90951 BRIEF Customer-Centricity for Financial Inclusion Every business depends on winning customer loyalty by providing value. This is also true when your customers are from the base of the social and economic pyramid (BOP). Financial service providers who are serving or who want to serve this important customer segment need to invest in understanding these customers’ needs and develop products that meet those needs. Customer-centricity is about providing solutions Informal, irregular incomes. BOP families are more likely based on a deep understanding of customer needs, than middle-class families to obtain their income from preferences, and behaviors. Customer-centricity is a small farms, microenterprises, informal employment, concept that practically everyone agrees with, yet it and day labor. Moreover, because informal sources takes a lot more than good intentions to implement. tend to be irregular, families often piece together To effectively put the needs and aspirations of multiple sources and intertwine business and family customers at the center of business strategies and finances. As Collins, Morduch, Rutherford, and decision-making, financial service providers may have Ruthven (2010) showed, informal incomes vary widely to rethink their operations and invest significant effort by day, week, or season. Consumption-smoothing and resources to change not only business operations through savings and credit thus becomes especially but also organizational mindsets. important for the BOP. They are especially vulnerable to shocks (health emergencies, thefts, crop failures), The journey to customer-centricity for financial service which suggests that insurance may be a valuable providers to the BOP segment begins with understand- offering. Informal incomes also require creative “on- ing how access to financial services can add value to the ramps” for BOP customers in the absence of ready- lives of lower-income customers. Well-tailored services made connections through employers. The prevalence can help customers meet daily needs, achieve per- of microenterprises and small farms suggests that sonal and business goals, and build resistance against business finance is especially important, as the BOP vulnerability. As new customers engage with formal appetite for microenterprise credit shows. financial services, they build the capability to interact responsibly with these services. But instilling these cus- Different spending and consumption. Low-income tomers with trust and confidence in the provider and families spend a relatively high proportion of their in formal financial systems is not automatic. Trust and incomes on basic needs, and they spend it in different confidence are outcomes of successful design and an places than the middle class do, particularly in informal embedded customer-centric approach. markets and at retail outlets catering to low-income customers. BOP families may need financing for Getting it right for BOP customers creates a competitive purchases that richer customers can buy outright. BOP edge for financial service providers, whether through customers may have unique methods for meeting basic building customer loyalty or by tapping new market needs. For example, if they build their houses one room segments. Offering a range of tailored services helps at a time, getting the design of a home improvement providers reduce risk by diversifying across products product right could bring value to customers. and customer segments. Providers that take a long-term view stand to gain from a customer-centered approach. Financial needs differ by customer segment, for example, by life stage or gender, and it is important How the BOP Is Different to understand specific segments at the BOP. Young and What It Means to Be adults may strive for education and household set-up, Customer-Centric for the BOP mature families for business investment, and older Although they use financial services for the same core adults for income and pay for health care. Women functions, BOP customers differ in important ways and men within the same household may have from their middle-class counterparts. different needs, based on family roles. June 2014 2 Different relationships with formal institutions. Understanding Customers Financially excluded people use financial services, just Broad insights about the financial behavior of BOP not formal ones. And, they may be happier with informal customers need to be localized and embedded in the arrangements with family, neighbors, customers, and organization. This requires creating an insights engine suppliers than formal providers expect. To attract BOP that systematically generates a deep understanding customers, formal services must provide greater value of customers and then mining those insights for than informal services. However, many facets of formal practical implementation. financial services heap costs (money, time, emotional stress) on BOP customers. In addition, the World Bank’s Creating an insights engine to understand customers. Global Findex found lack of trust in financial institutions To harness insights efficiently, organizations should to be a major reason for avoiding formal providers use multiple sources. One place to start is with front (Demirguc-Kunt and Klapper 2012). Overcoming line staff. Front line staff members build empathy this reluctance to engage in formal financial services with customers and are a rich source of insights. The may require service providers to make adjustments in challenge is to ensure that these insights reach senior communications and delivery channels, especially for decision makers. Technology makes it easier than people with low literacy, language barriers, or little ever to create feedback loops that spread information exposure to new technologies. Providers should expect from the front line throughout the organization. that the transition from informal to formal services will In addition, it is highly recommended that board be gradual, with customers using both types of services members and senior managers regularly spend time simultaneously. in structured conversation with current and potential customers. Face-to-face contact can powerfully Need for consumer protection. Because of their communicate messages and motivate action. unpredictable and risky lives and lack of experience with formal finances, BOP customers are especially Organizations also need to invest in the capacity vulnerable. New research by Mullainathan and Shafir to source customer understanding systematically (2013) revealed that the mere fact of being poor can through market research and mining data available undermine consumers’ ability to make sound financial within the institution or within its partners (e.g., choices, even though their limited resources—and agents). This requires sufficient budget and staff to therefore margin for error—make them the very enable market research to be an energetic, high- consumers for whom the most is at stake (Mazer, McKee, quality function. Collecting information and data and Fiorillo 2014). For example, over-indebtedness and is not sufficient; specific people and units need to debt stress frequently result when a group of customers be responsible for deriving insights from the data gains abundant access to credit for the first time. for new or adjusted products. Kaleido, a customer Customer-centricity for the BOP includes sensitivity to profiling tool developed by the Indian microfinance the potential for mis-selling and efforts to ensure that institution Janalakshmi Financial Services, acts as an treatment of customers is fair, prudent, and responsible. insights engine for the organization (CGAP 2014). How to Become a Customer- Reorienting Operations Centric Provider—It’s a Journey around Customers For providers looking to achieve customer-centricity, Customer orientation should not be exclusive to specific commitments are needed to shift toward the market research department. At least four putting customers first. It is a journey, but incremental more areas will contribute to achieving customer- progress over time can lead to significant value for centric operations: leadership and culture, customer customers and providers. Customer-centric providers experience, operating model, and financial capability. share common building blocks. They are organized to systematically understand customers and design their Leadership and culture. Intent to provide value operating model around the customer experience, all to customers is a matter of corporate culture. It in a way that is ultimately profitable. We touch on must emanate from the top and be embodied in several of these building blocks. strategy and performance monitoring. Staff need 3 to hear consistent prioritization from board and automated teller machines (ATMs); they often relied management. Does the mission statement reflect on male family members to help them make their customer-centricity? Is customer focus reflected in transactions. Using visual guides and oral instructions, performance goals? Carefully selected measures, the research team created a prototype of a “talking treated as core strategic indicators, can steer the ATM” that the women could operate alone (McKay business toward customer-centricity. Volume targets and Seltzer 2013). (such as numbers of customers) are among the few Operating model. While the ideal customer top-line performance metrics with a customer-specific experience is being designed, business realities dimension, but they do not suffice. Customer-focused must also be met. Customer advocates, the finance performance metrics will include information on team, and operations staff will all have to work who is being served, how they are using products, together to assess the consequences of new offers and how satisfied they are. A small number of such for staff efficiency, IT costs, and revenue, so that an metrics should be elevated to stand alongside growth effective business model emerges. CGAP and IDEO. and profitability in monitoring strategic success. org, another design firm, worked with Bancomer in Mexico to design a savings product for low-income Staff resistance to change may be a sticking point, individuals. The team followed the human-centered as existing staff may be comfortable—and relatively design process: conducting in-depth interviews, efficient—in their current roles. For example, loan building design principles, and prototyping new officers in several Latin American microfinance concepts. The new savings product, Mis Proyectos, institutions resisted the introduction of housing allowed customers to set aside money for various microfinance loans, despite customer interest, because named goals. However, despite the design team’s they required more steps to complete and unfamiliar finding that customers wanted the bank to “speak calculations compared to microenterprise loans. people speak, not bank speak,” the marketing team, Wise providers will prepare the soil before planting which not been part of the design process, developed new seeds. That preparation will include revising initial marketing material filled with technical staff incentives and rewards formulas, training, and information in tiny font (McKay and Seltzer 2013). operating processes, all first in pilot before full roll out. Customer-centric human resources departments Finally, internal audit and internal control systems will select front line staff for their customer orientation, will also need to incorporate measures of customer evaluate staff partly based on customer feedback, and satisfaction, possibly linked to complaint resolution inculcate a customer-centric culture during training. systems, which can be a rich resource for identifying gaps between customer desires or expectations and Customer experience. Commercial and operational their actual experiences. staff must work to design the entire customer experience, and not just the product on offer, Financial capability. Customer-centric providers will in a way that helps customers solve their real-life seek to build customer financial capability, recognizing challenges. The Indian microfinance institution KGFS that capable customers are likely to be more active first determines a customer’s own goals and only users. Traditional financial education can be costly then proposes a suite of half a dozen or more credit, and has not demonstrated clear impact. However, savings, and insurance products that match these emerging approaches focus on supporting effective goals. Moreover, when they use a product, customers use. For example, behavioral insights suggest that must find the experience positive: they are treated practice in a protected setting can build capability. with respect, the technology is intuitive, help is Staff could be temporarily positioned to help new available when needed, and their time and money customers use ATMs. Information technology lowers costs are minimized. CGAP and Continuum, a design the cost of communications such as text messages firm, worked with Habib Bank in Pakistan on product about upcoming loan repayments or encouragement development for very poor female beneficiaries of a to save. In one example, Absa Bank in South Africa government welfare program. Many of the women invited customers to play a game on their cell phones were illiterate and lacked trust and experience using in which customers earned prizes for checking their June 2014 across industries agree that customer-centric All CGAP publications Box 1. Is Your Institution Customer- are available on the providers tend to fare better in the long run, as they CGAP Web site at Centric? are better at retaining customer loyalty and identifying www.cgap.org. 1.  Does your institution’s mission statement refer and meeting evolving demand.1 But does this work to creating value for customers; is this a key CGAP for low-income customers, where margins are thin? strategic outcome? 1818 H Street, NW We believe that it does, and that customer-centricity MSN P3-300 2.  Do senior management and board members at the BOP is a critical ingredient for success. Washington, DC regularly spend time listening to customers? 20433 USA 3.  Is there a robust market research function, A customer-centric organizational approach is critical informed by best practice? for solving a core challenge in financial inclusion: Tel: 202-473-9594 Fax: 202-522-3744 4.  Are there mechanisms for gathering customer the access-usage gap. Many new inclusive financial insights from front line staff? products have seen rapid enrollment followed by low Email: 5.  Does the institution mine its data about usage. Understanding this gap involves looking in cgap@worldbank.org customers and use it to design and deliver detail at how the product appears to customers and services? © CGAP, 2014 how it fits into their lives. IT and data analytics can 6.  Do operational areas work together to design products and interfaces based on customer identify positive (and profitable) use cases, allowing insights? providers to hone the offer to appeal to inactive 7.  Does the product and service respond to customers. customer needs? An important part of becoming customer-centric 8.  Is the customer experience positive (easy, intuitive, understandable, quick, and dignified)? is shifting profitability analysis from transactions or products to customers and even customer segments. 9.  Does the institution value and apply good customer protection practices? A shift toward measuring total customer profitability 10.  Does staff training inculcate customer-first involves valuing the activity of a customer over a longer values? time. Data analytics can help organizations make this 11.  Do evaluation systems reward achievement of shift in business and performance monitoring models. good customer outcomes? 12.  Is profitability and performance monitored at References the customer or customer segment level? Booz Allen Hamilton. 2003. “Smart Customization: Profitable Growth Through Tailored Business Streams.” Washington, D.C.: Booz Allen Hamilton, November. account balances by phone rather than in a branch, which was easier for the customer and less costly CGAP. 2014. “The Journey to Customer Centricity.” Washington, D.C.: CGAP. for the bank. Initial indications are that this could Collins, Daryl, Jonathan Morduch, Stuart Rutherford, and be an efficient way to incentivize behavior and can Orlanda Ruthven. 2010. Portfolios of the Poor: How the be tested by measuring the post-game activity of World’s Poor Live on $2 a Day. N.J.: Princeton University Press. customers who participate. Demirguc-Kunt, Asli, and Leora Klapper. 2012. “Measuring The Business Case for Financial Inclusion: The Global Findex Database.” Washington, D.C.: World Bank, April. Being Customer-Centric Egol, Matthew, Paul Hyde, Frank Ribeiro, and Andrew The economics of reaching BOP customers are Tipping. 2004. “The Customer-Centric Organization: From changing fast as BOP populations around the globe Pushing Products to Winning Customers.” Washington, D.C.: Booz Allen Hamilton. experience rising incomes and technology reduces Mazer, Rafe, Katharine McKee, and Alexandra Fiorillo. the cost to serve them. These drivers make financial 2014. “Applying Behavioral Insights in Consumer Protection services potentially profitable for vast new markets. Policy.” Focus Note. Washington, D.C.: CGAP. McKay, Claudia, and Yanina Ester Seltzer. 2013. “Designing But is there a business case for a customer-centric Customer-Centric Branchless Banking Offerings.” Brief. approach at the BOP? Analysts of business success Washington, D.C.: CGAP, December. 1 When Booz & Co. distilled key traits of businesses in Europe and North America with values and operations strongly aligned with customers, it found that these businesses out performed industry peers two to one on revenue growth, with profit margins 5–10 percent greater than competitors. See Egol, Hyde, Ribeiro, and Tipping (2004) and Booz Allen Hamilton (2003). AUTHORS: Tanaya Kilara and Elisabeth Rhyne