If digital financial services are so convenient and affordable, why are uptake and usage rates among individuals with lower incomes so low? Monique Cohen explores the mismatch between products and money management needs.

> Posted by Monique Cohen

This maxim governs much of our financial lives, rich or poor. Yet, we offer financial services to the unbanked and underbanked, largely ignoring it. The thinking around customer centrality as it affects financial services for the poor emphasizes appropriately responding to people’s needs and wants for financial services. But, as Kim Wilson pointed out, this is still not happening:

We have an agenda, which is this: please be our customer, have your needs, express them so long as they are about digital payments or failing that, using a bank account – a lot – and preferably, digitally. Else, we don’t give a damn. We don’t care about your archaic methods… We desperately want and need you to modernize, to become just like us. Otherwise we have no justification for all the work we do and all the money we spend.

Until now the perceived drivers of uptake of digital financial services (DFS) have been their assumed attributes of convenience, timeliness and affordability, relative to current formal and informal financial service offerings. However, with uptake and usage levels of only 30 percent for digital financial services, it is clear that this rationale falls short. Impediments to high usage continue to be overlooked.

What has to change if we wish to have more users move toward a ‘cash lite’ economy? What have we missed?

Financial products tend to be viewed through a lens of functionality. Timely access to credit can enable an entrepreneur to grow a business or meet regular financial obligations such as rent or school fees, especially when cash flow is variable. But for many poor customers, use of financial services is not about choosing Plan A, but about matching what is available to the need of the moment. These behaviors are not always optimal, neither for them nor for providers. Several years ago Equity Bank in Kenya noticed a high rate of usage of working capital loans for school fees. Similarly the encouragement to save is framed around the provision of access to savings tools, ignoring the stability and level of income needed to generate a surplus that can be put aside.

Ann Cotton, in response to financial service providers’ puzzlement with the lower-than-anticipated rates of adoption of financial products, noted that:

I hear, “Why do poor people make such bad decisions?” But actually their decision-making can be far more complex than that of the better-off in many ways. They’re not financially illiterate, they’re constantly weighing up choices based on the reality of poverty.

The decisions poor people make around money are complex. Theirs is a continual process of trade-offs involving the weighing of choices based on the reality of their poverty and a continual battle to stabilize and raise income while reducing vulnerability. The supply-side thinking around product design and delivery fails to reflect this complexity and ignores how the poor use financial services as money management tools. The consumer’s context is defined by an ever-changing panoply of wants, sources of revenue and the available portfolio of financial tools, formal, informal and semi-formal. Instead financial service providers address demand with a limited product range knowing that they are used for a broad array of purposes. Is it no surprise that there are mismatches between the providers’ offers and users’ needs?

The current interface between customer and provider is shaped by a structural bias in which the financial service provider knows best and expects that the customer will do as told. The formal financial services customer tends to be passive and dependent, does not exercise voice and choice and lacks protections. By contrast, in the informal financial sector users speak up and feel freer to let their demands be known. Moreover, DFS require people to leapfrog into digital financial services which combine unfamiliar technology and unwelcoming formal financial services. All present significant barriers to adoption. Surely it is time to revisit this paradigm, recognizing that the increased use of digital financial services means looking beyond the functional attributes of a product to the user’s broader money management strategies and the structural contexts in which they exercise their choices.

Moving forward calls for approaches that generate mutually satisfying results. Each party seeks value and cost advantages. The providers are looking for numbers, volume and value of transactions as potential customers transition into these new systems of financial service delivery. Touch points supported by appropriate provider incentives as well as patience, respect and simplicity of use should be priorities. For users, seeing value in digital financial services will come from learning by doing. Empowered customers will be encouraged to test financial innovations, determine how they can best use them, and share this information with their providers, friends and communities. Lastly, re-enter the regulator whose role may have to be redefined to ensure the new structures work for both sides. These are the essential elements of a new operational framework that promises that customer centrality will become a win-win proposition.

Among her many affiliations, Monique Cohen was involved with the Boulder Institute of Microfinance’s training program from its inception through 2016, including teaching courses for over 10 years. An earlier version of this post was published on the Faculty Corner of the Boulder Institute of Microfinance website, October 21, 2016.

Image credit: Accion

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