The Potential of Digital Data: How Far Can it Advance Financial Inclusion?

This focus note enquires into how far emerging new sources of digital data can improve business model economics, reach more people, enable greater customization, and further financial inclusion. It highlights where and how potential benefits from the use of digital data can be realized, and recognizes the various challenges and risks involved. The note states that the use of digital data is playing a growing role in the area of financial services in low-income countries and hence, there are enormous opportunities from the use of digital data. Key findings include:

• Digital data can benefit providers through applications in three broad areas: finding new customers, deepening customer relationships, and managing risks;
• Headline-grabbing examples typically involve a new class of short-term credit products that use digital data to extend instant credit remotely;
• Areas of impact span a broad range of existing products and business models, where digital data supplement decisions or help automate processes;
• Initial provider focus is on credit and insurance products where the gains can materialize more quickly;
• Seizing the opportunity for financial inclusion will require patience, as more data become available and providers build their ability to use data and change business processes to take advantage of it.