> Posted by Monique Cohen, Ph.D., Founding-President, Microfinance Opportunities
The following post was originally published on the Child and Youth Finance International Blog.
“I am not good at managing my money. I need some extra training so that I can know how to manage myself. Because you know money is like trouble. You get big money and it’s like big trouble, you know,” (A young man living in Nairobi, 2011).
Walk down any street in Nairobi, Dar es Salam, or Cairo, or in a small African town and it seems everyone, including teenagers, has a phone to their ear. Indeed, for those 18 and under, few have known a world without mobiles. Not surprisingly, school-age boys and girls (5-14), teens (14-18), and young people entering the labor force or tertiary education (over 18) are seen as a potential new market for the provision of financial services. While recent experimentation in this space has focused on savings, there is growing consensus that young people should be able to access a full range of financial services, with the priorities changing as they advance in their life cycle (see YouthSave, YouthStart, and Child and Youth Finance International). Not only are youth savings and youth financial education hot topics in the financial services space, but there is also a growing recognition that young people have money, and technology-based financial services offer a gateway for their financial inclusion.
For many young people, owning a phone is aspirational and closely tied to their self-esteem. The surge of young people with phones or phone access and the emergence of low cost mobile banking technology suggests that it may be timely to engage them in accessing digital financial services and building their financial capabilities. As one Filipino student pointed out, “I’d long waited to have my own bank account but I couldn’t meet the requirements of other banks. Good thing in BanKo I can use my student ID to open an account.” While the stars might seem aligned, the limited evidence reminds us that while the value proposition of branchless banking may resonate with young people, this market is still not well understood.
A fundamental question is what volume of transactions can young people be expected to generate. Yes, many young people do receive cash from work or family, but their transactions are small in value and irregular. In the new world of branchless banking where frequency of transactions is key to business sustainability, it is unclear whether the numbers work for youth. Would low fees attract this market segment or could they be a loss leader for building this market? Experience to date suggests that current pricing together with the volume of youth transactions is likely to constrain regular use of technology-based financial services.
There are many more assertions about the practice of mobile banking by young people but few, like the one above, are well grounded. Some of these assumptions are raised here and are proposed as areas of future research:
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Young people own their own phones and use them exclusively and often. However, in most countries there are fairly strict regulatory restrictions limiting age of ownership of mobiles phones (and opening bank accounts). Also, we don’t know who, when, where, and why young people are using mobile phones in different contexts. While mobile data from young users could help the field understand and accelerate mobile money demand, usage, and capability among youth, this source of information poses challenges due to privacy protections and rights of the minor (policy), and proprietary data sharing issues (business) to gain access to mobile usage data.
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Young people can help their elders to use mobile money. Anecdotal evidence suggests this is both an asset and liability. Meanwhile financial service providers see youth relationships as offering opportunities for cross-selling to the adults. Among parents of adolescent girls in Kenya this was estimated at about 10 to 15 percent.
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Entry of 18 year olds into banking through mobiles and electronic cards only may lower pressure on the need for high touch banking in the future. A 2007 survey observed that elders saw visiting the bank as a welcomed social event while young people, more comfortable with technology, appreciated speed and limited person-to-person engagement.
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Young people are highly responsive to text messaging, mobile gaming, and SMS. All have the potential to promote effective money management and build financial capabilities. However, many of the phones used by young people currently lack the bandwidth to support the software to help them to better manage their money.
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To attract young people, specially designed products with lower fees and barriers to entry are needed. This has been the working premise of many current youth savings initiatives, however, there is little rigorous research to support or refute this claim. Behavioral research has also shown that youth are highly unique in their cognitive growth and behavioral development, and from a financial access and capability standpoint, the lessons from mobile money with women and other low income populations may not lend themselves to the child/youth context.
All of this suggests that the jury is out and points to priority areas of research. Neither mobiles nor mobile banking have been around long enough to give us the evidence that will permit us to estimate realistically the cost/benefit of developing this market for young people. Generating the evidence by testing some of these premises would seem a first step in understanding the potential of the youth branchless banking market. Hearing the voices of young people on this issue should be another early step. However, it is probably safe to say that for the moment young people may not be a short-term viable market. Meanwhile, we still feel safe hypothesizing that any investment made in young people needs to be assessed in terms of its likely medium to long term impact.
Monique Cohen is Founding-President of Microfinance Opportunities and an independent consultant. She can be reached on .
Have you read?
Can Mobile-Enabled Savings Products Bridge the Youth Financial Services Gap?
Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?
When Demographics Shift the Way We Think about Youth Finance
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April 23, 2013 at 3:49 am
John Gitau
Monique your views are very balanced and supported by reality on the ground. The post is an effective stabilizing pill.
We need to give digital mobile technology time to temper. Imagine a tall building constructed with uncured bricks and upon completion, everybody is herded in to live in and do business. A small earthquake can have devastating results. Mobile technology is just too new to be overloaded with digital financial services. Financial services are little understood even in their raw nature through brick and mortar infrastructure. Will a more efficient rail make them easier to understand?
If we are to borrow from the transport sector, we have air, water, road and rail as modes of transport. Now we have digital transportation mode. The existence of each mode of transport has many consideration and one of the most important but overlooked is diversification. We need different modes of transporting ourselves and our things. But in financial inclusion, we want to take digital transport mode as the solution to all our digital goods and services transport and everyone with a financial product is queuing to enter and trade within the system, including targeting customers whose needs and abilities to buy are unknown.
The youth actually need protection. The fact that they have picked technology up with zeal doesn’t mean we inundate them with digital financial services while we have done little to enhance their financial literacy. If, through technology, we want financial institutions to easily access the youth to offer them loans even before they know how to earn, I would rather they remain inaccessible.
We are not talking much about how mobile technology can help improve financial literacy. We are aware that teaching financial literacy isn’t lucrative. Yet that is where we advocates of financial inclusion should start. We need to face the fact that financial services providers spoiling to get their financial services digitally to the youth have their profit motives upfront. Mobile phone providers need to be checked in the first place as they are supplying financial services through the back door to the gullible consumers most of them the youth. In Kenya, you can borrow airtime at 10% interest. It doesn’t matter if you repay within the day. While airtime isn’t a financial service, borrowing it at an interest makes it a renegade financial service. Nobody seems worried that a credit at 7.5% per month is indeed a loan at 90% per annum. Why should digital credit become so expensive( the loans market rate is 18% pa)? Is digital credit provision a license to overcharge?
But since we can’t stop the providers designing and pricing the products the way they want, our refuge is extending financial literacy to the young and old. If we, advocates of financial inclusion support financial services being delivered digitally while aware that customers, especially the youth are ill prepared to evaluate them effectively, then we shall be accomplices in the crime of delivering our youth to the financial services slaughterhouse, collaborating with insensitive profiteers. I get worried daily to see how financial inclusion is being used by old and new financial services providers as a marketing gimmick to drive in business and make a financial kill. Yet, financial literacy is not moving at the same pace as the proliferation of financial services. For us financial inclusion adults, allowing financial service provider access to our children and youth while they are financially illiterate is not any different from giving children loaded guns to play with.