Guest Articles

June 24

Buhle Goslar

Moving Beyond Credit: Why Savings Should Take Center Stage in Digital Financial Inclusion

In 2017-2018 mobile money saw a massive 20% increase in registered users, taking the total from 723 to 866 million. Traditionally, banks have had to make enormous investments in physical infrastructure to reach customers. Today, the rapidly evolving technology around mobile money is removing the barrier to entry into emerging markets. We now have the opportunity to use this technology to scale progress on financial inclusion, giving millions of previously unbanked and financially excluded customers access to financial services for the first time.

Technology companies and traditional financial services providers can work together to offer customers the opportunity to leverage their data footprint and good financial behaviour to full advantage, giving them greater product choice and flexibility at the lowest price. But to date, the focus of these services has mostly been on credit – even though this addresses only part of a customer’s nuanced financial needs.

True value is in giving customers digital borrowing, savings and insurance options, that allow them to decide for themselves how to achieve their goals and dreams.


The case for savings

Credit continues to dominate the financial inclusion landscape, and it takes us a step closer toward our inclusion goal. But it is only the first step – the next, I believe, is savings. This is not to say that customers will find greater benefit from one or the other. In my experience, customers with access to borrowing and savings options tend to toggle between the two, finding broad utility in both.

For example, a customer might be saving for materials needed to build their own house. Due to cost sensitivity, if they were to get a good deal on building materials, they might borrow the balance in order to reach the goal. Thinking in terms of being in a savings or credit state doesn’t work here, since the customer is in neither – they are en route to a goal. We also see customers who would rather borrow to smooth expenses than touch savings that have been earmarked for a goal. Understanding psychological factors like these is hugely important when designing savings products for customers.

On a macroeconomic level, there is a strong correlation between savings and economic growth. Studies have shown strong evidence for the impacts of savings, especially among entrepreneurs. Its potential to compound positive impacts for the individual, community and society mean that it should receive even greater emphasis.


Moving from ‘Why?’ to ‘How?’

The economic advantages of savings solutions are clear. So how can technology help drive the creation of a healthy savings culture? First, as with lending, savings products must be market-appropriate and tailored to the individual, based on their digital identity. This means unlocking value by understanding the customer through their mobile and transactional data.

Artificial intelligence (AI) and big data help us predict a loan’s affordability and the timeframe within which payment can be expected. When it comes to savings, we should shift the focus, using data and machine learning technology to enable customers to identify pockets in their income that could be used for savings. This is especially important in economies struggling with low savings rates, like Zambia.

But simply making savings technologies available isn’t enough. Efforts to foster a culture of saving must be supported by a clear articulation of the individual benefits the practice can offer, as well as the use of behavioural economics and psychology in product and communication design to improve savings habits. The work of Richard Thaler and others on the concept of “nudge” economics shows us that even small changes in customer communication and experience can have positive impacts on behaviour. Rewards systems work to increase incentives, and educational information that gives the customer a clearer picture of their current habits are both capable of helping to improve savings rates.

In more developed markets, we have already seen the potential impact of using technology to encourage healthy financial behaviours. Banking apps, for example, now allow customers to swipe and save at the same time, or automatically direct small cash amounts into investment or savings accounts. The key here is to help customers see how small changes in behaviour can lead to long-term benefits.


The importance of partnerships in delivering value to the customer

So how can we help providers expand their savings offerings to this growing market? Addressing the need for appropriate savings products requires a combination of progressive thinking, the latest techniques in machine learning and AI, and technology that can store and distribute capital at a fraction of the previous costs, making it commercially viable for traditional financial services providers.

Fortunately, with the growth in mobile money infrastructure and users, more and more people are becoming comfortable using technology for financial transactions. In Tanzania, despite widespread poverty, JUMO was able to onboard over 100,000 savings customers in three months with limited marketing. Soon they were saving a significant amount of their monthly income. This has served as proof that the model can work and be affordable. Both banks and the customer benefit in this scenario, as interest accrues and is divided between them. This is promising because it creates a space for all players – banks, mobile money operators and technology companies – to have a positive impact.

The future lies in drawing on the expertise and strengths of each to reimagine financial services for these markets. Mobile network operators (MNOs) have access to customers, but cannot easily offer financial products themselves. Banks and governments have ambitious financial inclusion strategies, but not the technological capabilities to deliver them at low enough cost. Since we started, JUMO has been able to reduce the cost of serving customers, enabling banks and MNOs to reach them with customizable products. It is clear that the same level of optimization is possible with a range of products extending way beyond credit.

Using big data and technology in this way can empower people to take full advantage of their digital footprint and access financial choices. New storage and distribution technologies can make it profitable for providers to offer these services to previously unreachable customers. It’s time to reframe the digital financial services conversation: The stage is set for the financial inclusion community to decisively broaden its focus, moving beyond credit to deliver a slate of holistic, technology-driven financial services.


Buhle Goslar is the Chief Customer and Sustainability Officer at JUMO.


Photo provided by author.




Finance, Technology
artificial intelligence, behavioral economics, digital finance, financial health, financial inclusion, fintech