??#deepdive money marketplace platforms as a customer acquisition channel for lenders towards financial inclusion

I've added money marketplaces to my dashboard tracking promising ventures and investment theses in frontier & emerging markets - blog below.

What is the problem? From the borrowers’ perspective, rates for small-to-midsize loans can be prohibitively high in frontier markets, lending products are often inaccessible to consumers, and the digital experience offered by traditional lenders is poor. Applying for loan products is often time-consuming, fragmented, and reliant on manual paperwork. From the lenders’ perspective, consumers seeking small-to-midsize loans are unlikely to have a formal credit profile. This makes the lenders’ job of assessing their suitability for a loan difficult; the resources spent evaluating the customer can exceed the potential value of onboarding the customer.?

What is the solution space? A marketplace that serves as a customer acquisition channel for lenders and an aggregator of available financial products for consumers. Consumers can use the platform for free to compare loan products and apply to multiple lenders at the same time. Lenders receive pre-screened customers in exchange for a referral commission in the event that a loan agreement is signed. The back-end of these platforms typically works by connecting to lenders’ CRM with an API to validate when contracts are signed.

Is the total addressable market (TAM) 'massive'? Yup! TAM for loan products in Southeast Asia and Africa is massive. For example, in Indonesia the mortgage industry alone is valued at $39 billion with a projected 17% CAGR from 2022-2027. The penetration rate of mortgages in Indonesia is only at 3%, so the upside is huge. In Africa, the demand for microfinance is estimated to be around $25 billion per year - including microloans and other financial products such as savings accounts and insurance.?

What works / what to look for? Whether markets are ‘ready’ for a comparison marketplace for financial products to succeed is driven by a range of factors including income growth, urbanization, and the maturity (or extent of digitization) of financial services offered in the market. Comparison marketplaces for loan products can scale in markets with a relatively low credit-to-GDP ratio - as a sign that credit is still underutilized (due to inaccessibility). Low penetration of loan products in markets with a large upside potential (income, urbanization, demand) should be considered in the context of how manual and fragmented the loan application processes are across the industry as a way of seeing how a digital customer utilization channel for lenders could enable market growth.?

Marketplaces work when referrals can be made without having to transition between online-to-offline systems (i.e., that lenders have some form of CRM or digital onboarding for borrowers) to give a runway for marketplaces to add eKYC and referral revenue. It’s also important to assess the extent to which the market has begun to develop alternative credit scoring methods (e.g., digital lenders using mobile money transactions, utility payments) to support outsourced eKYC to an aggregator platform. Based on these signals, I think India 2010-15 is a decent predictor of where Indonesia reached in 2015-20, and then equivalently Indonesia 2015-20 is a decent predictor of where Kenya/Ghana/Nigeria are in 2020-25. I also suspect these two factors (alternative credit scoring and digital onboarding workflows) are the reason for failed marketplaces in sub-Saharan Africa (esp. Nigeria) in the early 2000s.?

Successful marketplaces tend to initially focus on where the volume of transactions currently is in their market in terms of financial products: for example, in Indonesia marketplaces focused on lower-end mortgages (e.g., IDEAL in Indonesia) whereas in Kenya and Nigeria they have started with micro-loans for consumer goods (i.e., phones) and car-loans (e.g., Money254 ). As successful marketplaces reach product-market-fit and raise an 18 month runway, they quickly expanded their product line to include insurance and other financial products to position themselves as the ‘one-stop shop’ for financial products in their market. I have not yet found an example of a comparison marketplace starting with insurance products and expanding to loan products; this could be because the penetration of insurance is so low in frontier markets and that microloans are just that much more established (and the array of options to compare being sufficiently ‘dense’).

As money marketplaces scale to multiple countries they typically run country-specific marketplaces built on the same backbone to tailor experiences to consumers in those markets. For example, MoneyHero Group (Nasdaq: MNY) operate in seven markets with seven ‘distinct’ products running on the same product architecture: Hong Kong (MoneyHero.com.hk), Indonesia (HaloMoney.co.id), Malaysia (CompareHero.my), the Philippines (MoneyMax.ph), Singapore (SingSaver.com.sg), Taiwan (Money101.com.tw) and Thailand (MoneyGuru.co.th). This is also the case for Caxe Technologies which operates services in Indonesia as CekAja.com and Philippines as eCompareMo.com. This enables the companies to keep their product management costs low whilst still targeting their marketing and tailoring their product lines to the specific market.?

Successful comparison marketplace models (e.g., BankBazaar India in 2017) often started with a simple model that digitized a manual application process for banks. In seeking prospective ventures, one approach would be to look for companies that have digitized an aspect of banks’ consumer-facing workflows as a SaaS model, as these could evolve into comparison marketplaces.?

Other successful models initially started as web-based aggregators that published comparison data but did not connect with banks’ application systems. These ventures typically earned revenue from per-per-click (PPC) or third-party advertising on their sites. For example, CekAja.com in Indonesia was still an aggregator in 2018 but once they had expanded their reach they added KYC and digital loan applications to add value to banks downstream and earn referral commission as a revenue model. This approach makes sense in a market where the downstream loan applications are manual as aggregating loan profiles can initially attract consumers until lenders have digitized their onboarding (or are open to having their onboarding digitized by the aggregator).

MVPs of these products typically have a very simple product stack: aggregators and workflow automation can be initially implemented with no-code solutions. As the ventures raise funding they typically assign resources to product dev., often promoting ML/AI components of their stack (to support matching of consumers to appropriate lenders and loan products). Ventures building in ML/AI include MoneyHero Group (Nasdaq: MNY) and Caxe Technologies in Southeast Asia. I think the next stage of product development in this space is moving mobile-first, integrating social commerce features, and building chatbots to facilitate the eKYC workflow. There’s early evidence of this pathway showing potential in India (with BankBazaar India launching a WhatsApp chatbot to support eKYC) and Indonesia (with Jirnexu launching an in-house eKYC chatbot).?

As comparison marketplaces deepen their eKYC to improve matching and justify their referral commission, they need to develop new methods of credit scoring to continue to add value to their downstream partners. There is a delicate balancing act here - between improving matching through eKYC and not scaring off visitors to the platform by overburdening them with eKYC. I think marketplaces will start to request the type of private data asked for by the lenders (such as mobile payments and utility history). I think ventures can successful ask for more data for their eKYC if they can ‘lock in’ the customer in a mobile app that allows for multiple loan applications or some other ongoing value-add to the consumer that justifies them providing sensitive data (e.g., ongoing credit score tracking, access to premium financial literacy content, or some other sticky feature).?

Marketplaces could also experiment with nudging consumers to provide additional information as an option that ‘unlocks’ certain lenders, loan products, or rates. Marketplaces may also partner with telco companies to hack growth in their user base. For example, in Indonesia Caxe Technologies partnered with the region’s largest bank, 星展银行 , and telco operator Telkomsel to match the telco’s 190 million customers to loan products from the bank based on eligibility data scraped from their telco usage.?

There is also an opportunity for these marketplaces to offer their own products - alone, or often in partnership with a lending partner. This is because the marketplace is in the best position in the market to identify gaps based on what consumers are searching for on the aggregator and what clients are offering. For example, Caxe Technologies began offering its own branded policy in certain cases (such as dengue fever insurance in the Philippines) when they identified gaps in the market offering of their partners.?

Another approach I think has promise to drive scale is partnering with e-commerce marketplaces because microloans in frontier markets are typically taken out for personal consumption (consumer electronics, etc.). BankBazaar India in India has a strategic relationship with 亚马逊 which has the potential to funnel leads for microloans tied to consumer spending on the platform. I haven’t been able to see the traction of this yet, but I feel confident that marketplaces comparing financial products can find new revenue opportunities by converting their user to a sale on an e-commerce platform.

Marketplaces for loan products that act as a customer acquisition channel for lenders with a referral commission as the revenue model need to pay close attention to their customer acquisition costs (CAC). Based on a review of promising ventures in the space, one of the ways I’ve seen that ventures hack their CAC down is through producing financial literacy content to drive SEO: e.g., Faydety in Egypt and Money254 in Kenya. I’m also bullish on ventures that can tap into social media users through creative video content on financial literacy to drive visitors to their platform or enroll users to their mobile app (e.g., Money254 ).?

When assessing financial product marketplaces, rapid growth is important to look for, but can be difficult to determine from the outside. In later stages of growth, MoneyHero Group (Nasdaq: MNY) (formerly Compare Asia Group) still managed to double its user base in 18 months between 2017 and 2019 from 28-60 million when they expanded to new geographic markets. Successful ventures with a working MVP quickly build up the number of partners they work with. For example, in Indonesia Caxe Technologies (formerly C88) works with over 90 banks, financial institutions and lenders as of 2018, ~10 years after launch. Similarly, BankBazaar India compares products from 75 financial institutions in 2017, ~10 years after launch.?

Why now? The market in Southeast Asia is likely to go through a period of consolidation, with later-stage ventures having raised later-stage venture capital and expanded to multiple markets. The African market seems ripe for expansion for a marketplace that can position as the one-stop shop for consumers looking for financial products and an efficient customer acquisition channel for lenders. In particular, Ghana, Nigeria, and Kenya seem promising. According to the Central Bank of Kenya, as of December 2020, there were more than 60 microfinance deposit-taking institutions (MDIs) operating in the country. In Nigeria the number of MDIs is estimated at more than 40 and in Ghana more than 30.?

The density of providers in these markets also comes at a moment when the governments are clamping down on digital lenders. For example, the Central Bank of Kenya (Digital Credit Providers) Regulations, 2022, were gazetted on March 18, 2022 and provide for the licensing and oversight of previously unregulated Digital Credit Providers (DCPs) by CBK.

So you’ve got a rapidly expanding user base, a crowded (but fragmented) sector, and increasing oversight by national governments. These forces will drive interest by consumers in comparing financial products and services.

What are the risks? Successful comparison marketplaces found a balance between offering value to downstream partners through eKYC and digital verification of customers whilst managing to attract (and retain) consumers by remaining accessible and ‘light-touch’. This is a precarious balance between ventures’ SEO marketing and their platform's user experience with the need to find out as much as they can about applicants to filter them through to appropriate loan products. When companies failed to do this they typically failed because of unsustainable churn on the consumer side (over-burdening eKYC, poor match to loans) and on the client side (no value-add of eKYC, poor match to borrowers).?

Another risk related to eKYC is the lack of APIs to credit rating agency scoring in Africa as an expansion market for money marketplaces. If marketplaces can plug into credit scoring databases through an API, they can add additional value both to their downstream lender and potentially also provide a running benefit for consumers to stay connected with the platform. This feature is available on platforms in Southeast Asia, and seems held back currently by the lack of APIs to credit bureau databases in other markets.

What can we learn from the curve in other frontier markets? When markets are relatively mature and comparison marketplaces sufficiently increase their reach, multi-national credit bureaus look eager to invest as a means of entering and enabling frontier markets. For example, Experian , one of the largest credit reporting bureaus in the United States, invested in MoneyHero Group (Nasdaq: MNY) in 2019 leading the initial closing of a $20 million B1 round through their venture capital arm Experian Ventures - Investing in the Global Credit Economy . Experian also invested in India's BankBazaar India in 2017 and Malaysia's Jirnexu in 2018. (Not long until Experian Ventures - Investing in the Global Credit Economy look to promising ventures in Africa perhaps?)

At the other end, when markets are at an earlier stage, development finance institutes represent a promising strategic partner eager to support financial literacy and financial inclusion. For example, earlier in CompareAsiaGroup's maturity (around 2016-2017) they received investment from the IFC - International Finance Corporation .

There's potential for consolidation in this space as comparison marketplaces are competing for the same consumers' attention & the same partners referral commission with very similar products. For example, SaveMoney.my merged with RinggitPlus .com in 2016 to create Jirnexu . I expect to see winners who have converted to commission & e-KYC acquire or merge with aggregators when the latter is able to attract enough audience.

Investors that have backed money marketplaces in frontier markets include Alibaba Entrepreneurs Fund Antler Central Capital Ventura Chui Ventures Eight Roads Enza Capital Experian Ventures - Investing in the Global Credit Economy FengHe Fund Management Pte Ltd Ground Squirrel Ventures Ingressive Capital Integra Partners InterVest Co., LTD KB Investment Kejora Capital Kickstart Ventures Microtraction Monk's Hill Ventures Nova Founders Capital Route 66 Ventures SAMURAI INCUBATE Sequoia Capital Titanium Ventures

Promising ventures active in this space include Money254 Cermati.com MoneyHero Group (Nasdaq: MNY) Jirnexu Caxe Technologies BankBazaar India CompareGuru Faydety

Note: data is not cited here in the memo as I try to turn the (memo + dashboard updates) around quickly over 1-2 days, and they are intended as working documents. However, all data is sourced from articles listed in the?Airtable?next to specific ventures under ‘Press mentions’ (Venture tab) or under ‘Resources’ (Working investment thesis tab). Sorry for typos!