Kate McKee, Senior Advisor at CGAP, reflects on key issues raised during the FI2020 Global Forum’s panel discussion on ‘Why Financial Inclusion is More Important Than We Ever Knew,’ ending with an exciting prediction market from the panelists.
In this panel, which began with an emphasis on behavioral economics opened by Sendhil Mullainathan, co-author of the recently-published book Scarcity (reviewed on this blog by CFI’s Sonja Kelly here), who focused on how the reality of scarcity translates into a “bandwidth tax” on people who constantly live in poverty. Research by Sendhil and others has documented how the constant worry and distraction of living with too little – what Sendhil and his co-author Eldar Shafir refer to as “tunneling,” with its intense focus on making ends meet day-to-day – ultimately, affects poor people’s ability to make good decisions. Basically, this growing body of research shows that when people are in a situation of scarcity, they are not as smart, not as able to resist temptation, and are less likely to be able to make and stick to a plan, as compared to themselves in a time of less scarcity.
This scarcity framework and evidence has potentially powerful consequences for financial inclusion. The panel that followed focused on how scarcity, the bandwidth tax, and tunneling affect the relevance, uptake, and usage of financial services by lower-income people. Tine Wollebekk (Vice President of Telenor Financial Services and Board Chair of Tameer Microfinance Bank, the sponsor of Easypaisa in Pakistan) and Kamal Quadir (Managing Director of bKash in Bangladesh) reflected on the experience of these two fast-growing mobile money service deployments, including insights about customers’ underlying demands and how the mobile wallets and other services are designed to meet them, how to make the offerings intuitive and simple, and how to earn trust from customers new to formal finance. Bill Gajda (Global Head of Strategic Partnerships, Visa) rounded out the panel by bringing in findings from deep consumer research that Visa has supported in additional developing countries, as well as experience with different business models and customer interfaces including cards.
Entry products need to be ‘in the tunnel’
One of the key insights was that the entry product needs to meet a really immediate need. It needs to be ‘in the tunnel’ of what the customer is focused on to meet their day-to-day needs. Obviously mobile telephony is firmly in the tunnel virtually everywhere in the developing world. Person-to-person money transfer has also passed the “tunnel test” of rapid uptake in an increasing number of markets – Kamal noted that he felt the company had reached an important tipping point when “bKash” had become a verb commonly used across Bangladesh. Tine made the point of needing excellent execution and recruiting the right kind of agents that customers will trust, in order for customers not to have extraneous worries that would prevent them from really being able to make decisions.
Meeting customers’ needs and tailoring additional financial services
We debated the extent to which the services currently on offer are well designed to meet customers’ immediate needs, be intuitive, and not take too much “bandwidth” to understand and use, since bandwidth is at such a premium for most customers targeted by these new deployments. Money transfer seems to be in this category in a growing number of markets. What other kinds of services will meet these tests? And what can we do to “broaden the tunnel” so those living in scarcity will be open to using a wider range of financial services that might meet longer-term needs and aspirations?
Sendhil had earlier made the point that no-hassle emergency loans – even in very small amounts if they are fast and responsive to typical in-the-tunnel needs – could be really helpful and would definitely be a hit “in the tunnel.” He now contrasted such money transfer and loan products with the cases of agricultural insurance and long-term savings. Each of these financial services is highly relevant and very important to the types of households we’re focused on – someone in their less scarce mind would commit to doing what is needed to secure them. But there are challenges – for all of us but especially for people living in chronic scarcity – to the long-term behavior change that would be required, including sustained focus, discipline, and resistance of temptation.
Mobile money and customers: a gender perspective
Men and women might have different concerns in the decision to take up and use new services such as mobile wallets. For example, in some countries women have been reticent to give their personal details to male agents due to concerns about sexual harassment. In addition, obviously men and women have different money management roles, meaning they fit differently in the household scarcity picture, so that would be important to explore further too. So that’s another key point about getting mobile financial services ‘into the tunnel.’
From scale and uptake to more active usage
This comes up in the mobile money context, if we’re thinking about a customer sticking to over-the-counter transactions (OTC) versus really actively using a mobile wallet and over time being receptive to a wider range of financial services beyond money transfer or payments. At the moment, the usage issue is quite challenging for many of the deployments that have reached some scale. This is a problem from a business profitability perspective and it’s also a problem from a customer value proposition perspective and our long-term vision for full financial inclusion. While acknowledging the challenge, each of the panelists was actually quite optimistic in terms of the examples they were engaged with, where they are seeing positive trends in activity and expect customers to adopt more value-add services over time. They pointed out that inevitably there is a learning curve (for both customers and operators) and that it should not be surprising that those in the tunnel might not necessarily be the early adopters and most active users until they gain trust and confidence (a point also made by Monique Cohen in a comment from the floor).
Panel prediction market
The panel wrapped up with a “prediction market” where each person on the stage was invited to make a bold prediction about the future of financial inclusion. Here they are:
Tine Wollebekk: The 90 percent uptake that we see for mobile telephony will translate over three to four years into a 90 percent uptake of mobile financial services.
Kamal Quadir: We’ll see many more robust partnerships between banks and telecoms – we see this in Bangladesh, where the regulation favors delivery of mobile financial services by banks, given their advantages, but it is important to have a close partnership with the telcos to ensure viable connectivity.
Bill Gajda: Very soon Canada and Bangladesh will look very similar in terms of mobile money adoption . . . and cards will remain relevant in the market!
Sendhil Mullainathan: Just as there were microcredit crises, there will be some kind of a crisis in mobile money such as a run on stored funds. This “scandal!” answer resonated with the audience in the final voting, perhaps suggesting that it is timely for all of us in the innovative finance space to be proactive in identifying potential risks with the new models and finding cost-effective ways to mitigate them.