Empower the Customer to Choose and Use Financial Services

For unbanked customers, taking up digital financial services requires a big jump. Not only must they leapfrog from informal to formal financial services, but they must move from transacting in cash to transacting with digital technology that is often new to them. It’s not surprising, then, that activity rates for digital financial services are often low.

A focus on empowering customers could change this. In a new CGAP Brief, we reflect on the concept of customer empowerment and its role in increasing uptake and use of digital financial services. Empowered customers, as defined in the paper, are able to make informed choices, to use services that are of value to them, and to have greater control over their financial lives. By building trust and confidence through an interactive relationship, both providers and customers can benefit.

It would be incorrect to equate this notion of customer empowerment with financial capability building and consumer protection. Effective consumer protection measures and financial capability interventions differ from customer empowerment, and also contribute to it.

Financial capability and consumer protection

Financial capability interventions are usually geared toward enhancing an individual’s knowledge, skills, and attitudes with respect to his or her money management needs, with the aim of facilitating changes in customer behavior.  Interventions come from providers (in the form of alternative financial education or embedded education), governments (through school curricula or soap operas), and civil society organizations (see examples in stock taking reports by MasterCard Foundation and Citi Foundation).

While financial capability focuses on customers’ effective choice, consumer protection allows people to voice their concerns and access recourse infrastructure designed to protect their rights. Consumer protection efforts aim to protect all customers, but especially the most vulnerable. It protects them against improper practices by financial service providers, supports fair and transparent products, and instills trust in the formal financial system. Consumer protection may exist within the financial institution (through self-regulation as advocated by the Smart Campaign) or outside, such as is mandated by a regulator or advocated by a consumer interest group.

How customer empowerment differs

Financial capability focuses on a household’s process of making decisions and taking action. The onus for change has primarily fallen on the customer to learn skills and change behavior. Consumer protection focuses on the interaction between customers, their financial service providers, and the broader industry. The notion of customer empowerment puts more responsibility on the financial service providers to make customer choice and use of financial services easier and seamless and relevant for people’s lives.

The CGAP brief highlights some of the hurdles customers need to overcome and the role financial service providers can play to support customers along their journey toward adoption of digital financial services. This requires building choice capabilities, customer trust and confidence, voice, and mutual respect. Our preliminary research suggests this can be achieved by enabling a positive customer experience, promoting learning by doing and respecting customers and listening to them.

Building choice capabilities, confidence, trust, voice and mutual respect

Ensuring a positive customer experience is essential. Often times the customer gives the financial service provider only one shot to get it right. It is also critical to have effective consumer protection infrastructure, such as channels for recourse. Without such channels, trust is quickly lost and difficult to regain. Moreover, customers need the freedom to exercise their voice – and not just when they have a negative experience. FSPs need to find ways to listen respectfully to their customers and use their feedback. Those that do have a better chance of improving the customer experience and co-creating services that meet real needs. For example, BTPN in Indonesia introduced the “BTPN Wow” solution, a mobile savings wallet that allows you to save in different “pockets” based on what they learned from their customers.

Financial capability efforts toward so-called “teachable moments” can support the empowerment process by building customer confidence. The FI2020 Roadmap for financial capability highlights recent approaches that look promising. Financial service providers can help customers build their confidence in transacting by giving them the space to test products and services, by providing timely and relevant information, and by stimulating “learning by doing.” A small example of that is the “Shesha” game, which was introduced by Absa bank in South Africa to pass information on checking balances on a mobile phone in an attempt to encourage customers’ migration from branch to digital channels. The way the information is provided, channels are used, and skills are built are critical for the intervention to be empowering.

Customer empowerment differs from financial capability and consumer protection in terms of the role various actors play and the nature and intensity of engagement between the customer and provider. But whether the goal of the intervention is to empower, educate or protect, all reinforce each other to build customers’ trust and confidence so that they can better choose and use financial services they value.