant progress across the smallholder finance market. However, early research indicated that there was still plenty of work to be done. While this remains true, conversations from our workshop demonstrated that this ‘work’ may be getting done much faster than we think.

Take SatSure for instance. During their panel presentation, SatSure emphasized their exponential growth. Within their first year, Satsure covered one district, and by year five, they had grown to cover 100 districts. 

While this growth is impressive, it didn’t happen all at once. A key barrier for financial service providers (FSPs) in India wasn’t around budgets, but instead was around a lack of willingness from FSPs to implement DA solutions. To address this challenge, SatSure had to create a ‘market’ and develop proof points that might convince FSPs that investments in DA could be beneficial. Because of these efforts, SatSure is seeing more banks gain interest in DA, ultimately driving more investments in new DA solutions.

Of course, developing these proof points was not easy, and required trust among stakeholders to share their data and incentive. For example, SatSure created a value-adding process where organizations shared data, and in return, Satsure provided insights that the organizations could use. This way, there was a specific value proposition for each of the partnerships, even if there wasn’t a commercial relationship yet.


2. Workshops and convenings are a hotbed for lots of “aha” moments but also signal the need for more regular communications between FSPs and DSPs, including across countries and regions.

Despite the hype, many DSPs were surprised to find out that most FSPs were unaware of the solutions they offered.

A leading digital service provider (DSP) shared that “many DSPs, including ourselves, operate in our own bubbles and networks. As a result, we miss out on meeting new FSPs that may not be aware of our product, and thus, miss an entire market opportunity to scale our business.”

The excitement in the room and during the breakout sessions reflected the value participants found in getting to know one another’s interests and learning about their experiences.  As a first step toward facilitating more connections like these, the Lab will include a specific section on DA in our quarterly newsletter, highlighting relevant workshops and conferences, the latest innovations, and updates on how existing models are developing. We hope to make this newsletter a collaborative process, where key stakeholders can submit their updates and share them with the broader community. 


3. While credit scoring continues to be the most popular use case for DA, FSPs and DSPs are increasingly looking beyond risk, and into revenue and cost efficiencies as key value drivers for the DA business and impact case. 

75% of workshop participants selected credit scoring as the area where they were either already investing, or where they perceive DA could add the most value. And while this may signal that most FSPs continue to see accuracy and cost efficiency as the biggest barrier to serving smallholders, breakout group discussions demonstrated that organizations are starting to think more creatively about the specific sources of value that DA can provide to their businesses and customers. At least 60% of the groups defined demand and revenue drivers as the most important sources of value for their DA investments, including enabling new and diversified revenue streams through up and cross selling, increasing customer lifetime value, and improving service affordability.

Going forward, DSPs and FSPs will need to continue to work together to move from perceptions to evidence that can quantitatively size the impact of DA; not only on reducing non-performing loans (NPL), where data has started to emerge, but on driving revenue, increasing operating efficiencies, and unlocking new customer segments.


4. Making the executive decision to adopt DA is a big step forward, but organizations tend to underestimate the capacity building that needs to follow to make the investment worth it.

In the case of a leading PAYGO solar company, it took five years to get a positive return on their investment in DA. While the hurdle is not out of reach, they realized that to succeed, you need serious internal commitment in terms of resourcing talent and developing infrastructure. Even if it may seem daunting, going “all-in” is key to the success of any DA implementation.

As one representative mentioned, “If you don’t invest enough, you’re not going to get there.”  

Additionally, acquiring, training, and retaining talent stood out as the greatest challenge. At least one-third of workshop participants mentioned that finding and retaining high quality DA talent affordably, is their big roadblock.

Simply put, and as one FSP mentioned, “data scientists are hard to get” particularly in an increasing competitive job market. 

The good news is that once an organization invests in DA, it can be highly scalable. For example, the leading solar PAYGO company referred to earlier has already reached over 600,000 customers and is now able to capture more value out of every additional DA investment they make. 

Capturing the full value of DA investments will require a concerted effort between FSPs and DSPs to invest in the right data collection and storage systems, think strategically about talent – including experimenting with a mix of external and internal resources – and cultivate organizational leaders that intentionally embed data analytics into key decision-making points.


5. The absence of certain important topics, particularly data privacy and gender, in the current conversation may have negative consequences down the road as the sector matures.

In many ways, this is hardly surprising. As in most early-stage technologies, an innovator’s top priority is to try to understand if there is a business model that could make DA work for them and their customers. Second (or maybe third) in line comes data privacy concerns – which in many cases FSPs and DSPs have little control and visibility on, particularly in uncertain regulatory environments – as well as tweaking or adapting products for more vulnerable customer segments while still experimenting with their baseline value proposition.

While it’s understandable that many innovators may deprioritize these important themes, this oversight can come with huge risk. Unlucky data privacy accidents can happen, putting the company’s trust and value at risk. In the case of gender, the female gap in access to finance, mobile phone ownership, internet usage – all important sources of data that feed into data analytics – stubbornly persists, especially in rural areas. When seeking to financially include smallholder farmers, gender neutrality can in fact lead to gender blindness. Any product or service that is not passed through a robust gender analysis before launching is at risk of excluding women and thereby half of the addressable market.

There is an opportunity for all of us to push and advance the debate in these issues. Regulators need to put in place a legal and regulatory framework to safeguard data and empower citizens. But until that happens (Kenya’s data privacy bill has been in works over three years), there’s an opportunity for FSPs and DSPs to get ahead of the curve, working with donors and think-tanks to develop guidelines for an open, yet responsible, use of farmer data. By doing this, farmers can continue to access financial services while also safeguarding their data privacy as a fundamental right.  By spurring cross-sector collaboration we can leverage the diverse perspective of different actors to start developing a common, sector-aligned framework that will influence regulators themselves, and mitigate the uncertainty and risk that accompanies the issue of any new bill. Not only is this the right thing to do, but it’s what consumers want.  If FSPs and DSPs are trying to reach a new customer base for – at least in part—the sake of impact, then they should treat their consumers with the respect that they deserve, even if it may feel like it’s at odds with short term goals of developing the business case. 

As for gender, it is time to think about how to bring in women from inception instead of incorporating women as an after-thought. A first step could be for FSPs to construct a “gendered” customer journey that can help better understand usage and penetration trends or identify stages at which women tend to drop off or struggle more than men. This would help FSPs design more relevant products, develop precise marketing strategies, and better assess and monitor credit risk for female farmers. Discussions between workshop participants seemed to suggest most FSPs are already sitting on significant pools of data to do this, but would need support in translating that data into insights. This is where DSPs can and should step in to help.

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