Alternative Channels & the Customer Relationship: Possible responses to the effects of Covid-19 on MFIs

Alternative Channels & the Customer Relationship: Possible responses to the effects of Covid-19 on MFIs

by Raúl Gómez Velásquez, Senior Associate Consultant, Amarante Consulting

The disruption caused by the Covid-19 pandemic has been so dramatic that it has changed the way we live – how we interact with each other, how we work and how we do business. It is likely that nothing will ever be quite the same, even once we get it under control. Governments in many countries have put in place rules on social distancing to stop the spread of the virus. Some financial institutions have accelerated their digital transformation processes. Others have prioritized alternative channels, such as digital solutions and networks of correspondent agents, in order to ensure that their direct and indirect clients can continue to securely carry out their financial transactions. This can help reduce the non-essential movement of people from rural areas to urban centers – where there is greater population density, and therefore greater risk of contracting and spreading the virus.

On the other hand, we know that a large part of the adult population in the Latin American region lacks access to financial services through formal channels, especially among the low-income population. In addition, the gender gap persists, preventing the full participation of women in the economy. Contributing factors include limited modernization, investment restrictions, and high margins of intermediation, which make financial products more expensive and the provision of services to rural, dispersed populations more difficult. However, the region has seen many successful deployments of correspondent agent models. In these models, affiliated staff at  pharmacies, warehouses, bookstores, hardware stores, laundries and other small businesses can  facilitate  both clients and non-customers of financial institutions to carry out financial transactions. The agent model has expanded at an accelerated pace and has contributed greatly to financial inclusion by allowing financial institutions to expand their coverage, introduce a new range of accessible products and services, serve rural and remote areas, and offer more convenient opening hours.

Of course, each country in the region has its own characteristics that define its financial ecosystem. These include regulatory frameworks, maturity of the financial system, mobile network operator dynamic , consumer habits, internet coverage, and the relative importance of remittances to the economy. However, there are some shared aspects that allow for common regional approaches.

These new digital environments make it necessary that financial institutions reinvent themselves, transform themselves inwardly, adopt cultural changes, and think seriously about their relationships with their customers.  Customer-centricity is critical to any digital strategy in order to achieve impacts on productivity and have actionable information to drive improvements in the customer experience. To this end, financial institutions must facilitate a digital culture that extends the integral value of their products and services.

Today, many countries in the region face challenges of driving payments’ adoption and engagement to vulnerable populations amidst a crisis. The region’s current state of financial inclusion will also compel regulatory bodies to be more open to offering new, alternative channels with less traditional visions of financial intermediation – including digital signatures, electronic disbursements, field-based collection with biometric controls, remote credit approval, and more.