CEME Inclusive Commerce Blog Hosted by the Center for Emerging Market Enterprises (CEME), The Fletcher School

28Apr/14Off

Behavioral Product Design meets CARD’s Savings Products

Posted by Ashirul Amin

I just came across this great paper from Feb 2014, by ideas42, which describes a behavioral design project undertaken by them and Grameen Foundation to improve savings outcomes for CARD Bank of the Philippines.

They combined in-depth interviews of clients with quantitative analysis of the account balance and transaction data to identify the main barriers to “improving saving outcomes”, and then designed behavioral levers accordingly.

Before we look at the specifics, let’s point out the success of this intervention:

  • 15% higher initial deposits
  • 73% greater likelihood to initiate transactions in new accounts
  • 37% increase in balances

It seems that whatever they did managed to increase how much new savers started  out saving with, encouraged higher engagement with the accounts, and got them to save more in the long term.

What did they do?

First, they identified four primary barriers:

  1. Savers were anchoring themselves to the 100 pesos minimum opening balance, and the 50 pesos  minimum balance required every week. They would start at that value, and then think how much they could save above and beyond that, and not focus on how much they could be saving.
  2. Clients open an account without actually having a plan on how to use the accumulated savings.
  3. CARD has a free program which allows deposit collectors to regularly come to their home or business and collect savings. Yet, many clients did not select this option, very probably because the option is presented to them only when they open the account, but is presented in “muted colors at the bottom of the form”, making it easy to gloss over.
  4. Savings goals are “distant and abstract” – saving for expenses that are far off in time, such as school expenses, or harder to imagine, such as “an emergency” are harder to plan for than the more immediate, day-to-day realities.

With this in mind, ideas42 redesigned CARD bank’s account opening process and developed simple interventions around four behavioral levers:

  1. Set a goal: Get the client to set a savings purpose and amount, use visual representation to make goal concrete, and allow client to decide on some of the savings components, with guidance.
  2. Make a specific plan: Get client to come up with a concrete savings plan – how frequently to save, where to save, and how much to save, and provide the option to receive SMS reminders.
  3. Create a feeling of commitment: Essentially get the client to go through some actions that make the commitment to save “feel real”, such as having both them and the institution sign the plan, complete it in front of peers, even give a gift to symbolize the commitment.
  4. Personalize the experience: Ensure that the plan addresses clients’ needs and abilities, use personal statements and encourage clients to share and discuss their savings plans with peers.

The paper details each of these steps, and it’s quite fascinating – do check it out. Including the Appendices – the data work details are there.

ideas42 is very clear that the results of this study should not be simply transplanted to other situations without thoroughly investigating if they are relevant in that context. Still, one can’t help but wonder about the potential implications of the findings generally.

No-frill accounts have been promoted heavily to further financial inclusion. Relatively large opening or minimum balance requirements were seen as impediments by small-balance savers, as were the slew of fees attached to them. Nevertheless, no-frill accounts often have a small opening balance component, as well as some kind of other performance metric requirement (minimum balance, minimum deposits, maximum withdrawals, etc.) that are designed as much to encourage savings as they are to ensure that accounts are financially sustainable. Does the issue of anchoring suggest, though, that an opening balance requirement or a minimum interaction requirement is having the opposite effect? That, instead of pulling up balances and increasing engagement, they are actually allowing savers to more comfortably “settle for less”?

This process also demonstrated the need to engage the client immediately when they are filling out the initial enrollment forms. These forms are often KYC focused, laborious to fill, and seen more as a formality by all parties. Shifting the focus to the client, and specifically to his or her goals with respect to the product, makes intuitive sense.

It might also help explain why people generally sign up for various promising tools and products, but never quite use them. As FAI recently found out in Bangladesh, with bKash.

6Apr/14Off

Big Banks and Small Balance Accounts – the GAFIS Report

Posted by Ashirul Amin

The final GAFIS report is out. “Big banks can’t serve low-income clients because small balance accounts just do not offer a sustainable business proposition” has been a truism since forever, and for good reason. This report takes a good stab at how that doesn’t always have to be the case, and how some of the biggest banks in sizeable developing countries are finding creative, segmented solutions to expanding the envelope of financial inclusion.

Between 2010 and 2013, the GAFIS project engaged five banks – Bancolombia (Colombia), BANSEFI (Mexico), Equity Bank (Kenya), ICICI Bank (India), and Standard Bank (South Africa). Together, they serve 77 million clients, and have combined assets of $250 billion, many of whom are the low-income segment. Obviously not all low-balance accounts belong to low-income clients, but the vast preponderance of low-income clients will have low-balance accounts; hence the focus on making them sustainable.

The final impact was described as follows (p.g. 38):

Collectively, the GAFIS banks have opened more than 4.2 million new accounts in GAFIS-linked products in less than three years. More importantly, they now serve approximately 420,000 “new, poor savers” as a result of the project (see Box I). This number is measured according to the GAFIS project definition, which requires evidence of both savings activity (870,238 accounts) and the poverty status of the account holders (543,119 new accounts meet both criteria); and which also weights the level of attribution to the project according to how directly GAFIS was involved (reducing the 543,119 to 419,654). Even with delays in launching new products at several banks, these growing numbers provide early indication that large banks can achieve scale outreach with their new propositions.

Very importantly, the business case for these 420k new, poor saver accounts was improved significantly through a combination of strategies:

  • Costing methodology adjusted to product and channel specifications: It doesn’t make sense to load up branch costs into an acquisition expense if the product is mostly mobile phone based, for example.
  • Using agent channels, where agents are essentially mom-and-pop stores set up to function as mini-banks: Transactions cost about a fifth as much with agents, where the agent is paid a commission. Account origination costs are in the $1-$6 range at agents, while those at branches are $16-$25.
  • Increasing cross-sell: This might mean serving credit needs of clients, or fees from intermediating inflows from government or other sources of credit payments.

Here’s a summary of what each bank did to improve the business case (p.g. 22):

business_case_improvement

Still, all this does not make the business case for the accounts a positive one. It does significantly improve it though, from losing $2.79 per account per month, to losing $1.02 per account per month (p.g. 32):

prop_1.5

Lot’s more details in the report – do check it out!