In markets where fragmentation and inadequate infrastructure create massive inefficiencies, you might think “cutting out the middle men” is the answer. Instead, many impact tech startups are cutting them in. That means reintermediation instead of disintermediation, enablement rather than disruption.
Fintech ventures, in particular, are developing tools to make intermediaries more efficient and give their incomes a boost.
“Digital financial services for underserved populations still oftentimes require a human in the process, whether that’s for onboarding or customer service or some other stage in the customer journey,” observes Amee Parbhoo of Accion Venture Lab, an early stage investor in inclusive fintech companies. She calls it the “tech-touch balance.”
Accion Venture Lab portfolio company Lami, an insurance tech startup in Kenya, learned this lesson the hard way. Founder Jihan Abass launched Lami to address Africa’s low uptake of insurance as a security measure against accidents, economic shocks and natural disasters. Less than 3% of Africa’s 1.3 billion people have some form of insurance for their lives or livelihoods. Lami started by selling vehicle insurance directly to consumers through online platforms.
“We noticed there was not a lot of uptake by selling the product this way,” says Abass. The company had focused on using technology to improve access and affordability but hadn’t fully fleshed out the other obstacles to adoption, like consumers’ skepticism of insurance policies.
“Insurance is sold, not bought. Ninety percent of insurance products in Africa are sold through brokers because agents and brokers can have those conversations,” Abass says.
The company just over a year ago decided to try designing and piloting an online tool for brokers, to help them expand the range of policies they offer and close sales faster. The uptake was so swift that within two months Lami pivoted to focus its entire business on serving brokers.
“A lot of agents depended on manually selling products that required a lot of writing, texting and calling between insurers and customers. They couldn’t work with more than about three insurers because they couldn’t manage so many relationships at once, so it really limited their earning potential,” explains Abass.
Lami has tripled its sales in the past year. The company offers motor, personal accident and travel insurance and workman’s compensation from more than 40 providers. It now serves about 1,000 insurance agents, close to 8% of Kenya’s brokerage market. Nearly half of its agents are women. It has done no marketing—all of its recruitment has happened through word of mouth.
Brokers using Lami have grown their monthly sales from about $150 to $600 (Lami pays out commissions daily). Many of Lami’s agents are hiring their own agents. One of its “super agents” is a single mother with two children who now has nearly 170 people working for her and clears more than $58,000 in monthly sales.
“All of our super agents are women. Even though insurance is a traditionally-male industry, women like this work because it’s flexible and you can sell anytime, anywhere,” Abass observes.
Rural-urban divide
The importance of a “tech-touch balance” to drive adoption of life-improving products and services isn’t unique to financial services. Off-grid solar providers have long depended on legions of field agents to teach potential customers about the benefits of reliable energy access and understand payment terms. Having a reliable agent network has allowed companies like Bboxx, M-Kopa and Zola to expand their range of products and even into new business lines, like electric motorbikes and mobile phones.
Tolbi in Senegal partners with agribusinesses who sell inputs and buy crops to farmers to onboard farmers on its mobile field and weather insights service. Enakl in Morocco works with commuter transport drivers to make it easier for people to book shared-ride services. Both companies started out with B2C models then pivoted to B2B, says Maxime Bayen of BFA Global’s Catalyst Fund, an investor in Tolbi and Enakl.
“The end-customer in these geographies are savvy and have purchasing power, but trust and adoption doesn’t just happen because you bring them technology,” observes Amie Patel of Elevar Equity. “There’s a lot of feet on the street required to reach end-customers.”
Patel observes that agent networks are especially important for businesses focused on semi-urban and rural customers. Elevar portfolio company Niro provides consumer loan products to first-time and low-credit borrowers through other financial services partners and consumer websites. Because it largely targets urban and peri-urban customers, it’s able to take a more direct to consumer approach than peers like Sarvagram that operate primarily in rural areas. The non-bank lender allows customers to apply for loans on its mobile app but still largely relies on a physical branch network and in-house loan officers that work directly with rural households.
Bike Bazaar falls in the middle: The company provides financing for two-wheelers – the most common type of vehicle on India’s roadways – through bike aggregators and shop owners, which also offer maintenance, repairs and other services.
Building on natural behavior
B2B and B2B2C models in many cases offer a clearer pathway for fintech ventures to scaling impact and achieving business sustainability.
“Going direct to consumers is often too expensive,” says Patel.
Plus, she adds, “Instead of completely dismantling the middle men, you’re bringing them in and giving them a slice of the economic pie.”
Sukhiba in Kenya started out as an e-commerce platform that allowed “group buying” so that people could take advantage of discounts for buying daily essentials in bulk. Before it launched last year, it sunk a lot of time and energy into a fancy app that just couldn’t compete with the much simpler and ubiquitous Whatsapp messaging app.
“Eventually people would only talk to us on Whatsapp. They’d say I need 10 units of sugar or five units of oil, or they’d ask us what discounts were happening,” recalls Sukhiba founder Ananth Gudipati. “People’s natural behavior for engagement was all on Whatsapp.”
Sukhiba scrapped the e-commerce idea and focused instead on designing a way to integrate ordering and payments into Whatsapp. Distribution agents for large product companies would be able to use Sukhiba to complete orders for their clients directly through the app.
The company started piloting the new model in May of this year with Darling Africa, a company that manufactures hair weaves and braids, to help them sell their products to small hair salons in Kenya. By September, Darling’s agents were managing sales to more than 10,000 women-owned hair salons through Sukhiba. The company is also working with large retailers and agribusinesses.
Sales agents for these companies who could close sales with 50 shops or business owners in a month can now complete transactions with hundreds more using Sukhiba’s CRM interface, says Gudipati. “We can say to [our partners], our interface helps you expand not by replacing your sales people, but by making them more efficient.”
Learning curves
Sukhiba in August closed a small investment round from Accion Venture Lab, Quona Capital and other investors eager to help it build on its B2B model and to expand into financial services. Investors that had supported its e-commerce business were more skeptical of the business pivot; the team had to educate those investors on why the direct model would have been difficult to sustain and grow.
“Those models suffer from high acquisition and low retention because they’re not meeting people’s natural behaviors,” says Gudipati. It was a big ask to get users to download a new app and then guide them on how to use it. And to get them to do business with a new entity.
“We should not forget the strength of the relationship to a retail sales staff or supplier,” he says.
Adds Parbhoo, “These sales agents are critical players in the distribution supply chain, so providing relevant technology to help them do their jobs is a powerful and, we believe, impactful pathway to financial inclusion for the many micro and small businesses those agents ultimately reach.”
