Alissa Fishbane

Blog Post

&gt; Posted by Alissa Fishbane and Allison Daminger, Ideas42
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What does it take to successfully design, pilot, and scale an effective new financial product or service? Much more than most would realize! That’s why CFI’s recent <a href="http://cfi-blog.org/2014/11/18/applying-behavioral-insights-inside-latin-american-financial-institutions-what-happened-at-our-workshop/#more-16644">behavioral insights workshop</a> in Bogota, Colombia, had a clear focus: understanding the challenges of applying behavioral science to the operations of Latin American financial institutions. CFI asked ideas42 to kick off the day with an overview of behavioral science and its implications for the design and scale-up of financial products.

At ideas42, we use insights from behavioral science to diagnose behavioral bottlenecks preventing people from taking their desired actions, and design remedies that help organizations overcome them. We then measure the impact of these remedies through a randomized evaluation before they are fully scaled. Any successful program that hinges on people’s decisions and actions, as nearly all consumer finance initiatives do, requires a behavioral approach.

We’ve found that many promising financial programs underperform simply because people often don’t behave the way we expect. As humans, even when we know what’s best for us, we don’t always follow through. We put off applying for a program that will help us save for retirement, or a loan to expand the family business. And when we do make it through the initial sign-up process, we often fail to save consistently or make monthly payments on time. Whatever the specific challenge may be, the result is that resources aren’t used efficiently. Because of this, neither financial organizations nor the individuals they serve see the returns they could be seeing from a product that accounts for these human tendencies.

But while behaviorally informed product design is an essential piece of the puzzle, there is much more to it, as our recent <a href="http://www.ideas42.org/publication/view/driving-positive-innovations-to-scale-in-the-financial-services-sector/">white paper</a> on scaling financial products found. Institutions have to find pathways to achieving profitability, overcoming any organizational impediments, and navigating often-complex regulatory environments. Solid design alone cannot protect a financial innovation from the many structural challenges it will face.

What’s more, it is rarely acknowledged that the people who are responsible for driving this process within financial institutions will have the same behavioral biases as their intended audience. For example, whether we are playing the role of consumer or provider in a particular setting, we all selectively interpret information; are overconfident about future outcomes; and underestimate how long it will take to get something done. These can make the structural challenges even more difficult to overcome.

At the workshop, Colombian financial inclusion professionals were eager to share lessons from their own experiences. Our resulting conversation centered on four key recommendations:
<ul>
 	<li>Have a “champion” at the top. Without an influential senior leader to protect it throughout the process, any innovation is even more vulnerable to budget cuts and internal priority shifts.</li>
 	<li>Involve representatives from many departments early on. Though the role of the sales or legal teams might not be obvious in the early stages of product development, these and other departments may flag important concerns that could derail the innovation if discovered later on. Of course, working across a dozen departments presents a myriad of challenges, and therefore an effective project leader, nominated from the top, is also needed to motivate and communicate within and across specialized teams.</li>
 	<li>Make the business case at the outset of a new project. Ensuring that a product will be economically viable at scale doesn’t just enhance profitability; it increases the likelihood that a product will be championed and supported by individuals and departments across the institution.</li>
 	<li>Plan for scale from the start. Without a clear vision of how an innovation will later be scaled, a project is likely to be derailed by lack of resources in the budget, resistance from departments not involved in the pilot, distributional hurdles that didn’t exist on a smaller scale, or simply by lack of momentum.</li>
</ul>
These insights echo findings outlined in our recent <a href="http://www.ideas42.org/new-white-paper-driving-positive-innovations-to-scale-in-the-financial-services-sector/">white paper</a>, and it was exciting to see our analysis reflected in the real-world experiences of Colombian financial institutions. The workshop in Bogota proved to be a successful exchange of ideas and practices between financial providers and behavioral experts. As ideas42 continues to build our work in the financial inclusion space, we are taking a deeper dive into examining the economics of product models from a provider perspective. Stay tuned to the CFI blog and the <a href="http://ideas42.org">ideas42 website</a> for more insights early next year.

Have you read?

<a href="http://cfi-blog.org/2014/11/18/applying-behavioral-insights-inside-latin-american-financial-institutions-what-happened-at-our-workshop/">Applying Behavioral Insights Inside Latin American Financial Institutions: What Happened at Our Workshop</a>

<a href="http://cfi-blog.org/2014/07/03/financial-capability-stakeholders-join-j-p-morgan-in-new-solutions-lab/"> Financial Capability Stakeholders Join J.P. Morgan in New Solutions Lab</a>

<a href="http://cfi-blog.org/2014/04/10/smart-design-for-policy-and-practice-consider-bandwidth-insights-from-harvard-kennedy-schools-rethinking-financial-inclusion/">Smart Design for Policy and Practice: Consider Bandwidth – Insights from Harvard Kennedy School’s “Rethinking Financial Inclusion”</a>

Beyond Design, Behavioral Science for the Pilot and Scale of Product Innovations

&gt; Posted by Monica Brand Engel and Jackson Scher, Managing Director and Program Coordinator, Frontier Investments Group, Accion

Innovative payment solutions are proliferating globally. Enabled by the exponential expansion of mobile phones, social media, “big data”, and internet access, financial players throughout the world are inventing new ways to complete transactions. Disruptive innovations such as <a href="http://www.forbes.com/sites/tomgroenfeldt/2014/04/21/american-express-expands-its-serve-debit-card-to-walmart/">prepaid options</a>, <a href="http://www.apple.com/apple-pay">NFC-enabled payments</a>, and <a href="https://bitcoin.org/en/">cryptocurrencies</a> are gaining significant adoption and are changing the payments space. These trends are especially pronounced in emerging markets where many new entrants have chosen to “leapfrog” traditional, resource-intensive systems and dive directly into the seamless and nimble world of digital financial services. Although these exciting innovations in digital payments have the potential to increase convenience for customers and dramatically reduce costs, some challenges remain.

1. Infrastructure. Many emerging markets lack the core infrastructure (national switches and settlement systems, connectivity, even electricity) required for innovative payment systems to operate reliably. One option that addresses this pain-point is Eseye’s innovative <a href="http://www.eseye.com/">machine-to-machine (M2M) technology</a>. By embedding SIM chips into solar-powered lighting units, Eseye has created a remote device management system enabling prepaid and pay-as-you-go (PAYG) financing via <a href="http://www.safaricom.co.ke/personal/m-pesa">M-Pesa</a> in East Africa. Prepaid customers buy exactly as much light as they need, while PAYG customers see their lights go out if they miss a payment. The payment options enabled by Eseye’s technology and its relationship with M-Pesa circumvent infrastructure shortcomings in East Africa by operating through mobile channels. Without this technology, customers would have to pay up front or borrow in order to purchase the system. With it, many more people are gaining access to solar lighting.

2. Interoperability. Many digital financial services have been launched as closed loop systems, which operate on an individual mobile network operator (MNO) service. A closed loop system limits the ability of customers to transact with peers using a different MNO service. Closed loops allow MNOs to sell more airtime while increasing revenues and customer retention in the short term, but open loops that promote interoperability across payment options may be needed to expand the acceptance environment, usage rates, and product functionality. Industry led initiatives – like <a href="http://www.cgap.org/blog/tanzania-ready-interoperability-mobile-money">those in Tanzania</a> – have aligned business and social goals more effectively than those done by regulatory fiat. This initiative involves cooperation between the four main MNOs (Airtel, Vodacom, Tigo, and Zantel) and three large banks (Bank of Tanzania, CRDB Bank, and the National Microfinance Bank). It is a good example of interested parties circumventing the near-sightedness that threatens truly game-changing payments innovation.

3. Customer. Many payments products suffer from being supply-driven, aimed at solving industry inefficiencies instead of customer pain points. In Zambia, <a href="https://mobiledevelopmentintelligence.com/insight/Case_Study_-_Zoona?utm_source=ICTworks&amp;utm_campaign=69d8a7eab2-MC-RSS-Email&amp;utm_medium=email&amp;utm_term=0_0814c7961e-69d8a7eab2-48298877">Zoona</a>’s focus on customer interest serves as a source of differentiation from similar offerings by powerful MNOs such as Airtel or MTN. Zoona P2P transfers do not require mobile wallet sign-ups (including a lengthy know-your-customer process) from sender and receiver, rather a simple proof of identification. Additionally, a Zoona transfer only charges the sender, whereas MNO P2P transfers often charge the receiver a cash withdrawal fee. This focus on customer convenience and efficiency is the primary reason Zoona has had success when compared to its larger competitors.

4. Regulation. Although regulation in emerging markets has at times hindered innovation in the name of “prudent financial intermediation”, many policy makers in these markets have also been quick to learn and improve upon such decision making. For example, the Reserve Bank of India (RBI) at first required deep bank involvement with any mobile money scheme. Noting the limiting effect of this regulatory framework on innovation, the RBI created the <a href="http://articles.economictimes.indiatimes.com/2014-09-14/news/53904069_1_payments-banks-final-guidelines-differentiated-banks">payment bank framework</a> in 2014 to enable payments innovators to enter the market more easily. Elsewhere in Zambia, <a href="http://www.zoona.co.za/">interoperable payment platforms</a> are taking advantage of favorable “test, then regulate” regulations. When regulation is well-informed and iterative, it ceases to be a barrier to payments innovation and instead drives progress.

Disruptive businesses are changing the face of financial inclusion and piggybacking on the expanding digital infrastructure throughout emerging markets. With innovative models, engaged regulators, and third-party players continuing to alter the landscape and economics of financial services, the remaining barriers to a digital-enabled financially inclusive world may be overcome.

Monica Brand Engel and Jackson Scher (<a href="https://twitter.com/JacksonWScher">@JacksonWScher</a>) are with <a href="http://www.accion.org/frontier">Accion’s Frontier Investments Group</a>, an early-stage venture equity impact fund that focuses on catalyzing new approaches to financial inclusion. Frontier invests in disruptive business models and technologies that radically enhance the efficiency, reach, and scope of products and services for the financially underserved.

Have you read?

<a href="http://cfi-blog.org/2014/10/30/fueling-the-economic-engine-global-experiments-in-small-enterprise-lending/">Fueling the Economic Engine: Global Experiments in Small Enterprise Lending</a>

<a href="http://cfi-blog.org/2014/03/12/helping-consumers-understand-their-digital-data-initial-experiences-from-tanzania/">Helping Consumers Understand Their Digital Data: Initial Experiences from Tanzania</a>

<a href="http://cfi-blog.org/2014/06/24/bitcoin-and-the-bottom-of-the-pyramid-how-cryptocurrency-can-make-good-on-its-promise-of-financial-inclusion/" target="_blank" rel="noopener">Bitcoin and the Bottom of the Pyramid: How Cryptocurrency Can Make Good on Its Promise of Financial Inclusion</a>

Alissa Fishbane

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