NB Financial Health
Selling Without Selling Out: How to Avoid Harmful Sales Tactics in Financial Inclusion
Many of us are bombarded with offers for useless products on a daily basis, with little consequence other than mild annoyance. But what if you are living at the base of the pyramid and the product or service that is being offered to you is at best useless, and at worst might undermine your economic future?
When offered a new product, clients have to assess its worth based on information that is often poorly communicated, and they can make mistakes with severe consequences. For example, in Guatemala, a woman explained to me that she had invested in a pension fund for her future, but I later learned that her small savings were forgone because she discontinued contributions. Even institutions with good intentions might miscommunicate information about a product at the expense of a client. In selling insurance, for example, a client with insufficient information may fail to make a claim and thus ineffectively use a product for which they are paying.
Financial service providers can offer a wide range of products, tailored to a diversified range of segments, and offering multiple revenue streams. However, to do so effectively, many financial institutions serving the base of the pyramid need a business model refresh. Part of this refresh involves changing the way frontline staff offer products to customers. As we learned from the Wells Fargo scandal in the United States, applying old-fashioned sales practices and incentives to opening new savings accounts, for example, is at best futile, and at worst, irresponsible.
Why Providers ‘Mis-sell’ financial products
Responsible sales should be the cornerstone of a financial service provider’s long-term customer engagement plan. Recently, we observed the sale of microfinance loans in Nicaragua. We were dismayed to find that despite many efforts in the past decades to promote interest rate transparency in the country, each institution was quoting its rates differently, making it hard to compare across providers. For example, fees were not included in interest rate calculations, and interest rates were typically quoted on a nominal monthly basis, rather than annual APR.
“If we give our clients the annual figure, we will scare them,” noted one sales manager. Another institution we observed failed to disclose the currency risk of borrowing in dollar-linked units.
This is not an isolated case: Our work with institutions offering inclusive insurance repeatedly illustrates the struggles that frontline staff have with explaining products clearly to clients. Loan officers from one microfinance institution in Ecuador proudly shared that they were focusing health insurance sales on their poorest women clients. They explained that they meant well and that this segment of their clients “need health insurance most.” We revealed that while this may be true, those were precisely the clients in their portfolio that could not afford the ancillary services that were inevitably charged once a patient entered the private system. Therefore, they were least likely to use and benefit from the product. The staff, though well-meaning, was mis-selling, or selling irresponsibly. In other cases, we hear loan officers who sell insurance summarize coverage by saying, “if you have any illness, the insurance will cover it,” without explaining that only in-network doctors are covered, or disclosing exclusions and deductibles.
Digital finance, which has become a promising lever for financial inclusion, also can be “mis-sold.” Relying primarily on agent networks or even apps to offer basic explanations and support, some digital financial service platforms have found that customers don’t always understand their product offerings. A recent trip to Mexico was enlightening as I discovered a rapidly growing digital financial service landscape that still suffers from high levels of account inactivity. This suggests that products might be sold to people who neither need nor understand them. But mis-selling is not always intentional. Sometimes it is systemic, reflecting processes, HR practices and capacities that have not been updated to meet the needs of more complex business models.
Selling products responsibly is crucial to both protecting low-income households and to serving them well. In the United States, responsible sales are a consumer protection requirement for regulated products that can cause harm, such as liquor and firearms. The U.S. Department of the Treasury and each U.S. state define requirements and laws to protect consumers. For example, stores that sell controlled substances receive training and guidance to ensure that goods are not sold to inappropriate customers (such as a minor trying to buy cigarettes). While these rules are arguably problematic, they nonetheless reflect an understanding that the sales touch point is a critical one in protecting consumers. Yet the same safeguards to ensure that financial services are not inappropriately sold do not exist, even though many of these products can be damaging to consumers’ financial as well as physical and mental health.
Turning good Intentions into better practices
At EA Consultants, we believe that responsible sales principles and practices can and should exist in financial services. This is not necessarily an easy task. For instance, Acción International, through its SMART Campaign, aims to address client protection by requiring microfinance institutions to adhere to principles of responsibility and by rewarding them with institutional certification. This is a great first step, but it does not reach far enough to get at the root of the problem: why institutions don’t follow good practices. We have seen well-intentioned, and even a few certified institutions fail to sell products responsibly on the ground – not because they don’t want to act responsibly, but because they lack the tools. The first step, of course, is to recognize that treating customers right is not only business-positive but the right thing to do. The next step is to tackle the way that staff is hired, trained and incentivized. Identifying staff who are aligned with company values is critical to responsible outcomes, as is promoting policies that reflect these values. Finally, financial service providers must commit to teaching staff at all levels how to apply these principles on the ground. We cannot expect frontline staff or agents to intuitively understand sales and to promote products responsibly if we don’t invest in their capacity to do so.
We have found that providing frontline staff with the tools and confidence to engage with customers can be a game changer. It not only improves the trust and loyalty between an institution and its customers but can drive internal processes that improve product quality over time. In our work in Argentina with Asociación Mutual de Protección Familiar (AMPF), we trained staff on the responsible sales of inclusive insurance, but also lobbied for improvements in the products and recommended tweaks in processes and incentives. This ensured that staff felt confident in the value of the products they were selling and that they were compensated sufficiently for the extra effort of explaining product features. The insurance business has taken off at AMPF. In Perú, working with a large local microfinance institution, we developed multimedia training materials and combined them with our on-the-ground “Flash Mob” sales exercises, training thousands of loan officers in less than two months. Here, our responsible sales training led to an initial dip in insurance sales, as loan officers were no longer “pushing” insurance products on clients. Management responded positively: “We knew our insurance sales growth had been too fast and that we faced reputational risk. We are in a healthier place now to build this business.”
In Nicaragua, we recently trained a microfinance institution to sell a new local currency hedge loan product. Loan officers were fearful about explaining a product sold more commonly on Wall Street than on a coffee farm. Our training emphasized that nothing is too complicated to explain if it really has value to clients. The first step is understanding your clients and how a particular product might be useful to them. Then, reflect your deep understanding of a product by using simple language without jargon. And most importantly: Just slow down and take a breath.
Barbara Magnoni is founder and director of EA Consultants. She is an international development advisor with over 23 years of international finance and development experience, with a focus on financial services.
Photo: Staffers with Caja Sullana practice new skills during an EA Consultants’ training session in northern Perú. Caja Sullana is one of the largest Municipal Credit and Savings Banks in Perú with more than 548,000 clients and 75 branches country-wide. (Image by Barbara Magnoni.)