The <a href="https://www.inclusivefintech50.com" target="_blank" rel="noopener noreferrer">Inclusive Fintech 50</a> application data from the third year signals continued progress on innovations to onboard low-income customers, despite the challenges posed by the pandemic:
<ul>
 	<li>Inclusive fintechs are using creative approaches to serve new customers. From retail partnerships that help drive customer acquisition, to insurance platforms offering micro-coverage, to native language chatbots, to enhanced biometric identity verification solutions, early-stage inclusive fintechs are pursuing outside-the-box solutions to reach un/underbanked people around the world.</li>
</ul>
Nevertheless, there are two areas of concern:
<ul>
 	<li>Funding concentration persists. While fintech investments across emerging markets have been increasing, early-stage inclusive fintechs continue to face disparities based on geography, funding status, and gender.</li>
 	<li>Potential customer risks persist around data usage. Although data is central to the business models of inclusive fintechs, some applicants require customer consent related to data, and some still do not.</li>
</ul>

Insights from the 2021 Inclusive Fintech 50 Applicant Pool

When planning UNCDF’s third global conference on digital finance in 2017, I half-jokingly proposed the theme be <a href="https://www.uncdf.org/article/4162/dfs4what---building-inclusive-digital-economies">#DFS4What</a>, which ultimately did become the 2018 conference’s focus when we convened in Dakar. The title encapsulated something we had been seeing across our work in Africa and Asia: in least developed countries, the benefits to the majority of the population of having digital accounts, particularly amongst the rural and poor, simply did not outweigh the costs. While we often attribute financial exclusion to policies, business models, product design and practices, we saw in our own data in <a href="https://www.cgap.org/blog/making-digital-payments-work-low-income-farmers">Uganda</a> and other countries that the financially excluded chose to remain financially excluded because a digital account wasn’t better than cash, and it did not solve a very real and immediate need or desire for clients. It’s difficult to move beyond the 35 to 40 percent of the population actively using digital finance accounts unless we could make digital finance more relevant for people’s daily lives.
<blockquote>It’s difficult to move beyond the 35 to 40 percent of the population actively using digital finance accounts unless we could make digital finance more relevant for people’s daily lives.</blockquote>
At the same time, the benefits to developing economies of going digital are considerable. As <a href="https://www.gsmaintelligence.com/research/?file=b9a6e6202ee1d5f787cfebb95d3639c5&amp;download">GSMA has quantified</a>, in 2018, mobile technologies and services generated $3.9 trillion of economic value (4.6 percent of GDP) globally, a contribution that will reach $4.8 trillion (4.8 percent of GDP) by 2023. In 2016, McKinsey estimated that digital finance could contribute 5 to 10 percent to a developing economies’ GDP over a decade.

It also has development benefits. The United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development, UNCDF, the Better than Cash Alliance and the World Bank <a href="https://www.unsgsa.org/files/1615/3738/5820/SDG_Compendium_Digital_Financial_Inclusion_September_2018.pdf">highlighted</a> the many ways in which digital financial inclusion was igniting progress toward the SDGs.

The financial inclusion community faces a conundrum. How do we promote digital finance as something that we believe is good for development even though it may not necessarily be of great (or any) benefit for many of the world’s poor in the short and medium term?

In discussions with colleagues over the past few years, some ideas and approaches have come up that are worth considering.
<h2>1. Make it useful.</h2>
PayGo solar has shown us how a very specific use case that solves a very real need can drive digital financial inclusion. A CGAP brief three years ago pointed out how 30 to 50 percent of PAYG (pay-as-you-go) solar customers in East Africa <a href="https://www.cgap.org/sites/default/files/Brief-Digitally-Financed-Energy-Mar-2016.pdf">opened a mobile wallet</a> in order to purchase a digitally-financed energy solution. These PayGo models are ideal for small assets and services, from clean water to cook stoves to riding on <a href="https://safeboda.com/ug/">safe bodas</a>. Focusing on what digital finance is for rather than on why digital finance is important is key to reaching low income populations.
<h2>2. Make it fun.</h2>
As <a href="https://www.economist.com/leaders/2019/06/08/the-second-half-of-humanity-is-joining-the-internet">The Economist recently pointed out</a>, recent migrants to the digital world spend most of their time chatting with friends and streaming videos for which they happily pay. So it’s important to remember its not only about what people need (or what the development community thinks they need), it’s about what they want. I’m not suggesting that we should ignore the dangers, such as digital credit being used for betting, but we be open to the idea that the drivers of digital financial inclusion may be for social or entertainment purposes, such as downloading music and <a href="https://www.ft.com/content/74e9c2a0-1792-11e8-9376-4a6390addb44">red envelopes</a> for the lunar festival.
<h2>3. Make it lucrative.</h2>
Creating an affordable merchant acceptance network for digital payments has long been seen as the elusive magic elixir for digital financial inclusion. But it may be e-commerce, or more appropriately “<a href="https://www.investopedia.com/terms/m/mobile-commerce.asp">m-commerce</a>,” that drives usage before merchants do. E-commerce in the Asia Pacific region generated over <a href="https://www.telecomreviewasia.com/index.php/news/featured-articles/1640-in-with-the-new-how-fintech-and-e-commerce-are-driving-innovation-in-asia">$900 billion in total revenue</a> in 2017 and as Alibaba has demonstrated with Alipay, e-commerce can drive much greater access to a range of financial services. Last year, Facebook reported that it had over <a href="https://www.cnet.com/news/facebook-marketplace-is-used-in-70-countries-by-800-million-people-monthly/">800 million users in over 70 countries</a> for its Marketplace platform. In places like Myanmar, cash on delivery is the way most users on Marketplace close a deal. While the fate of Libra still hangs in the balance, other companies like Grab have moved into free digital accounts to support their ride hailing and other m-commerce offerings.
<h2>4. Make it free.</h2>
This is a counterintuitive counter proposal to the previous suggestion. The user-pays model of digital finance has always been problematic: to many low-income users, it’s a psychological and, in some cases, financial barrier. Alipay and GrabPay do not charge users directly. They make money on their core business. So too does Telesom Zaad in Somalia, which makes up the cost of managing its mobile money service through the increase in mobile and data sales. Digital finance provides so many positive externalities, efficiencies and cost savings for businesses and governments alike that there is a strong argument to move to a “freemium” model for customers for basic accounts and payments and instead let large corporate, NGO and government users bear the costs.
<h2>5. Make it easier.</h2>
The JAM trinity of India, combining identification, real-time payments, and basic accounts is a great example of how government innovation is building a backbone for businesses of all types to provide and use digital finance. The next challenge for regulators and the industry alike is to create a simple way for m-commerce firms to embed payment options to on-line and in-person payments. Interoperability is not enough. There is a need for better interfaces between m-commerce sites and payment apps and for simple, standard rules of the game and pricing so that anyone who follows and plays by the rules can be part of the digital economy.

&nbsp;

The advent of fintech is making digital finance happen in new ways and by new actors, which are making it useful to people in ways that go well beyond our traditional understanding of financial inclusion. We now see how digital financial inclusion is increasingly being driven by the lure of the broader digital economy in all of it chaos.

This comes at a time when the global financial sector – indeed monetary systems themselves – are in a state of flux. In my work as Secretariat Director of the United Nations Secretary-General’s Task Force on Digital Financing of the Sustainable Development Goals, we conducted a landscape study to look at <a href="https://digitalfinancingtaskforce.org/wp-content/uploads/2019/07/DFET-White-Paper-Final-08-17-afa.pdf">how the changes in finance due to digitalization were impacting sustainable development</a>. What we noted is that beyond digital retail finance and fintech, innovations in global finance are also beginning to have positive impacts on development and financial inclusion. Payments is a clear example, with new, cheaper money transfer services like Remitly and Transferwise making cross border payments cheaper, faster and more secure. Insurance is another, with global insurers deploying increasingly sophisticated index insurance models that are being used to provide small farmers in Africa with crop insurance.
<blockquote>Innovations in global finance are also beginning to have positive impacts on development and financial inclusion.</blockquote>
&nbsp;

Which brings me to my last suggestion:
<h2>6. Make it global.</h2>
It’s easy to get bogged down in all of the barriers to reaching the next 1.7 billion unbanked through digital finance. From connectivity to cybersecurity, the challenges are considerable. Digital finance might be a just small part of many larger developmental, environmental and business opportunities. Digital finance is key to solving energy challenges – and taking advantage of the clean energy opportunity. It is vital for the booming ride hailing and food delivery sectors around the world – sectors which hire a number of poorer members of society, if not sustainably, at least temporarily. It is critical to boosting tax collection and reducing “leakages” in government payments. In short, we have allies, a lot of them around the world, all of whom stand to benefit from digital payments. Our challenge is harnessing them and finding ways to work together to accelerate access to digital finance.

These six suggestions might go a long way toward boosting digital financial inclusion, and, in doing so, boost development and build the digital economy. Do you have any suggestions to add? Share in the comments below!

DFS for Development: 6 Ideas to Reach the Next 1.7 Billion

This <a href="https://soundcloud.com/user-273615244/frt-episode-28-digital-customer-journey">episode</a> of the "FRT" podcast focuses on how digital customer journeys are enabling financial institutions to reach underserved segments in a sustainable manner. IIF’s Conan French host Rhyne and Amin Khairy to discuss the upcoming CFI-IIF paper “Charting the Customer Journey in the Digital Age.”

Rhyne discusses the persistent challenges for digital inclusion and the importance of having a “tech-touch” balance at certain stages of the customer journey.

They also discuss the potential gain in operational efficiencies for financial institutions and the positive impact digitization has on unbanked customers and provide real-life examples of digital customer journeys in various stages: pre-onboarding, onboarding and continued use.

"We're finding that the countries that are making it easy to onboard are those with a good national ID program," Rhyne said. "Having a very clear and simple to use national ID that's easily connected electronically is probably the most important thing."

Rhyne also notes that understanding the unique financial lives of lower income segments is crucial to digitization and different from transitioning banked populations from analog to digital.

Browse more <a href="https://www.iif.com/Innovation/FRT-Podcast">FRT podcast episodes</a>.

&nbsp;

IIF Podcast Features Elisabeth Rhyne Discussing the Digital Customer Journey

The digital payments revolution is aided in part by the rapid adoption of smartphones. In India, several enabling factors have contributed to this favourable outcome:
<ol>
 	<li>Smartphones are <a href="https://www.economist.com/business/2014/04/05/the-rise-of-the-cheap-smartphone">increasingly available</a> at prices within the budget of low-income people.</li>
 	<li>Fintech APIs are <a href="https://medium.com/bharatinclusion/kickstarting-the-first-financial-inclusion-lab-fb843493e9b1">emerging</a> to meet the unserved financial services demand of this segment.</li>
 	<li>There’s a push from the government to improve internet connectivity and provide an <a href="https://indiastack.org/about/">enabling regulatory environment</a> for fintechs.</li>
</ol>
However, universal access to digital financial services (DFS) is constrained by the fact that, globally, <a href="https://data.worldbank.org/indicator/se.adt.litr.zs?year_high_desc=false">14 percent</a> of the population is illiterate. Many low-income people have difficulty decoding the meaning behind numbers and words when they’re presented as text on a screen. This poses a great barrier for this segment to decipher the user interface of smartphone applications. As they have grown up without formal literacy or numeracy, these people are likely to be reluctant to shift away from the <a href="http://myoralvillage.org/why-were-needed/oral-culture/">oral culture</a> they are used to, where information is recorded, processed, and managed without text.
<blockquote>Many low-income people have difficulty decoding the meaning behind numbers and words when they’re presented as text on a screen.</blockquote>
It’s no wonder that in India, for example, <a href="https://www.indiaspend.com/record-number-of-indians-with-bank-accounts-so-why-is-financial-inclusion-low-13223/">only 2 percent</a> of those with primary education or less have used their mobile phones to access their bank accounts. According to research conducted this year with CGAP, a large fraction of the population — almost 1 billion adults worldwide — cannot read numbers larger than 10 when displayed in Indo-Arabic notation in their own currencies. The research provided compelling evidence from two national surveys conducted on a random basis.
<h2>A Digital Wallet for Oral Users: Design Principles and Considerations</h2>
Led by Brett Matthews, the founder of <a href="https://myoralvillage.org/">My Oral Village</a>, a team from MicroSave Consulting (MSC) developed a <a href="http://www.microsave.net/resource/digital_wallet_adoption_for_the_oral_segment_in_india_concept_development_for_mowo_mobile_wallet_for_oral">concept-level, mobile digital wallet</a> for oral users in 2017. This design featured a cash keyboard where oral users could input the amount using images of currency notes, an address book that oral users could update by themselves through photographs, and oral icons to support navigation through key transactions, such as sending and requesting money.

The <a href="https://www.linkedin.com/pulse/principles-oim-design-building-trust-among-oral-segment-matthews/">principles</a> of <a href="https://www.researchgate.net/publication/277710889_Oral_Information_Management_Tools_Lighting_the_Path_to_Financial_Inclusion">oral information management</a> (OIM) must, therefore, govern sound interface designs. These principles include two significant factors for the adaptation of mobile wallets, mobile banking and other fintech applications.
<ul>
 	<li>OIM designs build cognitive bridges that support the easy acquisition of vital numeracy and literacy skills. For example, customers need the ability to read multi-digit numbers, navigate through a transaction, or use a personal transaction history.</li>
 	<li>OIM designs should not cause embarrassment to literate users, such as through iconography that reduces the seriousness and sensitivity associated with money, essential for building trust in the consumers.</li>
</ul>
<h2>Mnemonics Hold Promise</h2>
[caption id="attachment_34529" align="alignleft" width="187"]<img class=" wp-image-34529" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/02/mnemonic-keyboard-digits.png" alt="Mnemonics transposed on a standard digital numeric keypad." width="187" height="295" /> Mnemonics transposed on a standard digital numeric keypad.[/caption]

A key aspect of OIM is the introduction of mnemonics at critical points where the oral person might face maximum hindrance and discouragement. The ubiquitous passwords and PINs required for logging-in is one such example. Since the lives of oral people are rarely informed by <a href="http://blog.microsave.net/learnings-from-cash-economy-for-dfs-providers/">interaction with digits</a>, they have problems remembering multi-digit strings.

However, mnemonics tailored for oral people provide a key. Mnemonics forge associations with life events, situations, objects, and actions. These mnemonics are drawn from the lives of oral people themselves. The digit 7, thus, might be imagined as an axe, which resonates with many rural communities (see figure to the right). Such mnemonics can be transposed with the numerals in the keypad of mobile wallets/fintech applications such that oral users develop a familiarity with numerals over a period of time.

Each such digit can be accompanied by a variety of mnemonics — a library of icons from which different digital payments users can choose depending on their relevance and context. Mnemonics are an essential component of the cognitive scaffolding that oral users require to inhabit the world of DFS comfortably.
<h2>Navigation Considerations</h2>
Another essential component of this scaffolding is the navigation flow in the user interface, which must be intuitive—or easily guessed—by an oral person. Industry selection of graphics and icons rarely considers the needs of unschooled users. <a href="https://itidjournal.org/index.php/itid/article/viewFile/243/113">Earlier research</a> has shown that the oral population struggles to understand these icons. In this round of field research, we tested <a href="https://www.weforum.org/agenda/2017/11/think-twice-before-you-use-emoticons-people-from-other-countries-might-not-understand-you">simple emoticons</a>, such as happy, neutral, and sad faces, and found that users often guess these incorrectly as well. Empirically grounded <a href="http://www.microsave.net/resource/designing_mobile_wallet_for_the_poor">oral iconography</a> that is built around the idioms used by such people is the bulwark of sound OIM design. Through <a href="https://cfi-blog.org/2017/07/13/not-just-a-pretty-interface-designs-must-be-easily-learned-and-used/">our past field tests</a>, we have been able to arrive at icons for essential features, such as “send” and “receive.”
<h2>Time and Date for Oral Users</h2>
Those without numeracy use oral, event-based measures of time rather than the modern calendars and clocks found in existing digital applications. For example, “07/12/2018” may fail to convey the intended meaning to oral users.

Oral people track time through days, seasons, life cycle events, and festivities. Their conceptions of time should, therefore, integrate into the user interface, with ready access to modern analogs. Hours, days, months, and years all pose unique challenges. For example, can a picture of a moon depict a month? Oral users think practically and may ask, “Does a full moon represent a month or only its full phase?” Events like account opening, or a user’s actual transactions, offer a more practical foundation for an OIM solution. This proves useful while designing the transaction history page—an important enabler for building trust in the digital world.

Oral Users and Digital Payments: Can Existing Interfaces be Adapted?

This post originally appeared on the <a href="http://www.accion.org">Accion</a> website.

Too often we hear questions from some of our financial service provider clients such as, “How can we gain market share and beat out our competition?” This isn’t inherently a bad question — it’s important to think strategically about competitors. But this question focuses only on the supply side. To get the full picture, an institution should also ask, “How can we better understand the challenges that our customers face, and how can we help them tackle these issues through our services?” While many financial service providers have made considerable strides in developing customer-centric products, most could be doing more to better understand their customers’ wants, needs, behaviors, and habits.

For these institutions that lag behind in customer centricity, it is not that they are unconcerned for their customers and only worried about the bottom line, but they often perceive this to be expensive and can be reluctant to invest in market research. Instead, they rely on anecdotal customer stories from their sales force. Unfortunately, this approach to the collection of customer information often leads these institutions to misunderstand the real problems their customers face. For instance, they may miss how technology is changing customers’ preferences for accessing information and the social groups they are part of.

[caption id="attachment_34130" align="alignright" width="550"]<img class="wp-image-34130 size-full" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-17-at-11.39.01-AM.png" alt="" width="550" height="448" /> A workshop participant shares her prototype travel debit card with a potential user. This product would include a digital application geared to address millennials’ need for saving as well as financial and business coaching. [/caption]

Conventional market research methods rely on focus groups and expensive customer surveys, which don’t always deliver relevant insights. In contrast, a customer-centric design methodology focuses on listening to and observing people in their daily lives and works within market and technological constraints. One particular area of focus is product touch-points. A customer-centric approach regards each touch-point as an opportunity to surprise, delight, and deliver benefits to users. When done well, this approach provides experiences that resonate with the intended customers — driving their engagement and, ultimately, growth for the institution. With a customer-centric design methodology, rapid prototyping and real-world tests with customers are used to validate (or invalidate) early designs and improve the solution.

With the aim of teaching financial service providers how to apply Accion’s user-centric design methodology, we hosted a workshop in Queretaro, Mexico, with the support of MetLife Foundation. This 2-day workshop brought together ten financial institutions, including microfinance organizations, cooperatives, and fintechs, to learn our methodology for designing and developing user-centric products, based on a deep understanding of customers’ behavior, with a high potential for adoption. Participants learned how to reframe their business challenges from a customer-perspective, conduct efficient and useful user research, and use their understanding of their customers’ financial behaviors, capabilities, needs, and desires to conceive and prototype a new product.

After designing prototypes, the participants shared their ideas with potential users and engaged in a conversation about their lives, desires, and fears. By walking the users through each touch point in the proposed customer journey, the participants empathized with the customers’ thoughts, feelings and experiences at each moment. These conversations brought up questions about the usefulness and complexity of many of the products and forced participating institutions to adjust their concepts to make their prototype more customer-centric — ultimately promoting greater adoption and supporting the <a href="https://content.centerforfinancialinclusion.org/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">financial health</a> of the customer. When financial service providers watched potential users struggle with digital tools or have trouble navigating through non-intuitive wireframe mock-ups, they gained insight in designing user-centered products. The providers told us this was the most influential part of the workshop.

[caption id="attachment_34131" align="alignleft" width="488"]<img class="size-full wp-image-34131" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-17-at-11.39.21-AM.png" alt="" width="488" height="346" /> One bank conceptualized a flexible product that will address customer distress in paying their hospital bills. This bank visualizes the customer experience at every touch point with the bank. The visualized product allows the customer to customize their experience by choosing where to open their account, pick the date and portion of the bill they want to pay.[/caption]

Both traditional institutions and fintechs found the user-centric design methodology useful. While many fintechs claim to be more customer-centric than incumbent financial providers, several of the fintech participants admitted that they do not have a process to ensure that their existing products evolve to match the dynamic needs of their clients. Upon reflection, many found that their services were disconnected from client realities.

The workshop participants were eager to return to their institutions to share their new product prototypes. As one attendee put it, they were looking forward to using this methodology to, “not only help us to improve our products and services, but to create a more enriching experience for our customers.”

However, participants know that the path from prototyping customer-centric products to product deployment is not an easy one. Within an organization, a willingness to embrace change and focus on customers requires a shift in mindset. As one participant said, “it will be difficult to convince others to center their focus on our clients.”

Over the next two years, with the support of MetLife Foundation, Accion will continue working with select financial service providers to ensure that they are asking more strategic questions as they apply this user-centric design methodology to develop a product, service, or experience. And we will help the institutions tackle the challenge of internal alignment and cultural change, while ensuring that designs resonate with customers, use innovations in technology, and contribute to the financial health of the low-income population in Mexico.

To Help Customers, Ask the Right Questions

New York, NY (February 26, 2018) — MetLife Foundation provides $5.4 million to Accion for programs in Latin America, Eastern Europe, and Asia to leverage digital solutions to enhance underserved customers' financial capabilities and engagement.

Accion and MetLife Foundation Announce Expanded Partnership to Advance Financial Inclusion

CFI Fellow Alexis Beggs Olsen investigates Kenya’s digital financial services (DFS) landscape, the reasons why customers still desire human touch, and the innovative ways in which FSPs integrate human interfaces into their digital product offerings to better serve customers. In Uniting Tech and Touch: Why Centaur Products Are Better for Consumers and Providers, Evidence from Kenya, Alexis takes us along the customer journeys of Kenyan DFS users to illuminate the circumstances where they prefer human touch, the variations in customer preferences across demographic characteristics, and the particular pain points of low-touch digital loans, savings and insurance products.

Alexis finds that although Kenyans are comfortable conducting transactions digitally, other key aspects of the financial service customer journey are not adequately handled by digital means alone.

Webinar: Uniting Tech and Touch Kenya

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 <a href="http://smartcampaign.org/tools-a-resources/1087">Peru</a>, <a href="http://smartcampaign.org/tools-a-resources/1077">Pakistan</a>, <a href="http://smartcampaign.org/tools-a-resources/1088">Georgia</a> and <a href="http://smartcampaign.org/tools-a-resources/1076">Benin</a> for the <a href="http://smartcampaign.org/tools-a-resources/1075">Client Voice project</a> of the <a href="http://smartcampaign.org/">Smart Campaign</a>, in Kenya and India for <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/807-beyond-financial-inclusion-financial-health-as-a-global-framework">our project on financial health</a>, in <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/financial-capability-building-practices-in-india-final.pdf">India</a> and <a href="https://centerforfinancialinclusionblog.files.wordpress.com/2016/04/financial-capability-building-practices-in-mexico-final.pdf">Mexico</a> for <a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability">our study of financial capability</a>, and again in <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/782">Kenya</a> and <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/cfi-fellows-program/781">India</a> 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…
<ol>
 	<li> 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:</li>
</ol>
<ul>
 	<li>Daily systems that work smoothly</li>
 	<li>The ability to protect themselves financially when shocks occur</li>
 	<li>The ability to build for the future</li>
</ul>
In a system designed by consumers, financial services would be intended specifically to assist in the pursuit of financial health.
<ol start="2">
 	<li> 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.</li>
 	<li> 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.</li>
 	<li> 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.</li>
 	<li> 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.</li>
 	<li> Their savings would be safe. This encompasses both the safety and soundness of financial institutions and appropriate risk levels for investment products.</li>
 	<li> 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.</li>
 	<li> 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.</li>
 	<li> 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.</li>
 	<li> 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.</li>
</ol>
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.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/scorecard1.png"><img class="wp-image-24154 aligncenter" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/09/scorecard1.png" alt="" width="615" height="615" /></a>

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.

Have you read?

<a href="https://cfi-blog.org/2017/03/29/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">Dollar by Dollar or Goat by Goat: How Financial Health Translates Across Oceans</a>

<a href="https://cfi-blog.org/2016/05/06/a-change-in-behavior-innovations-in-financial-capability-an-interview-with-elisabeth-rhyne/">A Change in Behavior: Innovations in Financial Capability - An Interview with Elisabeth Rhyne</a>

<a href="https://cfi-blog.org/2016/03/31/client-voices-at-the-georgian-parliament/">"Client Voices" at the Georgian Parliament</a>

&nbsp;

&nbsp;

&nbsp;

Financial Inclusion From a Consumer Perspective

In the <a href="http://www-groups.dcs.st-and.ac.uk/~history/PrintHT/Longitude1.html">olden days</a>, awards were not given for innovation itself but for how effective an innovation was in relation to the importance of the problem it solved. But what we see today in financial inclusion is the ubiquity of innovation – often front and center - as the lead determinant in a plethora of prize competitions. Check the first <a href="http://www.wsj.com/public/resources/documents/Financial-Inclusion-Challenge-Official-Rules.pdf">judging criteria</a> of this <a href="http://www.wsj.com/public/resources/documents/financialinclusion.html">prestigious contest</a>.

Why would the entity commissioning the award, The Wall Street Journal, care about how innovative or unique the business was or how it broke from tradition? Wouldn’t it care most about how well the service solved a problem and the problem’s significance?

In financial inclusion, innovation itself has been an endgame for quite some time. Take the <a href="http://www.fastcompany.com/713911/fast-50-2008-ideo">much-hyped</a> “Keep the Change,” <a href="https://www.bankofamerica.com/deposits/manage/keep-the-change.go">Bank of America’s</a> program to hoover in payment leftovers at the cash register. If you buy $3.80 worth of coffee, the amount is rounded to $4.00 of which twenty cents goes to your bank account. Greeted as a clever way to encourage savings, the idea was indeed innovative back in 2006. But was it good? Here is what a critic, <a href="http://www.bankrate.com/finance/savings/spend-to-save-accounts-helpful-or-hoax-1.aspx">citing another critic</a>, had to say about Keep the Change: "If you want something that makes it quick and easy, lets you fool yourself into thinking you're actually saving, (spend-to-save) programs are good." But despite this perversion, Keep the Change has been the winner of multiple awards, many with innovation in their <a href="http://www.businesswire.com/news/home/20060927005182/en/2006-Outstanding-Corporate-Innovator-Award-Announced-PDMA#.Vgh20HiPJUR">descriptions</a>.

Plenty of ideas are creative and go nowhere. That’s where the ideas I have in the shower go, where they should, down the drain. But innovation is the crack-cocaine of the funding world. Funders including donors and impact investors want to be thought of as doing something new and what is newer than innovation? Innovation is the new excellence, the new buzzword, the new impact.

Design firms that feed funder appetite for innovation are generating an explosion of events that dub those in attendance “expert-for-a-day.” I just completed my third and possibly last human-centered hackathon, a forum that deemed every idea safe and every suggestion good, no matter how absurd. We were instructed as we brainstormed to stay mentally positive and intellectually curious, even if what was on offer was decidedly insane. This open-mindedness, we were told, was the heart of the innovation process. But after a day of outlandish ideation, we were permitted little room to pronounce any proposal doomed or even dangerous. By the close of the workshop, we had offered up pounds of sticky-notes, colored dots, and Sharpies to the grand deity of design: the prototype. But to what end?

A Brazilian banker friend, in pleasantly accented English, reflected on his own experience a few years back where he had endured weeks and weeks of co-design and prototyping in the name of financial inclusion. The process was led by the very same firm that engineered Keep the Change. “It was all so exciting, so energizing,” he remembered. Asked how the product performed, he responded: “Oh, uptake was so low and usage lower.”

Innovation in financial inclusion is not a problem per se; it can be a path to socially important solutions. And, not all innovation is led by design firms, but rather by <a href="http://unreasonable.is/mexico-series-kiwi/">committed entrepreneurs</a> and leaders. Yet, should innovation be a goal rewarded for its own sake? Should it be egged on by brainstorm-brokers who have no ultimate stake in the outcome, especially when those “innovated upon” can become exposed to extreme risk?

Glorifying, even fetishizing innovation in financial inclusion surely has its downsides. Perhaps the biggest is that no one knows what financial inclusion is. Back to the <a href="http://opinionator.blogs.nytimes.com/2012/02/29/prizes-with-an-eye-toward-the-future/">olden days</a>: kings, their navies, and merchant mariners all felt the pinch of not knowing the location of their ships at sea. Only in determining both latitude and longitude could sailors fix their sea-going positions. The “un-longituded” had a problem that was precise, important and finally, though innovation, solved. But that’s not the case in financial inclusion. The problem is imprecise, and if you ask the “un-included,” depending on what scheme you are including them in, inclusion is often irrelevant.

Rewarding innovation qua innovation can point the arrows of effort and resources away from expanding <a href="http://sg2015conference.org/">proven concepts</a> toward accelerating <a href="http://dschool.stanford.edu/blog/2012/11/20/juntos-finanzas-wins-global-innovation-award/">unproven ones</a>. What about the long-established credit union extending business hours in a hard scrabble area or <a href="http://fletcher.tufts.edu/~/media/Fletcher/Microsites/IBGC/Gates%20Residency/FINAL_Fletcher%20Policy%20Memo%202015.pdf">enabling the expansion</a> (pg. 5) of a rural bank network? Tens of thousands of in-the-trenches improvements can advance good financial services, none of which may be particularly innovative or require expensive design processes, but many of which have demonstrated their relevance, <a href="https://www.usaid.gov/results-data/success-stories/three-boxes-one-rising-community">are worthy of attention</a>, and even deserve a prize.

<img class="alignleft wp-image-19620" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/10/kim-wilson.jpg?w=150" alt="" width="100" height="98" />Kim Wilson is a Lecturer at the Fletcher School, Tufts University, a Senior Fellow of Fletchers' Council on Emerging Market Enterprises and incoming Board Member of the <a href="http://fletcher.tufts.edu/hitachi/">Hitachi Center for Technology and International Affairs</a>.

Have you read?

<a href="http://cfi-blog.org/2014/10/29/the-great-competition-and-innovation-deficit/">The Great Competition and Innovation Deficit</a>

<a href="http://cfi-blog.org/2015/08/10/new-fi2020-e-magazine-three-essential-debates/">New FI2020 E-Magazine: Three Essential Debates</a>

<a href="http://cfi-blog.org/2014/08/06/reality-check-three-ways-we-hype-up-financial-inclusion-break-throughs/">Reality Check: Three Ways We Hype Up Financial Inclusion Breakthroughs</a>

The False God of Innovation

&gt; Posted by Evelyn Stark, Assistant Vice President, Financial Inclusion Lead, MetLife Foundation, and Graham A. N. Wright, Group Managing Director, MicroSave

<a href="http://cfi-blog.org/category/financial-inclusion-2020/"><img class="alignright wp-image-8901" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2012/12/blogseries.jpg" alt="Financial Inclusion 2020 Blog Series banner image" width="326" height="72" /></a>Financial Inclusion 2020 (<a href="http://www.centerforfinancialinclusion.org/fi2020" target="_blank" rel="noopener">FI2020</a>) is a global multi-stakeholder movement to achieve full financial inclusion, using the year 2020 as a focal point for action. This blog series will spotlight financial inclusion efforts around the globe and share insights from key thought leaders in financial inclusion, with a specific focus on quality beyond access.

In recent years Human Centered Design (HCD) became a buzzword in the financial inclusion world. It focused financial service providers on the design of products and services based on customer insights. Design firms became part of the technical provider fraternity, servicing financial service providers in the quest to improve inclusion. At the same time, the network of financial service providers broadened to include mobile network operators and retail chains, in addition to microfinance institutions (MFIs), banks, cooperatives, and a myriad of microfinance suppliers. With new entrants come new ideas – and repetition of old ones. One consistent, but underrated idea, is to focus on the customer.

Customer-centricity is not a new concept in the microfinance and financial inclusion world. In 1998, MicroSave was set up (by UNCDF/DFID who were then joined by CGAP, the Ford Foundation, and the Austrian and Norwegian governments) to promote savings in the microcredit landscape of East and Southern Africa. Initial research in Uganda revealed that although microfinance institutions (MFIs) did not have a legal mandate to collect savings, they did have another problem: <a href="http://www.microsave.net/files/pdf/Client_Drop_outs_From_East_African_Microfinance_Institutions.pdf">drop-outs as high as 60 percent per annum</a>. Further investigation revealed that much of the problem lay in poorly designed credit products. Much of 1999 and 2000 was spent understanding the problem, re-designing products, and developing the “<a href="http://www.microsave.net/files/pdf/Market_Research_for_MicroFinance_TS.pdf">market research for microfinance</a>” tools and training.

This past experience resonates with the current realization among proponents of financial inclusion that customers are not using products. This is evident in the <a href="http://www.gsma.com/mobilefordevelopment/wp-content/uploads/2015/03/SOTIR_2014.pdf">GSMA research</a> that found that 68 percent of registered mobile money customers do less than one transaction in 90 days. <a href="http://www.microsave.net/files/pdf/No_Thrills_Dormancy_in_NFA_Accounts.pdf">No frills accounts in India</a>, and transactional accounts in many other settings, are mostly dormant (<a href="http://bankablefrontier.com/wp-content/uploads/documents/GAFIS-FocusNote1.pdf">GAFIS, 2011</a>, <a href="http://www.dnaindia.com/money/report-india-has-nearly-20-crore-dormant-bank-accounts-world-bank-2077978">DNA, 2015</a>). The market-led research approaches aimed at microfinance, and the human centered design approaches of the recent years, did not fully succeed in focusing provider efforts on the customer, nor did they help to increase the use of financial products and services. In the quest to understand this, we return to the unfolding story of the early years of market-led approaches, based on the MicroSave experience.

MicroSave and its partners were quite pleased with the success of the client research and the new, in-depth understanding of their needs and wants. But, self-congratulations were cut short by the first mid-term review in 2000 (unpublished manuscript). Led by industry gurus Elisabeth Rhyne and Marguerite Robinson – MicroSave was, rightly, chided for having focused entirely on the demand side and not addressing the importance of the supply side problems that needed to be solved to achieve real change.

The realization was that any industry could not be “client-centric” without ensuring that the supply side organizations who wanted to serve these customers were actually willing and able to serve them. Working with some of the more innovative financial institutions in East and Southern Africa, MicroSave spent the next seven years incorporating client responsive products within “market-led” institutions.

Being Customer-Centric Is a Supply Side Strategy… 

<img class="alignright wp-image-19051" src="https://centerforfinancialinclusionblog.files.wordpress.com/2015/08/mictosave.png?w=490" alt="" width="350" height="327" />When one hears supply side strategy, it conjures up deceptive marketing, product push, sell at all costs, and finding new ways to make more money for managers and shareholders. Customer-centricity, we’ve heard lately, should be about researching and understanding the customer. But, is that enough? Being customer-centric must be a supply side strategy if we – this entire industry, including donors, consultants, and retail financial services providers – really want to deliver high-quality products that low-income people want to buy and use.

Conducting market research with clients had some excellent benefits beyond the product design. All of the MicroSave Action Research partners* required product champions and staff from throughout their organisations to participate in the research. Virtually all of them came away from the research with a much deeper appreciation of what their clients' financial lives were actually like. It became very clear to loan officers that late payments were less a result of “stubbornness”, and more a result of a highly structured loan product that didn’t take into account farm cycles, or sickness, or school fees which needed to be paid before students were allowed to sit for exams. They also were amazed at the knowledge that clients had about microfinance, including what the competitors were offering and informal institutions. MFI staff were energized by the research and excited about designing new products. This is similar to the CGAP experience in supporting the HCD-based work with <a href="http://www.cgap.org/sites/default/files/CGAP_Insights_into_Action_final.pdf">financial institutions in seven countries</a> in recent years. Managers and leaders who are engaging with clients gain understanding and insights beyond the mere reading of reports.

But, market research and being excited about it is the “easy” part in implementing customer-centric products! Actually delivering the products clients wanted required changes both large and small in:
<ul>
 	<li><a href="http://bit.ly/1fpfvey">Planning, implementing and monitoring</a> <a href="http://bit.ly/1fpfvey">pilot-tests</a>. Systematically determining whether the new product met clients’ needs or was cost-effective for the institution to deliver was not done. Therefore, these new products were at risk for never being rolled out (CFOs questioned the business case), or not being “sold” (staff continue with the existing, understood, products).</li>
 	<li><a href="http://www.microsave.net/files/pdf/Costing_and_Pricing_Overview.pdf">Costing and pricing</a>. Prior to being market-led, many of our institutions looked at their bottom line not on a per product basis, or even a segmented client basis, but on a whole portfolio basis. Really focusing on the client meant our partners had to make trade-offs to offer what clients wanted, and what they could do at a low cost to serve. Costing and pricing models gave all departments a common framework for decision-making and led to clearer choices when trade-offs had to be made.</li>
 	<li><a href="http://www.microsave.net/files/pdf/Process_Mapping.pdf">Process mapping</a>. Efficiency is essential to keeping costs down, and most institutions had managed towards efficiency – for lending in the form of group loans and rigid loan-ladders, and for payments through reliance on technology. Unfortunately, efficiency often flies in the face of customer-centricity: not everyone wants to borrow in a group, repay weekly and progress in loan amounts at the same pace as their neighbor.  Not everyone wants to use their phone to bank. Process mapping tools helped FSP staff and the leadership analyse and improve the entire process and enable client-centricity by being more efficient in back-offices and in ways clients may not see, in order to give clients the services they wanted and needed.</li>
 	<li><a href="http://www.microsave.net/files/pdf/Product_Rollout.pdf">Going to Scale</a>. Rolling-out new products and taking them to scale after the completion of a pilot-test is a difficult and complex process. Rollout is a multi-step process of moving a product from the successful conclusion of the pilot test, to the point where it is fully operational in all desired locations. A carefully planned rollout reduces risk of failure, allows you to organize resources and optimize their use, saves money and ensures full and effective management and staff buy-in.</li>
</ul>
In Part Two of this series, “The Ebb and Flow of Customer-Centricity – Beyond the Basics,” we discuss what else was needed.

<a href="https://www.linkedin.com/pub/evelyn-stark/b/266/75b">Evelyn Stark</a> played a key role in the development of MicroSave’s market-led approach and is a certified service provider in several of its toolkits. Evelyn now heads MetLife Foundation’s financial inclusion initiative. <a href="https://uk.linkedin.com/in/grahamanwright">Graham A. N. Wright</a> is so unimaginative that he still remains at MicroSave.

*MicroSave’s action research partners included Equity Bank, Kenya Post Office Savings Bank, Centenary Bank, FINCA-Uganda/ Tanzania, Teba Bank, Tanzania Post Bank, Pride-Tanzania and Uganda Microfinance Union.

Have you read?

<a href="http://cfi-blog.org/2014/03/28/behavioral-approaches-to-product-innovation-at-the-base-of-the-pyramid/" target="_blank" rel="noopener">Behavioral Approaches to Product Innovation at the Base of the Pyramid</a>

<a href="http://cfi-blog.org/2014/07/08/does-financial-inclusion-need-to-be-more-customer-centric/" target="_blank" rel="noopener">Does Financial Inclusion Need to Be More Customer-Centric?</a>

<a href="http://cfi-blog.org/2015/03/10/responding-to-needs-and-wants-in-a-market-driven-financial-institution/">Responding to Needs and Wants in a Market-Driven Financial Institution</a>

The Ebb and Flow of Customer-Centricity in Financial Inclusion - Part One

Tillman Bruett

Abhishek  Gupta

Brett Hudson Matthews

Priya  Punatar

Alexis Beggs Olsen

Elisabeth Rhyne

Kim Wilson

Evelyn Stark

Ignacio Mas

Peer Stein

India

Mexico

Kenya

Sub-Saharan Africa

Uganda

Alternative Data

Blockchain

Challenges and Crises

Credit

Digital Financial Services

Digital Payments

Enabling Environment

Fintech

Fintechs

Human Centered Design

Insurance

Remittances

Mobile Banking

Customer Centricity

Financial Capability

Financial Health

Responsible Digital Finance

Tech-Touch Balance

Consumer Protection

Financial Inclusion Strategy

Underserved Groups

Agent Banking

Policy, Regulation and Government Initiatives

Responsible Product Design and Delivery

Report

Blog Post

Press Release

Webinar

India is a global leader in financial inclusion. For over a decade, Accion has worked with and learned from India’s innovators, investors, and policymakers to expand economic opportunity for its people and businesses.

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

The majority of Kenyans have mobile money accounts; their activity demonstrates digital financial services’ potential. Accion helps Kenyan innovators harness emerging technologies to create new financial services.

In this thoughtful and provocative blog post Ignacio Mas lays down a series of challenges for everyone working on financial inclusion. We think that the questions he's asking need to be talked about. We're asking three experts — on customer-centricity, on fintech start-ups, and on regulation — to respond to his provocations, and for the next three Wednesdays we'll publish one of them.

Have you noticed how narrow the interventions of the chorus of financial inclusion supporters have become? Academic researchers are immersed in proving whether an SMS message sent at the right time can push people to repay their loans more promptly (a.k.a. nudges), or whether someone with more savings is likely to be happier and more empowered in some way (a.k.a. impact evaluations). NGOs fund numerous papers and conferences to promote the idea of seeking early and frequent customer feedback in product design (a.k.a. human-centered design), or of looking into customer data for some clue as to what interests them and how they behave (a.k.a. big data). Donors set up round after round of tenders with subsidized funds to spur fully-grown banks and telcos to try out a new product feature (a.k.a. challenge grants), or to prop up the marketing and distribution wherewithal of selected players (a.k.a. capacity building).

All this buzz surely is positive and the things that come out of these activities may well be part of the answer to the financial inclusion challenge. But this begs the larger question: why aren´t these rather obvious and incremental things done by interested market participants themselves? Why don´t they already experiment with customer communication modes and new product features? Why don´t they eagerly seek out impact data that can drive effective marketing and PR, or more routinely seek customer feedback to improve their products and operations? Why don´t they systematically leverage customer insight as a core asset, and why do they underinvest in novel customer promotion techniques?

In other words, why is there such an inherent innovation deficit within the very commercial ventures that we think are going to drive financial inclusion forward? Do market players really need this very granular level of handholding to get what academics, NGOs, and donors so clearly believe in?

To put it more bluntly: do we really need to continue subsidizing sustaining innovation like this? Or is the problem, rather, that there isn´t enough of a competitive push to drive them to want to innovate as a key source of market advantage? Would more competition for and within the market drive the kinds of innovations that are being promoted from the sidelines?

I think the latter. Consider the current innovation frenzy in digital financial services in the US. <a href="https://www.google.com/wallet/">Google</a>, <a href="http://www.amazon.com/Amazon-com-Amazon-Wallet-Beta/dp/B00LIBDH8M">Amazon</a>, and <a href="https://www.apple.com/iphone-6/apple-pay/">Apple</a> all want to join early mover <a href="https://www.paypal.com/ke/webapps/mpp/home">PayPal</a> in getting inside or becoming people´s electronic wallets. <a href="http://www.theguardian.com/technology/2014/oct/06/facebook-mobile-payments-messenger-app">Facebook</a> and smaller start-ups like <a href="https://www.dwolla.com/">Dwolla</a> and <a href="https://venmo.com/">Venmo</a> all want to revolutionize how money is sent online. Players like <a href="https://www.smartypig.com/">Smartypig</a>, <a href="https://www.simple.com/">Simple</a>, and <a href="https://www.moven.com/">Moven</a> want to reinvent how you deal with the money sitting in your bank account. Established players like <a href="http://www.mastercard.com/contactless/">MasterCard</a> and new ones like <a href="https://squareup.com/">Square</a> want to change how you pay for goods at the store. Not to mention, of course, the slew of <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1769124">bitcoin</a> start-ups.

Now ask yourself: why are none of these players vying for the blue space that is the billions of people who are excluded? Aren´t these companies the ones who are best placed, with their high-volume, low-cost digital platforms and viral marketing savvy, to radically transform the economics of financial service delivery? Why isn´t the chorus of financial inclusion supporters simply putting their desire for innovation at the feet of these corporate digital natives?

And let me tell you, they are right not to do so. That´s because there are three things none of these digital players want to deal with – and never will. They do not want to get a banking license that embroils them in onerous regulation. They do not want to conduct primary identity checks on their customers (Know Your Customer, or KYC), which require physical customer contact. And they do not want to touch their customers´ cash. That´s why all digital financial players, exciting as they may seem when you look at their wares online, sit parasitically on top of banks. You will not have access to their services if you do not already have a bank account: to deal with regulatory aspects, to conduct primary KYC, and to do cash in/out through them.

It follows that these digital players will not lead the charge on financial inclusion in developing countries. At most they will wait tactically in the sidelines and pick up customers as they trickle into the formal financial system. But most won´t even do that: these businesses´ DNA is all about scale and network effects, so if they can´t go for size then they may not go there at all.

Unless. Unless we give them an alternative path to delegate, or even avoid, these three things that they don´t want to do. A way into developing markets that does not make them entirely dependent on banks to first open up the space for them. Here´s how. First, give these players the opportunity to get a more lenient e-money license which does not constrain them in what services they can offer customers, but bars them from loaning out or otherwise speculating with (i.e. intermediating) customers´ funds. Second, allow them to offer an entry-level account that requires no identity checks; cap usage of that appropriately, so that more onerous KYC procedures kick in only when customers are ready to give the account more serious use. And third, delink cash in/out networks from specific account issuers, so that a breed of independent cash in/out network managers emerge with the vocation to serve all issuers, all stores, and all customers. All they should be required to have is a customer account, but not an agency contract, with each issuer. (If you are thinking that this is the standard branchless banking regulatory prescription, think again, or, better yet, <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1692164">read this</a>.)

You will have noticed that these points are all about regulation. Regulation holds the key to creating a competitive environment that is more welcoming of innovative digital players. In the end, the chorus of financial inclusion supporters are getting involved in the supply of innovation simply because they want to avoid the morass that is regulatory reform. But if they truly want to make an impact on financial inclusion, they should go back to focusing on basic market enablement rather than merely filling innovation gaps.

Ignacio Mas is an independent consultant. You can learn more about his work <a href="http://www.ignaciomas.com/" target="_blank" rel="noopener">here</a>.

Have you read?

<a href="http://cfi-blog.org/2014/08/06/reality-check-three-ways-we-hype-up-financial-inclusion-break-throughs/" target="_blank" rel="noopener">Reality Check: Three Ways We Hype Up Financial Inclusion</a>

<a href="http://cfi-blog.org/2014/07/10/what-kinds-of-regulation-promote-the-development-of-microfinance-markets/" target="_blank" rel="noopener">What Kinds of Regulation Promote the Development of Microfinance Markets?</a>

<a href="http://cfi-blog.org/2014/09/08/emerging-themes-in-responsible-digital-finance/" target="_blank" rel="noopener">Emerging Themes in Responsible Digital Finance</a>

The Great Competition and Innovation Deficit

&gt; Posted by Alexandra Fiorillo, Principal, GRID Impact 

With more than 2.5 billion people around the world remaining un- or underbanked and major fluctuations in activity and usage among existing accounts, the financial inclusion industry still has work to do to increase the uptake and adoption of new products and services while also increasing the number of regularly active clients.

Many people understand the potential benefit of financial services and have the intention to use savings and loan products to improve their financial well-being. However, research shows that human beings do not always follow-through on their intentions. Frequently, we experience an intention-action gap due to psychological and external factors.

<a href="http://ideas42.org/content/Applying-BE-to-Improve-Microsavings-Outcomes.pdf"><img class="aligncenter wp-image-14437 " src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/img_3252.jpg" alt="" width="471" height="353" /></a>If we want to achieve full financial inclusion, we cannot simply offer more financial products and services to more people and hope they need, want, like, and use them. Instead, we should spend the necessary resources to ensure our products and services work for clients by doing two things:

1. Design products that meet the needs, desires, and preferences of our clients by collaborating with them on the design and delivery of these products.

2. Help our clients follow-through with the intentions and goals they have for their financial lives by focusing on taking action rather than just providing more information.

A new approach to product and service innovation, behavioral research and design, attempts to do just this. Drawing on insights from behavioral economics and principles from human-centered design, behavioral research and design attempts to uncover deep personal and contextual motivators and influencers to human behavior so we can better design products and services in a client-centered way. The goal of this method is not to focus on stated preferences and opinion or market research, but rather to develop deep empathy for human needs and desires while also making sense of observable behaviors - which may be contrary to people’s stated preferences. The tools often used in this approach involve in-depth interviews, behavioral and empathy mapping, customer journey maps, and other techniques focused on a small, indicative group of people. The multidisciplinary approach can help us better understand the motivations underlying people’s current behaviors and help us make more informed predictions about how people will behave when faced with new decisions in the future.

On behalf of ideas42, I recently led a project to improve microsavings outcomes among low-income clients of CARD Bank, Inc. in the Philippines. In collaboration with Grameen Foundation, my team used tools from behavioral economics and human-centered design to develop insights about people’s savings behavior. We used the market research and client segmentation CARD Bank, Inc. had already done to get a broad understanding of their clients and combined it with in-depth behavioral interviews, small focus groups, and rigorous quantitative analysis of transactional and administrative data to understand current savings challenges. The behavioral research we conducted informed the design of interventions to help people follow-through with their stated goals and intentions to save for their future. The outcome was surprising, and very successful!

Our behavioral diagnosis highlighted several key barriers to improving savings outcomes including two about savings goals and behaviors:

1. The savings “goals” clients have are distant and abstract, while immediate financial needs and temptations feel pressing.

2. Clients open new savings accounts with little intention or plan about how to use the account to reach their savings goals.

[caption id="14443" align="alignright" width="253"]<img class="wp-image-14443 " src="http://centerforfinancialinclusionblog.files.wordpress.com/2014/03/savings-plan.png" alt="" width="253" height="364" /> Savings Plan created to help clients set goals and make a plan for savings behavior.[/caption]

To resolve these behavioral challenges, we designed four low-cost, easy-to-implement interventions that altered the account opening process and how clients engaged with their savings accounts. Most notably, we created a Savings Plan that incorporated goal-setting, plan-making, the feeling of having made a commitment and personalization to help clients overcome savings dormancy.

We conducted a randomized controlled trial to measure the impact of our interventions and we found that clients who were exposed to the behavioral interventions made initial deposits 15 percent higher than those who opened accounts using the standard process, and were 73 percent more likely to initiate a transaction in the new account. The intervention appears to have had the effect of increasing balances 37 percent compared to the control group over the course of the eight-week pilot.

Our project taught me some valuable lessons about improving financial behaviors at the BoP, which are relevant for other industries as well:

1. Developing a deep understanding of people’s intentions and the contextual or environmental barriers that prevent them from realizing their intentions, can support improved design and delivery. In the Philippines case, this meant we assisted clients in making concrete, aspirational savings goals with detailed, actionable plans for how they would meet that goal.

2. Using proven behavioral levers leads to successful design of savings products, which leads to improved savings behavior. In this case, we used several levers to incite improved savings such as goal-setting, the feeling of having made a commitment, specific plan-making, and personalization of the experience. Clients at CARD Bank, Inc. seemed to understand that saving was important for their families and would be helpful to them. They wanted to save but various things got in their way. As such, we could re-design specific features of how the savings products were presented and used to help clients realize their intentions.

3. Leveraging rigorous data analysis is an important component of developing a deep understanding of existing human behavior – and financial service providers need to support and develop this capability. Quantitative analysis allowed us to test several hypotheses about savings behavior that would have been hard to test with qualitative research alone. The combination of research methods resulted in a more holistic and comprehensive approach to product innovation.

While this project in the Philippines was successful, we’ve really just begun to scratch the surface of client-centered approaches to financial inclusion. Behavioral research and design attempts to understand the internal determinants (self efficacy, intentions, current knowledge, and behavior), social determinants (social norms and group identity), and environmental factors and obstacles (physical cues, architectural and spatial influences) influencing individuals’ experience. This depth of understanding can then be leveraged into products, services, and interventions that have the most potential for bridging the gap between intention and action.

This is not to say that every client has an intention-action problem and that this approach would solve his or her financial challenges. Instead, a methodology that focuses on understanding the specific behaviors, contextual challenges, and client experience will allow you to develop a bespoke solution for your clients’ particular needs. Additionally, more general market research and client segmentation tools help compliment the specialized and focused behavioral research method. This is yet another set of tools we can add to our toolkit to arrive at client-centered design and delivery of financial services.

If you’d like to read more about the savings project with CARD Bank, Inc. in the Philippines, you can download the <a href="http://ideas42.org/content/Applying-BE-to-Improve-Microsavings-Outcomes.pdf">white paper here</a>. 

Have you read?

<a href="http://cfi-blog.org/2014/01/17/contemplating-scarcity-and-its-implications-for-microfinance-and-poverty-alleviation/" target="_blank">Contemplating Scarcity and Its Implications for Microfinance and Poverty Alleviation</a>

<a href="http://cfi-blog.org/2013/10/16/scarcity-why-having-too-little-means-so-much/" target="_blank">Scarcity: Why Having Too Little Means So Much</a>

<a href="http://cfi-blog.org/2013/11/05/kate-mckee-on-the-behavioral-economics-of-poverty-and-implications-for-financial-inclusion/" target="_blank">Kate McKee: On the Behavioral Economics of Poverty and Implications for Financial Inclusion</a>