Climbing the Financial Pyramid: How Mobile Meets Basic Needs
Erica M. Salinas
Federal Consulting Practice
Mobile technology is transforming lives, giving millions of consumers a safe place to store and maintain value.
In our Connected Consumer report, we introduced a pyramid of financial needs. However, there was little time to explore that pyramid fully and directly link back to how technology can help individuals, of all income levels, gradually move up the pyramid.
I would like to take my first few blog posts to delve into this pyramid, present some ideas on how financial services should be adjusted depending on where on the pyramid your target client base sits, and discuss how technology can enable these new services.
So to begin, it seems apt to start at the bottom. In our pyramid, we wrote “Safe, accessible place for cash.” I actually disagree with this wording. What is really needed is a safe place to store and maintain VALUE.
Shifting from Mattresses to Cell Phones
Storing cash makes it too easy for it to be stolen and spent. We joke about storing money under the mattress, but keeping small stashes of cash in the house or a neighbor’s house is a common practice for those without access to a bank. And with money there, someone usually has to stay and guard the house. In the urban slums outside Lima, Peru, I saw kids as young as 7 and 8 missing school to guard belongings in their humble shacks. It is also too easy for money to be spent if it is accessibly stored as cash. Try saving for a much-needed stove or tuition expenses while children are hungry.
Thus, we need to shift away from this idea of storing cash and focus on value. Again, those living on small incomes have found ways to do this for themselves. They do so by buying goods to hold for sale later, like jewelry or livestock. However, high correlation in small markets often causes everyone to buy and sell at the same time. Thus, prices are high when everyone is buying and prices are low when everyone is selling. This results in lost value. So what we really need is a safe place to store value, maintain that value, and access it only when it is most needed.
With the quick expansion of mobile money across Africa, many individuals are now finding that mobile wallets are a great place to find that safe and temporary place to store value. In Kenya, mobile money services (like the well-known M-PESA service) are not intended for or licensed to serve as a savings account. However, many have found their M-PESA accounts to be the perfect solution to this basic financial need.
Phones are portable, removing the need for a guard at home. The value in the account does not decrease (except of course in the case of inflation). And husbands and wives can maintain separate accounts, which helps in that age-old problem of managing spending within the household. Thus, while M-PESA was designed as a micropayments service, it has unexpectedly met the most basic of financial needs.
As we continue to explore the pyramid, it’s worthy to note that many of these needs are filled today through inefficient and complicated processes. We will also see that once given a financial service, like mobile money, many will not only appreciate the intended use, but will soon uncover new and innovative uses that will even surprise those offering them. As we continue up the financial pyramid, it will be clear that financial institutions can be key players in alleviating poverty. However, this will generate a number of questions.
Why should financial institutions take on what has been a traditionally high-risk client base? Are social goals and positive PR enough to get them interested? I am also very interested to see whether the larger commercial institutions will leverage the innovative spirit these new customers will provide. Will one of today’s makeshift financial services be tomorrow’s most profitable formal service offering?
That is what I hope to share with you as we continue up the pyramid.