The current focus on client outcomes – as demonstrated by the proliferation of frameworks describing financial health, well-being, or similar all-encompassing concepts – has renewed attention on how we achieve positive impact for clients. Currently, the behaviorists – those who believe an understanding of cognitive biases and deft application of behavioral insights in intervention design can lead to superior outcomes – rule the day. Meanwhile, financial education, traditionally seen as an enabler of better client outcomes, has become debatable, as research has shown that traditionally delivered education programs provide mixed results at best. Collectively, these trends are giving way to the narratives that client outcomes are achievable through behavioral interventions and that financial education is an ineffective relic of the past.
<blockquote>Current trends are giving way to narratives that client outcomes are achievable through behavioral interventions, and that financial education is an ineffective relic of the past.</blockquote>
This is a dangerous story. It positions the concept of education as an antagonist to behavioral insights rather than as a collaborator, and it presumes that behavioral interventions are superior to educational ones. This post aims to re-balance that narrative.

A quick point of order: financial education and financial literacy are often used interchangeably – in colloquial conversation this makes sense (“educated” and “literate” are synonyms, after all) but using them interchangeably confuses the delivery of education with its intended outcome (literate clients). I use the term financial education to refer to the process of teaching knowledge and skills and financial literacy as the state in which one possesses financial knowledge and skills.

A Fourth Era: Balancing Behavioral Interventions with Quality Education

Behavioral Insights

Financial Capability

Financial Health

Blog Post

After months studying the drivers of financial health and mobile and internet usage in Eastern Europe, I was excited when our team finally landed in Serbia. During the hour-long taxi ride from Belgrade’s Nikola Tesla Airport to Novi Sad, we finalized our work plan for the coming days while catching glimpses of the countryside.

We came to Serbia to join our colleagues at the <a href="http://mfc.org.pl/">Microfinance Centre</a> (MFC) in conducting in-depth interviews with current and prospective customers of <a href="http://www.obs.rs/eng/">Opportunity Bank Serbia</a> and <a href="http://fiiw.pl/">Fundacja Innowacja i Wiedza</a> (Foundation for Innovation and Knowledge). We wanted to learn everything we could about the interviewees’ ambitions, challenges, attitudes, and technology use, so we can use these insights to design and develop a digital tool that will help clients understand and improve their financial health. This research is part of the <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities &amp; Strengthening Institutions through Customer-Centered Innovations</a> project, supported by <a href="https://www.metlife.com/corporate-responsibility/metlife-foundation/">MetLife Foundation</a>.
<h2>Observations on Currency Usage</h2>
[caption id="attachment_35062" align="alignright" width="300"]<img class="size-medium wp-image-35062" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/05/novi-sad-taxi-300x218.jpg" alt="" width="300" height="218" /> <em>Taxis in Novi Sad, Serbia, often quote cab fares in euros.</em>[/caption]

As we pulled up to the hotel, I was perplexed when our driver, Božidar, quoted the cab fare in euros. Last time I checked, the dinar was the currency of Serbia, since it remains an EU candidate country. Yet Božidar wished to be paid in euros, as did many other local vendors. We discovered that our interviewees commonly use euros alongside dinars. One farmer said that she quickly deposits any payments made in euros, but she tends to use her dinars for everyday purchases or stash them at home for emergencies. A shop owner said the majority of her suppliers pay her in euros while she accepts payments from customers in both currencies.

The trend of “euroization” or “dollarization” — a foreign currency substituting or complementing the domestic one — is well studied. The graph below, from the Austrian central bank’s Euro Survey, shows that among its neighbors in central, eastern, and southeastern Europe, Serbia is the most euroized, with the highest proportion of all its cash and deposits held in the form of euros.

&nbsp;

Dinars vs. Euros: Financial Health and the Multiple Currency Dynamic

MetLife Foundation

Building Financial Capabilities and Strengthening Institutions Through Customer-Centered Innovations

Europe and Central Asia

Serbia

Personal Financial Management

<em>This post originally appeared on the <a href="https://www.accion.org/four-reasons-focusing-on-financial-capability-is-good-business">Accion</a> website.</em>

If you’ve never used financial services in the past, you’re going to encounter a significant learning curve when you finally get access. That’s why more institutions are rolling out products to support first-time clients and equip them with actionable tips and tools to simplify their experience. These new services aren’t just good for customers, they’re good for business. By helping consumers attain the <a href="https://www.centerforfinancialinclusion.org/a-change-in-behavior-catalogue-of-innovations-in-financial-capability">knowledge, skills, attitudes, and behaviors</a> necessary to make sound financial decisions — what we call financial capability — customers can become more informed and engaged. In other words, they become better customers.

For any financial institution interested in increasing customer loyalty, building better financial capability is crucial.

<a href="https://www.centerforfinancialinclusion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion">As we work with MetLife Foundation</a> to expand financial capability through customer-centered innovations, we’re excited about the potential benefits for both customers and institutions. Here are four reasons why helping clients build their financial capability is a win-win:
<h2>1. Financial Capability Drives Active Use of Financial Products</h2>
Products that help increase financial capability, <a href="https://www.centerforfinancialinclusion.org/financial-capability-building-practices-in-mexico">drawing insight from behavioral science</a>, can encourage customers to use products more often, which translates to higher profitability for providers and greater usefulness to customers.

Take the case of <a href="https://www.grupobancolombia.com/wps/portal/personas/productos-servicios/cuentas/ahorro/transaccional/ahorro-a-la-mano">Ahorro a la Mano</a>, a mobile savings product and e-wallet from Bancolombia, the largest bank in Colombia. The bank discovered that if a customer does not make a transaction within the first month of opening the account, she is unlikely to make a transaction at all. It decided to use <a href="https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/nudge/">nudges</a> to remind users to put money into their savings.

Bancolombia worked with <a href="https://www.forbes.com/sites/petercohan/2011/06/01/juntos-finanzas-helps-latinos-save-plan/#3c0a808d5db3">Juntos</a>, a fintech company that specializes in data science and behavioral insights. Juntos developed a chatbot named “<a href="https://www.centerforfinancialinclusion.org/how-financial-institutions-and-fintechs-are-partnering-for-inclusion-lessons-from-the-frontlines-2">Emilia</a>,” that could point out opportunities to use the product and makes special offers to encourage transactions within the first month. Because they provide individually tailored messages in a friendly, personal voice, Emilia’s nudges and reminders build trust with clients, and they become more likely to act on her suggestions.
<h2>2. Customer Loyalty Increases</h2>
As customers use their products more frequently, they are likely to become more loyal. Most financial service providers’ balance sheets and product viability calculations do not figure long-term customer loyalty into their calculations, but customers that stick with a provider over time are important to business success.

In September 2017, BBVA launched <a href="https://www.bbva.com/en/bbva-opens-its-banking-app-in-spain-to-accounts-and-products-from-other-providers/">Bconomy</a>, a digital platform meant to add value to the customer experience by giving them a full picture of their financial health. Fueled by data analytics, the platform uses behavioral insights to encourage positive behavior. Clients can see an overall snapshot of their finances, turning their bank accounts into financial management hubs. The tool ensures that customers continue returning to the platform and rely on BBVA as their primary financial provider. To date, the platform has had over <a href="https://www.centerforfinancialinclusion.org/banking-sector-approaches-to-customer-engagement-and-capability">2 million users per month</a>.
<h2>3. Capable Customers Use More Products</h2>
Part of the accepted definition of financial capability is a person’s confidence in using a wide range of products to meet their financial needs. Savvy institutions that promote financial capability also build appropriate follow-on products for customers. Institutions that ignore this strategy may see their first-time customers move on to other providers as they become more comfortable with formal finance.

<a href="https://acreimex.com.mx/">Acreimex</a>, a savings and credit cooperative in Mexico, has incorporated savings into payroll loan repayments so that customers who opt in can save painlessly while they repay their loans. Savings discipline is a key attribute of financially capable people, and automated savings is a tool that assists people to stick to their best intentions. Acreimex built this option by combining its two most popular products. It merged its payroll loan and savings services by rounding up repayment installment amounts and automatically depositing the excess amount into clients’ savings.

The combination of products resulted in significant increases in savings activity and balances. An evaluation showed that participants made about <a href="https://optixproject.org/acreimex/">twice as many deposits and saved 30 percent more</a> than those who didn’t participate. Additionally, <a href="https://nextbillion.net/stealthy-saving-building-on-payroll-credit-to-automate-savings/">96 percent of savers chose not to withdraw the balances</a> from their accounts throughout a 12-month pilot.
<h2>4. Investing in Financial Capability is More Effective — and Less Expensive</h2>
Traditional, classroom-based financial instruction is costly. Features that build financial capability are often cheaper and more effective because they generate direct and longer lasting behavior change.

When researchers analyzed more than 200 individual impact studies on financial education, they found that <a href="https://www.nefe.org/Portals/0/WhatWeProvide/PrimaryResearch/PDF/CU%20Final%20Report.pdf">only 0.1 percent of the observed positive changes</a> in people that had attended classroom-based financial education programs could be attributed to the programs themselves.

On the other hand, impact evaluations of financial products that incorporate behavioral insights to nudge client behavior consistently find statistically significant positive impacts. For example, in a study with <a href="http://www.bancoadopem.com.do/app/do/frontpage.aspx">Banco ADOPEM</a>, researchers tracked customers who attended either a traditional accounting-based financial education class or a class that, in keeping with behavioral insights, offered simple rules of thumb in accounting. Both classes aimed to assist customers to separate business and personal accounts. In the end, the <a href="https://www.povertyactionlab.org/sites/default/files/publications/124_303%20Rules%20of%20Thumb%20AEJ%20Apr2014.pdf">customers who received the simplified rules of thumb displayed more positive business outcomes</a> — they saw a 30 percent increase on average in the level of sales during weeks with typically low sales and saved an average of 6 percent more in personal savings.

More and more institutions are thoughtfully designing products and experiences that not only match their customers’ experiences and lives, but also consider their attitudes, skills, and behaviors. Financial institutions that invest in building up financial capability are likely ensuring they will have customers that are more active users of their products, that are loyal for longer, and that will use a wider variety of products.

<em>We’ll continue to share insights on financial capability based on research conducted by Accion’s Global Advisory Services team and the Center for Financial Inclusion as part of our project on <a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> project, supported by MetLife Foundation.</em>

Four Reasons Focusing on Financial Capability Is Good Business

Chile

Colombia

Dominican Republic

Latin America and The Caribbean

Mexico

Spain

<em>This post originally appeared on the <a href="http://www.accion.org">Accion</a> website.</em>

Chilean banks have made critical advances to drive greater financial inclusion in recent years. From agent networks to payment platforms to the CuentaRUT account — a simplified deposit account with a debit card that the state-owned Banco Estado made available to anyone in Chile with an identity card, Chile has nearly reached universal access to financial services.

However, despite these advances, many small merchants in Chile still aren’t finding financial tools that meet their needs. Micro, small, and medium enterprises (MSMEs) make up <a href="http://www.smefinanceforum.org/data-sites/msme-country-indicators">98.5 percent</a> of enterprises in the country and are a significant driver of economic growth; however, <a href="http://www.smefinanceforum.org/data-sites/msme-finance-gap">more than a quarter</a> of these microenterprises have faced difficulty in accessing financing in times of need. Compounding this problem are high levels of financial insecurity among Chileans. <a href="https://news.gallup.com/reports/233399/gallup-global-financial-health-study-2018.aspx">Nearly half of the population</a> feels unsure about how they would cover their basic needs if they lost their income. For merchants whose personal and business lives are closely intertwined, this lack of financial security in their day-to-day lives translates to lack of security in their businesses as well.

Accion's Customer Strategy team traveled to Santiago to talk to micro-entrepreneurs so we could better understand how they are currently using their financial services. MetLife Foundation supported this research as part of our <a href="https://www.accion.org/accion-metlife-foundation-improve-financial-inclusion-in-latam">joint effort to boost the financial capability of customers</a>. Just as <a href="https://www.centerforfinancialinclusion.org/why-arent-people-saving-money-in-mexico">CFI did in Mexico</a>, we conducted interviews with a wide variety of small merchants to understand their motivations, goals, and feelings toward financial services, and to hear about the strategies they use to stay financially healthy.

Here’s what we learned:
<h3>1. Significant barriers block entrepreneurs from using business accounts.</h3>
Every microentrepreneur we spoke with had a CuentaRUT card, but for many, that was the extent of their relationship with formal financial services. All of them cited high fees, interest rates, and long application processes to access business accounts and credit as barriers to usage. Margarita, the owner of a travel agency and a small bookstore, told us that the most challenging part of starting her business was opening a business bank account, which required numerous documents and costly fees. Therefore, many use their CuentaRUT account for both personal and business purposes, making it difficult to manage their business and personal financial lives separately.
<h3>2. Chileans perceive taking credit from banks as risky.</h3>
Gianfranco, the owner of a small restaurant, wants to expand his business, but he has no interest in taking out a loan. He fears losing everything he has worked for by putting his business up as collateral. He told us, “I don’t like the idea of being indebted or dependent on anyone.” Maritza, the owner of a mini-market, shared a similar sentiment: “I don’t have confidence in financial institutions; they don’t worry or care about their smaller clients.” Many of the merchants we spoke to prefer to borrow from friends and family.
<h3>3. Blacklisting deters participation in the formal financial system.</h3>
[caption id="attachment_34006" align="alignright" width="234"]<img class="wp-image-34006" src="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2019/01/Screen-Shot-2019-01-08-at-3.32.07-PM.png" alt="A Chilean restaurant owner sits at a table" width="234" height="204" /> <strong>Jamie, a restaurant owner in Santiago</strong>[/caption]

Dicom, the national credit agency, records negative credit information such as payment delays and defaults. However, the agency does not offer a clear path to resolve negative reports and as a result, many small businesses avoid deepening their relationship with lenders. Many major retail stores offer consumer credit cards, and in the past, they did so without proper credit assessment and did not inform customers of the <a href="https://www.nytimes.com/2011/07/24/business/global/abuses-by-credit-issuers-in-chile-and-brazil-snare-consumers.html">consequences of default</a>. As a result, many people, unable to pay or unaware of the lasting nature of default, were reported to Dicom, and remain on that blacklist. Today, nearly 900,000 people are recorded as delinquent.

Jaime, a restaurant owner in Santiago, is 74 and has been an entrepreneur all his life. He was reported to Dicom over 30 years ago and has no way to resolve the black mark on his account. In fact, he doesn’t know what caused him to be listed in the first place, despite his efforts to find out. He has upgraded his business several times, but always with his savings, as he has no access to credit. Today, he hopes to buy a car so that he can purchase supplies directly for his restaurant, without paying for transport. However, he cannot make such a large purchase until he builds up enough savings. Jaime needs information to help him better understand why he was blacklisted and concrete steps to help him improve his credit score.
<h3>4. Informal savings remain more comfortable and familiar for people.</h3>
Findex data tells us that only 21 percent of the population in Chile saves money at formal financial institutions. Many interviewees told us that they have difficulty putting money away, often finding it overwhelming just to meet their fixed expenses. When they do set money aside, they prefer to save informally, either in inventory or through investment in assets that will produce income later. Many told us that opening a savings account seems difficult, but everyone wanted to increase their resources so that they could take more time off and work less.
<h3>5. Merchants prefer to learn about financial products from people, not websites.</h3>
Several merchants mentioned that they are hesitant to make financial decisions based on digital information. Lorena de Diaz, the owner of a house cleaning business, told us that she prefers to learn about new products in person, as she can’t verify the accuracy of information provided through a website or mobile application. She likes to be able to ask questions at the branch and feels that she better understands financial products when a person can explain it.

The microentrepreneurs we spoke to need tools tailored to their needs, from working capital to finance their inventory to inexpensive business saving and checking accounts, delivered with transparent and trustworthy communication from their providers. As we continue working with fintechs and financial service providers of all sizes, we hope that better understanding customers’ pain points, aspirations, and desires will lead to better communication on how to use financial products, or even entirely new products that truly improve people’s financial health. Over the next two years, Accion will be working with financial service providers in Mexico and Chile to use customer research to design, test, and implement product innovations that will drive usage and improve financial health.

<em>This research was conducted by Accion as part of our part of our <a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations</a> project, supported by MetLife Foundation.</em>

5 Reasons Small Merchants Aren’t Using Financial Services in Chile

Entrepreneurs of MSMEs

Remember back when taking photos was a little indulgence, before the camera was with you all the time, and before it became essentially free to take photos?

Our behaviors and ethics around photography have changed because of the smart phone. We used to look left and right for passersby before taking a photograph, but now few bother with that nicety; you´ll just take another one if someone walks in front. That´s a simple response to shifted incentives.

Another thing you'd expect to happen with the new ease of taking photos is that interest in them would tend to fade. We´d find it too easy, we'd have too many of them. But that didn't happen, in fact quite the opposite: the cheaper and more plentiful, the more photos people seemed to take. People now take selfies in suburban trains.

Scarcity principles do not seem to apply here. Why is that?

Personal photography has always been about manufacturing memories. When you take photographs on a trip, that´s what you are choosing to remember your holiday by. In the same way that the blockchain represents the construction of an indelible transaction history, with photos you are fixing an image-chain of memories.

But where does the image-chain reside?

Not in a hard drive or a memory stick. Memories are experiences you relive in the telling, not in the storing. Stretching the analogy a bit, your image-chain lives in your social network of friends, just as the blockchain lives in a peer network of computer nodes. Others must validate the history you are creating – with money and with memories.

And that is why the business of personal digital photography has exploded, despite the abolition of scarcity. At the same time as digital has allowed us to take pictures more easily, it has also allowed us to spread our social networks more broadly. And that’s what motivates us to take selfies.

The phenomenal success of digital photography is because it is connected with our other digital experiences, and in particular social networking.

Now let´s draw the analogy with digital money (of the traditional, non-crypto kind).

We want to lead people into a form of money that we tell them is better than cash. But it is often hard to make that case on a head-to-head <a href="https://www.centerforfinancialinclusion.org/making-payments-better">feature comparison</a>. From the perspective of someone who has always managed his business in cash, how do you trade off digital money´s benefits in terms of security, traceability, immediacy and distance invariance, against cash´s benefits in terms of familiarity, ease of use, cost, reliability, probability of acceptance, privacy, and electricity independence?

The answer is by linking digital money to broader benefits.

Think again about the runaway success of digital photography. Few got into selfies because digital cameras produce better pictures. In fact, the new digital cameras people took to so readily were often worse than the analog cameras they displaced. It was the ease of sharing photos through social networks that drove the interest in taking selfies anytime, anywhere, in a ready digital format.

It´s the same story with the Kindle e-book reader. I too prefer the printed book to the same book on a Kindle. But I prefer having instant access to any book on my Kindle, to having that one printed book. Oh, and by the way, there’s a reading light and an adjustable magnifying glass thrown in as well.

It will be the same thing with money. Few will get into digital money because they find it to be a better way to pay for half a kilo of rice at the corner shop. But they would get into digital money if you convinced them that it is a better way to, for instance, control their finances.

And by getting into digital money, I really mean into and not out. Wanting to keep money in digital form once you receive it, as opposed to the widespread current practice of cashing out upon receiving digital money, immediately and in full. In the same way that digital photos may once have been printed out, but no longer: they mostly remain in their pure digital state. So I´m talking about digitizing money, not just the odd remote payment.

Digital photography is powerful because it captures the stories you tell yourself and others about your past – your past holiday, for instance. It´s a tool to control your past. Saint Augustine referred to this as the present of the past: your <a href="https://www.psychologicalscience.org/observer/memory-vs-experience-happiness-is-relative">present idea of what the past</a> was.

Digital money ought to capture the stories you tell yourself and others about your future. In so doing, it would give you a sense of influence over your future. The immediate future of how you will get by the next round of bills, the further out future of how you will get out of your current economic strictures, and maybe also the longer-term future of how your children will have a better life that you did. It is the present of the future, in Saint Augustine´s terms: your present idea of what the future holds, and how much influence you will have in determining that.

You might find this esoteric and far afield from financial inclusion. It is not. Just put two thoughts together. First, people frequently manage their money by separating it out and ascribing a different story to each type of money depending on its source, destination, time horizon, moral import, savings vehicle, etc. Is that not what budgeting is all about? Second, digital technologies have a proven track record in creating not only virtual realities, but hyper-realities. Do people not feel that the hyperactive, hyper-happy, hyper-virtuous image they project on Facebook and Pinterest is more real than their real, limited self?

The question is of course how we build such a digital money system. Much research and experimentation will need to go in this direction.

Just to leave you with a kernel of a suggestion of how this might be at all possible, and to link back to the topic of digital photography where we began: how about if, within your mobile wallet application, you could set some money aside by taking a picture of your kids, or your house, or some friends, or whatever motivated your thought of creating a new type of money? Your money app is then a collection of pictures, which tug at emotions, which invite stories, which trigger actions, which pull money, which reinforce emotions… When you look at the app you should see reflected what is in your head, not what others think you should be doing with your money.

Reflections on Digital Photos and Digital Money (With a Little Blockchain Thrown In)

Delivery Channels

Digital Financial Services

<span lang="ES-MX">Este webinar, presentado en conjunto por el CAF - Banco de Desarrollo de América Latina y el Centro para La Inclusión Financiera de Acción, expone los resultados del proyecto conjunto realizado por ambas instituciones (el primero de su tipo en la región) que buscó introducir a los actores que lideran el tema de educación financiera en Colombia, tanto de los sectores público, privado y no gubernamental, a metodologías de diseño de intervenciones más efectivas que incorporan conocimientos de la ciencia del comportamiento humano, y buscan no sólo transferir información financiera útil a las personas si no también mejorar sus comportamientos y hábitos financieros. Durante esta sesión virtual, Gabriela Zapata, Experta en temas de Inclusión Financiera, Diana Mejía, Especialista Senior en Desarrollo Productivo y Financiero de CAF (Banco de Desarrollo de América Latina) y Pablo Antón-Díaz, Gerente de Investigación del Centro Para la Inclusión Financiera de Acción, presentaron el reporte final de este proyecto que incluyó los resultados obtenidos y los principales obstáculos enfrentados. El panel concluyó con una presentación de recomendaciones y lecciones aprendidas para esfuerzos futuros de este tipo en Colombia, al igual que para otros países de la región interesados en realizar trabajos similares.</span>

Webinar: Expandiendo Capacidades Financieras en Colombia

Latin American Development Bank (CAF)

Banks

Financial Service Providers

Microfinance Institutions

Webinar

In July 2017, Colombia launched its National Economic and Financial Education Strategy, which established an action plan for promoting financial education in the country. The Intersectoral Commission for Economic and Financial Education, in charge of implementing the strategy, partnered with the Latin American Development Bank (CAF) and the Center for Financial Inclusion at Accion (CFI) to develop a training program to impart the latest financial education programming insights and best practices to those who would be implementing the national strategy.

This report describes our efforts to communicate behavioral economics best practices to policymakers and practitioners in Colombia, including case studies from Fundación Capital and Banco de la República. We also evaluate the success of our efforts, and make recommendations for further embedding behavioral insights into financial education programming.
<h1>Major Findings</h1>
<h5>WHAT DOES IT TAKE TO BUILD FINANCIA CAPABILITY?</h5>
<h2>Shifting the financial education paradigm in Colombia begins with understanding how to design behaviorally-focused interventions.</h2>
Financial education programs are delivered by financial service providers, government agencies, public schools and universities, research institutions, institutional donors and non-profit organizations throughout Colombia. The majority of these programs are delivered in classroom-based settings, town hall-style lectures, seminars or workshops and employ printed materials and videos to communicate information. These kinds of traditional financial education models are difficult to scale, expensive to implement and often struggle with low attendance and participation.
<blockquote>Traditional financial education models are difficult to scale, expensive to implement and often struggle with low engagement.</blockquote>
Information transfer alone does not adequately engage people in the type of active learning and practice that prompts
behavior change. There is a growing body of evidence showing that financial education interventions that incorporate behavioral economics principles are more likely to improve client’s money management skills than traditional interventions.
By hosting six two-day workshops between for a mix of stakeholders from the public, private, and non-profit sectors in Bogotá, we gave practitioners a holistic understanding of what is necessary to design behaviorally focused interventions. We also asked participants to think deeply about cognitive biases that impact the success of behavior change programs, including procrastination, social norms, limited attention span, predisposition to the present, loss aversion, and default options. We asked participants to identify how these biases affect their lives, underscoring the fact that cognitive biases are present in all of us, not just beneficiaries of social programs or financial product users.

This project gave us a valuable opportunity to put our own behaviorally-informed principles into practice in the development of the workshops. We aimed to make the workshops fun, social and customized to the target audience. We developed simple, memorable rules of thumb for making financial education workshops more effective. Additionally, we were able to leverage what seemed to be somewhat of a national "teachable moment" right at the start of the implementation phase of the National Financial Education Strategy of Colombia. Overall, we are satisfied with the high level of information retention that we found in our follow-up surveys, and we are convinced that this constitutes a very important step in the right direction.

Expanding Financial Capability in Colombia

Report

Why is it that <a href="http://datatopics.worldbank.org/financialinclusion/">80 percent</a> of bank account holders in Madagascar only use their accounts once a month or less?

What makes the parents of a child requiring unforeseen medical treatment in the DRC choose to approach their <a href="http://cenfri.org/blog/ive-got-your-back">mutualitée</a> (a local form of informal mutual aid society) for a loan despite access to a microfinance institution or local bank?

If a Zimbabwean has a mobile money account, why does he ask a family member to send him money in the care of a bus driver rather than through that mobile account?

The gap between uptake and usage is well documented in financial inclusion. But while these insights are important evidence of the gap, they tell us very little about <em>why </em>this gap exists. The result is that we know there is a problem, but without understanding why, we can do very little to change the problem.

To help us better understand the why, we at <a href="http://www.i2ifacility.org">insight2impact</a> (i2i) have been <a href="http://access.i2ifacility.org/Publications/i2i%20MFW%20Note%203%20-%20Financial%20services%20usage_Digital.pdf">exploring the factors that affect usage</a>. In doing so we have incorporated insights from across multiple fields on human decision-making and applied the most relevant aspects of existing models and understanding to the field of financial inclusion.

Decision-making is important for both financial service providers (FSPs) and policymakers to understand, but it isn’t simple, and, typically, our decisions are not based on one single factor. Furthermore, psychology and behavioral economics have illustrated that in some cases we are not even cognitively aware of many of the important factors that influence our decisions.

Some of these factors appear straightforward at first. For example, in the case of mobile money use in Zimbabwe, although the bus drivers do not carry the money free of charge, they charge the sender and the recipient does not pay a fee.

However, if you unpack this further, you may find that there are other factors that influence the decision. As one mobile money user explained, “It took me a long time to start using it [mobile money account], maybe because I didn’t trust it. I didn’t trust the services … I wasn’t sure how it was going to be working out."

Addressing or removing the barriers to usage does not mean people will automatically make use of specific products, nor does initial uptake (even voluntary uptake) imply sustained use. There is a trigger that results in uptake and first-time use, but this is often followed by a significant drop-off in activity. This is often evident in mobile money, where <a href="http://cenfri.org/documents/MAP/2015/Malawi/MAP%20Malawi%20Diagnostic%20Report.pdf">promotions for free airtime lead to spikes in uptake</a>, but low usage is observed over time, and consumers continue to rely on cash.

So, what are the factors that affect financial decision-making (the drivers of usage)? In our understanding, there are a range of factors, but they largely fall into three categories:

• <strong>Functional:</strong> Fundamentally, positive relative value is required for a person to continue using a device (although perceived value rather than actual value drives decisions). These functional drivers are the most obvious and visible component of decision-making. In the example cited above the respondent asked that money be delivered via a bus driver to avoid paying transaction fees.

It may be tempting to just stop here. However, we know that what influences our decisions goes beyond the basic dollars and cents:

• <strong>Relational:</strong> Relational factors like trust have been explored in detail by other researchers, but we want to delve deeper to understand what constitutes trust in the use of financial services and how this manifests. In our example, the individual in Zimbabwe signed up for a mobile money account but delayed using it until a level of trust had been established. Other relational drivers, like belonging, have not been explored as deeply, yet still appear to play an important role in decision-making.

• <strong>Behavioral:</strong> Individuals may be unaware of some of the factors that influence their thinking and the way they respond to things, but a better grasp of these behavioral drivers (and the way these are affected through specific interventions) will be useful for FSPs attempting to drive usage of specific products and for policymakers keen to deliver impact through financial inclusion policies. One example is hyperbolic discounting – the fact that people prioritize present value over future value and choose smaller rewards now over larger rewards at a later time – which influences the way that people perceive relative value and cost for short and long-term products/needs.

Individuals make decisions within a context and that context has an influence on the outcome of their decision. We call these structural factors.

• <strong>Structural:</strong> We define these as the contextual considerations (for example, gender, level of urbanization, and so forth) that influence the drivers identified above and therefore affect uptake and usage, but which the individual, policymaker or FSP will have no or very little control over.

Of course, given the complexity of human decision-making, many of these factors resist our attempts at simple, neat classification. As an example, trust in financial services is often the outcome of number of experiences, and even a composite of other drivers. It can be affected by behavioral factors like an intrinsic bias (for example, certain providers are “out to get me”) or social factors like having viewed negative comments about a specific provider on social media.

Through a closer examination of the drivers mentioned above, i2i hopes to understand what the most critical drivers of financial product usage are and how they interact and influence each other.

The drivers of usage don’t only explain why or whether people opt to (continually) use a financial service, but which device they use and which provider they turn to – including whether these are formal providers or informal providers like savings groups or friends and family. These insights are likely to be valuable to FSPs, policymakers and development organizations alike.

The objective with this work is not to build an exhaustive model of all the individual factors that influence consumers’ decisions to use financial products, but rather to offer a framework that simplifies reality in that it encompasses all the key factors of customer decision-making in digestible form. Better understanding the range of, and the most important, factors that influence use will aid policymakers and providers to design policy approaches and products that target sustained use rather than merely uptake.

We would love to hear from you if you think we have omitted a category of drivers, or if you have previously conducted research in the field. Email <a href="mailto:jeremy@cenfri.org">jeremy@cenfri.org</a> to contribute to this analysis of the drivers of financial services usage.

<em>In addition to this desktop research on drivers of usage, insight2impact will be piloting demand-side surveys in select countries to better understand people’s financial needs and how they go about meeting these needs in different environments. The insights from our desktop research and these pilots will enable us to refine <a href="http://i2ifacility.org/news/measuring-impact-in-the-financial-sector">our measurement frameworks</a> and contribute to a richer understanding of financial inclusion.</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2015/06/09/considerations-for-the-pursuit-of-financial-inclusion/">Considerations for the Pursuit of Financial Inclusion - Beyond Account Access</a>

<a href="https://cfi-blog.org/2016/10/25/building-trust-and-growing-digital-financial-services-a-look-at-jumo/">Building Trust and Growing Digital Financial Services: A Look at JUMO</a>

<a href="https://cfi-blog.org/2017/09/27/financial-inclusion-from-a-consumer-perspective/">Financial Inclusion from a Consumer Perspective</a>

Closing the Gap between Uptake and Usage of Financial Products

Congo, Dem. Rep.

Madagascar

Zimbabwe

Agent Banking

Mobile Banking

Women

Mavis Wanczyk, a staff member at Mercy Medical Center in Springfield, Massachusetts and a mother of two, recently became a multi-millionaire, revealing herself as the $758.7 million Powerball jackpot winner – the largest individual winner ever. Wanczyk quit her job of 32 years less than 24 hours later.

Reflecting on her decision, Wanczyk remarks, “I was just there to buy it, for just luck. Just go in, buy a scratch ticket, and say maybe it’s me, maybe it won’t be me. It’s just a chance, a chance I had to take.”

The odds of winning the Powerball jackpot are 1 in over 292 million. In order to purchase all of the possible combinations, an individual would need to spend $584,402,676 on tickets. You are about 100,000 times more likely to be struck by lightning at some point in your lifetime than you are to hit this particular jackpot.

So why do <a href="https://www.theatlantic.com/business/archive/2015/05/lotteries-americas-70-billion-shame/392870/">Americans spend $70.15 billion</a> on lottery tickets annually, while very few of us live in fear of being struck by lightning?
<h3>The Behavioral Science of Gambling</h3>
In order to make sense of this phenomenon, it is important to first understand that humans do not always make rational, utility-maximizing decisions. This is especially the case when it comes to risk. Two principles from behavioral science explain why we gamble when the odds of hitting the jackpot are so low.
<ul>
 	<li><em>Availability bias</em> - The overestimation of an event’s likelihood based on the strength of a memory about such an event is referred to as an availability bias. We immediately think about Mavis and her success when evaluating our own decisions to enter the lottery, forgetting the millions who did not win. Hearing about lottery winners in the news shifts the odds in our minds.</li>
 	<li><em>The “near miss” effect</em> - The feeling of almost winning and wanting to try again (even if you were not even close). This explains why people who get half of the numbers right often re-enter the lottery, even though the digits they had right had no bearing on the overall outcome.</li>
</ul>
<h3>Savings and the Limits of Incentives</h3>
Americans are not great savers. The personal savings rate (the ratio of total savings to total after-tax income) was 3.5 percent in July 2017, and this rate has been <a href="https://fred.stlouisfed.org/series/PSAVERT">steadily declining</a> from nearly 14 percent in 1975. Furthermore, <a href="http://time.com/money/4374915/emergency-savings-americans/">27 percent</a> of Americans have no emergency savings. These trends are even more acute among low-income individuals. <a href="https://www.urban.org/research/publication/poverty-incompatible-asset-accumulation">Forty percent</a> of families with incomes below the poverty level have no bank account and, among those that do, the average balance is $310.

This presents a lose-lose situation for low income consumers. In order to avoid taking a loss on low-income customers, banks charge them high fees, but these fees drive low-income customers away from banks. Instead, many consumers turn to riskier and costlier alternatives, including gambling.

Policymakers and independent organizations have introduced incentive schemes to encourage greater savings, including matched or subsidized savings such as Individual Development Accounts (IDAs), which are special savings accounts targeted at low-income consumers to save for a specific goal. The success of such initiatives is limited, however. Research suggests that matching and subsidies are largely ineffective: customers enrolled in matching programs only increased savings by <a href="http://www.ideas42.org/wp-content/uploads/2015/11/Reimagining-Financial-Inclusion-Final-Web-1.pdf">one penny for every dollar matched</a> by the U.S. Government. IDAs have been shown to modestly increase savings, but their average cost of <a href="http://journals.sagepub.com/doi/pdf/10.1177/1049731505276077">$64 per participant per month</a> to maintain typically outweighs any potential benefit to the participant. Furthermore, there is limited evidence to indicate that these accounts change long-term behavior around savings (i.e. when the matching ends).

Financial literacy programs are also seen as tools to encourage savings, but studies examining the impacts of financial literacy programs on financial health find that they can only explain <a href="http://www.nefe.org/Portals/0/WhatWeProvide/PrimaryResearch/PDF/CU%20Final%20Report.pdf">0.1% of the variance</a> in financial behaviors observed, with the effects being even less noticeable among low-income consumers.
<h3>The Promise of Prize-Linked Savings</h3>
Considering such limits of financial incentives, behavioral observations from gambling turn out to have important implications for savings. Prize-linked savings (PLS) accounts are similar to standard savings accounts, but in lieu of accruing interest, interest is pooled from all account holders and divvied out based on lotteries. Typically, the number of raffle tickets an account holder receives is proportional to the amount deposited.

<a href="http://www.savetowin.org/">Save to Win</a>, first introduced in Michigan in 2009, was the first large-scale prize-linked savings program in the U.S. The program experienced broad appeal and attracted over 11,000 member accounts in its first year. The program has since experimented with prizes of different amounts to determine impact on savings and has found that prize size is largely irrelevant; prizes of any size increase regular savings of account holders. The prospect of winning any amount was just as potent as winning big.

PLS programs became legal nationally with the signing of the American Savings and Promotion Act in 2014. The Act, which enjoyed support from both Republicans and Democrats in Congress, authorized some financial institutions to conduct savings promotion raffles, while requiring state regulators to approve the type of games offered. Many larger banks have been slow to implement programs, but independent organizations such as Save to Win have spread throughout the nation, <a href="https://www.debt.org/2015/07/02/how-credit-unions-and-banks-are-gamifying-savings/">leading to $100 million in savings</a> since 2009.
<h3>The Impact of Prize-Linked Savings</h3>
These programs make a difference in three ways: they increased savings, substitute for other behaviors (saving money that would have been gambled), and contribute to long-term financial health.
<ul>
 	<li><a href="http://www.hbs.edu/faculty/Publication%20Files/08-061_17c22e32-fe06-4b4a-8b5e-e09227fc8104.pdf">Experimental evidence suggests</a> that individuals participating in the Save to Win program were enticed to save at a higher rate compared to people with a standard interest-bearing savings account. Demand was highest among low-income, underbanked or unbanked individuals, precisely the demographic that traditionally has the lowest levels of savings.</li>
 	<li>A study of the <a href="http://econweb.umd.edu/~ozbay/savings.pdf">MaMa program in South Africa</a> found that participants’ lottery expenditure decreased after enrolling in the program, suggesting that participants put a portion of this money into savings. Prize winnings also had an impact on future savings, with prize winners depositing more money into their accounts on average compared to non-winners. Surprisingly, prize-winners often deposited an amount in excess of their winnings into their account.</li>
 	<li>Although evidence is limited, some early research suggests that prize-linked savings are more effective in increasing savings among low-income individuals and less resource-intensive compared to incentive schemes and financial education.</li>
</ul>
To encourage greater uptake, governments should encourage programs by reducing or eliminating regulations related to lotteries within financial institutions. Furthermore, mainstream banks and other FSPs should consider introducing prize-linked savings as a strategy for reducing the cost of serving low-income customers.

While chances of winning the Powerball jackpot may be slim, we can all still win.

For more applications of behavioral science to financial inclusion, check out <a href="https://cfi-blog.org/2017/08/30/harnessing-behavior-change-to-end-extreme-poverty/?ct=t%28CFI_Blog_Digest_+September_14_2017%29&amp;mc_cid=f16ed19ca7&amp;mc_eid=%5BUNIQID%5D"><em>Harnessing Behavior Change to End Extreme Poverty</em></a> and <em><a href="http://www.centerforfinancialinclusion.org/fi2020/roadmap-to-inclusion/innovations-in-financial-capability">A Change in Behavior: Innovations in Financial Capability</a></em>.

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2016/03/28/mobilizing-savings-among-microfinance-institutions-in-latin-america/">Mobilizing Savings among Microfinance Institutions in Latin America</a>

<a href="https://cfi-blog.org/2017/03/29/dollar-by-dollar-or-goat-by-goat-how-financial-health-translates-across-oceans/">Dollar by Dollar or Goat by Goat: How Financial Health Translates Across Oceans</a>

<a href="https://cfi-blog.org/2016/05/06/a-change-in-behavior-innovations-in-financial-capability-an-interview-with-elisabeth-rhyne/">A Change in Behavior: Innovations in Financial Capability - An Interview with Elisabeth Rhyne</a>

&nbsp;

Hitting the Jackpot: The Impact of Lotteries on Savings

<em>&gt; Posted by </em><em>Saborni</em><em> Poddar and Brett Hudson Matthews, Associate at MicroSave and Executive Director at My Oral Village</em>

<img class="alignright wp-image-23841" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/thumb_3da9c48c10dc4eaaae3adb8d6c737ff5-1.jpg" alt="" width="315" height="210" />The financial inclusion industry often asks the question of how can we best configure mobile money products and services to support increased adoption and usage. But how about when prospective users are illiterate and innumerate (unable to decode large written numbers), as is the case for many unbanked individuals at the base of the pyramid?

In search of insights into designing mobile wallets for such <a href="http://blog.microsave.net/lessons-from-orality-for-digital-financial-services-development/">illiterate and innumerate (oral) populations</a>, we traveled through the Indian states of Punjab, Uttar Pradesh and Bihar, interacting with potential users. As our conversations got underway, and we began to understand the implications of designing a mobile wallet that an oral individual can use with ease, we could visualize why a conventional mobile wallet design would not be as clear to a daily-wage unskilled laborer as it is to the readers of this blog.

To start with, almost everyone we talked to had a feature phone, but most used it only for voice calls and were unfamiliar with basic syntax and navigation rules. Most could not use an address book; each time they make a call, they dial numbers from scratch. This gave us a first-hand glimpse into the potential intimidation caused by technology.

When we showed popular mobile wallets, respondents understood few icons. Even core ones like ‘add’, ‘send’ and ‘request’ money, were not well understood by many. We learned that the abstractions (communication shorthands) widespread in oral communities are oftentimes not the same as <em>literate </em>abstractions – which evolve over generations or centuries in cultures where writing is widespread. For example, for ‘send money’, one approach is to use the rupee symbol ‘₹’ inside a wallet outline, with an arrow pointing outwards. However, this is a literate abstraction, and many participants did not recognize the '₹' symbol, remarking that it looks vaguely like the Hindi ‘R’ or the Hindi numeral '2'. For a mobile wallet, ₹ is an essential symbol, but there are design tricks to help users learn its meaning.

So, how did we approach such obstacles?

Our team conducted a series of tests that applied oral iconography for the task of sending money on a wallet prototype we created. Our literate biases dominated at first. We designed an icon with two <em>gullaks </em>(Indian version of piggy banks) with arms coming out of them exchanging some green notes. While most respondents recognized the image, some indicated that gullaks are predominantly used by kids to save their change. Next we thought, how about two brown wallets with arrows indicating money going from one to the other? Participants countered with the question: but which wallet is mine? Further, we learned that women are not typically using wallets. They indicated that they typically tie up money in a cloth and stash it away in a box, hiding it in the folds of their clothing or even in their bosom. Therefore, for them, a wallet seemed like a man’s business.

Through such trial and error we eventually noticed a cultural practice important for designing an oral icon for sending money: the giver is at a higher position and the taker at a lower. We took this cultural tip, and in order to make it gender neutral, we did away with the wallet icon and worked on a third iteration: a hand giving money, with its palm down-turned, seeming like the money is being given from a higher position, a position of power. What we essentially had to understand was the power structure that the exchange of money brings with it. <em>Dene wala </em>(the giver) will always have an upper hand (literally) than the <em>lenewala </em>(the taker). Everyone, literate or illiterate, male or female, finally got it!

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/gullak.png"><img class="aligncenter wp-image-23831" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/gullak.png" alt="" width="615" height="360" /></a>Another insightful revelation was regarding hierarchies of content. Some designers claim that hierarchy is an abstraction and that oral cultures do not understand abstraction. While we agree that hierarchy is an abstract concept, we learned that oral individuals struggle only with literate abstractions, not oral ones, and that hierarchy exists as both an oral and literate concept.

The hierarchies contained in market-leading mobile wallets are usually cluttered. For example, the home page of a bank’s mobile application might place 10 major propositions for the user, and several subsidiary ones. Behavioral economist Shlomo Benartzi argues that mobile screens cannot convey more than 4-6 main propositions without generating cognitive discomfort – and this is assuming a literate user. These interfaces typically rely heavily on text to convey far greater precision – and support far greater complexity – than would otherwise be possible.

<a href="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/interface-2.png"><img class="alignright wp-image-23832" style="border:0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/07/interface-2.png" alt="" width="330" height="398" /></a>We tested a prospective hierarchy of content that does away with such conventions. In the figure at right is a wireframe design for a mobile wallet’s home page. It centers on five main propositions, all supported by oral icons tested carefully for guessability and memorability:
<ol>
 	<li><strong>The wallet balance:</strong> The oral market segment faces very tight cash constraints and wants to be fully in control of this variable at all times. Since most cannot read 4+ digit numbers with confidence, the numeral string is accompanied by a clear image of the cash equivalent.</li>
 	<li><strong>The most recent transaction record</strong>, and a hyperlink to the detailed transaction record through an image of a wallet.</li>
 	<li><strong>A pathway to add money</strong></li>
 	<li><strong>A pathway to send money</strong></li>
 	<li><strong>A pathway to request money</strong></li>
</ol>
The six subsidiary pathways on the upper and lower strips include:
<ol start="6">
 	<li><strong>Home</strong></li>
 	<li><strong>Personal profile</strong></li>
 	<li><strong>Help </strong></li>
 	<li><strong>Mobile recharge</strong></li>
 	<li><strong>Bill payment</strong></li>
 	<li><strong>Merchant payment</strong></li>
</ol>
Our team conducted a usability test for this prospective hierarchy of content with a group of illiterate women to a large degree of success.

Additionally, we took them through the registration page, which had multiple fields to fill. They were briefed on the flow from the top to the bottom. One field required them to pick an image for a security question. Everyone chose the saucepan -- something they could readily connect with. After a time gap, we tested recall by asking them to register themselves without help. They did not start at the top; instead, they instantly went to the saucepan option. This revealed two things: 1) The image is relevant to their daily lives, and 2) The top-down information architecture was difficult to grasp.

When the blank input fields on each page were reduced to two, navigation was satisfactorily clarified. Another alternative is to reduce each page to <em>one </em>input field, eliminating any need for user choice. But in that case, even repeated use would offer no support in learning top-bottom protocols.

Of course, amongst many learnings, we did verify that one common misconception about <a href="http://www.microsave.net/resource/mobile_wallet_design_for_oral_users">design principles</a> is that it is all about making a product look beautiful. Great designs must get colors, typography, layout and graphics right, but as Don Norman observed in <a href="https://www.amazon.com/Design-Everyday-Things-Donald-Norman/dp/1452654123"><u>The Design of Everyday Things</u></a>, this is only one ingredient. Designs must be easily learned and easily used by the target market.

<em>For more on MicroSave’s work in designing mobile money services to fit the needs of illiterate and innumerate clients, </em><a href="http://www.microsave.net/resource/digital_wallet_adoption_for_the_oral_segment_in_india_concept_development_for_mowo_mobile_wallet_for_oral"><em>click here</em></a><em>.</em>

<em>Image credit: Accion</em>

<strong>Have you read?</strong>

<a href="https://cfi-blog.org/2017/03/01/mobile-money-in-myanmar-going-directly-from-cash-to-digital/">Mobile Money in Myanmar: Going Directly from Cash to Digital</a>

<a href="https://cfi-blog.org/2017/02/07/modelo-peru-whats-next-for-the-groundbreaking-mobile-money-platform/">Modelo Peru: What’s Next for the Groundbreaking Mobile Money Platform?</a>

<a href="https://cfi-blog.org/2015/09/11/five-ways-to-get-frontline-staff-excited-about-mobile-money/">Five Ways to Get Frontline Staff Excited about Mobile Money</a>

Not Just a Pretty Interface: Designs Must Be Easily Learned and Used

Amy Stewart

Senior Manager, Customer Strategy and Digital Products

Priya Punatar

Manager, Industry Engagement

Jacqueline Foelster

Leonardo Tibaquira

Michael Schlein

Pablo Anton-Diaz

Yanina Seltzer

Nigeria

Peru

Advisory Services

Appropriate Product Design and Delivery

Customer Centricity

Enabling Environment

Financial Inclusion Strategy

Financial Technology

Human Centered Design

Human Touch

Impact Investing

Responsible Digital Finance

Saving

Underserved Groups

Youth

Article

Brief

Though Nigeria’s government has set ambitious goals for financial inclusion, the majority of its people lack a formal bank account. Accion has worked in the country since 2007 to expand access to financial services.

As I walked through Alaba International and Idumota markets on a recent trip to Lagos, I was in awe of the bustling scene. Not even the rainy season’s torrential downpours could silence the Afrobeat music thumping in the background as buyers and sellers jockeyed for a better deal. Alaba International and Idumota markets reign supreme in Lagos, offering all the goods one can imagine. Alaba International, on the southeastern edge of the city, bursts at the seams with satellite dishes imported from China, secondhand PlayStations shipped in from the UK, and other electronics. Idumota buzzes on Lagos Island, just south of the city center, and is a shopper’s delight replete with wax print hauled over from Ghana, locally produced Nollywood movies, and so much more.

Amidst the action in the markets, I interviewed 22 small business owners who are clients of <a href="https://www.accionmfb.com/">Accion Microfinance Bank (AMfB)</a> to learn more about their financial health and capability. This research will guide us as we develop a framework to help micro, small, and medium enterprises (MSMEs) better understand and achieve financial health. The framework is part of a project we’re undertaking with the support of the <a href="https://www.mastercardcenter.org/">Mastercard Center for Inclusive Growth</a> to increase the <a href="https://www.centerforfinancialinclusion.org/what-financial-health-means-for-small-business-owners">financial health and resilience of individuals and businesses</a> around the globe.

Through my conversations with business owners, I learned about what owners viewed as determinants of their success. We hypothesized that MSME financial health rests on three pillars — earning a profit, having access to capital to seize opportunities, and being resilient to economic shocks. The interviews suggest that our framework is on the right track. For instance, limited and slow access to working capital was commonly cited as a barrier to taking advantage of fleeting business opportunities. We also learned that resilience is not as much about cash-on-hand as it is about being able to quickly shift to other income-generating activities to fill an immediate need.

But arguably, the most eye-opening thing I learned from these interviews had to do with financial capability and the path to entrepreneurship, specifically how owners were able to get the know-how and capital to start their businesses. I had assumed that a commercial bank or <a href="http://www.iosrjournals.org/iosr-jbm/papers/Vol17-issue6/Version-2/J017626267.pdf"><em>esusu</em></a> — a rotating savings and credit association common in Nigeria — were the first two places that a budding entrepreneur would turn to raise seed funding. However, nearly all the merchants and traders I spoke with started their business with a lump sum they earned after spending several years as apprentices in their trade. This practice is part of the centuries-old Igbo apprenticeship model, <a href="https://pdfs.semanticscholar.org/c77a/7e79ec3fb7ce5c9eccdc72d181205251dfb2.pdf"><em>Imu-Ahia</em></a>.

The roots of <em>Imu-Ahia</em> date back to the European colonial era when the Igbo ethnic group native to southeastern Nigeria started to gain a reputation as highly skilled traders and merchants. Today, the apprenticeship model has been widely adopted across the country. Most apprentices-to-be meet their “boss” — someone who is already well-established in a trade — through a family member or close contact. Reasons abound for why one might become an apprentice. Several entrepreneurs I spoke with decided at a young age that they wanted to be masters of a trade, so becoming an apprentice was always part of their plan. Others became an apprentice as a last resort, often after financial constraints forced them to put off academic or other pursuits.

During their tenure, which can range anywhere between three and seven years, apprentices observe and take notes on the tricks of the trade. They are assigned a variety of responsibilities, and eventually, they’re charged with promoting sales and store management. Although most apprentices aren’t paid, they are afforded accommodation, transportation costs, food, and clothing. Once the agreement — which can be either informal or formal — has been fulfilled, the newly anointed entrepreneurs are provided a lump sum to help them start their shop. One interviewee — a vendor of computer and phone accessories — was compensated with N800,000, the equivalent of approximately US$2,200, after spending five years as an apprentice. This is a decent payout considering he currently spends N350,000 (US $970) a year to rent his shop.

So what exactly does <em>Imu-Ahia</em> tell us about how these entrepreneurs perceive the determinants of their success? Many interviewees captured it perfectly when they shared advice for aspiring entrepreneurs: one must meticulously study and practice the skills needed to run a business before diving into it.

This advice resonates with our team at CFI because it positions financial capability — the knowledge, skills, attitudes, and behaviors necessary to make sound financial decisions — as <a href="https://www.centerforfinancialinclusion.org/four-reasons-focusing-on-financial-capability-is-good-business">an essential contributor to business success</a>. The apprenticeship model serves as a learning and testing ground for those who are set on eventually running their own shop, much in the same way that the modern-day business incubator serves as a testing ground for startups. By the time individuals “graduate” from the apprenticeship model, they will have developed the knowledge and skills to manage business revenues and expenses. They also have plans to take advantage of investment opportunities and experience observing how businesses respond to the ups and downs of the market.

I only interviewed former apprentices who found success in the business world, so there’s still more to learn. We need to do more to understand the relationship between financial capability and business outcomes, especially business failures. Nevertheless, these qualitative findings echo the findings of other research. The <a href="https://www.nber.org/chapters/c8222.pdf">National Bureau of Economic Research</a> conducted a fascinating study that showed the differences in the psychological profile of wage workers, own-account workers, and small and medium enterprise (SME) owners. It found that “ability, motivation, and a competitive attitude are very important in differentiating SME and microenterprise owners.” The <a href="http://documents.worldbank.org/curated/en/884291527663849364/pdf/126687-18-6-2018-9-32-12-InvestigatingSMEFinancialCapabilitiesFINALWEB.pdf">World Bank</a> launched a project to measure financial capability of SMEs. Their analysis showed a positive correlation between financial capability and a firm’s size and level of sales.

The striking thing about what we learned in Lagos is not so much that financial capability contributes to business success, it is how, in the Nigerian system such capability is learned: over a period of years, through experience, and under the watchful eye of a knowledgeable mentor.

Keep reading the <a href="https://www.centerforfinancialinclusion.org/blog">CFI Blog</a>, where we’ll share future findings as we conduct surveys around the world on MSME financial health!

A version of this post originally appeared on the <a href="https://www.centerforfinancialinclusion.org/what-an-apprenticeship-system-may-reveal-about-the-financial-health-of-small-business-owners-in-nigeria">Center for Financial Inclusion at Accion blog</a>.

In Nigeria, apprentices can learn more than a new trade

Accion Microfinance Bank

Mastercard

Financial Inclusion Practitioner

Institutional Funder

Social Good

Center for Financial Inclusion

It’s hard to find a downside to encouraging people to save more money.  Savings can help businesses and individuals reach their long-term goals and protect them from economic shocks. Recognizing the need for better savings opportunities among underserved microentrepreneurs, many microfinance institutions in Latin America have <a href="https://www.centerforfinancialinclusion.org/mobilizing-savings-among-microfinance-institutions-in-latin-america#more-20984">launched programs and initiatives</a> to get their customers to save more. These banks often find that they also benefit by boosting savings because they can diversify their funding structure, reduce risk, and generate customer loyalty that comes with offering a comprehensive suite of services.

Despite the win-win opportunity, institutions still encounter barriers to launching a savings product. These accounts are frequently left dormant by customers and driving usage may not be a priority for an institution that’s structured around credit operations. On all sides, savings products face an extra hurdle because everyone wants immediate results. Savings products compete with other services (like credit products) that are more attractive to clients and institutions. Many people prefer getting the funds they need immediately through a loan rather than putting in the time and effort it takes to accumulate savings. For the institution, credit provides them with income as soon as it’s disbursed, whereas savings translates to more long-term yields.

An effective savings product can help customers think more long-term if it’s complemented with a marketing campaign that motivates a change in people’s behavior. And the product itself should also drive the customer to want to use it with both digital and physical channels that create a positive customer experience.  Mibanco, a leading microfinance bank in Peru, has done just that. In 2016, the bank was experiencing low growth rates in new accounts and a high dormancy with its existing savings accounts. The bank initiated a campaign to make sure clients were getting what they needed from their financial services. With the support of Accion’s <a href="https://www.accion.org/how-we-work/advise/accion-global-advisory-solutions/">Global Advisory Solutions</a>, Mibanco used a client-centered design methodology to understand customers’ needs. The institution conducted interviews, developed financial diaries, and mapped the customer journey so that it could develop products and channels that reflected clients’ lives. Based on this research, Mibanco launched “tigres de ahorro” (or <a href="http://tigresdelahorro.pe/">tigers of saving</a>).

[caption id="attachment_18838" align="alignleft" width="500"]<img class=" wp-image-18838" src="https://content.accion.org/wp-content/uploads/2019/06/mibancosavings.jpg" alt="Example of Mibanco's myth busting" width="500" height="524" /> <em>Many people believe that it is safer to keep their money under the mattress. The tiger busts this myth saying, “A Tiger of Savings sleeps on a mattress, but does not keep his money there. Too often are the cases where the mattress is burned, or money is lost. It is safer to keep your savings with MiBanco.”</em>[/caption]

This initiative launched in August 2017 with a new set of products aimed at the underserved. These products include features and functionalities that motivate savings — like tying savings to the clients dreams and aspirations and reminding the user about their goals — while also providing the flexibility and convenience valued by customers. The bank added additional channels — including agents, digital solutions, and a motivational communications plan — to complement the new products and encourage greater savings. The products’ homepage even busts myths about saving.

As of March 2019, more than 280.000 new accounts have been opened and deposits have increased, showing that the product is attractive and useful to customers. Mibanco’s commitment and dedication to the project made this possible — the institution adjusted internal processes, trained its commercial force, and built in monitoring and evaluation mechanisms.

We’re glad to support the work Mibanco is doing because saving money is critical to help microentrepreneurs build a more stable future. We hope that “tigres de ahorro” continues to motivate even more people to save and fosters financial health.

&nbsp;

How do you get people to build their savings?

Mibanco

Accion Global Advisory Solutions

Most of Mexico’s people lack access to a formal bank account. Accion has worked in Mexico for decades to create a thriving and competitive financial sector that embraces innovation and protects its clients.

<h2>The path to financial health</h2>
People around the world are continually aiming to improve their financial lives – they do so with whatever tools are available, whether formal or informal, and with whatever knowledge they have gathered. Every day, people work hard to grow their businesses, send their children to school, save, make ends meet, and troubleshoot during tough moments. Ultimately, they aspire for greater financial health and a better life for themselves and their families.
<p style="text-align: left;"><img class="aligncenter" src="http://accion-staging.flywheelsites.com/wp-content/uploads/2019/02/CFSI-1.png" /><em><a href="https://cfsinnovation.org/">The Financial Health Network</a>, the  <a href="https://www.centerforfinancialinclusion.org/">Center for Financial Inclusion at Accion</a> and <a href="http://www.dalbergdesign.com/">Dalberg's Design Impact Group</a> developed a <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2017/03/FinHealthGlobal-FINAL.2017.04.11.pdf">framework of six indicators</a> for financial health in the developing world.</em></p>
In order to help consumers improve their financial health, financial service providers (FSPs) can design products, tools and services that empower consumers to better understand and manage their finances and encourage them to improve financial habits. Focusing on financial health also has the potential to impact the FSP’s bottom-line: Gallup found that when customers feel that their bank <a href="https://news.gallup.com/opinion/gallup/176534/looking-customers-financial-table-stakes-banks.aspx">looks out for their financial well-being</a>, they are much more likely to be fully engaged with the bank.

However, in order for FSPs to successfully promote financial health, they first need to understand customers’ opportunities and obstacles to improving it.

Achieving financial health in Mexico and Chile

Financial Service Provider

If you’ve never used financial services in the past, you’re going to encounter a significant learning curve when you finally get access. That’s why more institutions are rolling out products to support first-time clients and equip them with actionable tips and tools to simplify their experience. These new services aren’t just good for customers, they’re good for business. By helping consumers attain the <a href="https://www.centerforfinancialinclusion.org/a-change-in-behavior-catalogue-of-innovations-in-financial-capability">knowledge, skills, attitudes, and behaviors</a> necessary to make sound financial decisions — what we call financial capability — customers can become more informed and engaged. In other words, they become better customers.

For any financial institution interested in increasing customer loyalty, building better financial capability is crucial.

<a href="https://www.accion.org/accion-and-metlife-foundation-announce-expanded-partnership-to-advance-financial-inclusion/">As we work with MetLife Foundation</a> to expand financial capability through customer-centered innovations, we’re excited about the potential benefits for both customers and institutions. Here are four reasons why helping clients build their financial capability is a win-win:
<h3><strong>1. Financial capability drives active use of financial products </strong></h3>
Products that help increase financial capability, <a href="https://www.centerforfinancialinclusion.org/financial-capability-building-practices-in-mexico">drawing insight from behavioral science</a>, can encourage customers to use products more often, which translates to higher profitability for providers and greater usefulness to customers.

Take the case of <a href="https://www.grupobancolombia.com/wps/portal/personas/productos-servicios/cuentas/ahorro/transaccional/ahorro-a-la-mano"><em>Ahorro a la Mano</em></a><em>, </em>a mobile savings product and e-wallet from Bancolombia, the largest bank in Colombia. The bank discovered that if a customer does not make a transaction within the first month of opening the account, she is unlikely to make a transaction at all. It decided to use <a href="https://www.behavioraleconomics.com/resources/mini-encyclopedia-of-be/nudge/">“nudges”</a> to remind users to put money into their savings.

Bancolombia worked with<a href="https://www.forbes.com/sites/petercohan/2011/06/01/juntos-finanzas-helps-latinos-save-plan/#3c0a808d5db3"> Juntos</a>, a fintech company that specializes in data science and behavioral insights. Juntos developed a chatbot named <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/08/IIF-CFI_FI-Fintech_Partnerships_Final.pdf">“Emilia,”</a>  that could point out opportunities to use the product and makes special offers to encourage transactions within the first month. Because they provide individually tailored messages in a friendly, personal voice, Emilia’s nudges and reminders build trust with clients, and they become more likely to act on her suggestions.
<h3><strong>2. Customer loyalty increases</strong></h3>
As customers use their products more frequently, they are likely to become more loyal. Most financial service providers’ balance sheets and product viability calculations do not figure long-term customer loyalty into their calculations, but customers that stick with a provider over time are important to business success.

In September 2017, BBVA launched <a href="https://www.bbva.com/en/bbva-opens-its-banking-app-in-spain-to-accounts-and-products-from-other-providers/"><em>Bconomy</em></a>, a digital platform meant to add value to the customer experience by giving them a full picture of their financial health. Fueled by data analytics, the platform uses behavioral insights to encourage positive behavior. Clients can see an overall snapshot of their finances, turning their bank accounts into financial management hubs. The tool ensures that customers continue returning to the platform and rely on BBVA as their primary financial provider. To date, the platform has had over <a href="https://www.centerforfinancialinclusion.org/banking-sector-approaches-to-customer-engagement-and-capability">2 million users per month.</a>
<h3><strong> 3. </strong><strong>Capable customers use more products</strong></h3>
Part of the accepted definition of financial capability is a person’s confidence in using a wide range of products to meet their financial needs. Savvy institutions that promote financial capability also build appropriate follow-on products for customers. Institutions that ignore this strategy may see their first-time customers move on to other providers as they become more comfortable with formal finance.

<a href="https://acreimex.com.mx/">Acreimex,</a> a savings and credit cooperative in Mexico, has incorporated savings into payroll loan repayments so that customers who opt in can save painlessly while they repay their loans. Savings discipline is a key attribute of financially capable people, and automated savings is a tool that assists people to stick to their best intentions. Acreimex built this option by combining its two most popular products. It merged its payroll loan and savings services by rounding up repayment installment amounts and automatically depositing the excess amount into clients’ savings.

The combination of products resulted in significant increases in savings activity and balances. An <a href="https://optixproject.org/acreimex/">evaluation</a> showed that participants made about twice as many deposits and saved 30 percent more than those who didn’t participate. Additionally, <a href="https://nextbillion.net/stealthy-saving-building-on-payroll-credit-to-automate-savings/">96 percent of savers chose not to withdraw</a> the balances from their accounts throughout a 12-month pilot.<strong> </strong>
<h3><strong>4. Investing in financial capability is more effective — and less expensive </strong></h3>
Traditional, classroom-based financial instruction is costly. Features that build financial capability are often cheaper and more effective because they generate direct and longer lasting behavior change.

When <a href="https://www.nefe.org/Portals/0/WhatWeProvide/PrimaryResearch/PDF/CU%20Final%20Report.pdf">researchers analyzed</a> more than 200 individual impact studies on financial education, they found that only 0.1 percent of the observed positive changes in people that had attended classroom-based financial education programs could be attributed to the programs themselves.

On the other hand, impact evaluations of financial products that incorporate behavioral insights to nudge client behavior consistently find statistically significant positive impacts. For example, in a study with <a href="http://www.bancoadopem.com.do/app/do/frontpage.aspx">Banco ADOPEM</a>, <a href="https://www.povertyactionlab.org/sites/default/files/publications/124_303%20Rules%20of%20Thumb%20AEJ%20Apr2014.pdf">researchers tracked customers</a> who attended either a traditional accounting-based financial education class or a class that, in keeping with behavioral insights, offered simple rules of thumb in accounting. Both classes aimed to assist customers to separate business and personal accounts. In the end, the customers who received the simplified rules of thumb displayed more positive business outcomes — they saw a 30 percent increase on average in the level of sales during weeks with typically low sales and saved an average of 6 percent more in personal savings.

More and more institutions are thoughtfully designing products and experiences that not only match their customers’ experiences and lives, but also consider their attitudes, skills, and behaviors. Financial institutions that invest in building up financial capability are likely ensuring they will have customers that are more active users of their products, that are loyal for longer, and that will use a wider variety of products.

<em>We’ll continue to share insights on financial capability based on research conducted by Accion’s Global Advisory Services team and the Center for Financial Inclusion as part of our project on </em><a href="https://www.centerforfinancialinclusion.org/about/what-we-do/building-financial-capabilities-and-strengthening-institutions-through-customer-centered-innovations/"><em>Building Financial Capabilities and Strengthening Institutions through Customer-Centered Innovations project</em></a><em>, supported by MetLife Foundation.</em>

Four reasons focusing on financial capability is good business

With three billion people left out of the formal financial sector, financial technology offers us a chance to reach greater scale than ever before. Entrepreneurs and financial institutions are all exploring new ways to use technology to reach more people. Data, analytics, machine-to-machine learning, the Internet of Things, blockchain, global satellite imagery – all offer the chance to help reach people who have so far been left out.

Though tech is critical, today, some human touch is still needed in almost every financial product, service, or market. This will continue to change as more people become increasingly comfortable moving from touch to tech – but that’s a journey that will take time, patience, and close attention to evolving customer preferences.

Every company is wrestling with this issue, including Accion and our portfolio partners. There’s no single answer to how to best balance tech and touch; moreover, today’s solutions will evolve in the future. Entrepreneurs must constantly re-evaluate and re-calibrate their solutions to keep up with customers’ preferences and the changing state of technology.

<a href="https://www.accion.org/how-we-work/invest/accion-venture-lab/">Accion Venture Lab’s</a> latest report, <a href="https://www.accion.org/the-tech-touch-balance/">The Tech Touch Balance</a>, explores how inclusive fintechs around the world are grappling with this issue. Pulling from our insights advising startups around the world and with the support of the <a href="https://mastercardfdn.org/">Mastercard Foundation</a>, our latest paper addresses a series of complex questions, helping entrepreneurs and investors think through:
<ol>
 	<li><strong> Why do some customers sometimes still prefer touch over tech?</strong> This question is especially important in underserved communities. Customers who are new to formal financial services may have low digital savviness, lack trust in financial service providers, or not fully understand the product. Technology alone can’t always address those concerns.</li>
 	<li><strong> How do fintech startups decide to use tech or touch?</strong> By listening carefully to their customers about their preferences. Asking for and listening to feedback up-front and during product design, then continuing to refine the product over time is essential.</li>
 	<li><strong> When should fintech startups use an algorithm, and when should they use a lending officer?</strong> There’s no one answer: the same organization might use technology to replace human agents during customer acquisition, then use it as a tool to enable representatives during collections. Fintechs must strategically adjust their use of tech and touch from one operation to the next.</li>
</ol>
There’s no single solution to balancing tech and touch to accelerate financial inclusion. We’re still working through this issue and helping our portfolio companies refine their operations.

Though evolving rapidly, entrepreneurs need to put a stake in the ground. And then, we’ll continue working at it and making adjustments along the way. But if we do – if we continually listen to our customers – then we can refine and improve savings, insurance, credits, and payments, reach more clients, and create a financially inclusive world.

Does human touch still have a place in a high-tech world?

Mastercard Foundation

The tech touch balance

<div class="byline"><em>By Center for Financial Inclusion staff</em></div>
After over a year of research, we at the Center are excited to launch <em>A Change in Behavior: Innovations in Financial Capability</em>, the result of a project funded by JPMorgan Chase &amp; Co. which assesses the landscape of financial capability-building interventions across the globe, with a special focus on Mexico and India. Highlighting an industry trend in its early stages, the report explores innovations that focus on triggering positive customer behaviors, especially at critical decision-making moments, such as when signing up for and using financial products, or when putting money aside to meet savings goals.

We define financial capability as <em>the combination of knowledge, skills, attitudes, and behaviors a person needs to make sound financial decisions that support well-being</em>. This definition reflects an emerging industry view that focuses attention on behavior. Financial capability focuses on behavior change as well as the customer’s end state: financial health and well-being. This school of thought contrasts with traditional financial education, which has generally been more focused on the transfer of knowledge, skills, and information.

The financial capability approach stems from the growing body of industry research which reveals an important gap between knowing and doing. When techniques informed by behavioral economics are integrated into client interventions, people are more likely to translate their knowledge into action. While traditional financial education methods still predominate, our research identified a host of exciting financial capability innovations. These interventions range from personal counseling to mobile apps that help customers understand their finances at a glance, to soap operas that embed financial capability messages and lessons.

In our assessment of over 100 innovations, we identified seven behaviorally-informed practices that show great promise for application in financial capability-building:
<ol>
 	<li><strong>Teachable Moments.</strong> Reach consumers when they are making financial decisions.</li>
 	<li><strong>Learning by Doing. </strong>Let consumers practice using products.</li>
 	<li><strong>Nudges, Reminders, and Default Options. </strong>Timely reminders and default options support good habits.</li>
 	<li><strong>Rules of Thumb (Heuristics). </strong>Mental shortcuts help turn learning into habit.</li>
 	<li><strong>Make It Fun. </strong>Games and humor aid learning and retention.</li>
 	<li><strong>Customize It.</strong> Tailor advice to an individual’s specific financial situation.</li>
 	<li><strong>Make It Social. </strong>Leverage the influence of peers and culture.</li>
</ol>
As the number of first-time consumers of formal financial services expands rapidly over the next decade, it will be imperative that new consumers are able to use products actively for their own benefit. To address the huge financial capability gap, action from many stakeholders is required, including financial service providers, governments, and social service organizations that interact with clients at critical moments. The provider case for addressing financial capability rests on the risk reduction, enhanced product use, and long-run opportunity for growth that a capable clientele can bring. The policy case involves the government’s role as custodian of a safe and stable financial system that protects the vulnerable. And for the consumer, financial capability means greater confidence in using financial services in a way that promotes their ultimate outcome – financial health.

<em>A Change in Behavior</em> argues that a major redeployment of resources is needed to ensure that the millions of dollars spent on traditional financial education interventions yield substantial benefits. Its recommendations include enabling financial service providers to take a greater role in building financial capability; engaging social service agencies, such as hospitals that provide financial counseling to families experiencing a health shock; and strengthening governments’ focus on shared responsibility among stakeholders.

The full report and appendices, including dozens of examples of innovations in financial capability, are available online <a href="http://www.centerforfinancialinclusion.org/publications-a-resources/browse-publications/724">here</a>. For your navigating ease, <em>A Change in Behavior: Innovations in Financial Capability</em> includes the following elements:
<ul>
 	<li>Abridged Report (18 pages)</li>
 	<li>Full Report (60 pages)</li>
 	<li>Frequently Asked Questions (FAQs) – based on discussions with experts, including roundtables in Washington, D.C., Mexico City, and New Delhi</li>
 	<li>Financial Capability Building Practices in Mexico</li>
 	<li>Financial Capability Building Practices in India</li>
 	<li>Catalogue of Innovations</li>
 	<li>Executive Summary</li>
</ul>
<em>This post originally appeared on the <a href="https://cfi-blog.org/2016/04/12/a-change-in-behavior-innovations-in-financial-capability/" target="_blank" rel="noopener">CFI Blog</a>. It is republished here with permission. </em>

A change in behavior: Innovations in financial capability