How Does Digital Finance Impact Low-Income Clients? Insights From a New ‘Evidence Gap Map’
For the most part, the digital finance community is confident that the digitization of financial services presents an opportunity to get people on the track to living happier, healthier and more prosperous lives. But we should not assume that these are inevitable or exclusive outcomes. Where we have hope, we also have concerns.
However, we know that the more we learn about the effects of various digital finance products, the greater the chance we have of delivering better products, as we can innovate and move forward at greater speed.
Advancing the impact conversation
Two years ago, at The Partnership for Finance in a Digital Africa (FiDA), we began thinking about the impact of digital finance on clients. The complexity of this question was apparent: Digital finance is not “one thing,” it includes dozens of products, designed and delivered in various ways, to multiple client segments in numerous markets. A single study cannot answer this question.
What we decided to do, with the support of Mastercard Foundation, was to create a map of the evidence, so that we could clearly see the landscape where we were working. This work led to the Digital Finance Evidence Gap Map (EGM).
We launched the first EGM in November 2017, with 40 studies covering 41 different products. Over a year later, the EGM includes 55 studies covering 60 products. Each year reveals more insights on the impact of various digital finance products.
The purpose of the EGM
At its simplest level, the EGM charts the landscape of impact evidence—whether it’s positive, negative or neutral—for a set of digital finance products, plotted against a set of client outcomes. However, its interactive design enables users to scan the evidence for questions as specific as “Does X product, designed with Y features, delivered in Z ways, to clients in A market lead to B outcome?” So, if you wanted to search for evidence on a digital savings product that uses two-way SMS in Tanzania, you can—provided such a product has been developed and tested, and the resulting insights published and included in the EGM.
The EGM can help various user groups in the digital finance community in several ways:
- Digital finance practitioners can derive insights on which design and delivery mechanisms have (or have not) improved the adoption of a given digital finance product. They can also use this evidence to fundraise for new approaches in areas where there is little evidence, or to scale existing products. And as the EGM adds more studies over time, it may reach a level of saturation that will allow practitioners to develop guidelines for practice in areas where there is substantial evidence of what works.
- Digital finance investors can make evidence-based, strategic investments in areas where there is ample, high-confidence evidence of what works.
- Donors can identify and support the development of evidence by funding programs and/or research that address the gaps.
- Researchers can discover the gaps in evidence and conduct additional studies to advance the impact conversation.
What we learned
We analysed the impact studies to see what we could learn when we aggregated individual studies by digital finance products. Here are some of the highlights:
- Insights from 12 digital savings studies show promising results from coupling savings products with two-way SMS, mobile learning platforms and client training. Various types of savings accounts—accounts with default contributions, locked accounts and commitment accounts—were found to improve the savings behaviors of users. Additionally, one study revealed the need for careful planning when transitioning from an analogue to a digital service, and another raised the issue of differential impacts of digital interventions between women and men.
- The evidence on digital credit was limited, compared to evidence on traditional microcredit. Yet insights for promoting “healthy borrowing” surfaced. These included optimizing ways to frame and time SMS repayment reminders, making borrowing terms and conditions more salient and accessible, and providing interactive educational content on financial literacy. However, beyond these insights around borrowing behavior, there is limited evidence on the longer-term impacts of credit.
- With 18 studies, person-to-person (P2P) payments and transfers have the most fully formed, evidence-based pathway to client impact. The insights on this topic are numerous and often consolidating, allowing us to have more confident conversations about the impact of P2P services. Numerous tests highlighted how users share risk and smooth consumption through quick access to remittances, while others qualified the ease of storing value and making and receiving transactions in privacy. However, the money has to come from somewhere, and some studies also raised concerns regarding the pressure on those who do the sending.
- We reflected on sources of variance when testing for impact, identifying four factors that digital finance researchers should consider when testing the impact of a digital finance product. These include the product itself, the country, the population and the channel through which the product is delivered. On the product side, we noted that digital credit and insurance products are under-evaluated for client impact. In terms of geography, learning has been concentrated in East Africa; while this knowledge may be transferable, there are far fewer studies from other regions. Lastly, we shared that studies that disaggregated impact on more excluded groups (like women, or people with lower income or less education) showed that different populations can experience different outcomes. This insight challenges an assumption that a given product will have the same effects across the board.
There are still more insights to uncover
The insight topics included in FiDA’s mini-series represent only a small sample of what can be gleaned from the EGM. There are more products than credit, savings and payments. Beyond a product-level analysis, the EGM comprises other learning, such as the types of product design and delivery mechanisms gaining traction. It also segments findings by population types and market level, or even by methodological approaches to measuring digital finance impact. The EGM can be used as an entry point for all these inquiries.
In 2019 we will continue to scan the literature, and we will be launching the third iteration of the EGM by the end of the year. Resources like the EGM can have their greatest impact by leveraging the combined knowledge of the digital finance community to help stakeholders make better choices – whether they’re testing impact or designing products. To make use of this resource in your work, click here to explore the EGM, and stay tuned for further updates.
Niamh Barry is a Monitoring, Evaluation and Learning Advisor at Caribou Digital.
Image courtesy of Institute for Money, Technology and Financial Inclusion.