FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION

Transcription

1 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION T. Aimaletdinov, S. Antonyan, L. Baymuratova, G. Imaeva, O. Tomilova, and O. Sharova Moscow 2017

2 2 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION The funding for the original research presented in this paper was provided by the Consultative Group to Assist the Poor (CGAP). CGAP is a global partnership of more than 30 leading organizations that seek to advance financial inclusion. CGAP develops innovative solutions through practical research and active engagement with financial service providers, policy makers, and funders to enable approaches at scale. Housed at the World Bank, CGAP combines a pragmatic approach to responsible market development with an evidence-based advocacy platform to increase access to the financial services the poor need to improve their lives. For more information, go to NAFI NAFI is a multidisciplinary analytical center founded in The NAFI team of specialists study public opinion (sociology), business climate (economy), and consumer behavior (marketing), and provide analysis of statistics, macroeconomic data and published information. For more than a decade, NAFI experts have conducted research in areas such as economy, finance, social policy, entrepreneurship, real estate, telecommunications, tourism, and transport. NAFI s data and reports have consistently been used by governments, nongovernmental organizations, businesses, and mass media. The Center is a certified member of ESOMAR, MSPA, and AMCO. The research team is grateful to all those who have helped us in conducting this study: B&N Bank for allowing us to access the bank s branches and use ATMs and terminals for hall tests in Moscow. We extend our thanks to Ekaterina Savastenko for her expert interview and assistance with our research, and to Oksana Balmush for her assistance. ROSBANK for allowing us to use ATMs and terminals for hall tests in Yekaterinburg and Nizhny Novgorod. We are thankful to Valery Leonov for assistance with our research. We are sincerely grateful to all other experts who have contributed to this study.

3 3 TABLE OF CONTENTS ACRONYMS... 5 EXECUTIVE SUMMARY... 6 INTRODUCTION Scope of work Information collecting method SECTION 1. SPECIFICS OF ELDERLY CONSUMERS FINANCIAL BEHAVIOR Lifestyle and specifics of consumer behavior of elderly Russians Behavioral characteristics of elderly Russians Financial services used Payments channels used SECTION 2. ATTITUDES TOWARD DIGITAL DELIVERY CHANNELS Penetration of DFS Intention to use digital delivery channels Attitudes to digital channels SECTION 3. BARRIERS TO USE OF DIGITAL FINANCIAL SERVICES DELIVERY CHANNELS Objective barriers Subjective barriers SECTION 4. POTENTIAL SOLUTIONS FOR ADAPTING DIGITAL FINANCIAL SERVICES/DELIVERY CHANNELS TO THE NEEDS OF OLDER CONSUMERS FSP attitudes to the elderly Solutions for overcoming objective barriers to uptake and use of DFS Solutions for overcoming subjective barriers to uptake and use of DFS... 39

4 4 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION KEY CONCLUSIONS AND RECOMMENDATIONS Conclusions Recommendations REFERENCES ANNEXES Annex 1. Research Methodology Annex 2. Statistical tables Annex 3. Mapping of financial products and solutions addressing barriers for financial inclusion for the elderly in Russia... 92

5 5 ACRONYMS АТМ CGAP DFS ESOMAR FSP FSSS MOF NAFI PIN Automatic Teller Machine Consultative Group to Assist the Poor Digital financial services European Society of Marketing Research Professionals Financial services provider Federal State Statistics Service, Rosstat Ministry of Finance NAFI Analytical Center Personal identification number

6 6 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION EXECUTIVE SUMMARY Elderly consumers financial behavior Older people make up the most financially excluded category in Russia. They account for 41 percent of all nonusers of financial services in the country, whereas the national average of nonusers stands at 21 percent or less. Two distinct age groups have been identified within the target audience of elderly consumers: those and those 70 and older. The former includes consumers who tend to have higher levels of education and stable incomes and who are more likely to use the internet. The latter can be described as financially excluded. They tend to have limited physical abilities and find it harder to learn new things. The characteristics shared by most older consumers include a regular income, punctual, frugal, consistent habits, rational, importance of communication, and availability of spare time. Financial services used the most by senior adults are payments and bank cards issued by the pension fund or the employer (50 percent and 38 percent, respectively, of elderly consumers reported using these products without being prompted). Elderly Russians financial behavior patterns differ significantly from those of younger Russians. While borrowing prevails over saving as a financial strategy population-wide, the opposite is characteristic of Russians 60 and older, who are likely to save more and borrow less. Twenty-six percent of Russian pensioners and just 18 percent of adults nationwide use deposits. In contrast, just 17 percent of pensioners have outstanding credit/loans, compared to 29 percent of all adult Russians. Pensioners are often unaware of innovative delivery channels available for payments and transfers/remittances. More than 60 percent of respondents 60 and older are unaware of channels such as mobile banking, mobile wallet, e- wallet, and online banking and the possibility of paying for products and services online using a bank card. A vast majority of elderly consumers prefer traditional payments channels, such as bank branches (79 percent used this payments channel in the past six months) and the Russian Post (55 percent). Transitional channels (payments terminals/atms and other self-service devices) are more likely to be used by the elderly if they are located at bank branches, but if they are located away from branches, their perceived attractiveness as a channel for making payments and transfers is lower.

7 7 Attitudes toward digital delivery channels The number of elderly Russians using various devices with internet access has been growing. In 2014, the reported proportion of users of such devices in the age group was 45 percent. In 2016, the proportion of seniors using the internet reached 34 percent. 1 About half of all Russian pensioners do not intend to use innovative delivery channels. Notably, 42 percent of elderly Russians do not intend to use online banking, 40 percent mobile banking, 41 percent mobile wallets, and 42 percent e-wallets (Yandex.Money, Qiwi, WebMoney). However, efforts to encourage the uptake of transitional delivery channels are bringing results: 28 percent of pensioners currently use terminals and ATMs. Older people tend to perceive innovative delivery channels for payments and transfers as inconvenient and unreliable. Cash-in payments via ATMs or terminals are considered to be convenient (49 percent), and mobile banking is believed to be the least convenient (just 31 percent of elderly respondents find it convenient). Barriers to use of DFS delivery channels FSPs have not yet sufficiently addressed senior consumers concerns. No targeted programs have been undertaken to adapt innovative delivery channels to the needs of the elderly. The key barriers to digital channel use by elderly consumers include the following: - Low income levels - Low level of internet use - Limited access to financial products - Low level of financial literacy - Difficulty using digital services interfaces - Limited physical access for persons with disabilities, lack of comfort and convenience at bank branches - Relatively low level of internet use and lack of devices providing Internet access 1 Source: NAFI, Financial inclusion in Russia, 2016, n=5000

8 8 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION Subjective barriers to digital delivery channel use by elderly consumers include the following: - Psychological barriers (fear of incompetence, reluctance to learn new technology) - Conservatism, being accustomed to using cash and traditional delivery channels - Fear of fraud Potential solutions for adapting DFS/delivery channels to the needs of older consumers When making a transition to digital services delivery channels, FSPs need to take into account elderly customers concerns and behavioral characteristics. To this end, banks should rethink their attitudes toward senior consumers, recognize this age group as a separate customer segment, and reach out to them in a targeted manner. Helping older consumers adapt to using digital delivery channels requires comprehensive solutions aimed both at facilitating access to products and services for the elderly and at supporting their financial and technological literacy. Banks need to address both objective and subjective barriers to digital channel use by taking into account the behavioral characteristics and specific preferences of older people. Consistent effort at studying this target audience is required for FSPs to gain a better understanding of its needs. To improve elderly awareness and use of remote financial services, FSPs should promote positive aspects of the internet and highlight the benefits of using innovative services delivery channels. It is essential to ensure reliability of such channels so that older people may learn to trust and use them. Financial products/services and delivery channels used mainly by elderly audiences must be adapted to their specific needs. Before being fully launched, such products and delivery channels must be tested by older consumers. Banks should take the lead in adapting financial products/delivery channels to the needs of the elderly and offering hands-on training as part of their customer service on how to use innovative products and solutions. Government can provide essential support in facilitating elderly uptake and

9 9 use of digital products/solutions by hosting senior consumer financial and technological literacy training, e.g., on the premises of social welfare institutions. So on one hand, certain behavioral characteristics make elderly consumers a promising customer segment for FSPs, but on the other hand, this group is unlikely to fully transition to remote financial services in the near future. The fact that the elderly are not yet fully prepared for digital solutions means that banks should not change their practices too quickly. They need to take their time. Rather than being a setback to development, this may be an opportunity for FSPs to make a smooth transition from traditional to digital channels. In any event, banks need to focus more on this customer segment and communicate with elderly customers who access their branches, explain the benefits of innovative solutions, and train seniors in using the new technology.

10 10 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION INTRODUCTION Increased life expectancy, better family planning mechanisms, and higher quality of life have led to a global surge in the number of older people. By 2050, the number of people over 60 will triple from 650 million (11 percent of the world s population) to 2 billion (22 percent of the world s population). Older people will start to outnumber children younger than 14. The challenge, however, is that as people age, they are increasingly susceptible to falling into poverty (due to health issues, diminished capacity to work, diminished mobility, etc.) without the proper safety nets in place. In this context, access to financial services for the elderly becomes increasingly relevant, and often more difficult. According to the Federal State Statistics Service, the total population in Russia in 2014 was over million almost 2 million less than in At the same time, the number of people increased by 4 million, and the number of people older than 60 increased by 1 million. Currently, people older than 45 represent over 50 percent of all adults in the country (58.8 million). According to the National Agency for Financial Studies (NAFI), 2 in 2015 older people were among the most financially excluded categories in Russia. Among people 55 and older, 27 percent did not use any financial services, whereas the national average was 21 percent. At the same time, a growing trend of digitization of financial services delivery offers opportunities to reach the unbanked and underbanked categories with cheap and efficient solutions for example, cashless payments and money transfers, as well as savings and credit offered through various self-service devices, such as ATMs and payments terminals. 3 The developing market of financial services needs to take into account these demographic trends, and financial services providers (FSPs) should be ready and able to work with this customer segment. These factors confirm the relevance of studying financial inclusion aspects for the elderly in Russia and the potential of digital solutions in reaching and serving this important customer category. This project explores financial behavior of the el- 2 Research commissioned by the Ministry of Finance of the Russian Federation (MOF) as part of the World Bank Financial Education and Financial Literacy Project 3 The latter is a unique Russian innovation that offers a transition from cash payments methods to cashless ones, e.g., with the help of debit or credit cards or through accessing one s e-wallet account.

11 11 derly in Russia specifically, their use/nonuse patterns of digital financial services (DFS), the delivery channels for these services, and the barriers the elderly encounter when trying to use these services. The project also looks into factors that could incentivize the elderly s uptake and use of DFS. Several FSPs were interviewed to gain insight into their strategies for reaching the elderly with DFS and to explore specific digital services solutions currently offered (such as ATMs, payments terminals, etc.) to understand their potential in reaching this customer category. During the research, customer perceptions of digital products/solutions were explored, and specific observations or recommendations developed to adapt these to the needs of the elderly. The results of the research and lessons learned will be broadly disseminated among national and international financial inclusion stakeholders through CGAP and NAFI channels. Scope of work The goals of this project are to gain an understanding of the specifics of financial behavior of the elderly with respect to their use of DFS and delivery channels and to make recommendations for adapting these services and solutions to increase uptake and use by this customer segment. Specific objectives of the research include the following: Apply behavioral research methods to explore specifics of the financial behavior of the elderly: their use/nonuse of financial products, services, and delivery channels; barriers to use; and potential incentives that could increase uptake and use. Map specific digital products/solutions offered by the main FSPs working with the elderly (e.g., Sberbank, VTB24, and the Russian Post). Study use patterns of each of these specific products and solutions (either from existing FSP data or from primary qualitative research) and elderly customers perceptions of these. Specific attention will be paid to payments terminals and their various functionalities. Explore behavioral aspects and their role as barriers or incentives for uptake and use of DFS by elderly consumers. Develop recommendations on adapting existing products/solutions or developing new ones that are more customer-centric for this segment. Information collecting method To study the elderly s awareness and use of remote financial services, the following research methods were used:

12 12 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION Russia-wide public opinion poll. Individual (personal) formalized faceto-face interviews were conducted at respondent s place of residence (mass survey according to a formalized questionnaire) among people 60 years and older: 1100 interviews. Focus group discussions. Group discussions aimed to reveal the barriers and demand for using particular types of financial services, as well as the groups attitudes toward using remote service channels: six focus groups. Hall test interviews. These interviews were used to determine, in realuse situations, the barriers and demands for using particular types of DFS: 48 interviews. In-depth expert interviews. These interviews comprised individual faceto-face conversations based on a nonformalized discussion guide with representatives of financial organizations that are responsible for market development strategy (top management, executives of strategic, and other relevant business units): 12 interviews. This overview of the study findings is structured as follows: Section 1 presents the specifics of elderly consumers financial behavior, particularly with respect to segmentation of elderly users of financial services, behavioral characteristics of senior Russian citizens, and their use of financial services and delivery channels. Section 2 examines the attitudes of older consumers toward DFS delivery channels, notably the penetration of DFS, perceptions of their convenience and reliability, and intentions to use DFS. Section 3 presents the findings from the qualitative stage of the research, focusing on barriers to use of DFS delivery channels. The section highlights the attitudes of FSPs toward the elderly customer segment and identifies objective and subjective barriers to digital channel use from both FSP and senior customer perspectives. Section 4 examines potential solutions to objective and subjective barriers to digital channel use from FSP and elderly user perspectives.

13 13 SECTION 1. SPECIFICS OF ELDERLY CONSUMERS FINANCIAL BEHAVIOR Key points in this section Older people make up the most financially excluded category in Russia. Senior citizens account for 41 percent of all nonusers of financial services in the country, whereas the national average of nonusers is 21 percent or less. Two distinct age groups have been identified within the target audience of elderly consumers: 1. Customers tend to be financially active and well-educated internet users who are willing to learn new things. 2. Customers 70 and older tend to be conservative, have physical disabilities, and find it difficult to learn new things. They are in the financially excluded category. Elderly people tend to share the following characteristics: - Have a regular income - Are punctual/disciplined - Are economical/frugal - Have consistent habits/conservatism - Make rational choices of products and services - Believe in the importance of communication/socialization - Have spare time Payments (50 percent) and cards issued by a pension fund or employer (38 percent) are the financial services used the most by the elderly. People 60 and older are more likely than other Russians to use savings products and less likely to use loans: 26 percent of Russian pensioners and 18 percent of all adults nationwide use deposits; 17 percent of pensioners and 29 percent of all adult Russians use loans. Russian pensioners are often unaware of innovative payments channels: 60 percent are unaware of channels such as mobile banking, mobile wallet, e-wallet, and online banking and the possibility of paying for products and services online using a bank card.

14 14 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION For seniors, the payments channel of choice is the teller at bank branches (79 percent of elderly people used this payments channel in the past six months). Transitional channels are gaining popularity one-third of pensioners currently use payments terminals/atms and other self-service devices at bank branches to make payments and transfers/remittances. According to the Federal State Statistics Service, the number of Russians 60 and older has increased by 2.3 million since As of 1 January 2016, 20 percent of the Russian population were 60 and older, and 14 percent were 65 and older. According to a widely used demographic aging scale, 4 societies in which the proportion of persons 60 and over is below 8 percent are considered demographically young. Societies in which the proportion of people of this age is 8 12 percent are considered to be at early stages of aging. Societies where the proportion of people 60 and older is higher than 12 percent are considered old. As of 2016, Russian society reached an advanced stage of demographic aging, and this trend will be more evident over time. In Russia, the proportion of older people will increase, while the proportion of people of working age and younger will decrease. It has been estimated that by 2050, nearly one out of every three Russians will be 60 and older. At the same time, the average life expectancy in Russia increased by 25.5 years for women 55 and older and by 15.9 for men 60 and older between 2005 and People entering retirement today can expect to live more years. Russian society faces the task of including the elderly in all spheres of life, while providers will need to modify their range of goods and services to respond to older consumers demands and preferences. Without a properly functioning social safety net, people are more likely to experience a decline in their material well-being as they age (due to health problems, limited ability to work, impaired mobility, etc.) Therefore, the need to facilitate senior citizens financial inclusion is growing in urgency and importance, and presents a difficult challenge. 4 Edward Rosset, Aging Process of Population, Pergamon Press, p. 58.

15 15 Lifestyle and specifics of consumer behavior of elderly Russians Two distinct age groups with vastly different characteristics have been identified within the broader population of elderly consumers. Different approaches are required to serving each of these groups. 1. Customers are the most active group of elderly Russians. They are involved in most aspects of life (51 percent of all Russians 60 and older). 5 This group tends to be financially active. It has regular incomes, advanced education, high uptake of the internet, and willingness to learn new things. Seniors are usually employed and active. Many of them use the internet and mobile banking (mobile phone applications providing access to one s bank account/card). According to some FSPs, these tendencies may be due, in part, to the fact that over the past 5 10 years, Sberbank has stopped disbursing pensions to savings book accounts and has started issuing cards to pensioners. Therefore, people who recently retired have become accustomed to bank cards. Unlike older pensioners, they are not afraid to use cards, and they actively consume card-based products. For banks, this is the most attractive customer segment because it contributes to internet penetration and increases the uptake of cashless payments. Generally, banks describe the under-65 customer segment as being particularly interesting and having great potential. 2. Customers 70 and older tend to make up the most passive and excluded group of financial services consumers among the elderly (49 percent of people 60 and over). 6 Their common characteristics include impaired physical ability, difficulty learning new things, and a tendency toward conservatism. Largely for objective reasons, people 75 and older find themselves increasingly excluded, not only from financial services, but more broadly from any social activity. The 75 and older group shares many of its characteristics with the people with disabilities group. Serving this customer segment can be challenging for FSPs. 5 FSSS (2014). 6 Ibid.

16 16 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION Distribution of answers to the question Which of the financial services have you used in the past six months? (percentage of respondents 60 and older who remembered using at least one service; n=371, omnibus data) Payment of utilities, other bills, fines, etc. Salary/pension card issued by employer/pension fund Savings/interest-bearing account/demand deposit Current account Term deposit Transfers to individuals and entities Loan/credit card Independently issued debit card Property/life/health insurance Online purchases, including plane and train tickets Other 26% 34% 28% 17% 19% 18% 15% 20% 16% 13% 10% 12% 14% 6% 11% 11% 9% 11% 6% 14% 9% 7% 8% 7% 0% 1% 1% 77% 85% 79% 65% 46% 59% aged 60 to 69 aged 70 and older total (aged 60 and older) People 70 and older are less likely than those to use loan products and credit cards, although the use of loans is very low in both groups (6 percent and 14 percent, respectively), and to have an employer-provided salary card or a pension card issued by the employer or a pension fund (46 percent vs. 65 percent), since most of those 70 and older are no longer employed. However, people in the 70 and older group are more likely than those to use savings products. Thirty-four percent of pensioners 70 and older and 26 percent of those have a demand savings account; 20 percent versus 15 percent, respectively, have a deposit account. The older age group has a slightly higher percentage of payments services users (85 vs. 77 percent) and a somewhat higher proportion

17 17 of insurance product users, although the uptake of insurance is extremely low in both groups (14 percent for 70 and older and 6 percent for 60 69). The percentage of people using services such as a current bank account, transfers to individuals or entities, and a debit card issued independently is approximately the same for both age groups. Since members of the younger age group will transition to the older group over time, banks need to develop approaches to attracting and servicing the older group as well as the younger one. Behavioral characteristics of elderly Russians The study revealed that elderly Russians behavioral characteristics make them highly promising customers for FSPs. The following are certain specific characteristics of senior consumers behavior and their implications for financial product uptake and use. Have a regular income. Pensioners receive a guaranteed, regular income from the government, which is disbursed to their bank accounts more recently, to card accounts. This automatically enables the pensioner to access noncash payments and transfers. Since the pension is guaranteed, pensioners income depends less on whether or not they are employed than younger individuals income, which would be significantly affect should they lose their jobs. Are punctual/disciplined. Russian pensioners tend to be highly disciplined. Their experience of living in times of instability has taught them the value of punctuality and foresight. These are people with very good discipline. They are the top repayers on loans. The lowest delinquency rate, highly responsible, never bankrupt. FSP, Moscow Are economical/frugal. Frugality is one of the key characteristics of the Russian elderly. Their relatively low incomes force them to make long-term financial plans and to avoid careless spending. According to research, Russians 60 and older earn, on average, 12,857 rubles per month per family member. Despite their low incomes, many elderly Russians save as many as 30 percent of pensioners

18 18 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION have term and demand deposits and savings accounts, compared to the national average of 18 percent. 7 Have consistent habits; are conservative. In January 2017, the Russian Pension Fund disbursed a one-off payment of 5,000 rubles to 43.5 million Russian pensioners. More than 60 percent received the payment in their account held with a credit institution; slightly less than 40 percent received it in cash via the Russian Post. 8 On one hand, older people s conservatism can hinder their transition to innovative services delivery channels. On the other hand, this trait ensures their loyalty to their chosen FSP. Having once chosen a bank or services delivery channel, many pensioners will not change to another. Sberbank. When they make me an offer, I trust them. I wouldn t want to go to any other banks, I don t have the nerve to deal with them. Pensioner, Yekaterinburg Make rational choices of products and services. Elderly consumers in Russia approach the choice of financial services with great care. They tend to study the proposed terms and conditions carefully and are not likely to make spontaneous decisions. They are more meticulous meaning that they ask more questions but at least they are more reliable. FSP, Moscow Believe in the importance of communication/socialization. The elderly in Russia seek opportunities to socialize. In terms of delivery channels, this tendency influences their preference for visiting bank branches and interacting with staff in person rather than through remote services, such as through mobile phones. Experts from credit institutions confirm that most pensioners value communication, attentive service, and a personalized approach. If they use a payments terminal, they prefer to use it in the presence of an FSP staff member. We need to visit those institutions. Being serviced remotely leaves us in isolation. One gets cut off from society. Pensioner, Yekaterinburg 7 NAFI, Financial inclusion in Russia, 2016, n=5000. The study used different age segments, specifically, the 55 and older group. 8 Meeting between Prime Minister Dmitry Medvedev and Russian Pension Fund Chair of the Board Anton Drozdov (

19 19 Have spare time. Having spare time is another reason older customers prefer personal visits to bank branches. It may also explain why advertisements that promise to save customers time rarely work with older people. Financial services used Elderly Russians use of financial products correlates with their level of awareness of various financial instruments, and both tend to be extremely low. When asked about the types of financial products and services used, elderly Russians report utility payments (50 percent), followed by bank cards issued by employers or a pension fund. People 60 and older are more likely than other Russians to use savings products. In 2015, according to NAFI research, 18 percent of older Russians had a current bank account (16 percent of the total sample), and 28 percent of Russians 60 and older had a savings or deposit account (15 percent of the total sample). Older Russians financial behavior patterns differ significantly from those of the general Russian population. While borrowing prevails over saving as a financial strategy population-wide, the opposite is true for Russians 60 and older, who are likely to save more and borrow less. According to NAFI s Financial Inclusion in Russia study, population-wide, more Russians have outstanding debt and loans than deposits and savings (29 percent vs. 18 percent, respectively). The age group has the highest proportion of people with outstanding debts and loans (36 percent). This proportion is lower at 22 percent in the 55-plus age group and still lower at 17 percent among pensioners (60-plus age group). Pensioners are the most active consumers of savings and deposit products: 26 percent report current use of these types of products. The proportion of deposit users in the 55-plus age group is 23 percent, while the national average is 18 percent.

20 20 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION Distribution of answers to the question Which financial services have you used in the past six months? (percentage of respondents 60 and older who remembered using at least one service; n=475, omnibus data) Payment of utilities, other bills, fines, etc Salary/pension card issued by employer/pension fund Savings/interest-bearing account/demand deposit Current account 9 18 Term deposit Transfers to individuals and entities Loan/credit card Independently issued debit card Property/life/health insurance Online purchases, including plane and train tickets without a prompt when prompted Could not remember any 22

21 Employment Age 21 Proportion of respondents reporting outstanding debts and loans, percentage of respondents in each group All respondents and older Employed Entrepreneur, self-employed Retired pensioner Student Unemployed Home-maker Source: NAFI, Financial inclusion in Russia, 2016, n=5000 The study used different age segments, specifically, people 55 and older were defined as the elderly group.

22 Employment Age 22 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION Proportion of respondents reporting current deposits and savings, percentage of respondents in each group All respondents and older 23 Employed 16 Entrepreneur, self-employed 20 Retired pensioner 26 Student 10 Unemployed 13 Home-maker 17 Source: NAFI, Financial inclusion in Russia, 2016, n=5000 The study used different age segments. People 55 and older were defined as the elderly group. Payments channels used Pensioners have low awareness of innovative payments channels. More than 60 percent of respondents 60 and older are unaware of channels such as mobile banking, mobile wallet, e-wallet, and online banking and the possibility of paying for products and services online using a card. Their awareness of transitional payments channels is somewhat higher: two-thirds of respondents 60 and older are familiar with payments via terminals and ATMs using cash or a card. Still, the best-known channels are the traditional ones, such as bank branches and Russian Post offices (90 and 84 percent, respectively).

23 23 Distribution of answers to the question Which of the following payments methods do you know? (percentage of respondents 60 and over; n=475) Bank branch Russian Post Cash in terminal/atm Card in terminal/atm Teller at Unified Settlement Center Cash-in terminal (QIWI, Eleksnet) Online banking Mobile banking Online payment using card Mobile wallet E-wallet Well aware, know how to use Heard something, do not know exactly Do not know No response Pensioners prefer to make payments through a teller at bank branches. Transitional channels (e.g., payments terminals/atms and other self-service devices) are more likely to be used by the elderly if they are located at bank branches. These channels are less attractive to elderly customers if the channels are located outside the branch office. Omnibus data are consistent with the ranking based on the hall test results. An overwhelming majority of consumers 60 and older prefer the top two payments channels, namely (1) payments through a teller at bank branches (79 percent used this channel in the past six months) and (2) payments at offices of the Russian Post (55 percent). The data also confirm that very few elderly consumers use remittances. Only 12 percent of respondents remembered using this product with a reminder (see Annex 2, Table A2-2).

24 24 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION Distribution of answers to the question Which of the following payments methods do you know? (percentage of respondents 60 and over; n=475) Rank Payments Rank Remittances 1 Bank branch/teller 1 Never used/not sure 2 Payments terminal/atm/self-service device at bank branch 2 Payments terminal/atm/self-service device at bank branch 3 Teller at Unified Settlement Center 3 Bank branch/teller 4 4 Online bank (transfer between accounts/cards by accessing bank s website on Payments terminal/atm/other self-service device outside of bank branch a computer) 5 7 Cash-in payments terminal (Qiwi, Eleksnet) 5 Payments terminal/atm/self-service device outside of bank branch 5 7 Online bank (transfer between accounts/cards - by accessing bank s web- site on PC) 5 7 Never used/not sure - Distribution of answers to the question Which payments methods have you used in the past six months? (percentage of respondents 60 and over; n=475) Bank branch 79% Russian Post 55% Cash in terminal/atm 33% Card in terminal/atm 26% Teller at Unified Settlement Center 15% Cash-in terminal (QIWI, Eleksnet) Mobile banking (accessing bank/card account through smartphone) Online payment using card without accessing bank account (e.g. on Public Services website) Online banking (accessing bank/card account on PC) Mobile wallet (out of mobile phone balance) 11% 5% 5% 4% 1% E-wallet (Yandex-money, Qiwi, WebMoney) 1% See Annex 2 for details of the survey results on awareness and use of financial services and payments channels.

25 25 SECTION 2. ATTITUDES TOWARD DIGITAL DELIVERY CHANNELS Key points in this section In 2016, 34 percent of pensioners used the internet. 9 One-half of the Russian elderly population do not intend to use innovative payments channels. Notably, 42 percent of elderly Russians do not intend to use online banking, 40 percent do not intend to use mobile banking, 41 percent do not intend to use a mobile wallet, and 42 percent do not intend to use an e-wallet (Yandex.Money, Qiwi, WebMoney). Efforts to encourage the uptake of transitional delivery channels are bringing results: 28 percent of pensioners currently use terminals and ATMs. Pensioners tend to perceive innovative delivery channels as inconvenient or unreliable. Mobile wallets and e-wallets are perceived as the least reliable delivery channels (just 17 and 16 percent, respectively, of elderly respondents consider them reliable). Penetration of DFS Older Russians are a huge potential audience for accessing financial products through digital delivery channels. The growing internet penetration (in recent years, mainly due to uptake by older age groups) makes it possible to predict an increase in the percentage of branchless banking users among the elderly. In 2016, 34 percent of pensioners used the internet. 10 According to FSSS, the number of retired Russians (above active age) using devices with internet access has been growing rapidly. Indeed, the most dynamic internet uptake has been observed in older age groups. With the national average increase in the number of owners of such devices at 12 percentage points (from 9 NAFI, Financial inclusion in Russia, 2016, n= Ibid.

26 26 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION 51 to 63 percent), the increase has been higher at 14 percentage points in the age group, and still higher at 26 percent in the age group. Ownership of devices with internet access among elderly Russians in (according to the Integrated Household Living Conditions Survey, FSSS, percent) Nationwide Above active age and older Intention to use digital delivery channels Nearly one-half of elderly Russians surveyed do not intend to use innovative payments channels. Forty-two percent of elderly Russians do not intend to use online banking, 40 percent do not intend to use mobile banking, 41 percent do not intend to use a mobile wallet, and 42 percent do not intend to use an e-wallet (Yandex.Money, Qiwi, WebMoney). I m kind of scared of making payments on the computer. But I do use cards. I ve got a few of them. So, ATMs are my friends. But internet payments are not so much yet. Pensioner, Moscow Only a small percentage of the elderly are prepared to use these channels under certain conditions: 5 percent would consider using online banking, 7 percent would consider making payments online using cards, 4 percent would use mobile banking, and 6 percent would use a mobile wallet. One of the required conditions is initial training in how to use the channel (e.g., provided by a specialist or a family member). If someone offered me a training course, I would attend. Pensioner, Yekaterinburg

27 Transitional channels Innovative channels 27 Distribution of answers to the question Would you consider using the payments methods/instruments in the future? (percent of respondents 60 and older, n=450) Card in terminal/atm Cash in terminal/atm Cash-in terminal (QIWI, Eleksnet) Online banking Online payment using card Mobile banking Mobile wallet E-wallet (Yandex-money, Qiwi, WebMoney) Already using Consider using under certain conditions Definitely consider using, intend to use Do not consider under any conditions Do not know this method/not sure Efforts to incentivize the uptake of transitional channels (providing customer advice and building the infrastructure) have brought results: 28 percent of pensioners currently use terminals and ATMs and many are prepared to switch to using them (for comparison, the national average is 43 percent of transitional channel users) NAFI, Financial inclusion in Russia, 2016, n=5000.

28 28 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION Attitudes to digital channels An overwhelming majority of older Russians consider the traditional channel of cash payments via a teller at a bank branch to be the most convenient (74 percent of respondents). All other channels are perceived as inferior in terms of convenience. Using a payments terminal or ATM inside a bank branch is second (49 percent of respondents), making payments using a cash-in terminal (Qiwi, Eleksnet) is third (43 percent of respondents), followed by card payments through a terminal/atm (41 percent). Elderly consumers consider remote digital channels the least convenient: online and mobile banking (28 and 22 percent, respectively) and e-wallets and mobile wallets (31 and 24 percent, respectively). In terms of reliability, the elderly consider digital channels to be far inferior to traditional ones. More than 80 percent of respondents consider making payments through a teller at a bank branch to be a reliable method. Cash and card payments through terminals/atms are considered more reliable than other transitional and digital channels (43 and 35 percent, respectively). Mobile wallets and e-wallets are perceived by the elderly to be the least reliable channels (just 17 and 16 percent of respondents, respectively). The fact that a large number of respondents were not sure how to answer the question indicates that many older people may lack the experience and understanding of innovative channels to judge their convenience. Yet those respondents who have had some experience using innovative channels tend to find them insufficiently convenient or reliable.

29 29 Distribution of answers to the question How convenient do you find each of the payments methods/instruments? (percent of respondents 60 and older, n=475) Bank branch Cash in terminal/atm Cash-in terminal (QIWI, Eleksnet) Card in terminal/atm Online payment using card E-wallet Online banking Mobile wallet Mobile banking inconvenient moderately convenient convenient not sure

30 30 FINANCIAL BEHAVIOR OF THE ELDERLY IN RUSSIA IN THE CONTEXT OF DIGITIZATION Distribution of answers to the question How reliable do you find each of the payments methods/instruments? (percent of respondents 60 and older, n=475) Bank branch Cash in terminal/atm Card in terminal/atm Cash-in terminal (QIWI, Eleksnet) Online banking Mobile banking Online payment using card E-wallet Mobile wallet unreliable moderately reliable reliable not sure See Annex 2 for details of the survey results on perceived convenience and reliability of financial services delivery channels.

31 31 SECTION 3. BARRIERS TO USE OF DIGITAL FINANCIAL SERVICES DELIVERY CHANNELS Key points in this section Key objective barriers to elderly consumers use of digital channels include: - Low income levels - Low level of Internet use - Limited access to financial products - Low level of financial literacy - Difficulty using digital service interface - Physical access for persons with disabilities, comfort at offices Subjective barriers also play a significant role: - Psychological barriers (fear of one s incompetence, reluctance to learn new technology) - Conservatism; being accustomed to using cash and traditional delivery channels - Fear of fraud Objective barriers Low income is one of the objective barriers that prevent older Russians from accessing and using DFS. Overall, Russian pensioners are less well-off compared to the national average, and they are less likely to access and use financial services. Self-imposed limitations play an important role. Most elderly Russians are convinced that financial services are not intended for people like them. At our age, who needs anything? No one needs anything any more. Our pensions are too small to repay loans with interest. Pensioner, Yekaterinburg Another barrier is low level of internet use. According to NAFI, only 34 percent of pensioners use the internet, and 18 percent own mobile phones with internet access. 12 Therefore, the biggest challenge to digitalization is the availability of 12 NAFI, Financial inclusion in Russia, 2016, n=5000 (the sample included both old-age and disability pensioners).

32 32 mobile devices to the elderly. Most mobile phones they own do not provide internet access (73 percent of pensioners). 13 Bank restrictions that prevent customers from accessing suitable financial products can also be barriers. According to elderly respondents, banks require guarantees, but older customers have problems finding someone who would go to the bank with them and act as a guarantor. FSPs say that some products they offer are not suitable for the elderly, and many products are not accessible to them due to bank-imposed restrictions. The only products from our range that we can offer to clients age 60+ are debit cards, ordinary free-of-charge accounts, and deposits. FSP, Moscow On the other hand, due to their conservatism and fear of new things and misunderstanding, older people tend to reject all offers from banks other than deposits. This is also a significant barrier to their access to financial services. Other banks keep nagging me to get a card and have my pension disbursed to that card. Can I do it or perhaps I should not? I find it a bit scary. Pensioner, Nizhny Novgorod Low levels of financial literacy also present an objective barrier for the elderly who find it difficult to understand the advantages of remote services. Some of the FSPs interviewed felt that it was more difficult for pensioners to understand the details of banking products. They found this task too challenging and preferred to be advised personally by provider staff. Elderly people may not know how to use a card in ATMs and terminals. According to some FSPs, many pensioners hesitate to use cards to pay in stores, because they are afraid they will forget their personal identification number (PIN) at the checkout and delay other customers. In addition, new communication channels may not always be suitable for older people. While banks today emphasize digital communication channels, such as the internet and text messages, elderly consumers tend to trust them less than they do printed or live communication. They prefer to be personally advised and invited. They would even trust an invitation over the phone more than a text message or online advertisement. You 13 Ibid.

33 33 need to have them physically in your office to reach them. There s a barrier here it s just more difficult to reach them digitally. FSP, Moscow Yet another barrier to reaching the elderly with DFS may be that they tend to have difficulty navigating the often complicated user interface of online banking. These people are not comfortable with user interfaces. Just a minor change, and they are lost. FSP, Moscow Pensioners often have difficulties with the two-factor authentication required for accessing their user account (e.g., when they need to enter a password sent to them in a text message). According to FSPs, some older people have read about text message scams in the news and are afraid of SMS scammers. According to pensioners, using a terminal requires too many steps in a specific sequence, which is not necessarily intuitive or easy to grasp. Many older people also find it difficult to understand mobile banking. Of all digital channels, mobile banking is the least used by the elderly. Just 5 percent of Russians 60 and older have used mobile banking for making payments or transfers in the past six months; two-thirds are not aware of this channel. Other significant barriers include physical access for people with disabilities and customer comfort in branch offices, 14 in particular waiting lines and difficulty understanding the electronic queuing system. In addition, some banks do not have a dedicated waiting area nor do they have assigned staff who could serve the elderly. As a result, seniors might wait unnecessarily long for their turn. Older people sometimes find it difficult to communicate with branch staff due to the age difference and the use of complex terminology. Because many older people have problems with eyesight and hearing, small print can be a major barrier to their use of self-service devices and mobile gadgets for making payments and transfers and impaired hearing hinders their communication with bank employees. It s like using incomprehensible jargon as if the two people, the bank employee and the elderly customer, are speaking two entirely different languages. FSP, Moscow 14 Аи малетдинов Т.А., Паклина С.Н. Дружественность банков в отношении лиц с ограниченными физическими возможностями // Маркетинг услуг No 2. pp