Financial Inclusion: The Trust Factor

> Posted by Beth Rhyne

When 35 experts come together to talk about how to achieve financial inclusion, one area of common agreement turns out to be the importance of trust.
On Monday I participated in a conversation organized by Visa and The Atlantic magazine as a side event to the Clinton Global Initiative. The conversation included microfinance providers, researchers, diplomats, journalists, donors, and technology providers. A discussion among so many people of diverse perspectives is anything but linear, even with excellent facilitation by Steve Clemons, Editor-in-Chief of AtlanticLIVE. I had to pay close attention as the talk sped around the table. As I listened, I was struck by how often the remarks turned on the theme of trust.
At issue was this question: Why is the take-off of cell phone banking moving so slowly? There are dozens of mobile banking pilots around the world, but only a handful have reached scale. Visa itself is making a big bet on mobile payments with its recent purchase of Fundamo, a mobile banking platform based in South Africa.
A number of answers to the question involve trust.
Low-income people in low-income countries who are excluded from mainstream financial services rely instead on informal systems – like rotating savings and credit societies, moneykeepers, and truck drivers who carry money from place to place. Some people argue that trust is the key to these informal systems because the participants know each other, speak the same language, and can follow up directly if anything goes wrong. Others believe that informal systems are in fact not very trustworthy, and hypothesize that people will change behavior as soon as they gain sufficient trust in more formal systems.
For clients, trust involves confidence that transactions will take place as intended. This confidence is particularly important for electronic transactions: think of feeding money into an ATM and trusting that it will be properly recorded to your account. It also involves trust in the provider as a fair player, with no hidden fees and prices perceived as fair.
How can formal providers gain enough client trust to cause clients to shift, especially when working with electronic payments? Having a trusted brand may be an asset.  Visa, for example, is trusted by card users for its reliability. Will that brand value transfer to new clients who have never used a Visa card?  Maybe microfinance institutions (MFIs) can help increase the comfort levels of their clients with new transaction channels. MFIs have direct personal relationships with clients. They could construct settings in which clients could test out new technologies for themselves.
It is interesting to observe how quickly people have taken to cell phones for communications, possibly because for a phone call, trust is established the moment you hear the other person’s voice on the line, and because the device can be tested without significant risk to the client, which is not often the case where money is involved. Younger people are more likely to have already become comfortable with electronic devices, but that trust does not necessarily carry over to financial institutions. Some discussants noted that banks are not among the most-trusted companies.
Trust enters the picture at the regulatory level, too. Regulators must be able to trust the providers they license to operate safely and according to standards, with adequate safeguards to the funds in their care. Financial services providers argue that they have more effective mechanisms for clearing and settlement, fraud control and problem resolution than telecoms companies, because the telecoms companies have not previously confronted those problems. This is an argument used by financial institutions in favor of regulations for cell phone banking that require partnerships with financial institutions – that financial institutions can be more trusted to handle financial transactions and ultimately financial intermediation responsibly.
Trust came up in the conversation in one other way.  For providers that promote themselves as socially responsible, their investors and even employees need to trust that the company is serious about achieving a worthwhile social bottom line.
When the evening ended, I thought back fondly to Pancho Otero, the founder of Prodem and first CEO of BancoSol. He liked to say that in microfinance, trust resides in the eye-to-eye contact between loan officers and their clients. It’s a romantic view, but it holds a certain amount of truth.
Image credit: Hucz
Have you read?
Is Client Retention Always a Good Thing?
Voices of Financial Inclusion: ‘It’s the Clients, Stupid’
 Not a Big Deal? Microfinance is About Inclusion.