After decades of growth and experimentation, financial service providers (FSPs) have learned that to achieve financial inclusion and generate benefits for lower-income clients, they must be customer-centric. Their products should be designed to help the poor improve their lives, and service delivery must be responsible, transparent, fair, and safe. Decision-making at each level of the business should place customers at the center, to ensure solutions add value to people’s lives. Some FSPs have it in their DNA to be customer-centric: their systems, processes, and employees help build loyalty, trust, and long-term relationships with customers. Others find it challenging, especially when serving low-income customer segments.
Many FSPs are looking for practical guidance on balancing financial sustainability with customer benefits, and on client protection. The Social Performance Task Force (SPTF) Universal Standards Implementation Guide (the Guide) provides guidance on how to improve strategies, governance, operations, and employee treatment. It is based on a set of industry standards for social performance management (SPM), called the SPTF Universal Standards for SPM (the Universal Standards).
This Brief highlights lessons from the Guide to make the case for SPM and illustrate how FSPs can embed responsible finance practices into service delivery and contribute to healthy market development.
SPM is a management style that puts customers at the center of all strategic and operational decisions. SPM begins with a clear social strategy, which is then carried out by the board, management, and employees. Providers with strong SPM design products that help clients cope with emergencies, invest in economic opportunities, build assets, and manage their daily and life cycle financial needs. Such FSPs also treat employees responsibly and carefully balance the institution’s financial and social goals.
SPM can strengthen financial performance. Providers that understand the needs of their clients and focus on delivering value are more likely to offer what clients want, which in turn, facilitates growth in market share—as clients often choose providers based on reputation, product suitability, and customer service. Improved client data allow for better market segmentation, customer targeting, and cross-selling opportunities. Responsible treatment of customers and employees results in more loyal customers and employees, thereby reducing loss of clients and costly employee turnover. Recent analysis by MIX confirmed that FSPs with higher employee turnover had lower portfolio quality and borrower retention (Pistelli, Pierantozzi, and Vento forthcoming).
Of course, implementing SPM can come at a cost. Delivering tailored services requires investing in processes and systems that can negatively impact productivity. Similarly, serving harder-to-reach and more excluded segments of the market can reduce efficiency. However, while these changes can affect profit in the short run, in the longer term, they are expected to give the business a competitive edge and a more loyal customer base.