In my breakout group at CFI’s workshop last week in Bogota, everyone talked at once. With eight voices coming at me, my brain’s very basic ability to understand Spanish shut down. The workshop participants were bursting with ideas they urgently wanted to express. But, as my colleague Sonja Kelly pointed out, a situation where everyone is speaking and no one is listening is an apt metaphor for the problem the workshop sought to address.
The workshop focused on the challenges in integrating insights from behavioral economics into the operations of financial institutions. Two organizations that leverage behavioral economics for product design, ideas42 and Innovations for Poverty Action, presented the research perspective. Closely connected with academics at Harvard, Yale, MIT, and Princeton, both organizations start from the research finding that a number of cognitive and emotional biases cause people to make decisions that depart from rationality, and that these biases can significantly affect the use of financial services. Ideas42 focuses on identifying features in product design and delivery that, while not overruling choice, nudge people in a desirable direction – features such as commitment savings accounts or reminder messages to encourage savings. IPA promotes the same kinds of nudges, but focuses on the testing of these innovations through randomized controlled trials.
Most of the participants represented a cross-section of the financial inclusion sector in Colombia – many banks, several microfinance institutions, and the public sector Banca de las Oportunidades program were present. The financial inclusion market segment is increasingly contested territory in Colombia, and every major bank has had some experience trying to create products and channels to reach it.
To launch the conversation, we asked several experts to recount their experiences in introducing “client-centric” innovations, bringing in the work of additional organizations, this time associated with the U.S. West Coast – Stanford and Silicon Valley. Included were proponents of human centered design and Juntos Finanzas, an entrepreneurial start-up that uses data analytics to provide tailored financial capability messages to clients of financial institutions. Finally, two more homegrown experiences from the Accion Latin America network were represented – one involving savings and the other financial education for microinsurance.
Some lessons immediately popped out. In several cases, well-crafted products, designed with deep understanding of client behavior were not implemented due to snags encountered inside the implementing financial institutions. And even those that succeeded faced major challenges before gaining a secure place within their organizations. Challenges ranged from changes at the CEO level, to pressure for faster return on investment, to unsupportive frontline staff.
We thought this needed further exploration, so we posed some hypothetical products with integrated behavioral insights and asked participants in small groups to assume the roles of various actors within a financial institution. Each group’s task was to design and roll out the proposed products. It was at this point that participants began to talk over each other. The legal department and the IT department, the HR department and the finance department, the product department and the marketing department – everyone had crucial and legitimate issues, each needing solutions before the product could proceed. At that stage the behavioral experts in each group tended to step back and watch the simulated institutions battle it out internally as questions about behavioral economics took a back seat to the practicalities of implementing change inside institutions.
The overarching takeaway of the day was that no matter how inspired or close to the client, good product design is only the first step toward a successful offer. Experts who bring important new insights cannot assume that their work ends with product design. As Gerhard Coetzee wrote in this blog space on the very same day as this workshop, a new product is primed for success only after thorough analysis of the inner workings of an institution and a plan is aligned with the interests of its various areas. Behavioral insights and other customer-oriented product features must make it through the “noise” within the institution, competing with all of the other things a bank must attend to in order to survive.
From my (perhaps biased) position as someone who has worked at Accion, this kind of analysis and planning is exactly the know-how Accion has built up over the years as it has worked to build healthy microfinance institutions. Accion, for its part, has not particularly embraced behavioral economics insights. So opportunities for mutual learning exist.
Many specific lessons emerged from the day’s discussion, and we would like to continue to share them with you. CFI will assemble them into a brief note within a few weeks. Please stay tuned.
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