Wednesday, March 20, 2013

Psychological Barriers to Mobile Money Adoption among Poor Internal Migrants in India

IMTFI fellow Deepti Kc reports on IMTFI-sponsored research among rickshaw pullers in Delhi, India undertaken with Mani Nandhi.

Mobile banking is now a reality in a number of developing countries. Rather than the traditional branches, mobile money services in India use non-bank agents (also known as business correspondents) to facilitate financial transactions on behalf of banks. In cities like Delhi, India, where millions of poor migrants come from rural areas, such mobile banking services with nominal Know Your Customer (KYC) norms present an immense opportunity for reducing barriers to financial inclusion. Yet, the uptake among the poor of mobile banking services, especially of savings products, has not been encouraging. A number of mobile money professionals are increasingly looking into specific behavioral patterns that may illuminate why, despite the availability of low-cost and higher-security financial services, many of the poor continue to rely on expensive and high-risk methods of saving and credit (see, for instance, Mas 2012). Reflecting similar questions, in this post I highlight some preliminary observations on psychological barriers to mobile banking among rural migrant rickshaw pullers in Delhi. These observations have emerged through the course of the research project that Mani Nandhi and I are currently conducting in Delhi, India, with funding from IMTFI.

Rickshaw pullers fixing their bikes before starting their day in Delhi, India.

While the main barrier to financial inclusion of India’s rural migrants is unawareness of mobile banking and persistent culture of distrust of financial institutions, we found that, often other forms of psychological hurdles also act as barriers. For our research, we visited an illegal slum settlement inhabited by migrant pullers. Most of these pullers are involved in agricultural activities in their native villages and visit Delhi during off-season with a sole focus to maximize earnings during the migratory period.  Our study focused mainly on the mobilisation of those pullers with no identification cards so we could help them obtain government Unique Identification cards and link them to mobile services. As a first step of our study, we asked some pullers who already had an identification card and a mobile phone to use a mobile bank account to save. This was done to examine whether an initiative to promote savings using mobile banks can help these pullers to switch from informal to formal savings mechanisms. At the time of our meeting, all of these migrants were saving on a daily basis with their “tekedhar” (the rickshaw owner). This case study highlights psychological barriers that hindered the savings capacity with mobile banks of four migrant pullers.

Ready to work after a morning meal of rice.

"I am not a valuable customer." 
Since he first reached Delhi five years ago, Man Singh has tried multiple times to open a bank account. Even though he manages to save and remit money to his village through informal mechanisms (such as sending money with their friends and other fellow rickshaw pullers or the Hawala network), there are times when he cannot provide money when his family members urgently need it. He was earlier misled by an NGO staff member, who charged him to fill out the application form to open a bank account. To this day he has not been successful in opening an account, making him extremely cynical about mainstream financial institutions. At this point, he strongly believes that he is not a valuable customer and does not want to save with a bank where he is not valued. Despite our encouragement and information about mobile banking, he refused to come with us and open a mobile bank account.

"It is expensive to save with mobile banks."
Raja opened a mobile bank account because his friend opened one, yet, he does not see any benefits in saving with mobile money services when there is a cost for every transaction when saving is free with his tekedhar. Like Raja, most poor people are highly loss-averse, and this tendency can create reluctance to save with mobile banking. While mobile banking can provide a safer mechanism to save, one should also understand that informal saving mechanisms have their own inherent advantages, which appeal to the poor when conducting savings transactions.

"The mobile counter is not at a convenient location."
An enthusiastic rickshaw puller Bharat approached us to help him open a mobile bank account. He believes that he spends more when his money is easily accessible to him and believes if he keeps his money in the bank, he will be able to save more, as this will help him not spend on temptation goods such as alcohol and gambling. However, even though the mobile bank counter is around 2 km away from his place, for him the location of the counter is the problem, as he generally does not visit that area. Thus the location of the counter appeared as a potentially “real” cost for Bharat despite knowing the advantages of opening a bank account. This highlights that a sheer hassle such as the location of a service provider can rationally underlie the decision to be unbanked.

"I will open my bank account tomorrow instead of today."
Ram intends to visit a nearby mobile bank counter whenever we ask him. He does not think the mobile counter is far away or at a inconvenient location. In addition, he sees value in opening a bank account. However, no matter how much we insist, the day of the proposed visit, he is conflicted as he prefers to go to work and declines to come with us on that day, promising that he will visit the following day. As a matter of fact, this was the most common problem that we faced while getting these rickshaw pullers their bank accounts. The pullers who had earlier shown interest to open bank accounts simply refused to visit the nearby mobile counter.

Rickshaw pullers in their road-side tents.

These stories speak to common psychological barriers that the poor face when accessing formal savings institutions. Therefore, encouragement is needed to overcome these psychological barriers to saving through MM services. First, mobile bank agents should understand that when a client enters a counter, he/she may lack the necessary knowledge about the benefits of mobile money and, at the same time, he/she may be reluctant to join the new service based on a feeling that he/she could never be a valued customer. When such client enters the counter, it is important that agents guide them well, and explain the product properly. If agents do not value such customers and treat them with an abrasive attitude, this will further dissuade the unbanked from pursuing the mobile banking option.

Second, psychological barriers occur due to potential clients’ failure to see the value of the product or service. Thus, products must be designed to address the psychological constraints faced by the poor when accessing formal savings products. To increase uptake, products must have add-on features such as basic financial literacy about the products. More generally, as Jake Kendall recently suggested, mobile money service design must seek to simplify financial accounting interfaces in order to be accessible to a broader public. Mobile banking agents can play a role in raising awareness among the poor about disciplined saving practices and about the added security of mobile banking, which can provide better protection from from risk of theft and from temptation to spend money. In addition, agents should inform their clients about the interest that one can earn from formal savings—something that is not always possible in informal saving practices. Mobile banks can facilitate greater awareness campaigns in partnership with trusted local governance institutions regarding savings with formal institution, which can play a vital role in overcoming these psychological constraints that the  poor face.

Third, while saving with mobile banks is safer, the poor still turn to informal savings mechanisms because of their flexibility and accessibility. Formal savings products must therefore be designed and marketed in a way that accommodates savings preferences of the poor. Product enrollment procedures should be simpler, transparent and convenient. Finally, there might be value in encouraging mobile banks in India not just as a means to remit but also as a means to save.

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