Digital technology is rapidly changing the way we design and offer financial
products. Consumers who were unreachable by brick-and-mortar banks can now
access formal financial services quickly and cheaply through their mobile
phones or prepaid cards. But while digital financial services (DFS) offer a
multitude of benefits for the poor, they are not without their own set of
Experts from over 30 countries recently met in Antalya, Turkey for Responsible Finance Forum VI
(RFF VI) to discuss these challenges and devise a set of actions to address
them. Co-organized by Innovations for
Poverty Action and several other global development organizations, RFF VI fostered
an evidence-based, interactive discussion among regulators, practitioners,
researchers, and development experts on advancing inclusive and responsible financial
services, financial capability programs, and consumer protections in a digital
We spoke to Xavier Giné
(World Bank), Greg Fischer (London
School of Economics), and Dean Karlan (Yale
University) about the key lessons from research for responsible digital finance.
Providing clear and accurate information about products can help
consumers choose products that best serve their needs, and disclosure is
therefore a key theme within consumer protection. Xavier, what are the
implications of your research for improving the effectiveness of mandated
Xavier: When we sent
undercover research staff to financial institutions to audit their services,
we found that bank agents tend to provide basic details, such as fees, only if explicitly
requested. One solution is to give consumers a checklist with key questions to
enable them to effectively compare products within and across financial
Studies also show that the way information is presented is important.
Standardized formats, in which costs associated with products are clearly
stated, are almost twice
as effective at helping people choose the right product as commonly-used marketing
materials, even when they contain the same information. Effective disclosure also
depends on delivery timing, e.g. before individuals make a decision.
Many entities continue to invest in adult financial education, though
evaluations have cast doubt on its effectiveness. Greg, how might we design
future financial education programs more effectively?
evidence suggests that we need to rethink how we design and implement adult
financial education programs. Recently, attention
has turned to several broad themes for improving impact, including providing
simple and concrete information, targeting teachable moments, harnessing community
support, and using creative ways to reach more people. We should explore these
directions, but we need to address low attendance – adults are generally not
willing or able to attend and complete financial education courses – and we
need to get better at identifying teachable moments when consumers are open to
learning (e.g. just before a financial decision is made).
Ultimately, we should focus on making finance work better for people, and
less on financial literacy for its own sake. One solution might be to approach financial
well-being like we do public health: identify and promote simple rules for
healthy behaviors, encourage consumers to seek expert help when necessary, and
regulate potentially harmful products.
We heard repeatedly that practitioners should be providing products
that better serve consumers. Dean, what does the research tell us about how products
should be designed?
Dean: We are not the rational beings that traditional economic theory
assumes. Behavioral biases, like the desire for instant gratification or
procrastination, often win out against foresight when we make decisions about our
futures. Financial institutions and regulators need to accept the reality of
these biases and design products and policies around them.
Also, we see a tension between flexibility and rigidity of products. Making
microloans more flexible by introducing a grace period before repayment started
has been shown to improve business investment, profit, and income, while making
savings accounts more rigid by allowing customers to make
a savings commitment has helped them save more. We don’t always know ahead
of time how products will affect consumer behavior, and that’s why
experimentation is key to the design process.
For more information about Responsible Finance Forum VI: Evidence and
Innovation for Scaling Inclusive Digital Finance, including presentations and a
summary of event outcomes, visit https://responsiblefinanceforum.org/rffvi/.