NB Financial Health
Ask the Right Question: ideas42 on using behavioral economics for MFI product design
Design is about solving problems, and great design is about solving hard problems successfully. At ideas42 we’ve found that incorporating insights from behavioral economics at every stage of the design process can yield amazing results – whether solving problems in health, energy usage, or economic development.
We’re just wrapping up a project looking at the design of microsavings products in the Philippines, working with Grameen Foundation and CARD Bank. Our re-designed products had significant positive effects in a randomized controlled trial, and this post will take you through our design process and share some of the insights we gained during the course of this project.
Step 1: Define the problem
The first thing we do is ask the right question: What problem is your product actually trying to solve? We always look at problems in terms of specific human behaviors. This is not the only way to define a problem and sometimes a different approach is called for, but looking at the problem at the level of individual decisions and actions is often a good starting point for solving it.
We started with the following problem:
How might we increase the uptake of new savings accounts at CARD Bank?
But when we dug deeper into the data, we saw that people were already opening plenty of new accounts. The problem was that they didn’t use them: for one savings product, 71 percent of people who opened an account in 2012 didn’t make a second transaction – deposit or withdrawal – by the end of the year. We recognized that the bigger problem was that people were failing to make regular savings. This highlights the importance of being flexible in your approach to tackling problems. The problem statement we ultimately used for our behavioral work was: How might we help clients build savings balances in CARD Bank accounts?
Step 2: Diagnose why the problem is occurring
It’s very hard to solve any problem if you don’t try to understand why it’s happening in the first place. That’s why we start by conducting a deep reconnaissance of the context in which the problem is occurring. We use this knowledge to identify the psychological factors – or behavioral bottlenecks – that might be preventing people from acting in their own best interests (as they see it). Finally, we go back to our field research to figure out what situational features might be exacerbating or triggering those tendencies.
In the case of CARD Bank we identified a number of different reasons that we believed led to people opening accounts but not building savings balances. Two of the more important insights were:
- People were focused on opening a new savings account, not on using it. Some customers really wanted to start saving, so they would go and open a new account without making the other behavioral adjustments required to build their balances. Others felt that opening a new account made them a good member of the bank, which they wanted. But they didn’t move past this first step to actually make deposits.
- There was a strong situational default for how much to save – and it was too low for some customers. Members who take out loans from CARD Bank must also open a particular savings account and make a small deposit into it each week at their weekly meetings while they are making loan repayments. While this is helpful in encouraging some saving, the same process may be inadvertently prompting smaller deposits by anchoring people to the smaller amount. Since this activity is compulsory, it serves as the default way to save, even though many members would be better off making larger deposits.
Step 3: Design a solution to the problem
This can take the form of a totally new product or just a tweak to an existing product or process.
We decided that the moment where we could have the greatest impact was the process of opening a new account, so we redesigned the process entirely. We structured it so that the bank staff served as de-facto financial advisors instead of salespeople, and helped clients create a personalized approach to savings. We incorporated two additional steps to the existing process:
- A savings plan that prompted them to personalize and explicitly plan their future deposits, and
- A savings calendar for clients to hang in their home or business, with a space on each day to mark off how much they deposited.
The success of this project points to the promise of using behavioral economics to improve the design of financial products, and the importance of careful context-driven diagnosis and analysis. We’ll discuss the results of this pilot in more detail in an upcoming post. In the meantime, feel free to share any interesting solutions you’ve seen to help people build savings balances.