The pandemic has spurred a global economic downturn and widespread uncertainty about the future. The 3 billion people who are still left out or poorly served by the global financial system are uniquely vulnerable to the effects of COVID-19. They typically rely on daily, in-person interactions to get paid or buy food for their families and the unexpected loss of income for many families has made financial services and a focus on financial health more important than ever.
Financial health assesses whether people are spending, saving, borrowing, and planning in a way that will enable them to be resilient and pursue opportunities over time, as stated by The Financial Health Network.
A person’s financial health is determined by their:
- ability to manage day-to-day expenses,
- resilience against shocks and risks, and
- effective planning for the future and upward mobility.
As economies fluctuate, individuals are turning to financial institutions for added support and security in their lives. Having financial services can enable people to better manage their finances as they navigate the current crisis, save money for a brighter future, protect their families from future shocks, and rebuild their businesses—promoting resilience in the face of crisis.
However, according to a Gallup Global Financial Health study, access to traditional financial products does not automatically result in improved financial stability, resilience, and access to opportunity. Many traditional financial products were not developed with these pragmatic goals in mind. As a result, they are often poorly suited to helping people, especially low-income individuals, achieve their financial goals. To serve customers as they seek to recover from the economic fallout caused by COVID-19, financial service providers have an opportunity to better utilize customer data, behavioral science, and design thinking to create products and services that support households through shocks, that build resilience and enable them to better manage their financial lives. Well-designed products relevant to customers’ lives can lead to feelings of stability, peace of mind, and hope.
To do this, financial service providers should expand their financial inclusion strategy to focus on financial health. This goes beyond traditional access to services, in order to support people’s lived experiences and aspirations. These lived experiences are influenced by several aspects, including but not limited to age, sex, gender, occupation, marital status, dependents, household responsibilities, financial standing, physical and mental health, and emotional characteristics. Financial health is a perpetual journey — not just a snapshot in time. By developing personalized financial products, services, and experiences that better meet users’ needs and preferences, providers can ultimately create more meaningful change in people’s lives.
Financial products and services that truly work for users and fit their lives will ultimately drive more (and better) business for financial service providers. A business strategy oriented around consumer financial health offers providers an avenue for growth, organizational resilience, and profitability. In addition, it will offer financial service providers better opportunities to differentiate from the competition, especially today, when users are more and more sophisticated and demanding better interfaces that enable faster ways to interact with their financial reality.
The World Economic Forum noted that “[b]y aligning the success of their business with the success of their customers, financial providers have seen that the future of financial services is one in which the industry will thrive when their customers prosper.”
Designing services for the people who need them
To ensure that financial services deliver greater benefits to customers and that our aspirations for achieving financial health are attainable, Accion’s Global Advisory Solutions is advocating for a new approach to product design that combines data science, behavioral science, and design thinking. Together these three disciplines put the customer, rather than the product or the service provider, at the center of product or service design. These methods give providers better visibility into household cash flow fluctuations and customer pain points to design products, services, or experiences that are more useful, convenient, and beneficial. These methods can also help providers reach new market segments, retain customers, and improve customer lifetime value across their business.
Despite increasing access to financial services, use of formal financial products continues to lag, particularly in emerging markets. There are many reasons for this lack of uptake. Accion investigated this lag through hundreds of customer interviews globally in the last few years. The interviews revealed that customers do not find the few formal services available to them valuable or trustworthy, and that they are difficult to understand and cumbersome to use. What people really want is to pay tuition, expand or repair their homes, and to be prepared in case of weather or health emergencies. For this, many rely on informal services, like rotating credit groups and store credit, which are embedded in their communities, and are convenient, flexible, and available when and where people need them.
Data, behavioral science, and design thinking can serve as a starting point for financial service providers as they build greater trust with their customers and incorporate a financial health approach, while articulating the business reasons for doing so.