It has become mainstream to think that digital technologies will have a significant role to play in addressing the financial inclusion challenge in developing countries. This may be so, but if all we in the financial inclusion community do is merely add the mobile phone (or the smart card) to our stock of dearly-held beliefs, we will accomplish little. Technology will not work additively; if technology-based models work it will be because they will have changed pretty much everything. I’m not saying that everything will change: I’m just saying that that should be the bet.
Let me illustrate by making two provocative claims.
1. We need to get over our productitis
Now that we have some agent banking and mobile money networks out there, it is clear that enhancing access alone will not solve the financial inclusion challenge. Availability does not automatically translate into usefulness, and the usefulness of electronic payments does not automatically translate into usefulness of other electronic financial services. Therefore, much of the expert talk now tends to center on product innovations – appropriate products, of course.
This is taking us down the path of fragmenting customer’s needs into finer slices, so that we can design tailored products for each need. Save for school fees this way, lump up your daily income like this, use this to borrow short-term, insure your cows that way.
But is this really the way people think and act? These needs are not so separable in people’s minds: they just want their drippy earnings to stretch over all the routine payments they need to make over the month, to find ways to improve their living conditions one small step at a time, to have options if someone in their family falls sick. Marketing such a specialist collection of services is an enormous challenge – one that we can see already in MFIs and mass-market banks whose long product lists - the solar loan product sits next to the school fees savings account, child savings account, home improvement loan, productive asset loan and the lowly current account (which is often the only account with any significant uptake and usage). Imagine this productitis in a branchless banking scenario where a plethora of lightly-trained or supervised agents are supposed to be doing the propositioning to customers. Scary, isn’t it.
What we need are service concepts which help people manage their financial lives the way they think about it. They need to give shape to their own customer experiences, and that means offerings conceived as tools rather than products. Tools that help them manage their payments in space and time (see example here), to build up a stronger case for credit (see example here), and to visualize their financial situation more intuitively (see research underway here). Not products that represent preconceptions on how one must save or borrow, but real solutions that allow people to realize their own financial thoughts.
Maintaining some ambiguity on the nature of individual products and instead focusing on the broader financial support that people need is consistent with what we know about informal financial services. Between friends and family, it’s often hard to distinguish what’s a gift, what’s an interest-free loan and what’s an investment – that depends on circumstances. Likewise, community-based finance groups are not a product but an experience – in the double sense of savings and credit being combined in more or less flexible ways, and adding a social dimension to finance. It is also consistent with what we know about digital services in general. The internet has undermined many products (music records, newspapers), but it has created even more powerful customer experiences (iPod/iTunes, Kindle/Amazon bookstore, Google reader) that hook customers ever more tightly.
2. It’ll take an engineer to crack the financial inclusion challenge
Well-intentioned bankers who want to cater to the poor feel they must do constant battle with their banks’ IT systems. When it comes to serving the base of the pyramid what stands in the way of a truly customer-centric culture within banks tends to be a rigid technology platform. With today’s banking platforms, it is hard to design the kind of flexible service offerings envisioned above, to push appropriately simple and secure mobile interfaces right into customer’s hands, to scale up transaction volumes massively.
No wonder many fear that an increased reliance on technology will lead to a distancing from the customer. It doesn’t need to be that way. The role of technology should be to help marketing and service development staff within banks to sift through customer data to find actionable insights, to figure out new ways to increase the quantity and quality of customer interactions, to rapidly test new service features.
In the future, banks will emerge that feel increasingly confident about addressing the opportunity to bank the poor, and my expectation is that they will probably be led by an engineer. A nerdy CEO who is able to implement a technology infrastructure that truly enables, rather than constrains, marketing and product development activities. Banking is an information-based service, just like music and news, so banks will have to look a lot more like Amazon and Google.
This will require a banking IT architecture with a core platform that handles a defined set of basic transaction types industrially – fast, scalably, safely and reliably. It will include a service management environment which translates these basic transaction types into customer experiences, either designed by the financial institution based on customer insights or defined by customers through their own usage. It will also incorporate good interfaces for third parties to propose additional value to the bank’s customers and to further broaden and entrench the usefulness of the bank’s own platform.
Are we prepared to change how we think about what banks do, how they interact with their customers, and how they are managed?
Ignacio Mas is an independent consultant on techology-enabled financial inclusion models. He wishes to thank Evelyn Stark of the Bill & Melinda Gates Foundation to many conversations that have helped shape this post, but without implicating here with the views expressed.