Digital channels can drastically drive presence and scale when offering financial services, opening doors to the unbanked and underserved populations. Financial regulators around the world have realised the tremendous role that digital financial services (DFS) can play for financial inclusion and have sought to unlock this potential by creating evolving enabling environments. Financial inclusion, at its most basic level, starts with having an account (financial institution account or mobile money wallet), but it doesn’t stop there, people can only fully benefit when there is regular usage.
In recent times, we have witnessed incredible innovations in products, and initiatives to support the delivery of financial services, promoting the uptake and usage of products and services and showcasing the business case for financial inclusion. The advent of fintech has also propelled developments in the industry, where solutions have come with alluring ‘convenience’ value propositions, translated to accessibility, immediacy, affordability, security, reliability, among others.However, after closely working with low-income people it is critical to explore how comprehensible the convenience is, in the eyes of customers. The convenience perception is a key influencer in the adoption and regular usage of these solutions by customers. Perhaps, we would understand how to develop better products and services and hence experience higher customer activity rates in DFS.
My experience places me in the contextof the financial behaviour and mindsets of the low-income segment people. They are involved in multiple informal money management activities, which work for them, and which form archetypes to evaluate any new offerings by financial service providers. Reflections on the accounts of Portfolios of the Poor and What do Low-income People Know About Money?is that low income segment people have money management mechanisms that work for them and are content, even when these mechanisms could be improved, as Ignacio Mas exemplified in the Digital simulations to digitising financial access for the poor.
DFS has so far mostly achieved to replicate the traditional offerings provided by conventional institutions and the informal financial services workarounds. Here, ‘sign up with us for your convenience’ is the overarching value proposition by a good number of leading providers and which now seems somewhat imperceptible by this segment.For most providers, the inclusion effort of providing these products and services to the bottom of the pyramid customers has not been effectively considered. Providers are offering products and services in pre-determined three main categories – savings, credit and insurance which have been derived from mainstream or traditional financial services. Think about it!
In order to understand how best to address the existing pain points of typical low-income households, through providing improved digital alternatives, I set out to find typical personas and engaged one couple in Kenya on how they manage finances.
Adhis is a woman in her mid-thirties living in Kibera – a slum area in Nairobi, Kenya. She is married with five children, all of whom are still in primary school. Adhis’ husband,Mr. Obende works as a casual labourer at construction sites in the Langata area in Nairobi, while she runs a chapati (some form of local bread) and porridge business, providing meals to the construction casual labourers. Adhis earns an average revenue of USD 4 per day. Her business is involving, as she has to wake up at 3 am in the morning from Monday to Saturday to cook chapati and porridge for purposes of selling to the construction workers.
The construction site jobs are quite unpredictable, sometimes the workers are dismissed after arriving at the site, citing no work. Both Adhis and her husband are often affected by the irregularity of the construction jobs and are forced to go back home where Adhis sets up a stall to sell the chapati and porridge – experiencing lower returns. Sometimes she never clears her stock,therefore, converts the stock to the family meal of the day.
Adhis stores away some money ranging from USD 0.2 to USD 0.5 every day in an old BlueBand margarine tin in her house, for rainy days. Every Sunday, she visits her “chama” (women savings group) and contributes USD 0.5,where she from time to time borrows money for her upkeep and school fees payment. Unlike Adhis, Mr. Obende prefers borrowing funds from Mr. Otonglo the local money lender even though there are higher repayment interest amounts. On rainy days, he would pledge valuable household items,for example, the radio or Adhis’ Kitenge (african fabric) against some money from Mr. Otonglo ranging from USD 5 to USD 50.
These are basically the couple’s day to day money management mechanisms as they heavily depend on the Mr. Obende’s construction site income, profit from Adhis’ business, savings collected over time from their little BlueBand margarine jar, loans from Adhis’ chama and from the local money lender – Mr. Otonglo. Some key insights into the perceptions and challenges of this household, as regards formal financial services are as follows.
The feeling of discrimination and judgement
People in the low-income segments often want to manage their finances in the most comfortable way possible. They hope to do so without feeling like they would be judged in anyway, and that they will be treated with dignity. They may feel intimidated by the formal structures or even agents who are their neighbours and somewhat know them. In Adhis’ case, she prefers accessing and juggling her money without feeling the need to dress up in her ‘Sunday best’ clothes and shoes, or to remove her usual head gear (old stockings she frequently wears to protect her hair from smoke and roadside dust, as she performs her daily business operations) to go to snazzy looking buildings. She is uncomfortable with prim and proper looks which she feels is for the rich. Adhis compares the immediacy and flexibility value proposition from digital financial services to her experience saving money in the BlueBand jar at home.
While accessing her funds from the jars in the house, she does so discretely and feels that no one would judge how she looks. She also believes there is no judgement when she decides to switch her savings goals or even go against the saving period plan. Adhis admits that although she has an M-Pesa wallet, it is not her preferred financial management medium so she rarely does anything on M-Pesa. This is because she feels she would be opening herself up to the nearby agent, who happens to be a woman, and who she feels may judge her or tell other women about her money usage.
How can providers leverage technology to mimic Adhis’ savings plan and improve on it? How might technology be used to instill confidence in Adhis by creating a perception of privacy when she is depositing or withdrawing funds at the agent location? The answers to these questions would inform some design thinking for financial services propelling innovation and the development of highly usable products and services.
Money in formal systems is not multipurpose
Money in formal systems is deemed not to be as flexible as cash. At any point in time, cash can be exchanged to instantly access goods and or services as opposed to e-value which is not easily accepted. This is because to some extent,at the moment, the focus is on the interconnectivity of systems to promote functionality. Digital channels are more of bridges to money, enabling funds to move from one point to another, with high preference to conduct cash out transactions among customers. The micro level payments ecosystem has not been adequately tapped to enable the likes of Adhis to make payments digitally for their day-to-day needs, hence the perception of money in formal systems being inflexible. Adhis talks of the hurdles in having funds in her M-Pesa wallet when she wants to make payment for the chapati flour or sugar. Her supplier only accepts cash and so this means she has to find an agent to conduct a withdrawal, and at the same time gets charged for the transaction. Withdrawal charges reduce her working capital amounts, discouraging her from holding funds into her M-Pesa wallet. She argues that funds in the M-Pesa wallet are not equal to funds in her purse.
Customers should be able to access their funds whenever there is need. They compare accessing funds from their social groups and other informal borrowing avenues to the formal processes and make decisions basis the ease of access and usage. Flexibility in the availability of funds can be created by driving the acceptance of digital currency. This may be done by providing incentives for electronic transactions and waiving charges in the short-run. In the long run, when e-value is highly acceptable in the low-income segment, minimal charges could be re-introduced.
Perceived confusing, beguiling or hidden conditions pegged to formal financial solutions
The liquidity features commonly known as terms and conditions and other fees for digital financial solutions are not clear and, in many cases, not known to many households. During customer registration to digital financial services, very little information on product features is passed on to customers leading to low trust levels to formal systems. Adhis does not fully trust bank accounts or mobile wallets because she feels that she does not have adequate information regarding operating the said accounts. She reported that she is also not clear on the funds transfer pricing structure and is therefore scared of getting charged hence prefers to keep her money in the house, where she can access the money for free. She also expressed that the fees fluctuate without notice to her and that she would only realize the change upon sending funds. Despite there being measures to help in price transparency in Kenya, awareness among users is still low.
There is need for the introduction of product features that give users a sense of control over when they need the go ahead to sign up for solutions, when they want friction – not to sign up or even how best they could use the solutions. A situation where products are driven by real use cases.By so doing the perception around these solutions, their uptake and eventual regular usage would improve.
The friction in this case is critical too as it empowers users to think of the consequences, plan and make choices on the basis of how these solutions would address their daily pain points. For example, digital credit solutions are exuding a myriad of challenges mostly because the providers have focused in making them readily available and not to address real problems among users. If well considered and structured, digital credit solutions can promote financial inclusion, dignity of users and poverty alleviation. Could providers introduce digital credit solutions that mimic traditional hire purchase arrangements for both goods and services? Asset financing? Instead of easily issuing funds to users, could they identify the need for these funds and create customized impact-oriented credit solutions? Maybe, as an industry, we need the doctor and patient perspective where every patient’s symptoms and treatment prescriptions are treated as unique. Here, users’ pain points would be uniquely addressed.
Saving in formal systems is deemed inoperative
The low-income segments deem formal savings as for those with surplus money. The people in this niche want to see their money working for them or to engage in animating money. Adhis prefers belonging to a savings and credit group to “help others” with the money as she feels this is a wiser way of managing finances and that she will in turn access loans whenever she is in need. She also prefers storing her money in the house to cater for the unanticipated payment for security whenever the vigilante groups from neighbourhood groups knock at her door. Basically, funds saved in formal financial systems are regarded as idle funds.
Providers may pitch savings products as futuristic payment solutions. Such that these products would be perceived as developmental milestones towards future payments. There are already a number of goal-oriented savings products across markets, maybe some repackaging and messaging customization can improve user perception and ultimately regular usage. This way they would seem favourable and aligned to working for the users to achieve their future payment needs.
My interactions with this family shed some light on some of the true perceptions and challenges they face in embracing formal financial services. It is not just about providing digital alternatives; the digital solutions would be meaningful if they are perceived as superior to informal alternatives. Understanding these perceptions and challenges will go a long way in generating daily relevant financial solutions to the low-income segments, those that seem to be better than existing alternatives to encourage regular usage. Some offerings that might seem obvious to other segments seemed imperceptible to this household. Quite some room to improve today’s solutions!
Author: Jacqueline Jumah
Digital Financial Services Market Specialist and Managing Director at Intermarc Consulting