Too much of post-microcredit financial inclusion still operates as a numbers game. We declare victors and write up successes based on headline customer acquisition rates, without looking much at underlying usage patterns. We continue to quote customer uptake or account registration numbers when providers give us nothing else to go by. We declare customers active and ourselves satisfied when customers use the service once every 1-3 months – can you imagine the education, electricity, water and sanitation people doing that? We judge customer relevance by scrutinizing average per-customer transaction volumes and sizes, even though those are usually driven entirely by the top ten percent of the distribution. If we looked deeper, we would find that many of those who are deemed to be underbanked are actually irrelevantly banked.
Glossing over usage data is a symptom that we are an industry which thrives on hype, an almost inevitable consequence when you mix a commendable spirit of do-goodism, deep donor pockets, and insatiable social media platforms. But it also has a lot to do with the fact that we actually know very little about what drives customer usage and value of formal financial services, beyond the occasional loan and remote payment.
Especially in the savings space, we are lacking an overall perspective on how to tackle the problem of relevance. We feel we need data, so we engage researchers to run excruciatingly detailed financial diaries, quantitative surveys, and randomized control trials. We feel we need product ideas, so we hire consultants to tell us what is successful elsewhere, though alas that is generally based on those awkward headline customer acquisition numbers. We feel we need processes, so we engage branded designers to run innovative rapid prototyping exercises. But it feels difficult to make all this come together purposefully.
A more structured approach would be based on formulating some key questions which can help sharpen our focus and narrow the solution search space. Let me propose three such questions, again focused on savings:
1. Changing savings behaviors versus changing savings mechanisms. A classic evaluation framework which VCs use to evaluate projects is the is the proposed project targeting an existing or a new product, and is it doing so in an existing or a new market? They will typically shun heroic projects which propose new products in new markets. The analogy in financial inclusion would be: are we trying to get people to save more (changing behavior), or are we trying to create new ways for them to channel their existing savings behavior (new mechanism)? Put differently: are we trying to find new savings triggers (through behavioral insights or financial education) or are we trying to productize existing informal practices? My guess is that the latter will be an easier path than the former, though both are in principle valid. Unfortunately, much current savings product innovation is aiming for a muddled middle: new ways for people to do new things.
2. Primacy of savings goals versus savings vessels. It´s quite clear that separation of money into distinct lumps is core to people´s savings practices, as this helps them budget and maintain discipline in how money is used. But in staging this separation through a formal savings service, is it better to reinforce the savings goals or the savings vehicles themselves? A plethora of new web-based banking services, mostly in developed countries, now require that the customer start by articulating a goal (e.g. SmartyPig, Goalmine, Simple, Coinc). Being goal-oriented is meant to enhance motivation to save and build discipline. These services in fact have a financial education agenda. And yet my own observation is that most poor people do not have very concrete goals beyond some immediate concerns like paying the next round of bills or some inevitable lifecycle ones like marrying a daughter. They don’t lack other goals (like buying home appliances), they just keep them purposely fuzzy. If you have precarious finances, this is advantageous because your objectives must adapt to your evolving circumstances, and you can´t afford to set your heart on any one thing because there is a good chance you won´t get it due to circumstances beyond your control. Instead of fixing on concrete goals, they come to see their savings vehicles (cows, jewels, a ROSCA, etc.) as a proxy for a bunch of things they might buy with them if they achieve their savings goals. Forcing them to pick a goal may not feel natural to them, and that´s not for lack of financial savvy or determination.
3. Help me save versus help me keep it saved. Will formal savings services be more useful to people by helping them fall into a pattern of setting money aside regularly (providing discipline in), or by helping them avoid temptations to raid the money they´ve previously set aside when it is not so justified (providing discipline out)? In other words, should they emphasize rules about when and how much to save, or frictions which lay out conditions for liquidity? This is of course a question of balance. In informal finance, participating in ROSCAs and taking on loans are the main discipline-in mechanisms, while longer-term informal savings mechanism such as cows and jewels offer no rules but have many liquidity frictions built into them (indivisibility, waiting period, social peer pressure, financial penalty,…) which could be usefully emulated by formal financial products.
There may be better questions or better ways of articulating these particular questions. But it seems to me that if we don´t frame the discussion at this level it will be difficult to have a constructive global debate on how to promote formal financial services.
Dear prospective banker,
You have the luxury of building the first bank of the 21st century in Africa. No doubt you are thinking hard about how differently one would build a bank today than one would have done only twenty years ago. We hope your intention is to build a bank that serves everyone: the mass market and the poor, because they are the same thing. If so, may we suggest ten points we think you ought to consider.
1. Technology. That's the biggest area of change since the last round of licenses were given out, surely you can't ignore that. Go mobile: take advantage of the sense of immediacy that mobile phones can deliver to your customers and the drastic reduction in credit risk that real-time payments involve. No sense in distributing an alternative costly payment infrastructure by default, though some may want more. Do beware, though, of building mobile solutions that are too dependent on telco negotiation and goodwill for access, at some point they'll get you.
2. Cash in/out. Your business is digitized financial services but you won't make cash go away from your clients' lives. Rather than fighting cash, you need to infiltrate it so that people feel entirely comfortable crossing the physical-digital divide. The cheapest way of doing this is through extensive cash agent networks. Do recognize that cash agent networks are hungry beasts, though: the economics only makes sense at substantial transaction volumes. Go ahead and share the agents with others if you haven't got the scale on your own; you can differentiate in more interesting ways than mere availability of cash points.
3. Offerings. People's needs and aspirations are quite diverse, but you are not likely to have the distributed marketing wherewithal to offer a broad portfolio of tailored solutions. The better approach is to offer your customers a limited number of money management tools which they can each use in their own way. Don't try to solve their problems; give them the tools and let them solve their own problems. Think more Google than a vertically integrated bank. And don't mind so much whose financial products your customers consume as long as it's done through your interfaces and with your knowledge. Perhaps it's more like Amazon than Google.
4. Messaging. Talk about those things that worry people: reducing risk and stress in their lives, helping them stretch budgets, helping them achieve the things they want, helping them imagine a better future. Again, your job is not to discipline people, but to give them the tools they need to discipline themselves. Don't talk so much about savings (sacrifices) but of future payments/purchases (rewards). No patronizing, no moralizing. Can you be sure that you'd manage their meager income better than they do, if you were in their shoes? Listen to them, and care about their life stories.
5. Channels. You must do everything to position the mobile user interface as a self-service channel of choice. But don't be a purist here: don't give your clients the impression that you have left them to their own devices (literally!). Let them deal with humans when they wish to do so. You'll need a multi-touchpoint strategy to promote, sell and service your suite of financial services. Why not have some (cashless!) flagship shops on main street, appointed agents around market square and the bus station, a friendly call center. Invest heavily in training and monitoring these channels. These sales/service agents are probably going to be distinct to your cash agents, which will need to be much more numerous.
6. Business case. We have no new ideas here: profitability will likely come from credit and payments, as elsewhere and always. But recognize that to prime both you'll need to be successful at capturing people's savings. Observing how people manage their money and discipline themselves is the best way to gain actionable insights for credit scoring. And people will have a natural tendency to pay for things electronically only if they hold their money electronically. Savings is the engine that turns the other financial product cogs. You won't make money on empty accounts, no matter what.
7. Pricing. Don't obsess about offering lowest prices, and certainly don't hammer poor people with this message. They want quality, reassurance, flexibility - just like anybody else. Deliver useful services conveniently and in relevant small sizes, and you'll see how willing they are to pay for things that help them address their basic concerns. You will be more successful in relating the value they derive from your services to its cost if you offer transactional rather than flat charges.
8. Brand. Ultimately, if I was your client I hope I would see your services as a better way of managing my money and my finances, my aspirations and my insecurities. The brand needs to be that mixture of aspiration and reassurance: as a client, I now have more upside and less downside in my life. It has to be more than the sum of the individual products you offer. Brand is the most important asset you'll build up.
9. Partnerships. There is much value to be harnessed from being the one who controls access to people's pockets, the one who has the trusted infrastructure connecting any business to millions of customer account. Grass-roots microfinance organizations have long known that. Seek out national and local partners who can add value to your customer base in financial and non-financial ways: through group purchases and discounting, special business development and education programs, livelihood development, community finance groups, etc.
10. Scale. Embrace scale, for big is the need in Africa. But also because scale may be essential for success on a mobile-led strategy: digital payment services are premised on network effects, and agent networks are premised on economies of density (distributed volume). So: systems need to perform robustly at scale, processes need to be streamlined to avoid future bottlenecks, organizational structures need to help rather than stand in the way of growth and innovation. Your key role as a CEO should be to build platforms that are perceived by your staff as their friend rather than their enemy. If you make sure you build good internal systems, more of your staff will feel they can afford to be more customer-centric more of the time.
There are technically and commercially savvy ways of doing all of this. The developing world needs to draw inspiration from the first successful, truly mass-market bank.
Wishing you all the best, sincerely,
What is a person’s worth? It used to be about reputation in the community, the loyalty exhibited to friends and employer, the people you could count on in case of need. With increasing development and the broader reach of markets came the need to impersonalize economic transactions, and with that the increasing monetization of most aspects of our lives. Money has become the measure of all things.
With mobile money systems like M-PESA, people now have a tool for measuring up their worth and brandishing their monetary value. Mobile money is helping individuals and societies in developing countries to be more in touch with their economic power, constituting a sort of digital power grid. But the reality is that there isn’t that much juice going over mobile money grids, they are not tapping into enough sources of power. How could that be otherwise, when we are talking about intensely social but cash-poor people?
Teleboomboom, a new mobile money operator in the small tourist-destination island of Phaic Tan, has found a new type of social power that can ride on mobile money grids. It’s very new, very digital and very hip: social media likes. What is the point of accumulating all those Facebook and YouTube likes if you cannot wield them around to get your way and meet your needs? Through Teleboomboom’s Likeabil service, you can convert your digital likeability into hard cash or use it to pay bills, you can share your likes with other less-liked people, and you can store your likes in the same wallet as your hard-earned digital cash.
In a further twist, Teleboomboom has partnered with two banks, Bank Guimmey and Tay-Key Bank, to create an open market for social media likes. People will be able to pawn or sell their likes to these banks, which will then repackage and securitize them into a tradable instrument tentatively code-named Bitlikes. These will function as a more likeable sort of Bitcoins.
The Likeabil concept was developed using a new network-centered design methodology which puts a collectivity rather than individual humans at the center. Its design principles are supported by as many as six empirical studies. R C Tee (243 BC) showed that people treated with dental whitening which made their smiles shine brighter liked to be liked more than people with no smiling aid, and moreover, they went on to earn higher salaries, which in turn made them smile even more, which creates a positive feedback loop. Ana L Isis uncovered six youths in Dodgey, Tasmania, who appear to have given away their lunch boxes to friends who had liked them on Facebook, thereby validating the value of social media status as a global medium of commerce.
With this innovation, relationships will matter again. Friends and neighbors will have reason to meet in groups and help each other, like they have always done, and for the same reason: to gain advantage. The Dale and Dorothy Carnegie Foundation is smiling on the idea: ¨It is so retro, it´s good,¨ said DDCF´s Chief Self Improvement Officer, amiably and confidently, ¨what a nice way of winning friends and influencing people.¨ But he denied that the foundation´s support is designed to drive book sales.
But the concept first needs to meet the approval of regulators. Many frown on the inflationary impact of making friendliness so profitable. ¨You can´t just have anyone liking whoever they like and profiting from that, it´s not like we need to make money any sweeter,¨ said Platt E Toode, of Tough Money, a regulator self-help support group. Some economists ironize that after quantitative easing will come social easing. But a handwave of economists sees the opposite effect: by making it possible to tax monetized likes, the proposal reduces the pressure on central banks to print fiscal deficits away.
This is an issue sure to arouse much interest in the blogosphere. Here´s how the punditry is cutting it up: should you sweat or sweeten your way into money? Which side are you on?
Note: Any fees and likes collected by this post will be donated to the Getagrip Foundation, which distributes desktop calendars with which you can quickly remind yourself of today´s date.
[By James Militzer, on NextBillion blog, 26
Have you ever wondered why low-income people
who have money saved in a bank account decide to take out small loans? Why use
scarce resources to make interest payments rather than just tapping these
savings? According to Ignacio Mas, it's a question that puzzles many
economists. But once you hear people talk about how they actually use
financial products, it makes perfect sense.
(See full interview here)
"Imagine for example that I'm putting
money aside because I want to buy a motorcycle," he explains. "And
then my kid gets sick and I need some money to go to the hospital. This notion
that I'm going to withdraw money from my motorcycle account to pay for the
emergency- that's really depressing. It's sad enough that I have to deal with a
medical emergency, if in addition now you're setting me back on my goal, you're
just compounding my sadness.
"So it's entirely logical to say, 'On no,
that goal remains what it is - I'm not going to touch a single dollar of my
motorcycle money, I'm just going to be borrowing against it. Because mentally,
I'm still working on the motorcycle. Don't make me feel like that goal has
become any less relevant or accessible to me, simply because I have to deal
with this other thing.' People tend to compartmentalize a lot, and if that has
a price, so be it. If the price they have to pay to be able to continue to be
focused on that motorcycle is to pay a little interest ... I think that's
potentially a very good use of money for them."
In Mas' view, financial service providers
should take these psychological needs into account when designing their
products - and also when describing them. In fact, he says, the words used to
describe financial products can have a significant impact on the way they're
used - even with seemingly neutral terms like "savings."
"The word 'savings' has two problems at
the base of the pyramid," he says. "First, [people] don't think it's
relevant to them, because 'saving' is what you do when you have excess money
left over - and they never have money left over! Their problem is not that they
have excess money - it's that they have excess payments." That's why Mas
feels it's helpful to reframe the savings discussion around the concept of
payments. "How do I help you achieve all the payments you have to make,
and buy the things you want to buy in the future? How do you make your money
stretch... so that not all your money goes to today's payments, and there's
some left over to build up for tomorrow's payments?
"The other problem with the word
'savings' is that people interpret it as a very weak thing," he adds.
"If I think of something as 'savings,' it's vulnerable - it's there for
the taking. Whereas if I think of it as an 'investment,' I've just built
another mental barrier to [withdrawing] it." Though these changes may
amount to a simple tweak in product labeling, they can make a difference. But
unfortunately, he says, few financial service providers are doing the basic
testing - of user interfaces, concepts or words - that could show them which
approaches work best.
Much of the dialogue around mobile money is shifting from how to build a basic mobile money proposition (regulatory enablement, industry partnerships, cash merchant networks, technology choices) to how to transition to an e-payment ecosystem, whereby funds are born and used digitally. New product development in mobile money is central to this much-awaited transition.
The key battleground in the future will be to increase usage levels, and that means providing more customers reasons to do more things using their mobile. Despite the growing clutter in mobile money menus, customers remain very limited in what they do: according to the latest MMU State of the Industry report, 92.5% of mobile money transactions globally are either airtime purchases or basic person-to-person transfers. I suspect that dispensing with the mobile wallet and allowing for over-the-counter transactions (which may make good business sense in the short run but limits the opportunities for customer growth) has been the biggest innovation in the last few years.
But beyond the headline products: how diverse are the offerings of mobile money platforms across the world? How much product experimentation is going on? Is there a healthy supply of creative new product ideas?
In a new paper written in collaboration with my former Gates Foundation colleague Mireya Almazán who is now with the MMU, we have sought to shed light on these questions by creating a first-of-its-kind catalogue of mobile money functionalities and services. We include offerings that have been rolled out or are being piloted, as well as service concepts that have been proposed. For each product class, we describe the range of implementation modalities in detail. We hope this report will be viewed as a comprehensive product definition reference guide by practitioners.
We found that while the range of product categories is still rather narrow, the specific ways in which services are defined and packaged does vary to a surprising extent across operators and markets, especially for payment services (peer-to-peer transfers, bill payment, merchant payments, transfers to/from linked bank accounts) and for linking mobile money accounts to regular bank accounts.
The paper did not get into the factors which may be hindering more far-reaching innovation, but let me posit some hypotheses here. First, many mobile money providers have inflexible platforms which are run by small teams on tiny budgets; for them, innovation is seen as more of distraction than a solution to their business problems. Second, practically all mobile money providers run closed systems without adequate application programming interfaces; they are unwilling or unable to enlist partners to experiment for them. Third, unnecessary regulatory barriers to entry prevent smaller, nimbler, more innovation-minded players from mounting credible competing propositions. (I'm thinking here about the unjustified regulatory insistence that cash in/out presents agency problems, hence requiring a strong contractual binding of cash merchants to individual banks or mobile money providers, which precludes the spontaneous development of cash in/out networks serving all providers. Or the unjustified regulatory insistence that non-bank players shouldn't promote savings services or pay out interest, even if they are 100% backed-up into fully regulated bank accounts.)
I believe that embracing innovation will be the only way to achieve scale by most players. And for any transactional business, scale is job #1.
Much of the discussion in financial inclusion revolves around poverty, and how to provide low-income people with the formal financial products and services they need.
But according to mobile money consultant and thought leader Ignacio Mas, poverty itself isn't the biggest thing keeping the unbanked out of the formal financial system. "The key distinction between the formal and the informal – those with a bank account and those without – doesn't have to do so much with income," he says. "We tend to focus a lot on 'the poor,' but you have plenty of very low-paid security guards, for example, in Africa, and they have bank accounts. Why do they have bank accounts and other equally low-paid people do not? Because they have a salary. And I think the correlation between those people who are banked and those people who receive a regular salary is very high."
As Mas describes it, having a regular salary is a major part of what's driving financial relationships at the BoP today. It's also contributing to the growth of mobile finance, since when someone gets a salary, their employer has the incentive to arrange to pay them electronically. But the real question is how to reach those who don't get a regular paycheck. "I think what we're trying to do is to go beyond the salaried – which happens to be the vast majority of people," says Mas. "No one is guaranteeing them an income. And that means that their money is not being delivered into an account, they're being paid in cash. It also means they feel like they need more protections around them to smoothe all the volatility that there might be in their income flows.
"The real deep implication of this is that rules don't work for them," Mas explains. "For those of us with fixed salaries, financial planning is really a simple, infrequent affair. If I need to save money to go on a Christmas holiday with my family, I need to set aside 5 percent of my salary for the next three months. It's not difficult to come up with that number. And tomorrow, there's no reason to re-plan that, because there's no new information – basically, tomorrow, the world will look very similar to how it looks today, because I'll still be waiting for the same paycheck at the end of the month. So once you've made a plan, you stick to it."
But if you're informal, rules and plans go out the window, Mas says. "Because if today was a good day and you made twice as much money as you normally make, you shouldn't be saving 5 percent, you should be saving 100 percent of the extra income. And if today was a bad day, you should probably be dis-saving to put food on the table. So the informal majority cannot live by rules – they need to decide what to do with their money every time they touch it. Which is why, in my view, financial planning is the core of the financial problem that they face."
In Part 6 of our Mobile Money Movers series, Mas describes some long-standing informal mechanisms of financial planning and money management that are common among low-income communities, from indivisibility to peer pressure and "money guards." He also discusses the possibility that these mechanisms could be incorporated into mobile money products – and the difficulty in getting financial partners to adapt their systems to low-income customers' existing needs and behaviors – in the first part of a fascinating and wide-ranging interview.
[From liveMint, 19 February 2014, with Abhishek Sinha]
The Nachiket Mor committee on financial inclusion’s recommended objective of banking for all by 2016 is a tall order. There is no doubt about the need for that goal, but India’s record on achievement of such objectives has been dismal. Education for all and health for all are two striking examples where the goal post kept shifting by 10 years, till eventually the field was changed. Moreover, often government mandated services are converted into achieving hard parameters—how many new accounts, new branches, new agents, etc. Soft parameters such as the quality and usability of services are overlooked. The recommendation to introduce payment banks to enable ubiquitous access and creation of universal electronic bank accounts is an opportunity for banks to genuinely transform financial inclusion and recognize the high aspirations of persons with small wallets. The new banks should aim to service all Indians and channel their aspirations: reduce risk and stress, help stretch budgets, and support a better future. There are some things that need to be done to achieve all this.
For starters, consumers need to be given all options. Instead of differentiating customers into different categories, all those who want to be banked, should be given all options. Low income shouldn’t mean no-frills.
Product miniaturization is another area that needs to be addressed. In India, remittances are small, but volumes are large. India Post alone handled 96 million money orders having a total value of about Rs75 billion in 2009 but the average size of remittances is about Rs780. Why limit accounts to either zero balance or a minimum of Rs5,000-10,000? Slabs for Rs100, Rs150, etc., should be introduced. Similarly, credit needs differ across income groups. Introducing credit facilities offering Rs500 or Rs1,000 for seven days make more sense than those that offer Rs50,000 for 20 days.
The new banks also need to carefully design the pricing of products. Quality, reassurance and flexibility are universally appreciated. People willingly pay for useful services that address their concerns. Disrupt pricing; take hints from prepaid packs offered by mobile network operators and so-called freemium models of Internet companies. Don’t obsess about offering lowest prices, and certainly don’t hammer low-income customers with this message.
Technology can be another aid for levelling and inclusion. The new banks need to go mobile, go online and take advantage of the sense of immediacy that mobile phones deliver while ensuring reduced credit risk of real-time payments. Take the case of ING Direct—a branchless retail bank that successfully provided a range of banking products only through call centres and Web access. The advantage of having a branchless bank is that it leads to a higher return on investment and low capital expenditure. The immediate payment service for online transaction saw close to two million transactions in December 2013 through 55 million mobile money IDs.
Digitized financial services won’t make cash go away. With 600,000 villages to cover and banking to be brought within 15 minutes of walking distance of all Indians, there is enough of a pie to be shared. The independent white-label business correspondent network envisaged by the Reserve Bank of India (RBI) will make an effective medium especially for first-generation banking customers to get acclimatized. But banking correspondent networks are hungry beasts: economics will make sense only at substantial transaction volumes. Sharing such representatives between banks makes sense if one has to achieve scale; banks can differentiate in more interesting ways than mere availability of cash points. Rather than fighting cash, it is important to make persons comfortable crossing the physical-digital divide.
Profitability comes from credit and payments. Banks have to capture the savings of customers. Observing how individuals manage their money is the first step in that direction. For instance, persons who make payments electronically also hold their money electronically. Savings is the engine that turns other financial products into cogs. Bottom line: banks won’t make money on empty accounts, no matter what.
Finally, it is important to emphasize the scale of operations. It has been estimated that in India the value of domestic remittances is about $13 billion, with 80% being directed to rural areas. Embracing scale is imperative for success on a mobile-led strategy: digital payment services are premised on network effects, and banking correspondent networks are premised on economies of density. Systems need to perform robustly at scale, and processes need to be streamlined to avoid bottlenecks). There are many technically and commercially smart ways of doing all of this. The developing world needs to draw inspiration from successful mass-market banks.
[From Savings Revolution blog, 11 February 2014 (with Kim Wilson)]
from a core set of powerful higher-level ideas/ideals expressed vividly. So
what fires up the savings revolutionary? Shouldn´t we be putting our core
beliefs accountably on the table, much as we are expecting people to place
their money on banking tables?
No select group should be
deciding those core beliefs, but hopefully we can offer a starting point for a
discussion within this forum. How about this:
There´s a conviction that
people can regularly achieve goals by saving, in a value-accruing way, rather
than necessarily by tying themselves to a costly debt-mast.
There´s a strong feeling
that transactions within a community carry much broader social significance
than the pure monetary value assigned to them, and that such social signaling
aspects are worth preserving because they help provide a sense of security and
comfort to people.
There´s a notion of
community self-reliance and resilience, which can be promoted by recycling
funds within it.
There´s a distrust of
centralized institutions, whose interests tend to become dissociated from the
people they are meant to serve.
There´s a fear of
technology as an alienating factor, socially (digital divide between the haves
and have-nots) as well as personally (level of comfort in use).
Is this what you believe?
What key beliefs do you think are missing and which of the above need not be
core to a savings revolutionary? Have your say, we are curious to hear from
[From NextBillion blog, 2 February 2014]
constantly create stories about ourselves and our experiences to help us make
sense of the world. These stories even help us manage our finances. They do so
by permitting an intuitive and highly personal basis for classifying and
interacting with our money. Various pots of money can be individualized and
ranked through stories, based on the different moral qualities and mental
states the stories evoke. Through these stories, pots of money become actors in
one’s own life dramas.
Let’s take a look at three types of money stories, which often
Origin stories have to do
with how the money was gotten. Money may have appeared in a regular drip or
through a windfall; easily with a stroke of good fortune or through grinding
hard work; through honest or crooked means. All these will likely conjure
different feelings about how the money should be subsequently handled and
spent. People often don’t like to mix these monies and lose track of these
Handling stories hinge
not on how money was gotten but how it is being managed. Saved money can be
sitting relatively idle (money under custody) or it may be working for you
(money as investment). It may be concealed to discourage requests to share it,
or it may be displayed publicly to build status and social capital. Saved money
can represent reassurance through stable, transparent value accretion - or it
can generate surprises, like when you break an unexpectedly full piggybank or
earn riskier returns. All these choices translate into mental stories, which in
turn heavily condition when and how the money is subsequently used.
Destination stories have
to do with how money is intended to be used in the future. Monies can relate to
spending cycles that are immediate (pocket money), a matter of weeks (household
expenses) or longer-term (education, wedding, retirement). They can be loose
(entirely discretionary) or virtuous (for things of a certain level of
importance). Monies can also be for personal, domestic or business use.
stories can intertwine into fuller stories. For instance, the inheritance money
which needs to be treated as an investment and which will be used to pay for
the children’s college tuition. Or the fistfuls of rice that the wife sets
aside every time she cooks, which she will eventually resell back to her
husband in order to buy herself a dress that he would otherwise not pay for.
When linked together, money stories become mini-novels that combine elements of
duty, uncertainty, integrity, love and sacrifice.
emotions onto money, these stories let people put money management on
autopilot. They help create a set of money management rules which you don’t
have to think about too much, which feel intuitive and right, and which you are
happy running with for a while. The emotions become the enforcers of those
rules. By removing money choices from the purely rational, you avoid regularly
questioning your prior decisions.
Thinking of money
management in this way has powerful implications for financial product
development. Products should, first and foremost, act as magnets not so much
for money as for stories. The stories shouldn’t come with the products
themselves (“this is a school fees account”), but with the monies that users
deposit into them. Financial institutions should let this money retain and
acquire new stories. Thus users will make the financial products their own.
But by and large,
financial institutions haven’t leveraged the power of users’ stories, and this
contributes to some of the challenges they’ve faced in serving low-income
customers. For instance, liquidity is money that’s not very well-storied, which
is why it is so vulnerable to impulse and misuse. Yet the general-purpose
savings accounts banks tend to offer blend different types of monies and as
such are story killers. This is why - just as they’ll take cash out of their
pockets – many people empty their savings account as soon as they contain some
money. Others avoid this temptation by using a savings account to only hold one
type of (well-storied) money, mentally converting the product into something
that uses these stories’ emotional pull to help them achieve their financial
Financial service providers could make this easier for customers
by designing products based around their money stories. Exactly how products
would achieve this isn’t fully clear, but there are a number of possibilities.
For instance, bank accounts could allow for separation of monies into discrete
pots, within one big account. These pots might have playful names which
invite association with different origins or destinations of money in
subtle and imaginative ways. These pots might also have illiquidity features
which support the feelings people have about the monies they choose to deposit
We may not yet know
how to translate people’s money stories into financial products, but it’s time
to start experimenting. This will require a firm departure from the traditional
financial education-led approach: define your goals, draw up a budget, set
yourself some rules, now start saving. That approach was never based on
low-income customers’ actual behaviors and needs - most don’t have concrete,
well-defined goals beyond paying the next round of bills. But what they do have
is different classes of monies with different emotional values expressed
through stories – the sooner financial service providers recognize this, the
better their products will be.
[From MicroSave’s Financial Inclusion in Action blog, 14 January 2014]
There are two glaring facts the mobile money industry needs
to face up to. First, digital accounts have very little value stored in them,
and the practice everywhere is to withdraw any e-money received immediately and in full.
This makes people not
naturally inclined to pay electronically, except for
remote payments for which people will take the trouble specifically to cash in.
Second, there is surprisingly little systematic use of
electronic payments by formal businesses, a space in which cash and especially
checks prevail, even
in Kenya. The predominant business use is in fact by
informal traders, though no product development is aimed at them.
These two gaps work together to limit the electronification
of merchant payments. While that’s the case, mobile money will not become part
of customers’ everyday life, and many providers will struggle to reach
The failure in the value proposition in both cases –for
savers and for businesses— is that mobile money doesn't offer manageability
tools around the money balances that are kept and the payments
that are made or received. As a saver, it does not make me feel in
control of my money, because it doesn't let me separate my money
out into various pots and play mental discipline games around them (jam
jarring). As a business, mobile money does not make it
easy for me to keep accounts, reconcile receipts with invoices, and match
against things like inventory and sales leads.
We got to this situation because there is indeed very little
manageability (beyond doing the actual transaction) that one can offer on
simple mobile phones. But now, subject
to some caveats, we can foresee the day in the not too
distant future when people at the base of the pyramid, and especially traders
and entrepreneurs, will all have smartphones. Moreover, by designing compelling
user experiences, financial services could become an important driver to
accelerate smartphone penetration in developing countries.
It is time to start thinking about a new generation of more
intuitive mobile money services on touchscreen smartphones
– a mobile money app. With this app, mobile money providers can offer a full
upgrade path to heavier mobile money users who like the convenience of payments
on the fly, but want much more interaction, structure and information around
their money matters.
At the personal use level, this banking app should let
people express much more visually and cogently the heuristic games they play in
their own minds every time they face a money decision. In other words, it
should be conceived more
like a game than an internet banking site.
At the business use level, it’s about helping (formal and
informal) businesses manage the information around transactions, not just
helping them pay/receive money. To adopt mobile money as a way of doing
business, enterprises need to make sure that payments can be tracked,
reconciliations can be made, frauds can be avoided, and payments can be linked
to other business processes (e.g. such as order, inventory and fleet
The manageability of payments on the business side will not
be achieved at the handset level alone. The challenge needs to be solved by
developers and integrators working on behalf of business clients. For that,
they will need a set of flexible application programming interfaces (APIs)
which allow them to integrate the payment flows from the mobile money system
with the enterprises’ own accounting, resource and workflow management systems.
mobile money to the next level has got to be about solving the savings and
business use challenges. To crack that, it is time that we start experimenting
with smartphone apps, supported by appropriate network-level APIs. There needs
to be much more bundling of software services with payments. Only then can we
really think about mobile money being not only more inclusive but also more
relevant daily – and hence more impactful.