Here, we use example data from insight2impact pilot studies to illustrate how the indicators generated by the FinNeeds approach can be applied to answer key financial inclusion policy and/or market strategy questions.
The evolving FinNeeds framework on digital financial services renders useful insights to help answer the policy and market question of how to achieve digitisation. One angle to informing this question would be to consider what the various pathways to digitisation are to focus on. By pathways to digitisation we mean entry-points into the digital world for consumers that, once taken up, will mean that they are more likely to start transacting digitally elsewhere. Examples may include a remittance receipt, having a bank account, or certain payment use cases such as having to pay utility bills digitally.
To illustrate, let’s take one potential pathway to digitisation, namely digital income receipts, and explore what the data from one of our pilot study countries tells us in this regard:
Definition: A digital transaction is defined as a non-cash transaction where both the store of value is digital and the (outbound) channel is digital.
The chart below, which draws on the nationally representative financial inclusion survey in one of our pilot study countries as data source, shows the likelihood of individuals transacting digitally after receiving their income in cash or in a bank account. The graph is read from left to right. Yellow bubbles are “yes” responses to the questions in the column headers, and blue are “no” responses. In the top row are those who do not receive income into an account (72.6m), leading to a small proportion who used an account to make a digital payment (3.7m). The middle row shows those who do receive an income into an account (20.2m), leading to a larger proportion who used their account to make a digital payment (7.1m). The final row shows those who do not earn an income (3.7m), of which a small proportion used an account to make a digital payment.
| Receiving payments | Account ownership and usage | Making payments | ||
|---|---|---|---|---|
|
Yes
No
|
At least one income source received into an account | Have an account (either in own name or access to someone else’s) |
Account used in past 90 days | Account used to make a digital payment |
| Do NOT receive income into an account | ||||
| Do NOT receive income into an account |
72.6M
|
17M
55.6M
|
13.9M
3.1M
|
3.7M
10.1M
|
| Receive income into an account | ||||
| Receive income into an account |
20.2M
|
20.2M
|
18.5M
1.7M
|
7.1M
11.4M
|
| Do not earn any income | ||||
| Do not earn any income |
3.7M
|
168,000
3.5M
|
135,000
33,000
|
21,000
114,000
|
The main insight is that people who receive their income digitally have the highest likelihood of transacting digitally: 7.1 million of the 20.2 million people who receive their income digitally, make digital transactions (a 35% conversion rate), compared to just 3.7 million out of a total of 72.6 million adults who do not receive their income digitally (a 5% conversion rate). This supports the hypothesis that digital income receipts are a meaningful pathway to digitisation.
Another notable insight is the low conversion rate between those who are active account users and those who make digital payments from the account. It shows that many consumers have not yet made the shift towards transacting digitally, despite being digitally included and even using their accounts for other functions that may still have a cash component. There is therefore still a digital adoption barrier.
The table below shows how demand-side survey data can then be used to build a granular understanding of how people receive their income (different income receipt use cases), in order to identify priority target market segments for which to tailor digital income receipt strategies as pathway to eventual digitisation. It shows that, in this particular country study, the primary target market for digitising payment receipts is small business owners/traders and farmers. These two groups represent a large proportion of employed adults, yet receive payments almost exclusively in cash.
| Of those that receive this income source, how are they paid? | |||||||
|---|---|---|---|---|---|---|---|
| Income source | % adults receiving income1 | % adults receiving income (main)2 | Frequency of receiving main income3 | Received in cash4 | Paid into bank account | Receive cheque | Mobile money |
| Own business/trader (non-farming) |
22%
|
20%
|
73
15
6
7
|
98% | 2% | 0% | 0% |
| Subsistence/small-scale farming |
19%
|
14%
|
7
18
11
64
|
100% | 0% | ||
| Own business (provide a service, e.g. hairdresser, tailor, mechanic) |
16%
|
14%
|
54
20
6
21
|
99% | 1% | 0% | |
| Get money from family/friends |
17%
|
10% |
12
19
32
37
|
87% | 12% | 0% | |
| Own business/trader (farming products) | 10% | 9% |
31
28
8
33
|
100% | 0% | 0% | |
| Get money from a household member | 10% | 7% |
31
25
20
24
|
96% | 4% | 0% | |
| Commercial/large-scale farming | 6% | 5% |
6
21
15
58
|
100% | 0% | 0% | |
| Salary/wages from a business/company (formal sector) | 4% | 5% |
7
3
86
4
|
46% | 53% | 1% | |
| Salary/wages from Government (including NYSC payments) | 5% | 4% |
1
97
2
|
20% | 78% | 2% | |
| Salary/wages from individual with own business (informal sector) | 4% | 4% |
32
15
44
9
|
89% | 11% | 0% | |
| Salary/wages from an individual for chores such as domestic | 2% | 4% |
31
20
26
23
|
98% | 1% | 0% | |
| Own business/trader (agricultural inputs) | 2% | 2% |
38
26
11
25
|
99% | 0% | 1% | |
| Pension | 1% | 2% |
89
10
|
16% | 77% | 7% | |
In this example, the application of the use case lens showed that income receipt is a good predictor of digital payments. This creates a policy and market imperative to migrate income payments to digital channels. This can be achieved by incentivising companies to process salary payments through bank accounts. In addition, policymakers and market players can implement measures to improve the financial infrastructure so that it best facilitates merchant transactions for small and individual traders, to create the incentives for them to migrate consumer payments (their income receipts) to digital platforms.
When analysing the way in which people typically meet their financial use cases, it may become apparent that people often choose informal, social or personal devices despite access to formal financial services. Studying these instances can help determine whether a financial inclusion strategy is delivering the intended results. These insights can also help in the identification of opportunities to meet the gaps in the market.
The following FinNeeds indicators are relevant to explore this policy question:
One of the pilot studies painted quite a stark picture of how people used predominately informal financial services to meet their different financial needs, as illustrated by the following diagram:
According to the national financial inclusion survey for this pilot country, slightly more than two thirds of adults have some kind of formal account when state pensions are included. Yet the diagram shows that only a minority of adults use any type of formal financial service to meet their financial needs (29% for transfer of value use cases, a mere 8% for liquidity shortfalls, 10% for resilience use cases and 15% for goal use cases). This means that people are choosing to use alternative devices (largely their social network and personal devices such as saving at home or using cash) even if they have a formal financial service they could draw on.
The main implication from the findings is that, despite significant financial inclusion progress in terms of access and uptake, the formal financial sector is failing to meet the financial needs of the majority of the population.
This insight can help to inform financial inclusion policymakers to refine the financial inclusion progress indicators that are tracked, as well as the strategies that are identified for enhancing the impact of financial inclusion.
From a market strategy perspective, the findings prompt consideration of how the formal product offering could be redesigned to better speak to people’s underlying use cases and preferences so that the current gap in serving needs can be converted into an opportunity.
The diagram below inverses the percentages from the diagram above, showing how the same analysis can become an indicator of market opportunity:
The findings depicted in the diagram are that, for digital transactions to eventually replace cash, digital products need to match the main features of cash, namely fungibility, ubiquity, convenience and cost. This can inform strategies for public-private initiatives such as the introduction of an instant payments’ platform.
In the case of liquidity, the pilot study found that current deposit account features, such as minimum balance requirements, reduce the ease of access and flexibility needed to respond to liquidity needs. Thus, to change consumer incentives away from informal, personal and social devices, formal financial service features need to match the ease of access and flexibility found elsewhere.
For resilience , the implication was that use case-earmarked financial services with tangible benefits and that speak to prominent resilience use cases can enhance the role of the formal financial sector in building resilience. The same study showed that, despite reliance on informal devices, most respondents still are not able to recover from financial shocks faced within three months (the FinNeeds indicator for vulnerability). Thus, there is a welfare imperative to expand the role of the formal financial sector in meeting resilience use cases.
For meeting goals, the implication was again to focus on use case-earmarked financial products to gradually become the anchor around which people build their personal and business financial goal strategies.
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