Keeping Finance in the Family: How Intra-Family Accounts Can Help Low-Income Customers During COVID-19 – and Beyond
Editor’s note: This article is part of NextBillion’s series “Enterprise in the Time of Coronavirus,” which explores how the business and development sectors are responding to the pandemic. For news updates and analysis, virtual events, and links to useful resources related to the COVID-19 crisis, check out our coronavirus resource page.
Last year I was part of a team that conducted a Financial Diaries study of young people in Morocco, Nigeria and Senegal as part of a comprehensive research on “Young People in Africa” that was conducted on behalf of the Scale2Save Programme—a partnership initiative between the World Savings and Retail Banking Institute. The team has produced a comprehensive report on our findings, but we also wanted to share some of what we learned in more accessible blogs and draw out the implications for the time of COVID-19. This is the third of three articles coming out of that study – you can read the first article here, and the second one here.
We all know that banks struggle to generate active usage of the accounts offered to young people. This is for a few reasons. Young people tend to have limited amounts of money, so balances are typically low, and the accounts are less profitable to the bank. Furthermore, regulations may bar young people below 18 years of age from opening a bank account without parental consent. And finally, young people do not always feel at home in a bank, and banks may not be skilled enough to catch young people’s attention.
As you can read in the second article of this series, the financial diaries found that young people definitely save frequently and significantly, and when their earnings rise their savings increase more than proportionately. In the first article, we described the intense financial relationship between young people and their mothers and, to a lesser extent, their fathers. Young people don’t only receive money from parents, they also contribute financially to parents – even after they have moved out.
The Benefits of Family Accounts for Customers
Even before COVID-19, the above findings led us to think about intra-family accounts—accounts that serve multiple people in the same family. The family account we have in mind would be a digital account with sub-accounts that have priority access to each other: It would enable free intra-family transfers and intra-family requests for advance payments.
Such a family account would have sub-accounts for each family member, whatever their age. There are already variations on this type of family account in different markets, and based on our research, we believe the following account functionalities would be appealing to all members of a family:
- Main product features: There would be one main account and as many sub-accounts as needed to accommodate other members of the family. The sub-accounts would offer complete confidentiality for the user, except in cases where regulations allow parents to access and control minors’ accounts, and they would work as a normal individual account for the sub-account holders.
- Pricing: All the money in the main account and sub-accounts could be transferred instantly – and we recommend for free – to the main people the account-holders give money to and receive money from. No fees would be charged for transfers between accounts and sub-accounts or across sub-accounts, by either the financial service provider or, if it is a mobile money account, the telco. But fees would be charged if money were moved out of the account into the open ecosystem—for example, to cash out or bill-pay from that wallet. In this case, normal charges (i.e.: the same fees as accounts that don’t have attached sub-accounts) would apply. Equally, if a family member wished to send money to another account rather than to one of the sub-accounts, then a charge would also apply.
- Specific product features: Some payments could be programmed. For example, a parent could set a weekly transfer for bus fare to a daughter attending secondary school, or a monthly contribution for clothes to a son doing an apprenticeship. Young people could program their account to pay a percentage of any income they receive in their account as a contribution to family costs—the first article in this series showed that many young people give a contribution (in cash) to their family out of their earnings. In the event that individual wallets do not have an integrated loan feature, family members could ask each other for advance payments (“family loans”) that could be administered through the account. The advance payment could be set to be automatically repaid when funds arrive in the borrower’s account.
The Benefits of Family Accounts for Financial Services Providers
For the financial service provider, offering this service could be attractive, providing:
- Higher balances on the family account: Financial service providers would issue one account, but would capture the savings of all family members in one go.
- Data about all family members and how support mechanisms work: The provider would get access to rich information about transactions which currently take place in cash, and which are not on the bank’s radar. This data could be useful for supporting loans to members of the family – or even to the family as a whole, once the bank can see how much of a financial safety net the family has – due to the range of earning sources of different family members.
- Access to young people without marketing and regulatory barriers: Probably the biggest benefit would be that financial service providers could quite easily reach young people and start building a relationship with them, without having to directly market themselves to the young, which may not come naturally to them. Moreover, having a family account would overcome the regulatory challenges of serving minors. The parents or family head would apply for the family account, and would give the permission needed for the minors in the family to get and manage an account.
A Useful Financial Tool During COVID-19
An account like this could play a vital role in strengthening the resilience of young people and their families in the face of the COVID-19 pandemic, both by maintaining the mutual support between young people and their parents, and by enabling them to build savings and use those funds as a family during the crisis – and over the longer-term.
During lockdowns, when different family members may not be physically close, these digital accounts would allow mutual support to continue through the sharing of the modest earnings of one or two members of the family. Knowing that all earnings and savings during that period can be pooled could save a family much stress and frustration. For example, let’s say a daughter works in a small shop in town, and the lockdown prevents her from reaching home. Having a shared account would make it possible for her to send some of her earnings to her parents to help them survive, for free.
It is likely that countries will face multiple waves of infection over the next 18 months or so. In the face of limited government support, families will need to rely on pooled savings, with everyone in the family setting money aside during the periods when lockdown is relaxed and some earnings are possible. Through this type of account, families would be able to help all their members ride the waves of disease and lockdown.
Scale2Save is testing the viability of low-balance accounts for different segments with 10 partners in six countries in Africa. Testing digital account features that can be used by family members is part of the journey. For More on Scale2Save, please visit www.wsbi-esbg.org/KnowledgeSharing/scale2save.
Photo courtesy of Elis Alves.