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New data from InterMedia breaks down the impact of demonetization on financial inclusion across gender, locality, income levels, account types, and more. 

> Posted by Nadia van de Walle, Senior Research Manager, Financial Inclusion Insights, InterMedia

(click to enlarge)

Demonetization had a strongly positive effect on financial inclusion, leading to increases in account registration and active and advanced use of registered accounts, according to our data. Perhaps surprisingly, given some of the discussion in the financial inclusion community over the last year predicting demonetization increasing electronic payments, these account registration increases were mostly among bank accounts rather than mobile wallets.

InterMedia’s fourth annual Financial Inclusion Insights (FII) survey was underway on November 9, 2016 when approximately 85 percent of the banknotes in circulation in India were invalidated by the policy known as demonetization. The invalid notes had to be deposited in a bank or exchanged for new ones at banks and other financial institutions. The timing of demonetization in relation to InterMedia’s activities presented an opportunity for us to measure the impact on financial inclusion using a panel survey of 1,600 randomly selected individuals in the states of Gujarat, Madhya Pradesh, and Rajasthan. These respondents were first interviewed for the FII survey roughly one month prior to Nov. 9, and then re-interviewed seven months later.

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> Posted by Aurora Bila and Kim Dancey, Director of Payment Systems at the Bank of Mozambique and Head of Payments at First National Bank

Of the 338 million citizens of the Southern African Development Community (SADC) member states, 138 million lack adequate official means of identification. This limits their access to and usage of many government services, as well as the range of services offered by financial service providers. This affects their wellbeing in a host of ways, which is why the U.N. Sustainable Development Goals include the goal of a robust “Identity for All” by 2030.

Some SADC countries lack a standardized form of identification, and citizens require various pieces of documentation to access financial services in the formal sector. And in some instances there are no legislative frameworks for issuing any form of formal identification document.

Even among those SADC adults who do have national IDs, documents are often not accepted across borders for opening bank accounts or sending remittances home. Banks and remittances agencies in SADC countries face more stringent Know Your Customer (KYC) requirements for cross-border than for domestic remittances. Therefore, if the identity source document is not easily verifiable to the level of assurance required, to manage both internal risk and to comply with Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) requirements in force, the provider will not make the service accessible. Furthermore, global standard-setting bodies are increasing the pressure on local regulators regarding identity. For example, it is no longer sufficient to identify only the remittance-sending customer. Financial services providers are now compelled to also know the identity of the recipient and to hold these identities throughout the payment transaction. Consequently, only institutions willing and able to price and charge for the risk and cost will offer the services.

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Eradicating ultra-poverty for 394 million people globally will require urgent action across sectors. The recently-released Global State of Ultra-Poverty (GSUP) outlines concrete recommendations for each stakeholder group.

> Posted by Anne H. Hastings, Global Advocate, Uplift

When you hear the word “ultra-poverty”, what does it mean to you? Here’s how one woman described it, after she was able to make her way out of it:

“When you live in ultra-poverty, you are a person who has fallen into a hole with no light. No one recognizes you. You are humiliated. You endure all your pain by yourself. Society has forgotten you. If you don’t find someone to take your hand and help you out of that hole, that is where you will stay.”

Ultra-poverty is not the same thing as “extreme poverty” as defined by the World Bank, which includes anyone living under $1.90/day purchasing power parity. Rather, according to most of us who work on ultra-poverty, it looks like this: in ultra-poor families, everyone goes without food for days at a time, children aren’t in school and have no access to health care, and the family has no productive assets to make a living – no land, no livestock, no job, no small commerce.

Around the globe, 193 nations have committed to Sustainable Development Goal #1: ending poverty in all its forms by the year 2030. That means ending ultra-poverty too. Can we do it? There is a lot of evidence to suggest that we know how to do it. The evidence can be found in the Science magazine issue published 15 May 2015 or in the Policy in Focus issue of July 2017. The programs described in these documents, usually referred to as graduation programs for the ultra-poor, have been proven to work, especially when integrated into a country’s social protection strategy. Graduation programs are characterized by their: (1) time-bound nature, usually 24-36 months of direct assistance to a family; (2) carefully sequenced, holistic programming combining social assistance, livelihoods training and financial services; (3) the “big push” they provide the family, often in the form of a transfer of productive assets; and (4) the mentoring and staff accompaniment participants receive.

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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.

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Drawing on recent IFMR LEAD research, Anisha discusses the critical shortcomings of mobile money offerings for merchants in India and shares insights on what this client segment views as their ideal digital product.

> Posted by Anisha Singh, Senior Research Associate, IFMR LEAD

Want to receive payments from customers? There’s an app for that. Want to make payments to suppliers? There’s an app for that. Customer wants to pay you one week from now? Scramble to take out diary and note down payment receivable. Customer is not contactable after one week? Oh well, that’s the end of that.

Among merchants in India, widespread awareness of available digital financial services options has not translated into usage of these services. The core challenge here is making digital platforms more inclusive and relevant to their daily lives. While India has made immense progress in transitioning to a less cash-reliant financial ecosystem, recent research concludes that the services on offer in the country do not directly address all relevant merchant pain points and thereby fall short of providing a compelling value proposition for them to make the switch from cash. This shortcoming hasn’t been for lack of trying. Researchers and providers have identified and rolled out various new value-added services that could help increase this value proposition. However, for merchants in India, there is still one key transaction type left unaddressed: how can informal arrangements, such as offering goods on credit, be included in digital services?

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> Posted by Elisabeth Rhyne, Managing Director, Center for Financial Inclusion at Accion

Millions of American households use payday loans each year. The question of whether these lenders are legitimate or scams is complicated, Elisabeth Rhyne finds.

I recently browsed the website of CashNetUSA, a company that offers payday loans and related products in 38 states across the United States. The website was easy to read and presented the application process and the (very high) charges simply and clearly. But I wanted to know more. Is this company legitimate? Does it live up to its promises? Will I experience any problems along the way? More broadly, how can a consumer tell whether an online payday lender is trustworthy?

I had no peer or family member to ask about this, so I turned to online credit provider reviews and began a Google-based armchair investigation.

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Insights from new CFI Fellows research on integrating human touch in Kenya’s digital financial services landscape.

> Posted by Alexis Beggs Olsen, CFI Fellow

Mbugua, owner of a restaurant, a butchery, and a dry goods store in Nairobi, Kenya has actively used financial services to grow his businesses from the meager beginnings of a small stall selling boiled cow heads. He is currently juggling four digital loans and two microfinance loans. Whenever possible, Mbugua prefers to interact with his financers digitally to save time. Yet, like most of the Kenyans my research associate and I spoke with as part of our CFI Fellows research project, Mbugua considers in-person interaction to be critical at certain stages. “Face-to-face is tiresome. There’s a time factor,” he said. “But it’s 100 percent perfect. Your questions will be exhausted. And you can’t negotiate with the phone.”

Our research seeks to understand when and why customers prefer human over digital interfaces across their financial services customer journeys – and vice versa. We focused on value-added financial services, including loans, savings, and insurance, and we chose Kenya because of the country’s deep penetration and market maturity of mobile phone-based financial services. We conducted in-depth qualitative interviews with 104 respondents.

We discovered that a “centaur” solution—one that unites the strengths of both tech and human touch—offers the most promise for both customers and financial service providers (FSPs) targeting the base of the pyramid.

Digital interfaces outperform human interaction in a number of areas: digital services are often more convenient (once you learn how to use them), more predictable and consistent (with the exception of loan approvals and rejections, which are often opaque), and less stressful for customers during collections. However, most Kenyans – even those who already use low-touch digital products – prefer to interact with a person face-to-face at key stages in their customer journey. We found that while Kenyans are very comfortable conducting transactions digitally, other key aspects of the financial service customer journey are not adequately handled by digital means alone.

Like most of our respondents, Mbugua wants to interact directly with a person to accomplish three critical tasks:

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> Posted by Center Staff

Are you working to expand quality financial services access? The 2018 Harvard Business School – Accion Program on Strategic Leadership in Inclusive Finance is accepting applications for what will be another exceptional week of learning and exchange among world leaders in financial inclusion. The program will take place March 25-30, 2018 at the HBS campus in Boston, Massachusetts. We hope you’ll join us!

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> Posted by Ana Ruth Medina Arias, Lead Specialist for Latin America and the Caribbean, the Smart Campaign

“The risk is to regulate by anecdotes and not by evidence.” – Mariela Zaldivar, Deputy Superintendent, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru)

In recent years, Peru has called for our attention not only for being at the top of the Global Microscope’s international country rankings for the most conducive environment for financial inclusion, but also for its historic collaborative effort to establish a fully-interoperable nationwide digital payments platform (Bim) to support the supply of financial services. But buckle up, there is more.

The country’s regulator, the Superintendency of Banking, Insurance and Private Pension Fund of Peru (SBS Peru), has taken client protection very seriously, and despite already having very robust systems (on grievance redress and dispute resolution, for example), it continues to lead with groundbreaking policy changes based on evidence and research to ensure that regulation is aligned with the needs and capabilities of the end client. The Smart Campaign is proud to have collaborated with the SBS on these policy changes.

Client Voices was a research project of the Smart Campaign that directly asked clients in four countries (Peru, Benin, Georgia and Pakistan) about their experiences with financial providers and what they thought constituted good and bad treatment. In Peru, the project was made possible through strong support from the SBS, which was involved from the very beginning, providing substantive inputs to all project phases. However, their engagement did not stop there. The SBS is also committed to implementing the client protection recommendations arising from the project.

Here is how the SBS turned the major findings of the research into an opportunity for policy improvement in the area of financial consumer protection.

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For Telenor Group, the key to fostering inclusive digital finance is collaboration and open technologies.

By Johanna Stemberger, Telenor Financial Services

The digitization of the financial services industry is in full swing. Seamless in-app payments enable smartphone users to pay for rides, tickets, food, etc. with just one click.
Pay with Wave Money AdIn emerging markets, where most of the world’s 2 billion adults without bank accounts live, basic financial services have improved over the last decade: mobile operators and banks enable customers to store and transfer funds using their mobile phones. Still, developers and digital innovators struggle to reach users in these cash-based markets.
How can we foster innovation in financial technology for low-income consumers through products and services that promote digital financial inclusion? Telenor Group believes the answer to this question is to collaborate and open up. We’re going to discuss two examples below.
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Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

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The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.