The use of digital channels is changing the way financial services can be delivered to poor people. Growing mobile phone usage and the development of agent networks enable customer access to timely, low-cost digital financial services (DFS) (World Bank 2014). Despite this, active use of DFS is relatively low. In this Brief, we address the inactivity problem faced by many financial service providers (FSPs) and some of the underlying causes related to customers’ experiences. We explore how empowering customers can help address this issue and the role FSPs can play. This exploratory Brief reflects our hypothesis that customer empowerment—here defined as a process that builds customer trust and confidence through an interactive relationship between providers and their customers—can lead to a win-win for both providers and customers.
The premise is that when customers are empowered, they make more informed choices, trust the institutions they interact with, are comfortable using those financial services they value, and feel more in control of their financial lives. In turn, customers may become more loyal to and transact more regularly with their FSPs, which may bring greater consistency in transactions, positively affect provider sustainability, and generate greater value for customers.
Access to DFS is expanding rapidly, as evidenced by, for example, the high number of mobile money account registrations, which reached 300 million in 2014 (GSMA 2015). However, despite the high number of accounts, which is often used as an indicator of growth, the reality is that a majority of these are not used regularly. Globally account inactivity rates (accounts with less than one transaction in 90 days) are over 65 percent (GSMA 2015). FSPs are confronted with this problem across a range of financial services as they seek to tap large unserved markets and build sustainable institutions.
Many reasons have been cited for customers not using their accounts. These include customer frustration with operational failures, ill-equipped front-line staff or agents, and weak product design. Inactivity is a function of the products on offer, responsiveness of customer services, and the nature of the delivery channels, including customer’s interaction with their service provider.
Taking up DFS requires leap-frogging into a new environment. FSPs assume customers will move seamlessly from transacting in a cash environment to operating in a digital setting (Cohen 2013). In reality, many poor people have limited awareness of and information about DFS, their value, and how to use them. Low levels of functional literacy, information overload, and limited financial capability can make it difficult for customers to understand the services offered. Meanwhile, the onus is on the customer to seek out information needed to make informed choices.
There are also structural supply-side issues affecting the customer-provider interactions, such as menus that are not intuitive, registration or sign-up processes that are complex and costly, and security passwords that are difficult to remember (Grameen Foundation 2013).
Many at the bottom of the pyramid lack experience with both technology and banking. The result is that customers feel pressure to transact without full knowledge and adequate time to learn. So they do not access their accounts at all or they ask friends, family, or agents to conduct transactions on their behalf and often for a fee. This behavior is not without risks (CGAP 2014). Moreover, inadequate recourse mechanisms weaken trust in service providers—the absence of accessible and timely complaint and dispute resolution mechanisms can impede building customer trust in FSPs (Chapman and Mazer 2013).