The Digital Development Divide

Relative Deprivation

There has recently been a piece of academic research in the Communications Theory space that the Fintech industry might like to take a note of. You can read the whole of the article here: it suffers under the cumbersome academic title: The Social Relativity of Digital Exclusion: Applying Relative Deprivation Theory to Digital Inequalities. There is a lot in here that only other academic researchers will really understand or care about. But there is also much for entrepreneurs to ponder as well. What struck me was that what Dr Helsper presents is an opportunity not only for her to apply relative deprivation theory to research into digital exclusion, but for the Fintech industry to set about making a real difference to the digital development divide.

The central question addressed in the research is one that has bothered many of us for a long time. Why do some people adapt to ICT and take it up as early adopters and others resist it and fail to take it up at all? Are they excluded? Do they exclude themselves? The digital divide is the gap between the levels of ICT take up in different countries. Why are some countries, especially in the developing world, slower at closing that gap than others? Indeed, why are other countries and emerging economies moving even faster than the industrialised world? Should we look for explanations at the level of individuals or countries?

In the literature that Dr Helsper has explored, it is individual characteristics, she says, that are often taken as the start and end point of analyses: “This assumes that stable, personal features such as socioeconomic circumstances or household characteristics consistently influence how individuals engage across different contexts. Even in research that focuses on the adoption of technologies in everyday life, the processes that drive adoption of ICTs by individuals within households are often without clear theorization of how individuals influence each other, or how others, who are not part of the household unit, influence individuals within the household.” But she goes on to show that either people think it is macro level problems of economy or infrastructure that are holding societies back or it is personality and skills. What the explanations do not seem to offer is the idea that it is context that might matter more and that this context can change.

Innovation Changes Behavior

Researchers have also tended to have quite a static view of the technology itself. Absolute deprivation is the situation in which you have less of everything than another person. It is the measure of a zero-sum game in which it is all or nothing. Very few things in the world are based on absolute deprivation but in this field there tends to be assumptions that there are fixed levels of connection speed, skill, or engagement. In light of how fast the Internet changes in all these senses, this is an oddly static approach and likely to lead to policies and interventions that become obsolete the moment they are introduced. And as we know in the Fintech industry, many countries leap frog generations of technology to adapt new systems, for example moving from phone to mobile broadband to deliver hand held transactions with few of the small steps between. We also know that innovation changes behaviour – think of cash to cheque to card to phone to transfer. This is a dynamic and changing set of contexts. It disrupts the picture and therefore can challenge the feeling of relative digital deprivation that might be holding people back.

It is arguable that outside rural areas and places of the worst poverty and isolation in the world, there is no long a state of absolute digital deprivation. Everything is relative. This matters hugely because your digital skills relative to another person’s digital skills can determine employment. Your countries levels of digital penetration, relative to another, can determine comparative economic advantage. As Dr Helsper puts it: “in a world that is increasingly and more complexly digital, a person whose digital resources stay the same will become increasingly excluded because to stay “equally rich” they have to continuously increase these resources.”

Financial Wellness

How then do you enhance digital adoption? One way is accepting that context matters as much as technology. Assume that the technology base is there, the reality is that people compare themselves to other people and they might change their behaviour in response to what they see other people doing. In Fintech this is particularly true for daily transactions and larger family financial planning needs. The reality can be that the digital deprivation is entirely subjective – they see it themselves, it is not objective – there are no real barriers. Dr Helpser does not claim that this is what is holding societies back only that it needs more research. However, from a Fintech perspective and a practical perspective, herein lies the opportunities and the gap that many start-ups have already began to fill. They want any size of customer, they want to look at all aspects of the customers life and they want to use technology to leap frog barriers, real or imagined, that are holding the digitally excluded back. All of these things, taken together, are Financial Wellness.

The holistic approach is also the best approach for breaking down self-imposed digital exclusion and removing those feelings of relative deprivation that might be holding individuals back. And if governments and donors can fully embrace this approach, support Fintech innovation and provide digital education and cyber skills training when required, then what works for the individual can start to work for country. Financial Wellness is one important part of addressing some of the deeply rooted causes of digital exclusion that do not stem from weaknesses in the critical information infrastructure alone but from our feelings about what we don’t have, and others do. A feeling of relative deprivation can also, then, be a source of motivation to act. It might be real, or it might be imagined but if we can reach people with the right tools that make their lives easier or give them the skills they need to find work, then we can eliminate the digital development divide.

Make Change Happen

My writing on Financial Wellness is designed to help the Fintech industry think about how to make change happen and what is needed to motivate people to reinvent financial services for the 21st Century. That means developing a Fintech sector with a social conscience because it is the right thing to do and because it makes sense for our customers and therefore our bottom line.

Three things drive people who want to make change in society happen: Engagement, Self-reliance and Altruism.

  • Know what change you want to make it happen.
  • Be able to make things happen on your own.
  • You need to want to do it for the good of others.

When these general principles are in action then we can achieve change.

Altruism for Entrepreneurs

For entrepreneurs, the same qualities can be applied. Altruism does not mean that you do not want to make a living from what you sell but if you are only driven by greed you will not succeed. You must be driven by the desire to provide a service, sell a product or make an innovation that you get paid for us but that serves a socially useful purpose. Otherwise, why get up in the morning.

When citizens take or are given control over their lives and their choices and they have these qualities, then change happens. When entrepreneurs think beyond balance sheets and engage with customers needs, they create successful companies.

But we need to add one more to this list: resources.

This is a transforming age. Austerity is ending but debt is still very high. Jobs for life are disappearing but the gig economy not yet fully embedded. Financial Wellness needs to be at the heart of the tools entrepreneurs in Fintech use to create new products and services.

Security in an Uncertain Age

When you ask people what they want, it is generally to be financially secure, to have their health, to educate their children and broadly for their children’s lives to be better than their own. That is at the heart of the Financial Wellness that I seek.

If you are going to become an agent of change, then the challenge is to decide for yourselves what your general principles are. Not to be undermined by the cynics nor be less than idealist.

It is not sufficient to merely imagine the world as we want it to be.

We have to work at ways in which we can make it like that. To drive Financial Wellness to the top of the agenda we need to:

  • Consult and build coalitions in favour of holistic approaches to financial security within our industry and more widely
  • Treat citizens as self-reliant human beings so that they behaviour like citizens and with financial responsibility they become customers
  • Embrace new technology as the means of delivering security and linking social well-being to financial services

These things are happening in start-ups all over the world. A slow revolution in the Fintech world is underway.

You can see me speaking more about my thinking on Vimeo here

Let me know what you think. And Join IN

Financial Wellness Resources

I have pulled together some reading on Financial Wellness on a separate site for ease of access.

Financial Wellness Resources

For example

The causes and consequences of household financial strain

October 10, 2018

Abstract

The 2007–08 financial crisis caused a deep global recession with lasting effects on economies worldwide. Millions of households in developed countries currently report having difficulty making ends meet. In this paper, we systematically review finance and economics research on household financial strain to identify research gaps. We find that economists could make a valuable contribution to this literature. More analysis involving developed economic theory would provide clarity to partial and sometimes contradictory results. Research could explore aspects of the dynamics of financial strain; heterogeneity in coping strategies and the association with health outcomes. A few themes suggested in other literatures could also be examined such as the relative importance of chronic and acute stress as well as the roles of habituation and sensitization for welfare outcomes.

https://www.sciencedirect.com/science/article/pii/S1057521918301431

Start a Financial Wellness Program

September 24, 2018

From THE VOLUNTEER MANAGEMENT REPORT

From individual counseling to seminars, starting a financial wellness program takes experts from various fields. If you’re considering starting this type of program, there are several things to keep in mind.

The Actors Fund (New York, NY) is a nonprofit organization that helps professionals in the performing arts and entertainment industry. The organization offers members a financial wellness program that provides financial education, referrals, counseling and support. It helps people identify strategies for balancing income, expenses and debt while also establishing financial boundaries and exploring financial competence and self-worth. “We develop logical partnerships with qualified professionals who can provide those services and focus on giving clients appropriate preparation and referrals,” says Amanda Clayman, the Actor’s Fund Entertainment Assistance Program coordinator. Clayman says having a solid mission statement is the key to success. “Be sure your goal for your financial wellness program is consistent with your mission and scope of practice. We were very careful during our initial inception to be clear about what it is we do (provide information, empowerment and coaching for clients seeking to improve their financial situation) and what we don’t do (provide investment advice, tax advice, legal advice, etc.),” she says.

Accountants, financial planners, lawyers and mortgage brokers offer services for the program, and every volunteer must be appropriately credentialed. “We don’t have a formalized training protocol, but we do supervise our volunteers, either by reviewing the cases or by being present during seminars. In seeking volunteers, I would recommend approaching professional organizations and inquiring if any of their members would be interested in a volunteer opportunity,” she says.

The individual services the Financial Wellness Program offers include:

One-on-one counseling: To discuss personal obstacles to financial self-care as well as information about debt management programs, credit counseling and bankruptcy.

Couples counseling: Cohabiting or financially joined partners meet with a social worker to discuss issues that pose a challenge to financial stability. Creating a joint spending plan, managing one partner’s debt, unemployment or planning for children can be addressed.

Financial coaching with community service society volunteers: This involves short-term financial coaching for individuals referred by a staff social worker. Coaching includes personal budget analysis, understanding a credit report and improving a credit score. The program also offers seminars, groups and workshops, such as:

“Money Matters” Seminars: Over the course of a year, presentations are given by financial services experts on topics such as income taxes, financial planning and investing, student loans and planning for retirement.

Money and the Performing Artist Group: This is a six-week group that explore how cultural, family and entertainment industry attitudes contribute to how we think about and use money.

“Managing Cash Flow for Artists”: This is a five-week workshop in which members learn strategies for organizing expenses, balancing multiple sources of income, and planning for dry spells. In addition, members discuss tips for aligning professional and financial goals.

The Actors Fund also partners with another organization (the Community Service Society), which trains part-time financial coaches. “Coaches must practice within their coaching scope and not give individual financial advice. As you can imagine, the training is quite rigorous and would be outside our ability to do in-house with current resources. We are lucky to have such an important partner,” Clayman adds.

Source: Amanda Clayman, Coordinator, Actor’s Fund Entertainment Assistance Program, New York, NY. Phone (917) 281-5984. E-mail: aclayman@actorsfund.org. Website: www.actorsfund.org

Passion

Diversity is the heart of what we do; diversity in terms of thought, experience, gender and geography,” says Nadeem Shaikh, the founder and CEO of Anthemis — an innovative financial services company that invests in innovation and creates sustainable long-term ecosystems that enable ideas to flourish. Anthemis advises, transforms and invests in businesses that are building better ways to design, produce, consume and distribute financial services in the information economy.

Anthemis is disrupting financial services by challenging the conservative and very traditional industry to open its eyes to the risks posed by rapid technological advances and ever-evolving consumer needs. The challenge is to turn these risks and unfolding dynamics into untapped business opportunities, which Nadeem believes are key to maintaining relevance in the 21st century’s digital landscape.

Anthemis was founded in 2010 in Luxembourg. Today the firm has offices in Geneva, London and New York. It boasts a diversified portfolio of investments in over 40 high-potential digital-native financial services companies based around the world, highlighting Anthemis’ global reach and commitment to diversity. The firm believes in not just providing clients with the financial resources to elevate their businesses, but also upskilling and empowering them with key Fintech (financial technology) insights and strategic solutions.

Pakistan-born Nadeem has lived in over 10 countries, including Malta, Jordan and the US but currently calls England home. He is a computer science and finance graduate from the State University of New York (SUNY) at Albany and completed his MBA with the London Business School in 1995.

He has over 20 years’ experience in financial services and information technology, having held various strategic senior management positions, including heading up a global entity that was responsible for over 6,000 employees in 20 countries and with an annual revenue exceeding USD 1 billion. It is this wealth of knowledge and global experience that motivates him to explore somewhat unconventional opportunities, with some of Anthemis’ investments supporting the confluence of silo industries such as healthcare, insurance, education and finance.

He is excited about redefining financial services and being a part of how this field re-invents itself. “The idea of being able to create something that I could influence; pursue the vision and passion that I felt; create the cultural dynamics, long-term visions and objectives in line with the long-term industry impact that I wanted to make” are what drove Nadeem to explore entrepreneurship and establish his own company.

Nadeem’s passion for making a meaningful impact is also seen in his involvement with charitable organizations such as Citizens Foundations, CARE and Prospero World. CARE is Pakistan’s oldest NGO and aims “to provide quality and marketable education to all.” It currently runs over 750 schools representing 325,000 learners across primary and secondary levels.

Nadeem has been involved with the organization since 2010. He sits on the board of advisors for the organization’s UK chapter and is keenly involved in fundraising initiatives to support CARE’s pioneer work in Pakistan. Education is close to his heart, as he believes that “educating the next generation is key to society’s long-term transformation.”

In 2015, Nadeem was asked to join Prospero World’s board of advisors. He accepted the offer after being impressed by the passion displayed by the organization’s founders in executing their work. Prospero World is “committed to promoting social change through community-based activity and public education,” using in-depth research to provide bespoke philanthropic advice to companies, foundations and individuals needing assistance with how to structure their initiatives. Nadeem’s work with Prospero World means he is involved in the development of and funding of NGOs around the world and works on various international projects. On working with the organization, he says: “I really enjoy working with the team… helping them to create a sustainable focus with a business-like approach while specializing on the arts and creative industries as a means to create social change.”

When not dedicating time to running Anthemis and serving on various boards, Nadeem enjoys spending time with his wife and three children. The avid cricket fan and Manchester United supporter believes that life should be kept simple and be thought of as a collection of moments. “I try to make each moment as memorable as possible,” he reflects.

Nadeem is a strong proponent of living life with purpose and passion: “You have to do what you are passionate about. I am a firm believer in manufactured serendipity, faith and good karma. If you approach life with this mindset and these values, you find yourself surrounded by amazing people who are making a tremendous difference in whatever it is they are doing.”

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Plan for the Next 50 Years, Not the Next Five

Despite rapid innovations in data processing and machine learning, many businesses have yet to make the leap from the Industrial Age to the information age, and the gap between technological and organizational progress is widening. Closing this gap requires much more than short-term fixes, like adopting new technologies. Businesses need to organize around long-term strategies for growth and partnership in a sustainable way. The consequences for not doing so can be dire.

Eastman Kodak is the textbook case for failing to prioritize an innovation agenda; business schools around the world study the ramifications of the company’s ill-fated decision to ignore the digital photography market until it was too late. It’s far from the only case of a failure to embrace a more digital approach; the larger shift to digital is changing the way every industry operates. Some industries, like photography and media, were impacted earlier. Others, like financial services, are only now experiencing this change in earnest. The common thread in each instance is that a failure to recognize signals and prioritize innovation over short-term profits before it’s too late can have existential ramifications and cause negative ripples throughout broader capital markets.

THE FUTURE OF FINANCIAL SERVICES

The financial services industry, a traditional laggard in technology adoption, is just now entering the digital phase. Signals abound: Fintech companies are launching at unprecedented rates, with improved user experiences and more-transparent practices. Banks are feeling the crunch; according to McKinsey, legacy financial institutions will see profits decline 20%–60% by 2025 if they fail to evolve digitally. Startups alone won’t fill that vacuum: Stewards must emerge from the old guard of financial services.

The current innovation model in the finance sector is designed to generate the highest possible short-term returns. But investors and entrepreneurs in financial services will need to rethink those timelines if they want to be successful going forward; it’s unrealistic to expect the same hockey-stick growth as startups such as Slack or Airbnb. Vanguard might be a runaway success in the market, with 20 million investors, but its success has been more than 40 years in the making. Taking a long-term view — planning for a viable business in the next decade, rather than the most profitable one in the next quarter — is the only way forward for financial services businesses. The industry involves such scale, regulatory intricacy, and organizational inertia that making substantive change will take time.

CEOs will need to shift their mindset now if they want to avoid their own “Kodak moment.” Embracing innovation requires unconventional capital allocations that won’t always yield short-term profit but that can lead to exponential growth in the long run. It may not be a popular platform to adopt in the boardroom, but it’s imperative for the future of financial services firms.

Recent actions by certain financial services firms — notably Goldman Sachs — give reason for hope. Beyond simply launching an “innovation lab” or investing untold sums in established startups, Goldman Sachs is prioritizing an innovation agenda over short-term growth. Its recent launch of Marcus, an online retail bank, is a particularly promising signal. While Marcus is far from profitability, Goldman has acknowledged its intention to stick with this model, recognizing that its existing playbook is not going to sustain another century of growth.

TECHNOLOGY ≠ INNOVATION

Keep in mind that financial technology is a commodity. Anyone can acquire new technology. The true differentiator in financial services will come from having the vision and ability to execute change in this new landscape. Financial institutions need more technically adept, visionary talent if they are to survive the shift to the digital age and take the kind of risks necessary for long-term success. But instead of recruiting new talent, many of these institutions are losing peopleto the tech industry. Ninety-five percent of the banks surveyed by law firm White & Case said they will buy or invest in emerging technology companies in the next 18 months. But many are doing so for the wrong reasons, purchasing technology when they should be focusing on real innovation.

The institutions that successfully cross the digital divide will invest in leaders who are building companies for the next 50 years, rather than for the next three to five years. This focus on people is key. For example, PayPal’s acquisition of Braintreedidn’t just help the company modernize its online payment portal; Bill Ready (who was formerly CEO of Braintree) is now actively leading change and positioning PayPal for the future as the company’s COO.

Similarly, an incumbent doesn’t need to acquire an up-and-coming startup due to vastly superior technology or impressive growth numbers, both of which it can likely replicate with the requisite investment of time and capital. Rather, it should look to make such an acquisition for the dynamic leader at the helm, who likely has a more pro-innovation agenda and greater tolerance for short-term failures in the pursuit of longer-term goals. This simply isn’t in the DNA of most financial institutions, but it’s sorely needed. It’s for this reason that one can reasonably expect Vantiv’s recent move to acquire WorldPay Group — a deal that JPMorgan also reportedly pursued — as a signal for a broader rise in M&A activity in the financial services space in the coming months and years.

THE ECOSYSTEM APPROACH TO WINNING THE LONG GAME

Innovation in financial services will happen in part through the diffusion of new revenue models and technologies, combining entrepreneurial ideas with institutional and operational expertise.

What’s needed is a concerted effort to invest in design thinking systems, and support for diverse and inclusive cultures that bring together people with divergent perspectives to share ideas and new approaches.

The financial services industry is still in the early stages of digital transformation. Some organizations have been quicker to embrace this shift, while others remain firmly entrenched in Industrial Age mindsets. Goldman Sachs falls into the former category, and is providing a model for industry peers to emulate. Beyond simply nodding to the need for greater innovation, it has begun to take a series of bold, decisive steps that are atypical of financial services firms companies. From elevating its former CIO to CFO, as it increasingly defines itself as a technology company rather than a financial services firm, to emerging as one of the most high-profile advocates of cryptocurrencies, it’s clear that the company is thinking in longer time horizons than quarter to quarter or year to year.

Some will follow this model and thrive, and others will fail to adapt and fade to irrelevance, but it will take some time until a clear picture of the new age of financial services emerges. Companies need to be laying the foundation for a more digital future now. This will require a willingness to accept short-term setbacks and, in some cases, sacrifice short-term profit, with a steady eye toward big-picture innovation goals (and with it long-term profitability).

Jeff Bezos encapsulated this philosophy best in the letter he sent to shareholders just before Amazon’s 1997 IPO:

We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions…. We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.

It’s fitting that this conversation is happening almost 20 years to the day after the company’s public-market debut. While financial services firms were unlikely to give much credence to the thoughts of a little-known (at the time) tech entrepreneur, those thoughts contained sage wisdom — and are even more prescient today.

Toward A New Paradigm: From Financial Inclusion To Financial Wellness

Nadeem Shaikh: Toward A New Paradigm: From Financial Inclusion To Financial Wellness

Community Voice Forbes  Finance Council 

Nadeem Shaikh: For the last two decades, many organizations — from financial institutions and philanthropic organizations to think tanks — have embraced the concept of financial inclusion. They’ve reckoned that the billions of people who exist outside the formal banking sector worldwide would benefit from new services, solutions and investments to stimulate productivity, raise living standards, unleash entrepreneurial energy and reduce economic inequality.

While the aims of financial inclusion remain relevant today, the current solution set is outdated. The framework for building financial solutions must evolve from one of inclusion — siloed point solutions that provide access to checking accounts, payments solutions, pensions, IRAs, etc. — toward one of wellness. Financial wellness addresses a consumer’s holistic needs: physical, digital and emotional.

Addressing A Convergence Of Consumer Needs

Consumers are increasingly looking for products and services that do not just cater to discrete need but to their overall financial wellness. This includes not only what we think of traditional financial services, but also insurance, health, education and, in some cases, energy. This convergence of needs applies to all consumers in the developed and developing world alike, whether they are affluent or under/unbanked.

A paradigm shift toward financial wellness is now possible thanks to the emergence of new business and technology models. While the traditional approach to financial inclusion has involved bringing low-cost financial products to the market, a new generation of startups is creating solutions that embed themselves in consumers’ lives instead of treating finance as a pure utility, embracing a 21st-century approach to digital financial services.

What these business models have in common is that they are essentially customer-centric rather than product-centric. They are using technology, behavior science and new business models to improve customers’ well-being instead of seeking a fresh market for tried-and-true products. And they are doing so with the goal of profitable growth, ensuring an incentive to serve the customer while finding new ways to remain relevant and compelling. For them, every customer is a profitable one. regardless of where they are on the financial spectrum.

EMPLOYERS AS CHANGE AGENTS: HOW YOUR COMPANY CAN LEAD THE WAY

A New Framework

The challenge before us is to build a scalable framework for investment that doesn’t center around the old paradigm of financial inclusion. Instead, we must take advantage of both technology and a new mindset to do some blue-sky thinking.

This requires looking at the challenge from multiple perspectives. At an investment level, we must move away from pushing recognizable products with unsustainable business models toward seeding innovative startups and providing ongoing support to them while they are in growth mode. The goal here is not quick returns — instead, investors must build ventures that lead to sustainable commercial solutions over the next 5, 10 and 50 years.

No one company, or even segment of the industry, holds the solution to financial wellness. Success will only come from a systemic and collaborative approach to a diverse ecosystem. Regulators, for instance, have a part to play in ensuring fair and practical rules that promote the growth and cross-fertilization of the industry. Once that thesis has been developed, it can be implemented through concrete measures such as regulatory sandboxes and revised forms of financial literacy. Existing financial institutions have to figure out how to partner with these new startups to incorporate their solution sets into their overall offerings to expand the horizons of existing businesses. Taken together, this ecosystem can have a substantial and measurable impact on the lives of individuals and entire communities.

Innovative financial services can raise the standard of living — and improve the overall well-being — of people. But a copy-and-paste approach will not succeed. Entrepreneurs and investors need to think beyond financial inclusion and rise to this challenge, building their companies and products on a new model of financial wellness.