Behavioural scientist on selling financial products to low-income customers


Behavioural scientist and author, Eldar Shafir

Just because someone doesn’t do something, it doesn’t mean they don’t want to do it, says behavioural scientist and author, Eldar Shafir.

Speaking at the MasterCard Foundation Symposium on Financial Inclusion in Kigali, Rwanda, he highlighted how this could be used to understand the uptake of financial services products in Africa.

The vast majority of the population does not have bank accounts. However, the notion that this is because Africans do not want financial services is misleading. The true reason could be as simple as the signing-up process being too laborious.

Shafir is professor of behavioural science and public policy at Princeton University and co-author of Scarcity: The New Science of Having Less and How It Defines Our Lives. Here are some of the points he made about human behaviour and how financial services providers can use this knowledge to better target low-income customers in Africa.

Automatic pilots

Shafir gave the example of a study on the proportion of European motor-vehicle drivers who were registered organ donors. The study found that in six European countries, 94% of drivers were organ donors. Five other markets, however, revealed an average of only 14% of drivers who were organ donors.

What was the difference? In the countries averaging 94%, people were automatically an organ donor unless they opted out, while in the others they were not a donor unless they opted in.

The study is an example of how people naturally want to do nothing – unless of course it has an impact on their survival. The reason behind this, says Shafir, is that we are juggling so many things on a day-to-day basis that we lack the mental ‘bandwidth’ to take the time needed to make a change.

“Think about us as automatic pilots… I don’t know how many of you check your car insurance to see if it is the best one you can buy. You probably chose one 37 years ago and never looked at it again. There are likely much better ones out there today – all of us recognise it, but life goes on.”

While this limited bandwidth has important implications for everyone, it is even more of a challenge for the poor.

“When you are struggling with insignificant resources… you are in constant juggling mode. There is a lot you need to do on a daily basis just to manage your daily life. And when you are spending a lot of your bandwidth with juggling everyday life, like your finances, there is just less mind left for other things, such as products or services relevant for your financial life,” he told the audience.

Keep it simple

So what can financial services providers do? According to Shafir, simply helping a low-income customer fill out a form can have huge impacts. It saves the customer from having to sacrifice time spent on day-to-day survival in order to focus on filling out a form – and then taking time away from work to deliver it.

“The poor are constantly making trade-offs. Everything they do – from buying a cup of coffee to going to have lunch – it [comes down to] what they are not buying instead.”

The same goes for time, and if financial services providers can make processes and procedures simpler and less time-consuming by offering assistance, they may find that more customers are willing to sign up.

Timing is vital

Financial services providers should spend time understanding how their customers operate financially in order to get the timing right around products. If a small-scale farmer takes a loan, it does not suit them to pay it back monthly, because their income comes seasonally when they harvest their produce. A credit provider targeting this segment should then adapt their offering to better cater to their needs.

Timing can also affect product sales. Approaching a low-income customer with a new product at the end of the month means they might be more concerned with paying rent than listening to how the product can help them.

Make it clear

A study in the US revealed that people are naturally weak at compounding, or determining the addition of interest to a loan or deposit. As a result, they often have no idea how long it will take them to pay back debt. To make sure consumers can better plan around their financial realities, it is now law in the US for credit card bills to state how much is owed, what the minimum fee is, and how long it will take a debtor to pay back the amount.

This is just one example of how financial services providers can make complex products more comprehensible for the average consumer, something that has benefits for both parties: By stating conditions simply and clearly, consumers are more likely to be protected from the consequences of default. On the other hand, creditors are more likely to get their money back if their clients are better informed about repayments.

“I think consumer protection is one very important area. This stuff is complicated, unbelievably boring… and this means people can make very terrible mistakes.”