Independent Research and Policy Advocacy

Why does account usage remain low? A few insights from the field

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As part of a study to better understand the ‘newly banked’ segment of the population we had an opportunity to engage in deep conversations with over a hundred respondents cutting across regions, education, occupation, and life-stages [1]. The study, covered in an earlier post here, aimed at gathering insights into the financial lives of the segment – what money means to them, whom do they seek advice from, their attitudes towards finances, goals, and relationship with various formal and informal financial institutions. The intensive primary interviews spanning over a 3-month period provided us with key inputs into the mental models of the end customers distilled using rigorous qualitative research tools.

Coming in the backdrop of Findex 2017 data that showed 80% of the population having access to an account, though reflecting poor usage nonetheless, we hope the below insights throw some light on possible reasons for such low usage [2].

Fear of making a mistake

Around 90 kms from Kochi, in an under-construction compound in the town called Thiruvalla, stays a community of migrants coming from villages in West Bengal. They mostly work in the construction sites, but some of them were also tailors, artisans, and karigars. Keeping a meagre subsistence amount for themselves, these workers usually send money back home once every three months. For them, the most common way to send this remittance is through the shop around the corner. The shopkeeper notes down the mobile number of the sender and the bank account number of the receiver and hands out these very details in a chit back to the customer for a commission of 2%.

While the younger migrants use the Cash Deposit Machines (CDMs) of banks, for most others the shopkeeper is the preferred mode of remitting money. Respondents felt that it was a time-consuming process to visit a bank branch which would have additionally meant losing out on their daily wage. Also, a visit to the branch would have meant seeking assistance to fill the pay-in-slip. Besides, in our interactions, we realised that the CDMs had earned a negative reputation after a few stories of failed transactions. The scepticism towards the CDMs was more prominent amongst the older migrants, who were the primary breadwinners for their families back home, with one respondent calling the CDMs bhyajal (Bengali for adulterated or not authentic).

In our conversations, we came to understand that the preference for remitting money via the shopkeeper stemmed from two reasons – convenience and accountability. The shopkeeper provides his service even after they are back from work, on holidays too. He also asks for the two details that the migrants are confident of providing/are absolutely sure of – their mobile numbers and bank account numbers. The shopkeeper also allows a real-time redressal mechanism – If a migrant worker does not get a confirmatory SMS within a specified period, he can show the “acknowledgment” chit at the shop to resolve the issue. They find no real use to hold their savings in a bank account because each transaction is perceived as cumbersome and uncertain. The lack of confidence in transacting and the fear of making a mistake with poor or no redressal restricts these customers from making complete use of the facilities provided by the modern banking system. This manifests not only among migrant workers engaged in masonry, tailoring jobs etc. but we also observed this trend amongst individuals working in the formal sector, residing in cities with higher and more regular incomes. Amongst the latter, the “irreversibility” of a decision limited most of them to a savings product providing zero or negative real return.

Alienation from formal financial institutions

Matthew^, 24, an engineer working with a multinational corporation in Mumbai, is also sceptical of banks. He became wary of them after an incident where he says the bank staff behaved disrespectfully with his family.  An audit study conducted in South India by Mowl and Boudot (2014)  also found a discouraging attitude shown by the staff at the banks surveyed [3]. Shanti^, 40, a tailor in Delhi saw the use case of a chit fund  (a form of Rotating Savings and Credit Association in India) more attractive than her local bank account. Owing to her volatile monthly income, the chit fund provided her the flexibility she desired. If she didn’t have enough funds in a given month, she could borrow from her fellow group members. It also served as an emergency fund. With an ailing husband and two daughters to take care of, she found the flexibility of the chit fund more suited to her needs than the bank account.

As the experience with Matthew and Shanti narrates, alienation from banks emerged as a common theme amongst most of our respondents. The feeling of alienation stemmed from two sources – 1. The individuals perceived themselves as unattractive customers to the banks i.e. “Why will the banks serve me?” and 2. There were no solutions customised to their unique needs i.e. “Do the banks have what I need?”.

Lack of trust

Findex 2017, highlighted that amongst those who do not have an account with a formal financial institution, 20% of them cited lack of trust as a reason [2]. Many of our respondents echoed this sentiment and restricted themselves with a mere savings account, and no more.

A respondent in Mumbai, aged 30, said she would like financial advice from her relationship manager at her bank on investing in the stock market, but often finds his guidance uninformed and under-confident. Also, a common response received was that banks do not have their (the respondents’) interest in mind while transacting with them. Further, we also observed that the banks themselves were not always the source of distrust. The distrust was sometimes on a product/service (eg. financial advice) or sometimes their own ability to interact with the service (fear of making a mistake). These two notions are intertwined too, in cases of CDMs and mobile payments services. People did not use it not only because they did not know how to, but also because they did not trust the product with their money.

The trend of voluntary exclusion from formal financial services seems to be on the rise. According to Findex 2017,  only 6% of Indians received their wages into the formal financial institution account and the same proportion used it to pay for utilities. The percentage of individuals reporting no deposit or withdrawal in the last year increased 17 percentage points to 39%. The fear of committing an ostensibly irreversible mistake with no redressal coupled with a sense of alienation from formal finance, especially banks, and the lack of trust in the services and in oneself are some of the key factors that we observed that are keeping this segment of newly banked from leveraging the full spectrum of services offered by modern finance.

Perhaps it is worthwhile to note what Ignacio Mas had said at this keynote address on mobile money accounts, “The question is not why (the accounts) are empty, but why we thought they were going to be full in the first place.” [4]. Following the recent technological innovation in finance, we see a spurt of new businesses with product specific models. Yet, the need of the hour is for financial services to meet the unique needs of consumers and suitably customise their offerings, thereby building trust and acceptance with a segment that remains largely underserved.


[1] Dvara Research collaborated with Pensaar for this project.
[2] The Global Findex Database 2017, The World Bank. The figures correspond to the Indian sample from the whole database.
[3] Mowl and Boudot (2014), “Barriers to Basic Banking”, NSE Working Paper Series No. WP-2014
[4] Ignacio Mas’ keynote address at Symposium on Financial Inclusion 2015 by Mastercard Foundation.
^ – Names changed to protect privacy.

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2 Responses

  1. Made good reading. Thanks. Hopefully the payment banks will make a note of this and address the deposit and remittance matter (2% is a lot to pay for this). Most of them are digital and operate off mobile phones.

    It may be worth considering if the chit funds/savings group can operate their entire banking off a digital platform. That way, the group stands surety for the individual’s short term cash flow borrowings (authorised by min members for verification), and the bank can then lend at similar speeds – to build confidence.

    Matters like poor attitudes in normal banks towards small savings holders echo the findings of an earlier study on the “small account” opening.

    1. Thank you for your comment, Mr. Srinivasan! Yes, surely the payments banks can provide this under-served segment with customer-centric solutions/products (remittance). Although a physical presence through various touch points, agents, etc. seems important till customers get accustomed to operating completely on mobile phones. Your point on hosting chit funds digitally is interesting! There are already a few enterprises providing the ROSCA service entirely on a digital platform. Yet to see how the uptake and response is.

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