Around the world today, financial service providers, technology entrepreneurs and policy makers are engaged in building a financial system that reaches out to previously excluded people, such as lower income people, very small businesses, rural dwellers, and women. Although this work is carried out in the name of the consumer, all too often, scant attention is paid to the real needs and desires consumers and very small enterprise owners have.
With that in mind, here is a thought experiment. A thought experiment is an “exercise of the imagination used to investigate the nature of things.” The question for this experiment is this:
Imagine that consumers were the creators of the inclusive finance system. What would such a system look like?
What characteristics would emerge if the needs, desires and preferences of the target customers of financial inclusion were the driving force to shape their services? The observations here are drawn from consumer research conducted or commissioned by the Center for Financial Inclusion at Accion, including research in Peru, Pakistan, Georgia and Benin for the Client Voice project of the Smart Campaign, in Kenya and India for our project on financial health, in India and Mexico for our study of financial capability, and again in Kenya and India for two CFI Fellows’ projects on the role of human touch in the digital age. I offer ten propositions based on this research.
If inclusive finance were created by consumers…
- The ultimate goal of financial inclusion would be the financial health of consumers (and their small businesses). When we talk to consumers about their financial strategies, we find everyone striving to be financially healthy. Their concepts of financial health are surprisingly similar whether they are small farmers in rural Kenya or young salaried workers in the United States. They define financial health on three dimensions:
- Daily systems that work smoothly
- The ability to protect themselves financially when shocks occur
- The ability to build for the future
In a system designed by consumers, financial services would be intended specifically to assist in the pursuit of financial health.
- Products would be convenient and quick. No one wants to spend time and money traveling to a bank branch and standing in line. Mobile financial services are bringing ubiquitous 24/7 access to financial services, and this is certainly something consumers are happy about.
- Products would be simple and easy to understand. They would not come with hidden terms and conditions, exclusions or confusing prices. Electronic interfaces would be easy to use. Simplicity and transparency in product design enables consumers to use products appropriately and builds trust.
- Consumers could talk to a person when they need to. Our research in Kenya shows that after almost a decade of M-Pesa, consumers there are very comfortable conducting transactions digitally. But when they are considering whether to take up a new service, learning how the service works and especially when something goes wrong, they would strongly prefer to talk to a person face-to-face.
- Their ‘better selves’ would be supported and strengthened. Customers want to use services in constructive ways, but sometimes temptation gets in the way or they simply forget. As behavioral economists have learned, products like commitment savings can help them maintain savings discipline. On the other hand, aggressive marketing can lure them into financial decisions they may later regret.
- Their savings would be safe. This encompasses both the safety and soundness of financial institutions and appropriate risk levels for investment products.
- They would have insurance to protect them when they meet crises. Research shows that health crises are the most frequent and important type of crisis that affect lower income families. Other forms of protection would include life (especially for the main income earners in a family), property, crop and accident insurance.
- They would have saving and loan services that would help them achieve their most important life goals. The ‘big four’ lifetime goals that are often the core of a person’s financial life include: education for themselves and their children, business growth (for those so employed), shelter and shelter improvements, and a secure old age.
- They would be protected from frauds and scams. Our research shows that low income people are continually exposed to frauds and scams. They need to be able to tell good players from bad ones, and they need to be sure that money entrusted to a good player will not be lost through security breaches.
- Their interactions with formal financial services would help them gain a sense of confidence and control in their financial lives. If all the above conditions are met, consumers would gain confidence and control and would relieve the stress that often accompanies money management.
This thought experiment reveals valuable elements of a financial inclusion system that would give consumers what they need and want. Now, let’s move back to reality. How well is the global financial inclusion system performing on these ten dimensions? That depends on where you look, and perhaps on your point of view. Here is my attempt at a scorecard, reflecting both what we have heard from consumers and my own opinion.
Excitement in the financial inclusion community focuses on fast and convenient access, especially for transactions and short term financial needs. However, far too little attention is paid to making the financial systems a safe place in which consumers can feel confident and that they can use to build their financial health. It would not be hard to do better in these areas. A first step is for institutions to invest more in listening to consumers and responding to what they hear.
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