Liquidity Is King: Mobile Savings Vehicles For Poor Individuals
This is the final post of this three-part blog series co-authored by Lisa Kienzle, Ali Ndiwalana, Olga Morawczynski and Ignacio Mas on saving with mobile money using deferred payments or “Me2Me” transactions. The first post explored user reactions to deferred payments and to goal-based accounts, gathered through focus groups. The second post looked at rewards that help individuals set aside money to meet financial goals. Today, the authors discuss ways to encourage individuals to keep money in their savings vehicle(s).
During the focus groups in Fort Portal, in western Uganda, people quickly grasped the notion of deferred payments as a means of saving. However, one of the most common questions that people asked was, “What if I need to access my money earlier?"
Liquidity is always top of mind especially for people near the bottom of the economic pyramid, of course. We tested several features, ranging from full illiquidity (can’t touch the money until a specified future date) to full liquidity (take out any amount, anytime). But we also presented a few other options to the individuals in our test group:
- Applying social pressure (for example, what if a friend had to approve early withdrawals?)
- Preventing impulse purchases (what if early withdrawals were possible, but not in small amounts – everything had to be withdrawn at once, on the assumption that it was only for large emergencies?)
- Deferred access (what if early withdrawals required a 24-hour waiting period, to avoid impulsive spending?)
There was no clear winner and, in fact, each option generated lively discussions. We found that people like the extreme options for the standard reasons: prohibiting them from accessing funds would help them save, while having access anytime assures them that they can manage any financial eventualities.
Though many individuals liked the idea of a friend as gatekeeper, others perceived goals as private and argued that changing their plan should be their individual choice. Several appreciated that a 24-hour delay period provided time to reconsider, while others said emergencies required money immediately.
And though the all-or-nothing approach seemed like a good compromise in providing immediate access while minimizing impulse spending, one woman said that being forced to take all her money out even when she needed a fraction, felt like failure – like the system was punishing her. The challenge is how to strike a balance between helping people meet their savings goal on one hand, while giving them the flexibility to access their savings to address unexpected risks on the other.
As highlighted in our first post, financial goals can be transitory. The key is to build up discipline for saving. Having the right incentives or rewards can help users set money aside to meet different savings goals. Poor people need and want disciplined savings vehicles but they also need and want choice – the choice to leave funds untouched and out of sight, or the choice to tap into the pot if an emergency requires it.
Some want more restrictions on access, while others want fewer. The trick will be providing vehicles that achieve the purpose of saving toward a target but are flexible enough to cater to unforeseen shocks.
In these three posts we've discussed ways that deferred savings vehicles could improve upon current savings methods. Mobile network operators and financial service providers want to keep several considerations in mind when developing this type of product:
- How could organizations create goal-based products for users who have looser notions of the concept of goals?
- What rewards can an organization offer that would be compelling to a down-market customer?
- How could organizations design liquidity options that support savings behaviors but provide enough flexibility to address emergencies?
Poor people can’t afford to be illiquid, but they also can’t afford to be unprepared. Savings goals are diverse in their nature and timeframe, so it is likely that people will want a variety of options. In a world where putting away money yields little reward and currency comes in the form of livestock and land, what’s the best way to offer simple yet varied product features when it’s no longer cash, but liquidity, that is king?
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