Innovative Products and Services Drive Financial 'Capability' Through Behavioral Change

Highlighting a trend in its early stages, 'A Change in Behavior: Innovations in Financial Capability' explores innovations from around the world – with an especially close look at India – that concentrate on triggering positive customer behaviors, particularly at critical decision-making moments, such as when clients sign up for and use financial products or when they are prompted to put money aside to meet savings goals.

The research identified seven behaviorally informed practices that show great promise.  These include placing messages at 'teachable moments,' which reach consumers when they are about to make a financial decision.  Others include heuristics, or 'rules of thumb.'  A third recommendation is to 'make it social' – such as using peer-to-peer support, sometimes through social media, that can help motivate consumers to save or stay on track to reach financial goals.

The research also found that major redeployment of resources is needed to ensure that the millions of dollars spent on building consumer capability yields substantial benefits.  It recommends six major changes in resource deployment and approach.  The top recommendation is to enable financial-service providers to take a greater role in building financial capability.  As only one example, banks can organize their client touch points to send savings reminders and tips.  Other recommendations include engaging social-service agencies, such as hospitals that provide financial counseling to families experiencing a health shock; and strengthening governments' focus on shared responsibility among stakeholders.

"Building financial capability is an enormous and urgent task, and we're grateful to J.P. Morgan for making this research possible," said Elisabeth Rhyne, managing director of the Center for Financial Inclusion and co-author of the report.  "Financial capability requires effort from many stakeholders, including financial service providers, governments and organizations that connect with people at the base of the pyramid.  As all these players get involved and spend their scarce resources, it's crucial that they use methods that actually make a difference."

'Financial capability' goes beyond 'financial literacy' and 'financial education,' to focus on ensuring that learning results in action. Research shows that learning from traditional financial education programs often fails to show up in behavior.  But when techniques informed by behavioral economics are integrated into interventions, people are more likely to translate their knowledge into action.

While traditional methods still predominate, a host of exciting innovations are being developed around the world. These interventions range from personal counseling, to mobile apps that help customers understand their finances at a glance, to soap operas, videos and games that embed financial-capability messages and lessons.

Financial Capability in India

The Indian government has been notable in its pursuit of financial inclusion. Between 2011 and 2014, bank account ownership grew from 35 percent to 53 percent of the population aged 15 and older.  Programmes such as Prime Minister Modi's Pradhan Mantri Jan Dhan Yojana (PMJDY) scheme to provide all Indian households with access to a bank account are setting global examples, as are new banking regulations such as the RBI's creation of license types to include small finance and payments banks.  By contrast, financial capability is evolving slowly, without a clear, government-led strategy.

While most banks and MFIs have not fully embraced financial capability, exceptions do stand out.  Ratnakar Bank has partnered with Mumbai-based MFI Swadhaar to offer financial literacy training – notable in that it brings financial education into the bank's operations, rather than placing it in a separate department, as is common, and energetically gathering client information to shape its offerings.

Janalakshmi Financial Services has partnered with ideas42 to launch its 'Rules of Thumb' project, which moves beyond the provision of standard classroom training and traditional methods by simplifying the training into memorable and easily adoptable rules of thumb and using mobile technology to deliver the material cheaply and at moments most useful for micro-entrepreneurs.

IndianMoney.com provides free consultation to ensure customers are clearly informed when buying financial products; it is unique in that it has no connection to any particular financial service provider.  A recent financial education pilot with Karnataka Vikas Grameena Bank allows IndianMoney.com clients to sign up for a series of 2-3-minute phone lessons covering financial topics of their choice, for 1-2 rupees per minute.

Meanwhile, CRISIL Foundation works in partnership with an NGO in northeast India to provide behaviorally-informed interventions to lower-income clients.  CRISIL trains front-line staff, known as CRISIL Mitras (Hindi for 'friend'), to facilitate learning by encouraging discussion and interaction among customers.  It created games based on the games native to the region that many clients played as children; for example, a game similar to hopscotch teaches players about goal-based financial planning and how to save for a particular life-event.  The study details many other examples from India.

The full report and the dedicated India country report, 'Financial Capability Building Practices in India,' are available here.

About The Center for Financial Inclusion at Accion

The Center for Financial Inclusion at Accion (CFI) is an action-oriented think tank working toward full global financial inclusion. Constructing a financial inclusion sector that reaches everyone with quality services will require the combined efforts of many actors.  CFI contributes to full inclusion by collaborating with sector participants to tackle challenges beyond the scope of any one actor, using tools that include research, convening, capacity building, and communications. To learn more about CFI, visit www.centerforfinancialinclusion.org.

About J.P. Morgan India

J.P. Morgan is a leading global financial services player, with a presence in India since 1922. Today, India is a key market for J.P. Morgan and the firm has consistently invested in the India business, which has been growing steadily. The lines of business include the Investment Bank, the Global Corporate Bank, Asset Management, Treasury Services, among others. J.P. Morgan is among the country's leading players in almost all of its businesses and primarily caters to the firm's global clients with business interests in India and local multinationals growing their footprint internationally. India is also home to the Global Service Centre, which services J.P. Morgan's businesses around the world in the areas of operations, technology and research.

Related Links

http://www.centerforfinancialinclusion.org