> Posted by Alexandra Fiorillo, Principal, GRID Impact 

With more than 2.5 billion people around the world remaining un- or underbanked and major fluctuations in activity and usage among existing accounts, the financial inclusion industry still has work to do to increase the uptake and adoption of new products and services while also increasing the number of regularly active clients.

Many people understand the potential benefit of financial services and have the intention to use savings and loan products to improve their financial well-being. However, research shows that human beings do not always follow-through on their intentions. Frequently, we experience an intention-action gap due to psychological and external factors.

If we want to achieve full financial inclusion, we cannot simply offer more financial products and services to more people and hope they need, want, like, and use them. Instead, we should spend the necessary resources to ensure our products and services work for clients by doing two things:

1. Design products that meet the needs, desires, and preferences of our clients by collaborating with them on the design and delivery of these products.

2. Help our clients follow-through with the intentions and goals they have for their financial lives by focusing on taking action rather than just providing more information.

A new approach to product and service innovation, behavioral research and design, attempts to do just this. Drawing on insights from behavioral economics and principles from human-centered design, behavioral research and design attempts to uncover deep personal and contextual motivators and influencers to human behavior so we can better design products and services in a client-centered way. The goal of this method is not to focus on stated preferences and opinion or market research, but rather to develop deep empathy for human needs and desires while also making sense of observable behaviors – which may be contrary to people’s stated preferences. The tools often used in this approach involve in-depth interviews, behavioral and empathy mapping, customer journey maps, and other techniques focused on a small, indicative group of people. The multidisciplinary approach can help us better understand the motivations underlying people’s current behaviors and help us make more informed predictions about how people will behave when faced with new decisions in the future.

On behalf of ideas42, I recently led a project to improve microsavings outcomes among low-income clients of CARD Bank, Inc. in the Philippines. In collaboration with Grameen Foundation, my team used tools from behavioral economics and human-centered design to develop insights about people’s savings behavior. We used the market research and client segmentation CARD Bank, Inc. had already done to get a broad understanding of their clients and combined it with in-depth behavioral interviews, small focus groups, and rigorous quantitative analysis of transactional and administrative data to understand current savings challenges. The behavioral research we conducted informed the design of interventions to help people follow-through with their stated goals and intentions to save for their future. The outcome was surprising, and very successful!

Our behavioral diagnosis highlighted several key barriers to improving savings outcomes including two about savings goals and behaviors:

1. The savings “goals” clients have are distant and abstract, while immediate financial needs and temptations feel pressing.

2. Clients open new savings accounts with little intention or plan about how to use the account to reach their savings goals.

Savings Plan created to help clients set goals and make a plan for savings behavior.

To resolve these behavioral challenges, we designed four low-cost, easy-to-implement interventions that altered the account opening process and how clients engaged with their savings accounts. Most notably, we created a Savings Plan that incorporated goal-setting, plan-making, the feeling of having made a commitment and personalization to help clients overcome savings dormancy.

We conducted a randomized controlled trial to measure the impact of our interventions and we found that clients who were exposed to the behavioral interventions made initial deposits 15 percent higher than those who opened accounts using the standard process, and were 73 percent more likely to initiate a transaction in the new account. The intervention appears to have had the effect of increasing balances 37 percent compared to the control group over the course of the eight-week pilot.

Our project taught me some valuable lessons about improving financial behaviors at the BoP, which are relevant for other industries as well:

1. Developing a deep understanding of people’s intentions and the contextual or environmental barriers that prevent them from realizing their intentions, can support improved design and delivery. In the Philippines case, this meant we assisted clients in making concrete, aspirational savings goals with detailed, actionable plans for how they would meet that goal.

2. Using proven behavioral levers leads to successful design of savings products, which leads to improved savings behavior. In this case, we used several levers to incite improved savings such as goal-setting, the feeling of having made a commitment, specific plan-making, and personalization of the experience. Clients at CARD Bank, Inc. seemed to understand that saving was important for their families and would be helpful to them. They wanted to save but various things got in their way. As such, we could re-design specific features of how the savings products were presented and used to help clients realize their intentions.

3. Leveraging rigorous data analysis is an important component of developing a deep understanding of existing human behavior – and financial service providers need to support and develop this capability. Quantitative analysis allowed us to test several hypotheses about savings behavior that would have been hard to test with qualitative research alone. The combination of research methods resulted in a more holistic and comprehensive approach to product innovation.

While this project in the Philippines was successful, we’ve really just begun to scratch the surface of client-centered approaches to financial inclusion. Behavioral research and design attempts to understand the internal determinants (self efficacy, intentions, current knowledge, and behavior), social determinants (social norms and group identity), and environmental factors and obstacles (physical cues, architectural and spatial influences) influencing individuals’ experience. This depth of understanding can then be leveraged into products, services, and interventions that have the most potential for bridging the gap between intention and action.

This is not to say that every client has an intention-action problem and that this approach would solve his or her financial challenges. Instead, a methodology that focuses on understanding the specific behaviors, contextual challenges, and client experience will allow you to develop a bespoke solution for your clients’ particular needs. Additionally, more general market research and client segmentation tools help compliment the specialized and focused behavioral research method. This is yet another set of tools we can add to our toolkit to arrive at client-centered design and delivery of financial services.

If you’d like to read more about the savings project with CARD Bank, Inc. in the Philippines, you can download the white paper here

Have you read?

Contemplating Scarcity and Its Implications for Microfinance and Poverty Alleviation

Scarcity: Why Having Too Little Means So Much

Kate McKee: On the Behavioral Economics of Poverty and Implications for Financial Inclusion