> Posted by Hannah Sherman, Project Associate, CFI
Commercial banks that are pursuing financial inclusion strategies are increasingly focused on designing a positive customer experience when targeting underbanked customers in emerging markets. CFI’s most recent publication, The Business of Financial Inclusion: Insights from Banks in Emerging Markets, a joint publication with the Institute of International Finance (IIF), illustrates how this aspect of bank activities has emerged.
Based on in-depth interviews with 24 banks in emerging markets, the report examines the challenges and opportunities banks face in reaching unbanked and underbanked customers. It shines a spotlight on banks as leaders in advancing financial inclusion and discusses specific strategies related to technology, data, partnerships, financial capability, and other key issues.
The essential role of banks in driving financial inclusion is under-appreciated. Of the 3.2 billion people in the world with financial transaction accounts, 97 percent hold an account at a financial institution. According to the World Bank’s Global Findex database, over 90 percent of the 721 million new accounts opened between 2011 and 2014 were opened at financial institutions—the vast majority banks, as well as credit unions, cooperatives, microfinance institutions, and postal banks.
The customers targeted in financial inclusion are, by definition, different from traditional banking customers: on average, they have smaller accounts and lower financial and technology literacies; many are new to formal financial services; and their lack of experience can create barriers of trust and confidence. All this adds up to a potentially significant gap between the bank and the customer. However, banks work to overcome these obstacles by improving clients’ experiences.
All the banks in our study are making energetic and deliberate efforts to effectively engage customers. We found that banks apply three basic strategies (often together):
- Offering a range of services that meet customers’ needs.
- Making customer touch points and interfaces work for customers: simple, convenient, reliable, and friendly.
- Building customers’ confidence and capability to use financial services.
Developing an attractive product suite. Many banks are developing strategies to cross-sell the full range of products that their customers value, including bill payments, deposits, money transfers, insurance, e-commerce payments, pensions, and investments. Success requires understanding how customers view a service in their own life and context. Banks work to create the right mix and “staging” of services designed for specific segments. Banks that develop effective strategies are also those that have invested in deep customer data analytics capacities. Some banks have discovered ways to build on local customs, simply adding convenience and protections to informal mechanisms that already exist in the society.
Making customer touch points work for customers. Services need to be provided through multiple, convenient customer touch points, as customers have complex lives and may use several financial services access locations. Banks are engaging with agents to improve their treatment of customers, including installing agent monitoring systems. Quality control is essential, since not all banking agents are fully trustworthy or provide quality service. Technology offers many solutions, including automating verification of transfers and account balances. Governments can play a role through public awareness campaigns and through client protection policies that build trust in the financial system in general and provide a path for customers to address grievances.
Building customer financial capability. Financial capability surfaced repeatedly in our interviews as a major concern of the banks that are trying to increase usage and the quality of products and services. Most banks assign governments and national banking associations the key role in facilitating financial education. However, some banks are taking on greater responsibility themselves, recognizing that more capable customer will have the confidence needed to use their products. Some are also starting to adopt more effective and cheaper ways to deliver financial capability interventions, mainly through digital means. Digital literacy is increasingly a focus, and banks are helping customers develop their capacity to use digital technology. Many banks are designing simpler products, usually entry products, to give new customers experience with banking. Others embed financial capability into product design and delivery. They find ways to help customers learn by doing and give information at teachable moments when customers are most engaged in learning about potential services.
While the specific models change from one bank to another, there is one overarching message: the banks that focus on the customer experience are those that excel in inclusive banking.
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