Big Banks and Small Savers

> Posted by David Porteous, Managing Director, Bankable Frontier Associates

In Beth Rhyne’s recent blog post (“Base-of-the-Pyramid Savings Among Accion Partners: Some News Is Bad and Some News Is Good”), she argues for the need to stratify deposits by size to understand what is happening inside a bank’s portfolio of depositors. We agree. We have just completed the four year GAFIS project, sponsored by Rockefeller Philanthropy Associates and funded by the Bill and Melinda Gates Foundation. Through GAFIS, we worked with five large commercial banks around the world (shown in the map below) to promote the development of appropriate savings products directed at low income people.

These five banks, which typically rank as largest or second largest retail banks in their domestic markets, collectively report 77 million customers. They too suffer from high rates of dormancy, ranging from 20 to 90 percent in different account categories. Yet they were willing to embark on a peer journey of learning and support to seek to overcome the channel and product issues which had limited the success of their savings products. And they were willing at the end to disclose in the public report, available here, some indications of the underlying stratification of their deposit. The chart below, extracted from the GAFIS report, compared median with average balances in the account categories which GAFIS supported, underlining the message in Beth Rhyne’s blog about the need to stratify savings.

Balance levels across GAFIS banks for GAFIS-supported products (positive balance accounts only)

But the GAFIS project went further than this stratification alone. Working with several of the banks, we sought to combine analytics of the transactions patterns contained in the accounts with demand side survey analysis to understand typical patterns of savings behavior. We could identify three distinct patterns of savings behavior based on account-level transaction patterns which correspond to different underlying savings behavior—dubbed “Spend down slowly”, “Accumulate”, and “Preserve”, respectively. A bank savings portfolio can be divided into underlying segments based on this behavior, including of course, those who transact (no savings) or are simply dormant.

Equally, based on the considerable effort undertaken to understand how each bank framed its business case for savings products, it was possible to map back the patterns of savings behavior to different measures of account level profitability. The GAFIS website provides a calculator ( which either takes the GAFIS stylized cost and revenue assumptions for a typical account at a large bank or else allows the user to input her own, and applies it for each of the savings behavior patterns in order to see the bottom line profitability (or otherwise) of the savings account on its own. GAFIS did not focus explicitly on the cross-sell to other product types, although this was a recognized source of income for the savings business case.

Ultimately, the energy and resources which large banks deploy to build strong low value savings portfolios will reflect the strength they perceive in the business case. As we came to understand, each of these five banks framed their business case for savings slightly differently. But for most, the business case rested on having a large, growing inclusive segment of clients using a mix of credit, savings, and transaction products which could be profitable in aggregate in defined time frames. And these banks have invested heavily in new channels to achieve this aim, building out large scale agent channels able to take deposits: GAFIS banks now have 5,000 agents each on average, almost 10 times larger than the number only three years ago. Having agents alone, even lots of agents, is at most only a half-step towards developing a sustainable proposition to take small savings.

The last stage is to move on to what is called “Proposition 2.0” in the report. This language mirrors to some extent the discussion about “Banking 2.0” taking place in countries where internet banking is already pervasive and where the emphasis is now on tailoring personal financial management services for clients through user friendly and information-rich interfaces. However, in the GAFIS bank countries, the dominant user interface in future is likely to be the mobile phone with all its constraints (such as a small screen) and opportunities (such as easy to carry, hard to forget). Today, the GAFIS banks all offer mobile banking to their clients, but these services are relatively little used, at least at the low end of the market and for savings purposes. In future, however, the growing use of the mobile phone in these countries as a banking interface will bring even to low end clients the ability to easily set up multiple sub-accounts for different savings purposes, linked to their transactional account; to transfer funds in and out cheaply and easily; and even to specify their liquidity preferences—‘don’t let me touch this balance for x months’; or ‘remind me to save every month in this account by presenting a picture of my savings goal’. Rewards and incentives can be tailored to the profile of the client; and ultimately, other financial services also offered based on the information acquired about the client.

Since the volume of transactions increases greatly and the cost per transaction to the bank decreases, even small balance savings accounts can start to break even at this stage. None of the GAFIS banks has yet entered the territory of Proposition 2.0, certainly not for their large and growing numbers of client in their ‘inclusive segments’; but this destination is at least now in sight.

Graphics credit: GAFIS

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