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Understanding complex human financial behaviour: Alternative approaches

Posted on by MSC

As we discussed in our earlier blog post, MetaMon project was an ambitious one. In the project, we aspired to decipher the inherent thinking process that drives financial decision making of the poor. In MicroSave’s earlier research around financial lives, we realized that conversations about money often turn philosophical. This is because they revolve around deep-seated desires: for your children to lead a better life than you had; to minimize life’s daily hassles and humiliations; to feel like you are keeping up and fulfilling your obligations to kin and kith; to reduce the feeling of present or future dependency and so on. Yet conventional research tools, aimed at designing a specific product or understanding the impact of a specific programme, often overlook those behavioral discussions and focus on facts.

In the MetaMon project, we did not have a clear research protocol in mind. We kept the research process open and relied on iterative and evolutionary learning.  However, common themes emerged as follows:

1.       Start with a diverse team

We formed research teams with diverse backgrounds. We had ethnographers, finance specialists, product designers, folk artists, painters, game developers and several other people from creative domains, who otherwise do not have exposure to either finance or research processes. Apart from the diversity, they brought to the thinking process, each of them played distinct roles in the research process. Ethnographers brought openness, while finance specialists tried to keep the focus. Designers and creative people could generate several new ideas for engaging people, while the researcher on folk music managed to capture their words and expressions in a more meaningful way. The game developer and animation experts could conceptualize innovative approaches for communicating the concepts and the content developer developed the templates that were instrumental in designing the research tools for testing in the field.

 2.      Thinking beyond transactions

Conventional market research tools are limited in their ability to reach beyond transactional information. More often than not, we end up understanding the transactions people do and try to analytically arrive at the behavioral instinct that might have prompted that transaction. For example, we see people saving in different pots or packets, and deduce that their instinct is to diversify risk. In addition to the attribution error in such efforts, the greater limitation is in not being able to decipher the thinking process at all. In some of the improved and new tools tried in MetaMon, instead of tracking transactions, we prompted respondents with hypothetical situations to see their intuitive response to these. By doing this, we completely eliminated the transactional boundaries the person might have and encouraged open thinking.

3.      Capture them in action

In most discussion-based research methods, there is a risk is of getting theoretical/unreal answers or no answer at all, since financial behavior is something people they “do” and not something they “talk about”. An alternative approach to do such research is to catch/observe the person “in action”, as compared to the “static” approach of other tools. In the MetaMon research, we created “games” that people play and where numerous real life-like transactions are involved. In these games (e.g. Grihasthi game developed as part of the project), we asked the respondent to play and conduct the transactions in a simulation world. As researchers, we just observed the transactions they conduct and the way they play the game/s. Since the respondent was engaged in the game scenario, she/he could not escape real instincts and we could gather the real life experience and responses of the people, as compared to their afterthoughts or rationalized responses.

4.      Impersonalise the discussion    

In several of the research tools involving games and hypothetical situations, we eliminated the intrusiveness of the research process and asked for the opinion of the respondents, rather than their experiences. By doing so, we eliminated the intrusiveness of the research. When asked about the steps/strategies the protagonist in the story/situation should/would do, we could see they are responding as they understand such situation.  This reflects MicroSave’s well-established approach of de-personalizing questions in our focus groups by asking about behavior/needs/perceptions “in the community” rather than those of the respondents themselves. Not being intrusive helped us extract critical information, which is unobtainable through conventional market research.

A complete list of research tools and the experience of implementing them is documented in the publication of MicroSave, MetaMon research Tools.

Understanding Complex Human Financial Behaviour: Alternative Approaches

Posted on by MSC

The limits of digitalization

The sheer magnitude of the financial inclusion gap–two-thirds of households in developing countries are unbanked—calls for pretty radical solutions. The notion that we cannot count on brick-and-mortar investments to massively expand access to finance in developing countries is now widely accepted. We need to go branchless, and to do so safely we have an opportunity to leverage mobile phones that are increasingly ubiquitous.

But it is clear that enhancing access alone will not solve the financial inclusion challenge. Availability does not automatically translate into usefulness, and usefulness of electronic payments does not automatically translate into the usefulness of other electronic financial services. We need to overcome not only an access barrier (last mile infrastructure), but also a relevance barrier (right-sized products and services), and even a usability barrier (friendly and intuitive customer experience).

Seeking more service relevance is taking many institutions down the path of fragmenting customer needs into ever-finer slices so that they can tailor products to each need. But such an approach risks moving away from service concepts that reflect the more holistic way in which people think about their money management and creates a marketing challenge: how can financial service providers, especially those working with mobile and branchless networks explain to the average customer such a specialized portfolio of services.

Integrated services that replicate how people think about money

What we need are service concepts that help people manage their financial lives the way in which they think about them. Customers need to give shape to their own user experiences. That means providers must think of products as tools which customers can use in different ways rather than as products that offer specific, inflexible services.

The key requirement is that the user interface be intuitive, engaging and consistent. This can only be achieved if the user interface, and the products it is linked to, derive from a deeper understanding of how customers are expected to relate to the entire service experience. The ultimate objective is being able to design a single, mobile-enabled, mass-customizable experience that puts customer goals first. Their priorities are the basis for their interactions with the financial service provider. The key driver for this experience is less the underlying financial products that fulfill the service and more the user interface and customer information management systems that guide the customer. It is the customer interaction in the context of their own mental models that will drive uptake and use.

Increasingly, online services, financial education, and entertainment have been brought together, often following the rules, mechanics and incentives of games. Designing services in this fashion might combine financial education with actual usage in a learn-as-you-go approach.

Understanding the why of use

Carol Coye Benson notes in connection with the use of cash: “What research there is tends to focus on patterns of use (diary studies, etc.), rather than on the why of use.” This probably stems from the modern analytical bias: the urge to collect data first –as much of it as possible—with the hope that we can infer from it what went on in people’s lives and minds. This seems like a laborious and round-about way to get at people’s motivations.

There needs to be a deliberate effort at capturing those thoughts and expressing them in cogent mental models. Earlier this year we embarked on a project we called Metamon (short for Money Management Metaphors) specifically with the intent of trying to uncover mental models through a different path: by engaging people at a more emotional level. We set out to experiment with a range of qualitative research tools which might help design financial services that are closer to how people interpret the role of money and finance in their own lives.

Towards simplified metaphors of household financial management

In a follow-up blog post, we will explain in more detail how we developed the metaphors and what we came up with. In the end, the metaphors we developed during our project fell short of capturing entire mental models, but we came out of the exercise thinking that this research approach allowed us to listen to customers more accurately, more free of our own biases. We think that such approaches are a useful complement to the more traditional use pattern-based methodologies.

Why Tech-based Banking cannot Replace Agents for Financial Inclusion?

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Agents act as a vital link for the banks and financial institutions to reach out to the financially excluded segment. But can they be replaced by technology? In this episode, MSC’s digital financial expert Mukesh Sadana reveals why the time is not right for technology enabled banking. In his own words, “Agents play a very crucial role of educating low income customers, many of them experiencing technology enabled banking for the first time. The customer segment these agents cater to, needs human interaction to trust the system and use it regularly, until the time that customers understand the whole gamut of front-end and back-end processes; can operate technology without help and until they have access to efficient customer service department. And that may not be possible in the immediate future, therefore, necessitating the strengthening of an efficient and cordial agent network for success of efforts towards financial inclusion.”

Direct benefits – All eyes on India

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As always, India is the biggest, the most problematic, with the greatest potential for success—or failure. There are other cash transfer programmes for pensions, education, health, and food benefits for low-income households in Brazil, Turkey, South Africa, and next door in Bangladesh. Conditional Cash Transfers (CCT) where women, not men, receive the money if they fulfil certain conditions (i.e., their children are vaccinated and in school) appear to work well and have increasing public support.

Examples include BolsaFamilia in Brazil, and Indonesia’s Keluarga Harapan and Nasional Pemberdayaan Masyarakat-Generasi Sehatdan Cerdas. Have a look also at a current Overseas Development Institute study on both beneficiary and community perceptions of cash transfer programmes in Kenya, Mozambique, the Occupied Palestinian Territories (Gaza and West Bank), Uganda and Yemen.

India is of course more complicated.

First, politics in the world’s largest democracy dominate most of the discussion.The Congress Party, anxious about elections next year, is promoting the first direct benefits for scholarship students as a “game-changer”.

No surprise, the opposition BJP party is finding fault—loudly—with everything. Including:

  • The stalled distribution of Universal Identity (UID or Aadhaar) cards, without which no benefits distribution is possible and so far only about one-sixth of the country has received;
  • The scaling back of the number of benefit programs (34 to 7) and the number of districts (51 to 20) in the initial launch;
  • The Congress Party’s hesitation so far to take on food and fuel subsidies. (These are the programmes that everyone agrees are the largest source of “pilferage”, “leakage”, and other polite words for stealing.)

Meanwhile, although many mention “technical glitches” as yet another CP oversight in direct-benefits planning, few are examining the real problems ahead. They include too few rural branches and “mini” ATMS (UID estimates 1 million such installations will be necessary for remote villages to receive benefits); unreliable electronic funds transfer (EFT) technology; and equally faulty recipient databases (which UID/Aadhaar won’t solve, at least not right away).

MicroSave has several papers that delve into these issues including Getting Direct Benefit Transfers off the Ground, UID and Financial Inclusion–Solution or Not? , Leveraging UID for m-banking in India, and Fraud in Mobile Financial Services.

And then, because no matter how fast mini-ATMs materialise, many direct-benefit rural locations will need cash-out agents (or business correspondents, as they are called in India) for the foreseeable future. Technology may well prove an easier nut to crack than human agency.

Again, MicroSave has a wealth of material on agents and agent networks, why most of them aren’t too happy, their profitability (or lack thereof),and how things might get better. (Or just write to info@microsave.net and ask them for help with your research query.)

But there is clear potential in using digital financial services to make payments from government to beneficiaries. MicroSave has analysed and documented the huge gains in efficiency, and the significant reductions in the costs,when paying TenduPata workers and ASHA health workers using e-money. The challenge is to replicate these programmes at significant scale. All eyes are on India.

Nothing wrong calling financial education “Product marketing”

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Financial education, whether for the affluent or the indigent, may actually work best when it is linked to product marketing. This is a controversial premise because one is never clear where exactly the blurred line lies between “linked” (which implies merely a connection), and “nudge” (which can mean explicit sales efforts).

First, let’s start with a few brief definitions since many who work in financial inclusion for low-income, unbanked or under-banked customers tend to bandy these terms about in ways that may not be clear to readers less than fully immersed in this jargon.

The most common interpretation of “financial education” is the provision of knowledge and skills relating to managing one’s personal finances. This includes the knowledge of basic principles about money both rich and poor people need to make informed decisions for the choices available, and the short- and long-term impact of these decisions on their financial well-being.

An extension to this concept is “financial capability” which encompasses gaining knowledge and skills, PLUS the motivation to plan ahead, choose to seek advice, and then take action. (For a more in-depth discussion of these and the many other individual nuances involved, please see a recent Ignacio Mas/MicroSave research paper on Metaphors of Household Financial Management.)

The one concrete piece of evidence we have to work within all the above are the actual accounts, investments, and other services on offer. Everything else—“knowledge”, “skills”, “advice”—is fairly abstract. Most of us do not make decisions about money on the basis of abstractions. For someone with limited formal education and literacy, a purely theoretical approach for such decisions is even less likely. (For more insights on how people make financial decisions see Role Of Information Sources in Financial Capability; and why they make these decisions see Musings on Money).

Before putting any money down, investors at all levels of income tend to review their own successes and failures with similar financial offerings—which invariably involve such specifics as fees, interest rates, returns on investment, favorable and unfavorable terms and conditions. When possible, they often make little test forays requiring minimal cash outlays.

We also pay close attention to what others are doing. If one acquaintance just made a tidy profit via an insured mutual fund with company X, and another lost her life savings investing in a nefarious land trust, well, the choice is clear. No surprise, people of very limited means embrace the same strategies.

Julie Zollman and Daryl Collins have done a lengthy report for CGAP and FSD Kenya exploring more thoroughly the relationship between specific product marketing and the financial capability of poor people. (You can also read the short version “Financial Education—Time for a Rethink?” which outlines many of the same arguments.)

Managed carefully—i.e. no strong-arm sales techniques—we believe providing impartial information and a chance to try specific savings and credit options may work better than general classes on budgeting and debt management. If nothing else, a more immediate involvement with the choices available forces a personal assessment and decision-making process that group discussion will never quite achieve.

This is not to discount some of the excellent and quite effective financial education/ capability instructors and techniques that have developed in recent years.  (Here’s a fairly recent World Bank overview on what’s available in multimedia and other channels.) These programmes may be effective in creating awareness and influencing attitudes but much of the desired actions may not be seen unless they are linked to financial service providers. So we look instead to governments, central banks, all deposit-taking financial institutions, and the numerous network operators, technology service providers and other interested parties actively seeking to push financial inclusion. Their budgets are more expansive and, perhaps more to the point, their goal is for full market involvement.

The catch is that, except for the first two players, everyone is selling something. MicroSaveplans to keep a close watch on how the financial education/product marketing alliance develops. For the moment, however, we think it might work.  We like to call this approach “RPM—Responsible Product Marketing”.

The State of Bank-led initiatives for E/M Banking and it’s potential

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In 2012 Ignacio Mas worked with MSC to look at the state of digital financial services in India, the type of products that poor people want, and the role of microfinance institutions/SHGs in digital financial services systems. Ignacio also ran a training for all MSC staff, and we then asked him to record some of his thoughts on digital financial services systems and not just in India but also worldwide. In this video he answers the following questions:

Since the vast majority of scaled digital financial systems are mobile network operator-led, should we give up on bank-led models?
What are the benefits of digital financial systems for banks?
What are the lessons from Latin America?

Click to watch the video.