> Posted by Ignacio Mas, Independent Consultant
“I feared and distrusted them: feared them because they could reject me and expose me to mortification of defeat, and mistrusted them because I did not understand them.”
In his reminiscences of youth, Alan Moorehead said this of women, but it could equally apply to many people’s attitude to banks. People’s concerns about banks are phrased in surprisingly similar terms wherever you go in the developing world. (See this clip for a typical example.)
This got me thinking: how much of people’s fear and mistrust of banks is due to a lack of understanding? Let’s explore three typical articulations of the distance between banks and ordinary people.
“Banks are for rich people; what do they want from me?”
The understanding gap here is in the motivations and intentions of banks when they approach the base of the pyramid. It’s a very human reaction: if someone who has never shown any interest in me suddenly starts cozying up, I get on guard. Banks venturing down-market need to explain where they see the opportunity, otherwise people will not believe there is a commitment or, worse, will interpret ulterior motives. This requires articulating a joint vision of success for the bank and the new client segments, and consistently demonstrating behaviors that gives credence to the claim. Equity Bank in Kenya has been particularly effective in conveying the idea that its success is intertwined with the success of ordinary Kenyans; its positioning is credible.
“Money keeps disappearing from the account; they bleed it with commissions.”
Priciness alone does not alienate poorer people, for unattainably expensive things sometimes become useful aspirational markers (think TVs and higher-end mobile phones). Pricing complexity and lack of transparency don’t necessarily trigger outrage and rejection, as long as I feel I get value every time I get charged (think mobile telephone services). What characterizes bank charges is their lack of connection with people’s perception of value. It’s not easy for banks to justify charges when people are apt to wonder: why should I pay to deposit (giving you money on top of money?), to keep money in a bank (monthly fee, even if I do nothing?), or to get it back (withdrawal fee as ransom?)? M-PESA in Kenya addressed this by loading the price disproportionately on the electronic rather than on the cash in/out legs for the more common transaction sizes, since for most people the little miracle that is M-PESA does not involve the conversion of cash to electronic value but being able to send the value over long distances. This pricing model is the opposite of what a company’s cost orientation would lead to, and a drawback is that it reduces user incentives to evolve towards a digital money ecosystem. M-PESA users may not know exactly how much they are being charged, but they have a good sense of when and what for.
“What if it fails?”
The third obvious sort of distrust is about the permanence of banks. Most people can point to someone, somewhere who lost their money when an institution went under, or simply vanished. Many of the financial institutions that serve the poor are not sufficiently professional and are too small to be of concern for banking authorities. Many operate with a façade of formality but are in fact outside the law. How can I tell? The larger ones may be subject to adverse political interventions. Rumors are rife. It may simply not be worthwhile to try to figure any of this out when all I have is a few tens or hundreds of dollars and plenty of places to stash it in, things or animals to buy, and friends to loan it out to. So if you are a bank, how do you communicate solvency and permanence? Traditionally, banks invested in big marbled premises, but that signals unproductive money-waste and risks putting distance between the bank and prospective customers. A better way may be to display largesse with the community and invest in many local businesses – signaling that as a bank you intend to stay there and grow with the community.
For all these reasons, banks need to make themselves understood if they are to break beyond their traditional markets and serve poorer customers. People need to understand why banks want to do business with them, when and why they require charges, and why they have the power to succeed. Understanding is not just about branding and marketing communications: it’s about demonstrating purpose, benefit and commitment.
Ignacio Mas is an independent consultant. You can learn more about his work here.
Image Credit: African Business Review
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October 31, 2012 at 11:59 am
John Gitau
Dear Ignacio,
While banks can successfully sell their products and services easily to the already included, the poor like buying financial services without being sold to. An attempt for banks to sell products to the poor in the same style leads to repugnance. They have many options. For example, banks sell savings in one way – bring your money, keep it with us we shall give you interest. End of story. Is that what the poor think saving is? Ignacio you have said it well; they can save whatever amounts in whatever lots wherever they want and access it when they want as per their planned life-cycle needs. Goats, chicken jewelry, friends, shopkeeper, trusted friend are all saving vehicles available freely. How do you impress a multifaceted customer with one tired option?
While value propositions, cost benefit, diversity of options, are important considerations in evaluating the love hate relationship between banks and the poor, truth needs to be said as it is. The poor are disdainful of banks’ squinting and lustful winks toward them masquerading as romantic gestures of ” I- will-take-care-of-you-until-death-do-us-part”. And for good measure, any time the poor visit banks giving them a benefit of doubt, they get injured through deposit fee scratches and withdrawal fee smacks.
It is the aloofness, the arrogance, commissions and fees greed that anathematizes the poor against the banks. Ignacio, where do the annual billions earned by the so called poor people’s banks come from? Or is it the poor donating to them so that they can keep themselves served? When I was young, I used to hear stories that a rat bites a person’s heal while asleep and blows cool air quietly so that the victim sleeps on as the rat has its fill. I don’t know how true such stories were. True financial inclusion is characterized by diverse, affordable, fair, flexible and user friendly financial products and services offered by diverse providers formal or informal. Such providers are not necessarily financial institutions the way they are defined today.
The Mpesa model of service, fees and delivery ( isn’t it simple, dear friends!) hacks it for the poor and we should have more of those innovations and forget the haughty banks. Look at the flexibility and self service abilities of mobile money? That is what the poor need. What are banks going to do now for the poor that they haven’t done in the centuries they have been on earth? For them to change? Perhaps not in our generation. At least MFI’s have done something greater than banks in working with the poor much as not everybody appreciates that fact.
Ignacio, not letting up. Keep up the struggle until the poor get what they deserve however long it takes.
October 31, 2012 at 2:23 pm
Jim Wells
In my humble opinion, Mr. Mas presents a one-sided proposition that appears to fault consumers for not dealing with banks, as if banks have a long history of being welcoming and outreaching to these same consumers. It is my experience that consumers are reacting to banks well-earned reputation for being inhospitable and reluctant to deal with less affluent consumers. Expecting consumers to change their reaction to banks requires much more effort on the part of banks than simply “changing their spots.”
Even when banks enter into alliances with telcos for wider-reaching mobile money initiatives, banks say they need to “own” the customer — showing that they have yet to embrace the democratic approach to providing banking services that enfranchises and empowers all consumers rather than attempts just a different method of judgement and control.
October 31, 2012 at 6:11 pm
Ignacio Mas
Jim, your comment left me perplexed. You seem to have read into my words the opposite of what I was trying to say. How delightful: that, in a post about misunderstandings.
I wanted to be a tad more constructive that simply bank-bashing. Explaining the reasons for the wide gulf between banks and their customers is in no way justifying banks’ behaviors.
So let me say that I totally subscribe to what John writes. “How do you impress a multifaceted customer with one tired option?” Thanks John for putting it so eloquently, though beware, you too might come to be misunderstood.
Ignacio
November 1, 2012 at 3:50 pm
Jim Wells
Ignacio, I’m trying to figure out how I could have misinterpreted “how much of people’s fear and mistrust of banks is due to a lack of understanding.” Was the post not seeking to disabuse “ordinary people” of purported misconceptions about the banking industry? If not, I’m pleased to know this was not your intent. Cheers, Jim
November 1, 2012 at 5:07 pm
imasribo
Jim: first, the bit that you quote ended in the original with a question mark– you didn’t include that bit in your quote. It was intended to be a rhetorical question, to frame the discussion. Second, if I say “you misunderstand me” (which you did) that doesn’t automatically mean that you are wrong or that I am wrong, or that it’s your fault or that it’s my fault. Simply there is a gulf, which makes us not empathetic to each other’s positions. The main point of the blog was to explain why people don’t pay attention to banks’ marketing messages, they don’t believe them, they don’t trust them.
November 1, 2012 at 5:23 pm
Jim Wells
Splendid. Then we are in agreement. Sorry for the confusion. But pleased with the clarification. Now, if the banking industry would just address the points you raised, or not stand in the way of more effective non-bank solutions, we might have real enfranchisement.