Making Digital Financial Services Relevant – Part 3

• by Anil Gupta, Ignacio Mas and Anupam Varghese
• Oct 26, 2015
• 9 min

The authors discuss design ideas and principles to make Digital Financial Services relevant for the mass markets.

Some Design Ideas and Principles to Make Digital Financial Services Relevant

Across the globe, there is an exponential growth in the adoption of technology and digital tools. Technology enabled advancements including smartphones, social media adoption and data usage are increasingly penetrating the mass market, in India as elsewhere. This is further accentuated by the ever-declining costs of smartphones and data prices. Given the limited bank infrastructure available in developing countries, embracing digital provides a huge opportunity to improve financial access for the mass market.

We believe that increase in smartphone penetration will be a significant game changer in the financial inclusion landscape. Smartphones offer flexible, user-friendly interfaces with graphical icons, touch screens and soft keys which facilitate intuitive usage; provide extensibility through NFC/Bluetooth to link up smartphones to scanners, printers, card readers, POS etc.; and offer low incremental communication cost through data plans. For service providers, it offers an opportunity to be independent of telecom organizations and enable more efficient ways of data capture, providing for richer, more frequent customer interactions.

There are lessons from the digital world and the explosion of broader Internet trends which we think largely apply to the financial services industry as well.

• Digital market places and match-making applications are increasingly substituting intermediaries (e.g.: Uber). For example, financial institutions can think beyond promoting the institution’s own products and services to evolving into digital marketplaces where products and services from a variety of service providers are available and peer-to peer-transactions are facilitated.
• Social networks are increasingly digitized and service providers are beginning to tap into these digital networks to promote adoption and usage of their products and services. For instance, social networks could be used to understand a person’s financial capabilities and to enable social guarantees for access to credit.
• User-generated content is increasing the interactivity of people with products and services they use (e.g.: liking). People need products and services that can be customised to their needs by themselves to suit their context.​

While there seems to be a sizeable opportunity to leverage these new developments to further the goal of increasing financial access, not many service providers have started exploring this yet. Most service providers have focussed on developing solutions catering to the low hanging fruit (e.g.: domestic remittances, bill payments, online purchases) which largely focus on the higher-middle income customers.  Service providers have focussed on specific anchor products like domestic remittances or airtime top-ups which are not necessarily central to, or sufficiently transformative to the daily financial lives of people.

None of the current wallet issuers have yet developed solutions which appeal to the mass market. A good example is mobile money accounts in India. Intermedia, in its report on financial inclusion in India dated July 2015, estimates that only 0.2% of Indians use a mobile money account. This is despite heavy marketing and promotion efforts by service providers.

Key Principles to Follow While Catering to the Mass Market

People think about money in an instinctive, story-based manner and transact in the physical world primarily using informal systems. Financial inclusion is normally believed to imply a double shift: towards a more deliberate and quantifiable way of thinking about money as well as to the execution of transactions through digital channels using formal mechanisms.

Too often, the approach is to seek to move people on both fronts at the same time – to seek to adjust their mental models that guide how they think about money and to influence the tools they use by providing direct access to digital channels and formal systems. Often, providers seek to nudge changes in behaviour first through financial education campaigns, with the hope that this will then drive adoption of formal services and digital channels. However, teaching people to do something new, especially when they are not well educated and are hard to reach, is not always feasible or ideal. A better approach might be to support current behaviour and practices and let the new tool take them to new behaviours and practices.

An interesting alternative approach is to let people continue with their behaviour and practices in essence and let them apply their mental models digitally. Various aspects on this have been covered in Part 1 and Part 2 of our earlier blogs in this series. The focus is not on customer education. Intuition and customer perspective will be stepping stones in enabling financial inclusion.

Key shifts are needed in the way we think about financial access.

• Intuitive, not simple: Providers should not be setting out to do simple things. The aim should be to do things that are intuitive and cater to ways in which people already think about money.
• No moral stances: There should be no moral positions on whether people should save or not save or on how much they should save. The objective is not to help people save, but to help people to be more deliberate about how they go about preparing for future payments and purchases. Savings, in the minds of poor people, often stands for money which is not spoken of and therefore is vulnerable to being spent. Helping them with future purchases or payments resonates much better with their thought process than helping them save.
• Managing money gaps, not money: The objective should not be about helping people manage money which they already have. The objective should be about helping them manage income gaps.
• Organising money, not budgeting: Budgets and goals do not resonate well for the low income groups since a budget presupposes a regularity of income, which does not exist in the mass market. The classifications need to be fuzzier for people to be able to relate.
• Supporting full transaction cycles: More than facilitating instant action and views, the objective should be to be able to support full transaction cycles. For example, the priority should be to offer a person tools that can help him accumulate balances to pay school fees, not just the action of paying the school fee. The focus is not on e-payments (for e.g.: remittances, bill payments) but on e-money and providing people the means to manage it.
• Marketing tools, not products: The objective is not to provide digital products. The aim is to help provide poor people tools which they can use themselves to better manage their money. The tools should have a minimum number of functionalities and they should help facilitate the largest number of use cases. The focus is on co-creation of use cases.
• A continuum between informal and formal financial services: The tools should act as a bridge between informal practices which they already employ and formal financial services. The objective should be about enhancing the experience of current practices and not dropping what people already do.

Service providers should try to support the ways in which people deal with money in their daily lives in order to facilitate management of money through digital channels and technology. They should consider developing tools which will help people organise their money in their own way, which may not be numerical, concrete or complete. However, a person using these tools should be able to replicate his own ways of thinking about money on a digital platform. Tools should give a sense of control to the users – of empowerment, even if using them doesn’t give better financial outcomes.

Digitising information as well as money should be a key goal. The objective is to constructively use the available information on social behaviour and transaction behaviour to optimise the financial status of people. People ought to feel that they can make decisions on their own or by utilising their social relationships, instead of highly structured products and services. They should be able to assign attributes and characteristics on their own to their financial transactions.

Tools should consider ways in which people separate money, recognise that people worry as much about income as expenditures, and incorporate social aspects of regular money management. Tools should be relevant for more people. The desired result should be to get more people to do more things, more often through digital channels.

Building Relevance of the Stored Value Functionality

While nearly all Digital Financial Services (DFS) deployments (except for OTC services) have a default stored value function in their wallets, the usage of these as stored value instruments are minimal, the evidence for which is the negligibly low value of balances maintained in them.

The stored value functionality should be rehabilitated for ‘financial inclusion’ to be truly achieved. It is also a vital component to ensure business viability for financial inclusion. A well-functioning stored value functionality would encourage more savings and wallets being used for short term financial management by customers. These, in turn will drive more insights for expanding the value proposition as well as credit scoring and help drive merchant payments. Usage of digital value for merchant payments will also reduce the need for an intensive presence of cash-in/cash-out agent networks. Utilising customer insights for expanding value propositions, credit scoring, merchant payments, and better operational efficiency entailed by reducing the dependence on cash-in/cash-out networks will in turn drive the business case for service providers. Stored value functionality will be the critical gear to enable bigger payments being driven through digital money, besides facilitating credit through digital channels by generating enough history on which various algorithms can be built.

For the stored value functionality to make sense for the mass market, it is essential to revisit the concept of discipline discussed in part-2 of the blog series. It needs to facilitate discipline-in, discipline-out, as well as flexibility – all at the same time.

In a digital environment, discipline-in can be enabled by prods like reminders, prompts, and rules. These can be applied at several points, for example, at the time of receipt of income, or when there is idle money. Pre-defined rules can also facilitate assignment of money to specific buckets defined by the customers themselves.

Discipline-out can be reinforced with locks such as a waiting period, indivisibility, peer pressure, etc. Another way to ensure discipline-out is through labelling, based on parameters such as origin of the money, purpose, etc. Labels can be applied on several dimensions, including time, social relationships and networks, location, or the task/purpose of money.

Along with discipline-in/out, there also needs to be flexibility to break discipline, or provide outs, if there is an emergency requirement. One of the ways this can be achieved is by replicating mechanisms like money guards where customers can keep money with a trusted and respected member of their social circle, so that they can ask the member for the money in case of an emergency, but not for routine or unnecessary spending.

The stored value functionality needs to provide tools which are intuitively suggestive of purpose, even if the purpose is fuzzy or changing. The terms of use also need to be intuitively clear to the user; i.e. how do the prods, locks and outs work.

Catering to People’s Coping Mechanisms

For digital solutions to be useful for the mass market, they should be a digital extension of the real life coping mechanisms that people use. In effect, this would entail creation of a hyper reality using digital tools.

Animating money can be replicated through gaming dynamics, liquidity farming can be replicated by leveraging social networks, and income shaping can be facilitated by tasking and calendaring. The figure provides some ideas on what digitising some of these coping mechanisms might look like.

The attempt should be to provide access to tools which help people implement these coping mechanisms on their own terms. This can be enabled through purpose buckets, time locks or indivisibility (limiting the ability to move a part of the money assigned to a particular money class) locks. Meaning can be attached to money through a variety of audio-visual cues, class of money (based on the purpose and/or the source of income), and through liquidity restrictions.

Concluding Thoughts

The ideas presented here are indicative, not prescriptive. We need to be cognizant of the fact that money organisation in people’s minds is not always explicit in their mind, it is fuzzy, abstract and changing. People organise their money matters in a way that helps them make small, daily decisions easily.

We feel that the key organising parameters in the visual expression of the solution relate directly with the basic Internet functionalities; they are:

• Gaps (Tasks)
• Geography (Maps)
• Time (Calendar)
• Relationships (Contacts, Social networking)

But maybe they shouldn’t exist in such an explicitly structured way. May be a scrapbook approach, where one has to find particular pockets of money, may work better. This may make it easier for people to maintain fuzziness, when they are not ready to concretise their goal.

It might be nice to help the visualisation with basic smartphone capabilities like, motions, music, image, colours, etc.

Before we wind up, let us reiterate that in designing a solution, you may not want to jump directly to the products (RD, FD, Instant loans, etc.). Think first of the coping mechanisms (Animate Money, Liquidity Farming, and Income Shaping) that your customers will apply mentally, and then think of the tools through which they will act on those coping mechanisms to devise their own suite of products.