India is going through a “golden age” of financial inclusion. The government and the private sector have been equal players in this with key initiatives such as Aadhaar, the licensing of new institutions (payment banks and small finance banks), and the emergence of a vibrant fintech sector. The Unified Payments Interface (UPI) has been launched and promises to herald a new age of frictionless payments across devices and interfaces.
Now that the rails have been laid, the conversation is moving towards the creation of digital financial services that cater to the needs of the millions of underserved—the so called base-of-the-pyramid (BoP)—and bringing the benefits of the formal economy to them. Traditional banks, microfinance institutions (MFIs) and fintech companies are all taking steps that express their intent to target this segment.
However, there remain two dilemmas or “fuzzy choices” that are holding back innovation in this space.
The first dilemma centres on the need to create customized financial products for the poor that are deeply integrated with their financial lives, versus offering them cheaper variants of standard financial products. We call this the user-experience (UX) dilemma.
Take, for instance, a daily wager who makes Rs200 on the days she gets work. Work is unpredictable, and expenses too can be volatile, so she has to borrow money for buying vegetables, or to pay the doctor’s fees when her children fall sick. Her real need is for a flexible—small ticket, variable amount, rapid approval—loan product that she can access instantly. Unfortunately, no institutional channel—neither the public sector bank where she has a “no frills” account, nor the MFI that she has previously borrowed from—offers such a product. She ends up borrowing from neighbours, often from the local moneylender.
She is typical of many people who would benefit from more customized financial service offerings that help them bridge the uncertainty of money flows that are a hallmark of their lives. Unfortunately, most financial institutions today have product offerings that assume a steady, periodic income pattern, which is completely contrary to the situation of a large number of BoP consumers.
The assumption tends to be that the best way of serving this segment is to create smaller versions of standard financial products even though there is sufficient evidence that what is needed is fundamentally redesigned products.
This is also a remarkable opportunity. We believe those who invest substantially in a user-centred service design approach can rapidly gain market share. Such an approach needs to go beyond product design, focusing on end-to-end user experience, from the time that a financial need is felt by a customer, to the search for options, to purchasing a financial product, and then retaining the relationship. By ensuring this focus on UX and building a culture and aligning resources for UX innovation, companies can develop a sustainable competitive advantage in an otherwise tough market.
The second dilemma is whether to focus on creating special products and interfaces that are intuitive for the poor or create standardized interfaces that can be used by people with “moderate financial literacy”. We call this the user-interface (UI) dilemma.
Take an autorickshaw driver who is excited to use a smartphone for financial services but is confused by the mobile user interfaces of traditional banking apps. This is typical of BoP customers who are held back by poor UI of financial apps.
As India looks at digital financial inclusion, companies need to radically rethink UI. Most current UIs on smartphones are not built with BoP customers in mind and assume high levels of literacy and structured financial behaviour. They assume people will change behaviour to use the app.
Our experience suggests this assumption needs to be turned on its head. Interfaces need to be built that are tailored to the BoP’s behaviours—not interfaces that seek to change those behaviours. According to the researcher Ignacio Mas, the poor manage money significantly differently from the affluent and exhibit wide-ranging “liquidity farming” behaviour or “animating money” with personal associations.
The daily-wager carefully cultivates her local networks, exchanging favours, money, and goodwill to ensure that her social network can be “farmed” for “liquidity” when the need arises. Similarly, the autorickshaw-driver tends to set aside all money earned on Sundays for his daughter’s wedding, “animating” it with a meaning. These are powerful principles to keep in mind while designing mobile financial-product interfaces.
The good news is that we are seeing signs of disruptive innovation in this space. Many financial institutions we have been working with are investing in user-centred design for the BoP, experience-design centres are being created, officials are discussing the need for innovation sandboxes that make it easier to experiment with pro-poor offerings.
The daily-wager and autorickshaw-driver are waiting for meaningful fintech innovation that addresses their needs and there are hundreds of millions of people like them. This is a very large opportunity for financial-service providers willing to collaborate and innovate based on user-centred first principles.
Varad Pande and Nirat Bhatnagar are, respectively, partner and associate partner at Dalberg.