[From Center for Financial Inclusion blog, 29 October 2012]
“I feared and distrusted them: feared them because they could reject me and expose me to mortification of defeat, and mistrusted them because I did not understand them.”
In his reminiscences of youth, Alan Moorehead said this of women, but it could equally apply to many people’s attitude to banks. People’s concerns about banks are phrased in surprisingly similar terms wherever you go in the developing world. (See this clip for a typical example.)
This got me thinking: how much of people’s fear and mistrust of banks is due to a lack of understanding? Let’s explore three typical articulations of the distance between banks and ordinary people.
“Banks are for rich people; what do they want from me?”
The understanding gap here is in the motivations and intentions of banks when they approach the base of the pyramid. It’s a very human reaction: if someone who has never shown any interest in me suddenly starts cozying up, I get on guard. Banks venturing down-market need to explain where they see the opportunity, otherwise people will not believe there is a commitment or, worse, will interpret ulterior motives. This requires articulating a joint vision of success for the bank and the new client segments, and consistently demonstrating behaviors that gives credence to the claim. Equity Bank in Kenya has been particularly effective in conveying the idea that its success is intertwined with the success of ordinary Kenyans; its positioning is credible.
“Money keeps disappearing from the account; they bleed it with commissions.”
Priciness alone does not alienate poorer people, for unattainably expensive things sometimes become useful aspirational markers (think TVs and higher-end mobile phones). Pricing complexity and lack of transparency doesn’t necessarily trigger outrage and rejection, as long as I feel I get value every time I get charged (think mobile telephone services). What characterizes bank charges is their lack of connection with people’s perception of value. It’s not easy for banks to justify charges when people are apt to wonder: why should I pay to deposit (giving you money on top of money?), to keep money in a bank (monthly fee, even if I do nothing?), or to get it back (withdrawal fee as ransom?)? M-PESA in Kenya addressed this by loading the price disproportionately on the electronic rather than on the cash in/out legs for the more common transaction sizes, since for most people the little miracle that is M-PESA does not involve the conversion of cash to electronic value but being able to send the value over long distances. This pricing model is the opposite of what a company’s cost orientation would lead to, and a drawback is that it reduces user incentives to evolve towards a digital money ecosystem. M-PESA users may not know exactly how much they are being charged, but they have a good sense of when and what for.
“What if it fails?”
The third obvious sort of distrust is about the permanence of banks. Most people can point to someone, somewhere who lost their money when an institution went under, or simply vanished. Many of the financial institutions that serve the poor are not sufficiently professional and are too small to be of concern for banking authorities. Many operate with a façade of formality but are in fact outside the law. How can I tell? The larger ones may be subject to adverse political interventions. Rumors are rife. It may simply not be worthwhile to try to figure any of this out when all I have is a few tens or hundreds of dollars and plenty of places to stash it in, things or animals to buy, and friends to loan it out to. So if you are a bank, how do you communicate solvency and permanence? Traditionally, banks invested in big marbled premises, but that signals unproductive money-waste and risks putting distance between the bank and prospective customers. A better way may be to display largesse with the community and invest in many local businesses – signaling that as a bank you intend to stay there and grow with the community.
For all these reasons, banks need to make themselves understood if they are to break beyond their traditional markets and serve poorer customers. People need to understand why banks want to do business with them, when and why they require charges, and why they have the power to succeed. Understanding is not just about branding and marketing communications: it’s about demonstrating purpose, benefit and commitment.