[From NextBillion blog, 7 March 2016, with I Ephraim and D Minha]
Like their counterparts in countries across Africa and around the world, a large number of Tanzanians have flocked to emerging mobile payment solutions, whether it’s to send money home, facilitate informal business transactions, pay bills or buy pre-paid electricity. The reality, however – in both Tanzania and many other markets – is that most digital accounts are empty and serve mainly, if not exclusively, as a pass-through for such payments. This limits the transformational potential of mobile money.
In a recent Financial Sector Deepening Trust (FSDT) Focus Note, we point out several factors that make digital accounts an illogical store of value for people who live precariously on low and uncertain incomes, and face health or weather-related shocks which can easily overwhelm their means. From it we derive six ways in which providers can help make digital storage of value more attractive.
PROVIDE BOTH FRICTION AND FLOW
First, digital accounts need to deliver both fast and convenient payments (“flow”) as well as illiquidity features to support people’s mental hierarchies for different kinds of money, based on their origin or purpose (“friction”). How can one savings account or mobile wallet deliver both friction and flow? Features need to be introduced that give users more of a sense of control over when they need flow and when they want friction. Only then can digital accounts play a significant role in helping people manage their money tensions, which, unlike day-to-day payments, play out in time.
AVOID JUDGMENT AND EXTERNAL DISCIPLINE
Second, providers need to stop thinking of savings products as devices to discipline poor people (I won´t let you touch your money!), and instead focus on tools that help people discipline themselves (I can´t justify to myself touching my money now). Poor people will reject savings products if they feel that they carry or invite implicit judgments by the bank. Dedicated school fees accounts, for instance, do not work partly because if you have had a rough month and haven´t been able to contribute to your children´s school fees account, the last thing you want is for the bank to think that you are a bad mother.
PITCH SAVINGS AS A PAYMENT SOLUTION
Third, providers need to talk of their savings services in a way that makes it seem more relevant to poor people. For poor people, saving is what you do when you have extra money – except that never seems to happen to them. Their problem is not that they have too much money, but rather that they have too many payments they need to make and too many things they want to buy, today and in the future. So saving products should be pitched as a payment solution – to build up to and protect tomorrow´s payments. Money management is all about not letting today´s payments unduly undermine tomorrow´s payments.
Also, many poor people view savings not as money that is not yet spent, but rather as money that is not yet spoken for. Most people who save money for school fees in a jar would not think of that money as savings. Rather, they would think of savings as money that does not yet have a clear purpose, and as such is vulnerable money – money that is begging to be used. Savings are hard to hang on to; but stick it into the school fees jar (ie: give it a story) or buy a chicken with it (ie: think of it as an investment) and now it´s a lot easier to hang onto. Insisting that people should “save” undermines their instinctive financial logic.
MAKE MONEY MULTI-PURPOSE
Fourth, poor people can´t afford to have dedicated pots of money for single purposes, the way richer people do. Money always must do double, if not triple, duty. A key reason why informal savings mechanisms like savings groups, money guards and livestock are so entrenched is precisely because you might think of each as savings for a purpose (that motorcycle I want to buy), but also as insurance (a fund I can raid if I need to take my daughter to the hospital), as well as a tool to build up your future credit potential (accumulating social capital by displaying my success and financial capacity). Bank savings products need to incorporate this multiplicity and fuzziness of purpose – that´s what lets people feel like their money is working for them.
BE TRANSPARENT ABOUT ILLIQUIDITY FEATURES
Fifth, to the extent that discipline needs to be supported by illiquidity features, these should be highly intuitive to people and not be driven by what customers perceive as arbitrary impositions and small print. Nobody blames the cow for being indivisible, but most would blame the bank if they are not able to make a small withdrawal from a large savings account they hold. Any illiquidity features embedded in an account need to be readily obvious in the name and visual representation of the account on the phone menu.
WORK TOWARD INTEROPERABILITY
Sixth, in countries where there is little or no interoperability across digital financial service providers, digital money appears to people as a confusing mess of monetary islands – each with its own rules and menu structure, maybe requiring a specific mobile operator connection. This is in stark contrast to cash, which appears to them as a consistent monetary universe. They may learn to use specific digital monetary islands to make specific remote payments (ie: this island to send money to my mother in the village, that other island to pay a bill). But what they will not want to do is to leave money stranded in these diverse monetary islands. They´ll always return to cash, the universal solution. Without interoperability, what we call digital money will never feel like digital cash to them. It is just too hard to figure out.
The common denominator across all these factors is that digital accounts will not be useful money management and savings tools unless they give users a greater sense of control over their money. The feeling of control doesn´t come from agreeing to certain conditions that the bank has imposed on your account; it comes from being able to take the action that you feel is right. Action is what creates a sense of control. Yet if you get money on your mobile wallet today, the only action you can take today to feel in control of your money is to cash it out. For people to store value in their accounts, there needs to be a far richer set of digital actions that they can take with their money the moment they receive it.