The Greatest Unmanaged Risk in Fintech

We often think about the ‘upside’ of social impact data—how it can show that an investment is doing more than a typical investment, because it generates both financial and social return.

But what about social impact data as a way to protect financial value?

This is the unique opportunity that presents itself today in fintech, an industry that is growing exponentially and that has huge potential for creating social value, but also potential to make things worse for vulnerable populations.

I wrote a piece for the Fintech Times on just this topic. Here’s the opening, click here to see the whole thing.

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

However, while financial access is increasing at a blistering pace worldwide – in Kenya 82.9 per cent of the population had access to high-quality financial services in 2019, up from 26.7 per cent in 2006 – access to digital financial products is neutral from a social impact perspective. Some products have a significant positive impact on customers’ lives. Others though, simply meet an immediate need (to make a purchase or pay off a debt). This results in people being left worse off.

(Keep reading)


Better Data Doesn’t Give You the Answers

I run a data company, and I’m often asked, when speaking to a new client, what our customers do differently because of the data.

The implication often seems to be:

Before they didn’t have the data, so they were doing one thing.

Now, they have the data, so presumably they’re doing another thing.

Of course, we have plenty of examples of concrete changes that clients have made when they get our data, as in:

A solar home system company learned that a huge proportion of customers were experiencing product defects and poor after-sales support…so the company reinvented after-sales support and addressed the issue, and saw massive improvements in both customer satisfaction and social impact metrics.

But the more nuanced answer is this: the immediate actions companies and funds take, when we get them new data, are largely focused on the biggest, most surprising, or most troubling findings—the headlines.

Beyond that, what the data allow them to do is to ask a new and better set of questions.

The Path from Ignorance to Clarity is Not Flat

Our misconception is that we think we can go directly from ignorance to clarity (the drawing on the left).

In reality, for any topic that matters, as we learn more we embark on a journey. Over time, we will climb a mountain of increased complexity—with new insight, new inquiry, new investigation—until ultimately, after a great deal of focused attention, we begin seeing the world more clearly and, ultimately, arrive at deeper understanding and the simplicity that we seek.

Social and Environmental Impact Measurement Isn’t Simple, Yet

I often hear the concern, in conversations about social impact measurement and ESG, that “this social and environmental stuff is all awfully complex, isn’t it?”

This effective defense mechanism communicates, “I’m all for measuring my social impact, it’s just that it’s too much right now. Once it’s simplified, I’ll get on board and take it seriously.”

And yet, the person finding social impact measurement or ESG too complex is the same person who undoubtedly manages tremendous complexity in other areas of their professional life. Why, even the most simplified presentation of an income statement, cashflow and balance sheet is mystifying to most folks. Just look at this:

So the question isn’t whether something is simple or complex. The question is whether a domain is important enough to merit sustained time, effort, and spirit of inquiry to scale the Peaks of Complexity.

Coming back to social and environmental impact, my take is that the trillions of dollars flowing into ESG, and the pressure on brands to differentiate themselves for their social and environmental stewardship, speak for themselves.

The question isn’t whether sophisticated data and a nuanced understanding are needed.

The question is who will start on this journey first, thereby establishing an insurmountable lead on those who are happy to dawdle at the base of the mountain, in search of a way around or through.

It also helps to remember that a desire for quick and easy answers is nothing new. If anything, it is a normal and natural outgrowth of the beginning of every journey. If we’ve never walked a path before, we’ve no idea what it’s going to be like: we don’t know how high the mountain goes, how much jungle we’ll have to hack through, whether bad weather will come our way.

But the unavoidable, optimistic truth is that, should we walk this path we will, inevitably, arrive at better questions, deeper insight and, ultimately, the simplicity we are seeking.