When the Corner Merchant Is a Financial Hub

Developing countries depend on small merchants to grow their economy. But who helps these merchants build their businesses? Kurt Weiss is CEO and founder of Miti Ventures and yufin, which enables corner stores and retailers in Southeast Asia, Central America and Africa to distribute lower-cost digital financial services to their customers in order to grow and improve their margins. This distribution effect, Kurt argues, has an amplified impact on financial inclusion as more households around the world are able to pay, save, borrow, insure and invest.

Archie: You have a unique perspective in terms of understanding the efficiencies of a corporate bank versus a fintech.

Kurt: My background is in corporate finance, but the interesting thing is that it’s always been a ‘startup’ within a big company. At American Express, I was the CFO with the Small Businesses Services group, and ultimately did a startup called ‘Rewards As A Business’ and became the CEO of that within American Express. Then I was the founding member of the Citi Ventures and Innovation Group, another startup. In both instances they were startup businesses within a larger global financial institution. You had your ‘Big Brother,’ but you were kind of kicked out to your headquarters to your own office and had to hire your own people.

Archie: What led you to conclude that fintechs are better positioned than large institutions to address financial inclusion?

Kurt: From a technology perspective, coming out of traditional banking and their traditional legacy systems, I know that you don’t want to work with that infrastructure. I can be ‘Mr. Innovation’ over there [at Citi Ventures] but unfortunately I’m still tapping into the legacy systems of a banking corporation. Whereas at a fintech you aren’t burdened by that legacy infrastructure and you’re more able to deliver products to customers. That’s the key.

From a corporate perspective it could take you many hours to get nine months of build to get your product released for mobile banking or payments or whatever, and you’re lucky if there isn’t a regulatory compliance issue that didn’t actually push you further back. Also, it might take you a year to work on a product enhancement. The release cycle is excruciatingly slow, whereas a fintech’s nimble architecture can rapidly expand and release products, and that’s why they’re better suited to address this market.

Archie: What excites you about advancing financial inclusion in emerging markets?

Kurt: Financial inclusion to me is based around concentric circles. It’s certainly access to financial services, so that’s bank accounts, savings accounts. It’s also the ability to take digital payments, have access to working capital loans, and then as you look at financial health or wellness, it goes out to insurance. If you look at insurance or micro-insurance, when you think about it, the amount of under-insurance is terrifying. In our society at the higher end, you may see a windfall with a family loss through insurance. But in lower income markets it becomes a burden, a huge liability. ‘I lost this income stream and now I don’t have money to take care of it’ is a very real issue for average or lower income Americans or Europeans. In emerging markets, it’s terrifying for two reasons. First, they are even less insured and second, they’re in more physically dangerous jobs than we might be accustomed to in the U.S. or European markets. There is a higher likelihood for a major disaster to happen and having to deal with the expense afterwards. 

Archie: yufin was created around a ‘Distribution as a service’ model. What are the benefits of this model vs. simply offering merchants a digital loan?

Kurt: I liked the concept of multiple levers, such as insurance, payments, links to local banks, and links to CPG [consumer-packaged goods] companies, which offers more things to the customer. For our base business with the multiple levers, what lowers the risk for us is to offer small businesses an ecosystem of services to help them grow their margins. We’re the linkage between the merchants, the banks and the CPGs all having a multitude of services. This helps us, versus a lot of startups that just do one thing, especially from an investor risk management perspective. It also develops customer bases with far higher margins. It’s a model that enables you to penetrate these verticals constantly. 

Distribution as a service also represents a paradigm shift of direct to consumer, with this marketplace link to CPG and even to larger fast-moving consumer goods (FMCG) companies. Small merchants are able to buy directly from a big player to secure inventory, get product faster, and have more confidence to get this product. You can also integrate another direct link component to FMCGs. The bigger FMCG companies need customer data, something they are not necessarily getting at the moment in these developing markets.

Archie: You target SMEs in developing markets—really the corner shops and small retailers. What are some of their typical challenges?

Kurt: I wanted to offer small businesses an ecosystem of services to help them grow. Our perspective is that our primary customer is the small merchant, and then we’re enabling the small merchant to distribute out to the local population. Small merchants in many emerging markets represent a significant percentage of business, employment and GDP. So instead of a vertical, we see ourselves as helping countries themselves. Over time, small merchants need to increase their margins. They need to source more effectively, they need to sell more effectively, have more high-margin products to sell. So [we’re] making financial services products more available to a developing market but at the same time helping the small merchants. So, if they win, we win by taking a small percentage.

Archie: Your case study on this angle of financial inclusion focuses on the Philippines. How did you come to this market?

Kurt: India was seen as the hot established target market for this small merchant distribution model of financial services, and more recently we’ve seen Indonesia as having a few examples of success. So, India and Indonesia are very well-penetrated for these services. As a startup heading into an established competitively tough market, to borrow the Wayne Gretzky proverb: ‘go where the puck is going, not where it has been.’ We see promise in the Philippines as the next big market. It has a population of 115 million, the second largest in Southeast Asia. Our strategy is that some investors may have missed on India and Indonesia and want to get a foothold in the Philippines.

Archie: How did you build your customer acquisition strategy in a developing market like this?

Kurt: We hired a dedicated salesforce of ambassadors to literally walk town to town talking to merchants to understand the benefits of our platform and explain it in a very hands-on approach. Our ambassadors are doing this six days a week, spending two of those days listening to the customer and understanding how to tailor our product, and how we want to develop it from the ground up. We want to understand from the merchant what they really want. We don’t want to wing it, as in making our own assumptions from a headquarters in New York or Singapore or wherever we’re based. That groundswell has allowed us to accumulate a customer base very cost effectively. Based on all the bells and whistles and trials and tribulations that a large financial company would have to go through, it would not be cost effective for them to reach out to this vertical and this customer segment. We’re able to really fine-tune the product, adding features, functions and learnings.

Archie: Can you share some startups that are addressing your model of financial inclusion in similar developing markets?

Kurt: Pay Nearby in India has been used in Harvard Business School case studies and 55 million retailers in India have adopted the service. BukuWarang in Indonesia has grown to 6.5 million users in two years, and its CEO is now one of our advisors at yufin.