How to Better Serve Customers: Insights from 5 Research Projects
It has been more than two years since CGAP launched the Customers at the Center Research Fund in partnership with The MasterCard Foundation to uncover novel insights into poor customers’ needs, preferences and behaviors. The objective with the research was to support the financial inclusion community in finding ways to better understand customers, truly meet their needs and thereby increase uptake and use of services.
Photo Credit: Jeni Abramson, 2014 CGAP Photo Contest
During these two years, working with five partners across three continents, we have learned a lot. One of the biggest insights we have gained is that understanding one’s customers’ daily financial life’s is not as easy as one might think. Customers keep surprising us, and we have seen that well-designed products or cash transfer programs can face a lack of uptake if they are not truly aligned with what customers need.
The five projects supported under the Fund employed different research approaches and questions. The diversity of methodologies used, ranging from a randomized control trail and financial diaries to qualitative customer interviews and focus groups, allowed for a range of findings. But below are some of the main insights we have gained through the five projects:
Innovations for Poverty Action’s ongoing randomized control trial in Peru showed that very few beneficiaries of national conditional cash transfers use their accounts to save, preferring instead to withdraw the entire cash transfer immediately. Travel and time requirements to reach a bank branch or ATM play a major deterring role, especially in rural areas. But customers’ trust, knowledge and confidence are also crucial factors that need to be addressed by financial service providers and governments. The research found that the presence of agents increases the probability that people will use agents to receive a cash transfer but does not lead to improved savings behavior. Financial trust workshops improved the trust and knowledge of the beneficiaries and led to a greater probability of using the agent, but similarly did not translate into any effects on the savings behavior.
Freedom from Hunger research uncovered deep insights into the resilience of low-income households in Burkina Faso and how women manage their daily financial lives. The research found that to cope with shocks, households use several coping mechanisms simultaneously but use negative ones about as often as positive ones, likely resulting in negative long-term consequences. The most common shocks households face, in order of importance, are illness/injury, death of family members, livestock loss, and poor harvest. To cope, households most commonly use savings held at home, reduce food consumption, sell grain and small livestock, and purchase goods on credit. Borrowing from financial institutions, family and friends is less frequent. Availability and timeliness determine which coping mechanisms are used, which leads informal financial services to play a larger role than formal services in helping households cope with shocks.
The IFMR Finance Foundation looked into economic characteristics, cash flows, financial access and behavior of 411 south Indian households for a year. Their study found that low-income clients rely heavily on credit as a substitute for other financial instruments not being offered. The research also showed that the industry standard measure of delinquency rates might significantly underestimate debt or repayment-related stress among microfinance borrowers. It found strong evidence that distressed borrowers rely on new borrowing as the most frequently cited coping mechanism to enhance income and face repayments. The research proposes an alternative measure of debt affordability (debt-to-surplus ratio) based on borrowers’ repayment capacity that can serve both as an indicative measure and an assessment tool for financial service providers at the point-of-sale.
The MicroInsurance Centre’s research found that price is an extremely relevant consideration in customers purchase decisions for microinsurance, with findings suggesting a high degree of price sensitivity. Relevance of the coverage was identified as the single most important determinant of purchase decisions. Regarding product understanding and recall, most clients understood the product features at the time of the offer, but later survey data revealed low recall of product information. This may imply a gap in the clients’ ability to maintain and use their policies effectively without additional support from the financial institution. Contrary to the initial research hypothesis, offering microinsurance separately from the loan application process did not increase product take-up, nor did it improve clients’ understanding and recall of product information.
Ideas42 has designed a simplified financial management training using simple financial heuristics or rules of thumb and delivered through a mobile phone. To inform this work, ideas42 did deep-dive qualitative research to finalize the content and product design of the training in the Philippines and assess the understanding and use of the service already piloted in India. The research found seven key business practices that microentrepreneurs use to manage their businesses and that can be improved by the training. Regarding the successful delivery of financial management trainings, the research found how importance the initial orientation session is to set the right expectations and teach clients how to use their phones to access the training.
These findings have important implications for policy makers aiming to increase financial inclusion and for financial service providers looking to better serve their customers. Beyond the importance of gaining granular insights into customers in each specific context, the Research Fund findings underscore how important it is for financial institutions and policy makers to identify which financial products are suitable for which type of customer and then to act on this knowledge. A deeper understanding of customers is the starting point for improving poor people’s uptake and use of financial services.
CGAP Working Paper: Financial Inclusion for the Rural Poor Using Agent Networks in Peru, by Innovations for Poverty Action. http://www.cgap.org/publications/financial-inclusion-rural-poor-using-agent-networks-peru
CGAP Working Paper: Designing Financial Services to Respond to Household Shocks: A Case Study of RCPB’s Health Savings and Loan Product, by Bobbi Gray and Megan Gash. http://www.cgap.org/publications/designing-financial-services-respond-household-shocks
CGAP Working Paper: The Role of Financial Services in Building Household Resilience, by Megan Gash and Bobbi Gray. http://www.cgap.org/publications/role-financial-services-building-household-resilience
CGAP Working Paper: Resilience and Health Shocks: The Potential of Health Savings Accounts and Health Loans, by Laura Paul, Ghada Elabed, and Megan Gash. http://www.cgap.org/publications/resilience-and-health-shocks
CGAP Working Paper: When Is Microcredit Unsuitable? Guidelines Using Primary Evidence from Low-Income Households in India, by Vaishnavi Prathap and Rachit Khaitan. http://www.cgap.org/publications/when-microcredit-unsuitable
CGAP Working Paper: Responsible Bundling of Microfinance Services: A Mixed Method Evaluation of the Impact of Timing, Pressure, and Information, by Emily Zimmerman, Jonathan Bauchet, Barbara Magnoni, and Vance Larsen. http://www.cgap.org/publications/responsible-bundling-microfinance-services
CGAP Working Paper: Using Behavioral Science to Design a Customer-Centric Financial Management Training for Microentrepreneurs: Final Report of the Qualitative Research on Client Financial Management Practices, by Marina Dimova and Mukta Joshi. http://www.cgap.org/publications/using-behavioral-science