[From MicroSave's Financial Inclusion in Action blog, July 2013]
In a previous post, we explored how creative naming systems might be used to inject a sense of individualised relevance and personal ownership over a set of otherwise standard sub-accounts. Because they are intangible, engaging sub-account names may become hooks onto which people can project their own financial mental models and goals.
But the least intuitive part of banking is not the uses that customers may want to project into each account but rather the features embodied in them. An account is a vessel onto which a set of rules are attached, typically relating to rewards, programmed transactions (automatic sweeps and recurrent deposit obligations), and especially liquidity frictions. The problem with most accounts is that those frictions and rules, desirable as they may be in and of themselves, appear arbitrary. That makes them hard to remember and comprehend. Two free withdrawals a month, minimum withdrawal sizes, penalties on early withdrawals: why, oh why? When you need money desperately and a seemingly arbitrary rule stands between you and your money, the result is going to be frustration and rejection of the product.
Informal savings options also have a number of liquidity frictions, but somehow they make sense to us. A cow, for instance, has at least seven frictions: (i) a waiting period, as it cannot be sold immediately; (ii) indivisibility, as you can’t sell only a leg; (iii) a financial penalty, as there are transaction costs involved in buying and selling a cow; (iv) mental labeling, as the cow invites clear associations to the kind of purposes one may save for; (v) the fact that it produces milk puts in people’s minds in the category of a productive investment rather than mere savings which raises the (mental) stakes of selling it; (vi) peer pressure, as the whole town will get to know if you sell a cow; and (vii) social meaning, as cows often represent divinity or fertility or completeness of family in various cultures. Notice how some of these frictions are merely economic, some purely psychological, and others entirely social.
That’s a lot of friction features on cow-savings. But the remarkable thing is how intuitive it all is. It’s not that the frictions are attached to the cow; the collection of frictions is what gives a sense of cowness to the cow. The cow doesn’t come with an account user manual, a set of terms and conditions. Likewise, pigs and goats are different bundles of these frictions: more divisible, faster to sell, less socially conspicuous, etc. A key advantage of informal savings instruments is precisely how intuitive they are in terms of what they might be used for and especially what are the liquidity conditions they embody. Digital accounts appear, in comparison, as arbitrary jumbles of rules.
Can we come up with sub-account names that are evocative not only of purpose and intended use pattern but also of the features of the account, and in particular rewards and liquidity frictions? At a rudimentary level, it’s easy: the I’m feeling lucky account doesn’t pay interest but has a lottery mechanism; the elephant account does not allow for partial withdrawals. But this may not be so intuitive either: you can’t just pull out one of the frictions in an elephant and expect customers to find that intuitive.