Faculty corner


I need cash WHEN I need it, WHERE I need it, HOW I need it

by Monique Cohen

This maxim governs much of our financial lives, rich or poor. Yet, we offer financial services to the unbanked and underbanked, largely ignoring it. The current thinking around customer centrality as it affects financial services for the poor emphasizes appropriately responding to people’s needs and wants for financial services. But, as Kim Wilson (CFI 2016), recently pointed out this is still not happening: 

We have an agenda, which is this: please be our customer, have your needs, express them so long as they are about digital payments or failing that, using a bank account ­­– a lot – and preferably, digitally. Else, we don’t give a damn. We don’t care about your archaic methods of pacing yourself through the use of paper currency. We don’t care about your coins pressed through the slot of a savings box. We desperately want and need you to modernize, to become just like us. Otherwise we have no justification for all the work we do and all the money we spend.

Until now the perceived drivers of uptake of digital financial services (DFS) have been their assumed attributes of convenience, timeliness and affordability, relative to current formal and informal financial service offerings. However, with uptake and usage levels of only 30% for digital financial services it is clear that this rationale falls short. What have we missed? What has to change if we wish to move toward a ‘cash lite’ economy? 

Clearly certain impediments to high usage continue to be overlooked. Products tend to be viewed through a lens of functionality, seeing credit primarily as a tool to grow a business or meet regular financial obligations such as rent, school fees. We infer such uses based on how clients use the existing financial tools at their disposal. These actions are not always optimal, neither for them and nor for providers. All too often, they reflect adapting what is available to the need of the moment. Several years ago Equity Bank found that the high rate of usage of working capital loans for school fees did not readily translate into an uptake of such ‘new purpose’ designed financial products. Similarly the encouragement to save is framed around the provision of access to savings tools ignoring the stability and level of income needed to ensure a surplus that can be put aside.

“I hear ‘but why do poor people make such bad decisions’. But actually their decision-making can be far more complex than that of the better-off in many ways. They’re not financially illiterate, they’re constantly weighing up choices based on the reality of poverty.” (Ann Cotton n.d.)

Ann Cotton reminds us that the decisions that poor people make around money are complex. Theirs is a continual process of trade-offs involving the weighing of choices based on the reality of their poverty, stabilizing and raising income while reducing their vulnerability. The thinking around product design and delivery fails to reflect this complexity and instead tends to reduce demand to one product for one solution. Rarely are these the way financial choices are made in real time. Rather the options selected reflect an ever changing panoply of wants, sources of revenue and the available portfolio of financial options, formal, informal and semi-formal.

The current interface between customer and provider is shaped by a predominant top down bias in which the financial service provider knows best and their expectation is that the customer will do as told. When we look at the informal financial sector we see users speaking up, letting their demands be known.  When it comes to formal financial services, the customers tend to be passive and dependent, with little opportunity to exercise voice and choice. Moreover, DFS require people to leap frog into digital financial services which combine unfamiliar technology and formal financial services. Together these factors present significant barriers to adoption. Surely it is time to revisit this paradigm, recognizing that the increased use of digital financial services means  looking beyond the basic attributes of a product to the user’s broader financial framework in which they exercise their choices.

Moving forward calls for approaches that generate mutually satisfying results. Each party seeks value and cost advantages. The providers are looking for numbers, volume and value of transactions as potential customers transition into these new systems of financial service delivery. Touch points supported by appropriate provider incentives as well as patience, respect and simplicity of use should be a priority. For users, seeing value in digital financial services will also come from learning by doing. Empowering customers will encourage them to test the financial innovations, determine how they can best work for them and share this information with their providers and their social networks. Lastly, re-enter the regulator whose role may have to be redefined to ensure the new structure works for both sides. These are the essential elements of a new operational framework that promises that customer centrality will become a win-win proposition.

Boulder Institute of Microfinance Faculty Bio: Monique Cohen

Boulder Institute of Microfinance

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