How Important is the Human Touch? for Enabling Financial Choices and Positive Outcomes for Low Income Customers

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1 How Important is the Human Touch? for Enabling Financial Choices and Positive Outcomes for Low Income Customers 1 1

2 Digital Credit High Potential To Financially Include Correlation Between Origination FICO and Rating Grade Assigned by Lending Club 2 2

3 1. Evidence from Kenya 3 3

4 Median Loan Value (US$) N. Active Loans Fin Access Digital Credit. Displacing The Informal $2,500 $2, (All income groups, active loans), US$ $2, $1, $1,000 $500 $ $6 $15 $15 $20 $50 $50 $50 $70 $ $ $ $800 $1, Source: FinAccess 2016/Julie Zollman Digital credit is increasingly substituting shop credit, loans from family and friends and shopkeeper/ moneylender loans. Digital credit provides privacy. 6 6

5 If Paid 52% of Loans Are Fully Repaid With 3 Weeks 120% Repayments Made By Digital Credit Borrowers Percent Cumulative % 100% 80% 60% 40% 36% 20% 0% 1 week 2 weeks 3 weeks days 1-2 months 2-3 months 3-6 months 6+ months When Repayment Made Source: MicrosSave analysis of TransUnion data 7 7

6 10% of the Adult Population Now Negatively Listed Digital loan borrowers (millions), by listing type Negatively listed (at least one nonperforming loan), 2.6 Positively listed (performing loans only), 2.1 Negatively listed digital loan borrowers (millions), by repayment status Still have outstanding balance, 1.7 Paid off all loans,

7 Digital Credit A Force for Inclusion or Exclusion? Proportion of Digital Borrowers Negatively Listed with the CRB by Loans Taken (July 2016-March 2017) 35% 32% 30% 25% 20% 16% 15% 12% 10% 5% 9% 6% 5% 4% 4% 5% 5% 0% # of digital loans borrower has taken Source: MicrosSave analysis of TransUnion data 9 9

8 3 Digital Credit Borrowers Persona Repayer Juggler Defaulter 10 10

9 When Kenyan customers want human touch A look at the customer journey Awareness Registration Trial Usage Dropout Source: Customer journey framework developed by GMSA; CFI Research Uniting Tech and Touch: Why Centaur Products are Better for Consumers and Providers (2017) 11 11

10 Touch Preferences of Respondents Actively Using "Low-Touch" Digital Products 12 12

11 Why human touch? Reason #1: Verifying legitimacy 13 13

12 Why human touch? Reason #2: Understanding the product Face to face offers: Thinner margin of error Easier to understand A very satisfying feeling that everything will be explained properly Pacing that allows for questions / back and forth Staff with boots on the ground who understand context 14 14

13 Why human touch? Reason #3: Resolving Problems 15 15

14 Reason #3: Resolving Problems Edwin Lewis Christine 16 16

15 Segment Observations: Gender 17 17

16 Segment Observations: Rural / Urban 18 18

17 Segment Observations: Type of Phone 19 19

18 2. Evidence from India 20 20

19 Many Low/Middle Income Customers Don t Trust DFS Customers perceptions of banking and financial transactions are still focused on brick-and-mortar-based services DFS providers have not done enough to change the customer s perception and gain trust. Lack of trust in digital financial services stems from frequent server downtimes, interrupted transactions and lack of confirmation messages. The low-income customer segment is still not comfortable in texting. While conducting financial transactions, customer is unable to enter details on the phone; this, along with the fear of entering wrong details / amounts, deter customers User interface design Confusing / non-intuitive user interfaces compound the issues

20 and Many Cannot Understand the Interfaces In % female literacy rate 100% Basic Numeracy, Indian Schoolchildren, % 80% 60% literacy rate in India 40% 20% Nominally only 264 mn illiterate 241 mn 23 mn Number of illiterates adults 15+ Number of illiterate youths 15 to 24 0% Std I Std II Std V Std VIII Recognise numbers 1-9 Recognise two-digit numbers Subtract Source: Pratham. Annual Status of Education Report (Rural) 2014, ASER Centre, New Delhi, Half of all children in Std V have not yet learned basic skills that they should have learned by Std II. A hundred million children have gone through the schools in the last decade without basic reading and math skills. (Pratham, ASER 2014)

21 Human Touch Not Just Desirable but Necessary Trust in DFS is low Dependence on agents is high 62% of people take agents help to make a transaction 18% of people share account details with agents 98% of people believe agents would help them resolve any problems they have Two-thirds of customers do not fully understand the product terms and conditions, and pricing. Information on Terms n=700 No 18% 29% Yes 71% 82% 0% 20% 40% 60% 80% 100% During Use of DFS Beginning Use of DFS 23 23

22 Human Touch Not Just Desirable but Necessary Low awareness about recourse options No 53% Yes 47% Those that do understand T & C are most commonly dependent on agents for information Less than half know about recourse options Poor communication at the customer and the agent level will facilitate external frauds as DFS grows and matures in India Means of Communication about DFS n=574, multiple choice Verbally - service provider 10% Verbally - Agent A phone call An SMS 6% 26% 56% A written document 26% 0% 10% 20% 30% 40% 50% 60% 24 24

23 Want Help with Digital Transformation? If you are worrying about these issues and want help with transforming your MFI Why not enroll in the IFC/MicroSave/Helix training course on Digital Transformation for Financial Institutions? Contact Anup Singh on Or sign-up for The Helix Institute s acclaimed online e-learning courses:

24 MicroSave is globally recognized as the local expert in financial inclusion 300+ Key partners and clients International FI consulting firm with 20+ years of experience 11 offices around the world Projects in ~50 developing countries Assisted development of digital G2P services used by 350 million+ people Our impact so far Implemented >75 DFS projects Developed 250+ FI products and channels now used by 50 million+ people >750 Publications Trained 6,500+ leading FI specialists globally 26 26

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