In the world of finances, the application of digital solutions in all its departments has completely changed how financial products are marketed, developed, and used by customers. This shift in financial services is received with caution by the customers. As it deals with people’s hard-earned income, they have reservations about where and how they invest their money.
The financial service providers need to play their part in building this trust and providing responsible digital finances. The customers will naturally follow. In this article, we will discuss the different aspects of the relationship between digital financial service providers and their clients: causes of distrust, impacts of distrust, and how to improve the relationship. The discussions will follow the growth of JUMO, a digital financial service provider that has been making headlines in the financial industry for its success in increasing financial inclusion.
Case Study of JUMO: The Perfect Pairing of Digital Innovation and Financial Services
In the past few decades, several fintech startups have developed in different parts of the world to deliver fast, convenient, and easily accessible digital financial services to the financially underserved section of society. Among them, JUMO has made a name for itself as a responsible digital financial service provider. While many financial institutes fail to be inclusive in their practices, companies like JUMO try to fill the gap by focusing on consumers rather than products and building a relationship based on trust and communication. Such mission-based lending impact financial inclusion greatly.
What is JUMO?
JUMO is a digital platform that provides smart financial services. It runs on transaction and predictive technology, which is based on artificial intelligence and machine learning—this technology paired up with financial service providers to offer unhindered services at a cheaper price.
The partners are usually mobile network operators or banks who take the benefits of JUMO to the customers by providing cheaper, faster, and more secure services. Thus, attracting more customers and increasing the reach of financial services among vulnerable groups like immigrants, refugees, poorer communities, and minorities.
This fast-growing fintech company outcompetes other companies thanks to its stellar customer service and special intelligence unit that gathers feedback from both its customers and their partners to develop high-quality products that aptly cater to the needs of the people.
Presently, JUMO is operating in Africa, where it has been successful in banking, with almost 4 million customers in countries like Kenya, Tanzania, Zambia, and Uganda. The first product that JUMO developed was a predictive technology that analyzes customers’ profiles and financial histories to determine which customers are eligible for credit.
They offer customers loans as low as $2 USD to up to $450 USD. For the low-income section of the population, it is an affordable loan option as opposed to other formal financial institutions, which only cater to high-end customers.
Importance of Trust in Digital Financial Services
In the exchange of goods and services, the clients must have faith in the service provider in order to engage with those services. Trust between clients and service providers is key to the smooth functioning of transactions. As the method of delivery and the products themselves are being transformed to fit the digital age better, customers are facing trust issues with the new types of digital financial products.
New digital financial products and services are being introduced regularly in the market, but the surveys show that in some markets, it takes time for customers to use these products as they fear exploitation and loss of personal assets. When access to finance means the difference between life and death, entrusting an external agent for all your financial matters is a heavy task. In fact, this lack of trust has kept many from opening accounts with banks or other financial service providers.
Thus, the lack of faith in the financial service providers is a key obstacle in the path toward complete financial inclusion. A study conducted in India by MicroSave has highlighted that even though almost 85 percent of the customers of digital financial service providers are likely to recommend the services to friends and family, it is only considered as Plan B. This lack of trust is growing due to several factors that we have jolted down:
- Lack of transparency – The services rendered by digital financial service providers are not transparent as additional costs are charged, and hidden information is not conveyed to the customers.
- Lack of security and gaps in data protection – Digital financial services are perceived to be less secure than physical, financial institutions. In addition, the clients are not always privy as to how their personal data are being used, which makes them distrust these services further.
- Improper service – Due to poor connection or other technical faults, customers often have to wait a long time to complete transactions which makes alternative financial services look more promising.
- Unjust and rude behavior of agents – Customers often have to face rude agents when they ask for assistance or further clarification. Furthermore, corruption and unfair behavior of agents grow distrust between clients.
The lack of trust translates into poor participation of many vulnerable sections of the community and consequently keeping them from improving their standard of living. In fact, as honesty is the new frontier, digital financial service providers will be more successful in promoting financial inclusion if they follow the principles of responsible digital finances.
What Do Responsible Digital Finances Look Like?
In many countries, there are client protection laws to ensure customer safety and the fair and just treatment of customers. Unfortunately, these laws regulate the end process of most financial service providers, and without the cooperation of the financial industry, its execution is close to impossible. JUMO has gained its fame as a responsible digital financial service provider by incorporating these laws into its business models and practicing client protection behavior across all its departments.
As their main goal is to ensure a positive and empowering first experience for all the newly included in the financial sector, they have taken concrete steps to make it happen. First, they have established a special department to assess the quality of their products from a consumer’s perspective – the customer intelligence unit.
This department conducts regular surveys in collaboration with international organizations such as the Consultative Group to Assist the Poor that assess the perception of their products from consumers, investors, and the financial service provider’s point of view. They dedicate themselves to addressing grievances and providing accurate information, and answering all the customer’s queries.
These surveys use the method of financial diaries to record and analyze detailed transactional data and make inferences about customer behavior and how they interact with the financial product. It is an invaluable tool, as was seen in the case of Kenya. The highlights that the financial diaries reveal about M-Pesa use in Kenya is that people are only using it to receive money, and they withdraw promptly without considering other tools that are available. Such findings help the financial service provider improve their product so that it is more useful to the people using it.
In addition to the survey conducted by Consultative Group to Assist the Poor, LeapFrog – an investor in JUMO – designed a smart assessment to test the performance of mobile loan services against client protection principles and standards. This analysis was done in-depth to assess every aspect of the financial service, from designing the product to marketing and introducing the lending algorithm. It also covered the customer’s perspective by analyzing the success of communication between clients and agents and the customer service model that oversees the queries and complaints section.
Following the surveys, they analyze the data to develop new products and services which are consumer-centric in their approach. These newly designed products aim to be transparent, informative and provide direct services. The predictive technology of JUMO also allows it to lower the risk of defaults, thus protecting the interest of the financial service provider as well.
Thus, by allowing themselves to be analyzed so thoroughly, and by utilizing the results to improve for the better, JUMO has opened up a new direction for responsible digital financial services everywhere.
Relationship Between Trusted Digital Financial Service Provider and Financial Inclusion
The goal of reaching complete financial inclusion around the globe can only be achieved with the combined efforts of traditional financial institutions, digital innovation, and international and local regulatory bodies. One of the major propagators of financial inclusion has been the combination of digital solutions and financial services.
Although, no matter how cheap or how convenient the newer digital financial services are, customers will shy away from engaging with these products and services if they do not trust them. For many, their first interaction with financial institutions has been so bad in terms of rude or corrupt frontline staff or because the customers were charged extra for unknown reasons that they seem to have lost all faith in them. This can be true for both traditional and digital financial service providers.
Thus, any financial service provider that deals especially with new customers has a huge responsibility to provide fair, just, and transparent customer service so that they can build a relationship based on mutual trust and honesty.
Frequently Asked Questions
Q1. What are digital financial services?
Digital financial services are those financial services and products which are delivered and accessed across an online platform. All transactions that take place digitally, with apps like mobile money payments and transactions involving cryptocurrency, are all examples of digital financial services.
With the advancement of technology, many banking functions are now available to clients through an online platform like a website or the bank’s own mobile app. These apps provide access to customers’ bank accounts and associated functions such as savings, investments, payments, remittances, insurance, or applying for credit.
Q2. What are the key areas of digital transformation in financial services?
The application of digital innovations in many sectors of the financial industry has completely transformed how financial services are rendered. The various sectors of the financial industry that were completely transformed due to digitization are the banking sectors, microfinance industry, customer service, and back-end functioning of financial institutes.
All these serve to improve customer experience and ensure the smooth functioning of the financial institutions. The parts of the financial sector that are able to transform their operations successfully are more likely to succeed in this digital age.
Q3. How does digitization impact financial services?
The greater use of digital services within the domain of finances has many beneficial effects, such as the following:
- Improved customer experience – Digitization has led to the flawless execution of financial services, which has greatly reduced the waiting time for customers.
- Greater financial inclusion – Digitization has reduced the transactional cost, thus reducing the overall price of the financial product making it more accessible for the poorer section of society.
- Efficient functioning – The inside operations function more smoothly when performed digitally as compared to the traditional methods, thus improving efficiency.
- Better data management – Digital innovations like blockchains have revolutionized the way data is stored and managed between different networks.
Thanks to innovations in the products and the way financial services are now delivered, the gap in financial inclusion has been reduced significantly. However, this new population who are using financial services for the first time need to trust their financial service provider if they are to continue this relationship and maintain financially healthy behavior. For this to happen, digital financial services providers like JUMO and its partners play a crucial role.
The emerging business models should follow in the footsteps of JUMO and integrate strong client protection practices into their business models. However, this is not an easy task as a great responsibility lies on the shoulders of the stakeholders and the financial inclusion industry – to classify and regulate the business models of emerging digital financial services and define, incorporate, and promote client protection strategies. This is the only way towards financially inclusive, responsible, and trusted digital financial services.
- Jonas Taylor is a financial expert and experienced writer with a focus on finance news, accounting software, and related topics. He has a talent for explaining complex financial concepts in an accessible way and has published high-quality content in various publications. He is dedicated to delivering valuable information to readers, staying up-to-date with financial news and trends, and sharing his expertise with others.