‘Both vision and data’: Why mobile phones are giving millions access to financial services

This is Ask a VC, where we quiz venture capitalists on the latest trends in the finance space. While billions across the world have limited access to financial services, that number is quickly falling. The World Bank reported that between 2011 and 2014, 700 million people became account holders at banks and mobile money service providers. At least part of this can be attributed to technological advances that give people new ways to manage their money. It’s the kind of progress that inspires Monica Brand Engel, a partner at Quona Capital, a venture capital firm that specializes in early-stage financial technology companies in emerging markets. Quona manages the Accion Frontier Inclusion Fund, a $141 million pool that invests in products for the underserved, including alternative credit, payments and business-to-business financial tools. Investors include Accion International, JPMorgan Chase, Mastercard, Metlife and Prudential Financial. Its portfolio includes the South Africa-based mobile payments provider Yoco, CreditMantri (the ‘Credit Karma of India’) and Konfio, a Mexican online lending platform. For this edition of Ask a VC, we spoke to Engel about what’s driving innovation in the financial inclusion space. Answers have been edited for clarity. How can investors tell the difference between the next big fad versus the next big thing? Financial technology has seen a resurgence in emerging markets since the financial crisis. I wouldn’t call it a fad but a convergence of trends, including the proliferation of mobile phones in parts of the world where access was limited as well as internet connectivity. Similarly, another trend is mobility. Borders are becoming less relevant and people are seamlessly moving from country to to country, and also economic mobility is fueling an emerging middle class. Quona supports ideas that generate an attractive return on investment and promise to change the world for the better -- can you do both of these, from day one? We expect that the portfolio companies will incur a loss for the next two or even three years. At some point in the short to medium term they will earn a profit, they'll get acquired or go public. When the liquidity event will happen, that’s when we the investors and Quona will get our money back as a return. When we invest in them there's a clear path to profitability. What financial technology trend is most exciting to you right now? That’s like saying to a mom which child do you love best! There’s so many trends out there. I’d say the proliferation of mobile phones. It means you have a digital identity for people who were previously invisible. A mobile phone in their hand that doesn’t mean just connectivity -- it means you can see them. A phone number becomes like a social security number, and that’s powerful because you have an identity that can be geolocated. Is there one that’s particularly overhyped to you or has lost your attention? What’s overhyped is the notion that the old financial system is going to disappear. In the new world order, banks will have different roles. There are many funds that aim to help people who can’t access financial services, in the U.S. and in the developing world. Can startups offer something different than the banks? Startups are nimble. They can take risks that a deposit-taking institution just can't take, particularly in product design, user experience and breadth of access. Banks are interested in the inclusionary space. For example, Mastercard is an investor in us. They’re interested in how they’re going to get new clients. They struggle because they see things through their lens and it can be a blinder sometimes, but the banks are trying to see if they can extend what they do today and want to push their boundaries. What’s the greatest lesson you’ve learned from a failed venture? Both vision and data are important to get to success. And just because everyone is doing it doesn’t mean you should do it. What’s the biggest mistake that entrepreneurs make when pitching you? Thinking that your investors want to hear that there are no problems. When you say there’s no problem, it means you're not sure how to manage your business. I like bad news early and often.