Transcript Slide 1

Financial Services for Brazilians in the C, D & E classes:
Snapshot of recent CGAP research
April 2, 2012
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CGAP Technology and
Business Model Innovation Program
The Technology and Business
Model Innovation Program at
CGAP works with banks,
microfinance institutions,
mobile network operators
and retail stores to deliver
financial services through
new technologies, such as
mobile phone, magnetic
stripe or chip cards, and
biometric applications.
We Build Knowledge on issues such as customer
needs, agent networks, and business models
We Strengthen Markets so that promising
branchless banking services can thrive
We Promote Policies and Regulations that allow
branchless banking to expand and reach unbanked populations
Status of CGAP work in Brazil
• Partnership and close ties with Brazilian Central Bank on
financial inclusion
• Partnership with major Brazilian banks
• Support to innovative start-ups
• Public good research:
– Profitability and mechanics of agent channel
– Qualitative research on low-income consumers
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What is special about Brazil?
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What has CGAP learned from the CDE classes?
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How can Brazilian banks serve these segments?
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What is special about Brazil?
2
What has CGAP learned from the CDE classes?
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How can Brazilian banks serve these segments?
• Between 1992 and 2009, 47 million individuals
migrated from the D and E classes to the C class,
doubling the size of the C class in relation to what it
was in 1992.
The “pyramid” has become the “diamond”
Global view: Brazil leader in agent banking
Country
# of agents
Brazil
160,000
Kenya
24,000
Philippines
20,000
Pakistan
18,000
India
10,000
South Africa
7,000
Colombia
6,000
Global view: pioneering financial services link to government benefits
South Africa’s Social Security Agency
India’s NREGA
Mexico’s Oportunidades
Colombia’s Familias en Accion
Pakistan’s BISP and other programs
• Unconditional transfers of different kinds—child, old age, disability
reach 14 million people
• Various payments methods: cash, prepaid smart card, or debit card
linked to account
• Savings, credit, insurance offered by some providers
• Workfare program reaching over 45 million people
• Various payment methods: post office savings accounts, village
officials, and smartcards linked to no-frills bank accounts
• Savings, insurance offered by some providers
• CCT program started in 1997 reaching 5 million households (18% of
population)
• Various payment methods through Bansefi and Telegrafos/Telecomm
• Bansefi has various payment mechanisms, including cash, debit cards, agents
• Savings offered by Bansefi
•CCT program reaching 2.2 million families
•Tender won by state bank Banco Agrario to pay grants through savings
accounts
•1.8 million interest-bearing savings accounts opened
• Salary and pension payments; cash transfers under BISP and
emergency relief
• BISP has piloted various payment approaches: post office, smart cards
issued by bank, mobile service providers
Key challenges and opportunities for financial inclusion
• High physical channel access…but low-cost models
underutilized to target financially excluded
• Brazilian banks are product innovators…but there is product
mismatch with low-income consumers’ needs
• Lots of public research on new emergent C class…but
research has not increased foundational knowledge of C, D &
E classes
What would you do if your income doubled?
Buy or renew
AB
32%
Buy or renew
C
43%
Buy or renew
DE
48%
2nd home
15%
Save or invest
Save or invest
9%
Save or invest
9%
13%
14%
Car
Car
Travel
6%
2nd home
Travel
8%
Pay debts
Pay debts
Own education
4%
Pay debts
3%
Private school
4%
5%
6%
Source: Plano CDE, 2010 Sample: Recife 609 – São Paulo 1006 (non relevant data)
Food
4%
Private school
3%
Car
Leisure
2%
Own education
3%
2nd home
Own business
Private school
Travel
Health Plan
2%
Health Plan
2%
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What is special about Brazil?
2
What has CGAP learned from the CDE classes?
3
How can Brazilian banks serve these segments?
Background on CGAP research
• Research conducted between June 2011 and March 2012 in
partnership with Brazilian banks
• Focus on qualitative research
• 75 interviews with C,D & E consumers (88% D&E)
• 5 areas: Rio de Janeiro, Sao Paulo, Recife, Porto Alegre and
Maceio
• Conducted with Plano CDE and independent consultant
Juliana Estrella
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Overview of profiles
“Self-Satisfied”
33 years old
C2 segment
“Cash Prince”
18 years old
D2 segment
“Lazy-optimists”
33-38 years old
D1 segment
“Savings Addict”
47 years old
D2 segment
“Seasonal-Jack”
51 years old
D1 segment
“Tempted”
45 years old
E segment
“Community Maven”
28 years old
D2 segment
“Orkuterati”
21 years old
D2 segment
“Budget Artist”
65 years old
E segment
“Just Welfare”
32 years old
E segment
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Customer Profiles: The New Comer
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33 years old
Lives in Rocinha
Monthly income: R$1900
Is a sommelier at a restaurant and
cleans motorcycles on weekends
Is evangelical / no lottery
Buys appliances in installments
Has internet at home
Has post-paid cell plan with Nextel
Finances
• Owns his home
• Current account at Bradesco, savings
account at CAIXA and 3 credit cards (2
Itau, 1 Bradesco for Casas Bahia)
Customer Profile: The Lazy Optimists
• 33 and 38-years old
• Monthly incomes: R$800-1000
• Both sell arts & crafts outside of
historic church in Olinda.
• Buy their appliances in parcelas
• Play lottery every week
What do you think?
Do they own their homes?
Do they have a savings and/or
current account?
Do they have credit cards?
Do they have internet at home?
Customer Profile: The Seasonal Jack
• He is 51 years old
• Lives in Maceio, Alagoas
• Has been a jangadeiro and fisherman for
34 years
• 5 children, 7 grandchildren
• Variable income: will do boat tours and
fish during one half of the year and then
needs to save for the ‘low-season’
Finances:
Owns his own home
Prefers to save up and buy ‘a vista’
Has a savings account at CAIXA and a
hipercard credit card
His granddaughter has BF for her child (both
live with him)
Has a cell phone and dislikes being in debt
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Customer Profile: The Community Maven
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28-years old
Lives in Morro dos Macacos in RJ
Unemployed, with 2 kids
Husband’s monthly income: R$900
Used to sell Açai
What do you think?
Does she own her home?
Does she have a savings and/or current
account?
Does she have internet at home?
Customer Profile: The Orkuterati
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21-years old
Lives in Santo Amaro, SP
Works as a copier
Monthly income: R$600
Lives with her mom and nephew, mom’s
income from ‘bico’
What do you think?
Does she own her home?
Does she have a savings and/or current
account?
Does she have internet at home?
Customer Profile: The Cash Prince
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18 years old
Moved to São Paulo from Paraiba
Is a helper at a store
Monthly income: R$700
What do you think?
Does he own or rent?
Does he have a savings and/or current
account?
Does he use his cell phone mainly for calls
or for SMS?
Customer Profile: The Savings Addict
• 47-years old
• Monthly income: R$700
• Has a stall at fair in Olinda (sells
coconut fiber tablecloths)
• Buys everything ‘a vista’
What do you think?
Does she own her own home?
Does she have a savings and/or
current account?
What kind of cell phone plan does
she have?
Customer Profile: The Tempted
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45 years old, has 5 kids & grandson
Lives in Restinga, Porto Alegre
‘Faxineira’
Makes R$300/month (if she gets extra
jobs, add R$100)
• Receives Bolsa Familia for 2 kids
• Her sister helps her out with food
Finances:
Recently got a Minha Casa, Minha Vida apt
(pays R$65/month)
She has a simplified account, but only uses
it to withdraw BF
Uses ATMs and lottery to withdraw
Used to have a credit card at Itau (but
couldn’t pay it off)
Tried buy insurance, but cancelled
“I buy everything I get offered on
the street– it’s so tempting!”
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Customer Profile: The Budget Artist
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She is 65 years old
From Penedo, Alagoas
Very recently widowed
12 people live in her home, including four
adopted grandchildren
• Her income is variable: She is a ‘bordadeira’.
She is part of an embroidery association and
her salary is based on how many of her
pieces sell (~R$100/month).
• She gets R$192 BF/month and her husband’s
pension of R$600.
Finances:
Owns her home
Has a savings account at CAIXA (no balance)
Receives pension in Bradesco account
Has a hipercard CC that she loves
“People sometimes do things they
can’t… the more [products] people
have, the more they spend.”
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Customer Profile: Just Welfare
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32-years old
Lives with her two sons
Lives in Sao Carlos, a favela in Rio
Has no job, lives from BF income
Bolsa Familia benefit: R$113
She has a pre-paid cell phone account
(spends R$7-12/month)
• Both of her sons have a rare blood
disease
Finances
• Owns her home
• Her mom, who receives disability welfare
helps her out at home
• Has bought appliances in installments
with her mom’s CC
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A view of financial services supply in the Brazilian Market
Advisory
$1575 - $5250
50% of pop
Everyone uses free
public state/city clinics.
Insurance industry still
has no reach.
Insurance
Short-term savings
C
Save in cash at home,
some have savings
account (esp with
CAIXA). Some savings
capabiity.
Formally employed
automatically enrolled
in INSS. Some might
have private pension
programs.
PROCON: Federal
consumer protection
Government. Banks’
customer service. Fin
Education program
(limited to some areas)
A view of financial services supply in the Brazilian Market
Advisory
Eligible for pension of
1 min salary.
$525 - $1575
30% of pop
Microinsurance industry
still too small. Everyone
uses free public state/city
clinics.
Insurance
Short-term savings
D
Save in cash at home,
some people have a
savings account (esp
with CAIXA) but
withdraw funds.
INSS available but D
segment not paying
into it or unaware
PROCON: Federal
consumer protection
Government Fin
Education program
(limited to some
areas)
A view of financial services supply in the Brazilian Market
Payments
If they have job,
mainly receive in
cash. Pay utilities in
cash through lottery
houses
• Rely on family
members for health
emergencies
• Free clinics for health
or specific programs
Insurance
Short-term savings
<$525
10% of pop
Save in cash at home,
if BF beneficiary, could
save in Conta Facil.
Mostly do not have
enough to save.
E
Issues that impact financial decision-making
1.
Low, irregular, unpredictable income
2.
Financial shocks
3.
Consumption/ 'temptation shock’
4.
Poor mental accounting
5.
Easy credit
6.
Psychological hurdle  big amount
7.
Indebtedness  practical and psychological
Issue 1: Low, irregular & unpredictable income
• Many in the D Class are informally employed. Informal work leads to some
months earning an income and other months not. Plus, to exacerbate the
irregularity, it’s not certain when work will pick up
• Lumpy income and expenses including utilities create financial stress. It’s
difficult for people to match the timing of income with that of expenses.
• Uneven cash flow and lack of ability to plan make saving in anything other
than the mattress difficult.
Issue 2: Financial Shocks
• Bill shock: though recurring, utility bills are not always fixed; they are
usually unpredictable in their amount.
• Health shock: public health services force people to lose days when
dealing with family illness. The expense of medicines can be shocking.
• Other unpredictable expenditures can throw a family’s economy for a
loop.
Issue 3: Consumption & Temptation
• Some cannot resist a culture of consumption.
• General consumption: What do people do when there’s extra income
left? People seem to buy superfluous or more expensive food, purchase
clothing or footwear and electronics.
• Temptation shock: Lack of self-control observed in sudden urges to
consume and helplessness to refuse children’s requests for expenditure.
“When my daughter
asks for money, I can’t
say no.”
The appeal to satisfy current desires is much greater than that of planning
for the future.
Access to consumer
goods now
Planning for the
future
Savings
Savings
Consumption
Credit
Comfort, status,
immediate gratification
Versus
Savings
=
consumption
deprivation
today
Issue 4: Mental Accounting
• For some, poor mental accounting is a barrier.
• “Bills and budgets are done in the head. This leads to mental underspending.”
• People expect to have more money by the end of the month because of
miscalculations.
Issue 5: Easy Credit
• Loans of many kinds, despite blacklisting, are available. Store credit and
split purchases, credit cards, and pastinhas.
• People also use overdraft facilities and get advances from family.
• “Even when indebted, they are still contacted by institutions offering them
credit.”
Issue 6: Psychological Hurdle- ‘Big Savings’
• People, for the most part, believe that savings are “a big deal.”
• “Bit by bit” is not the current mindset. People believe that small
incremental amounts will not amount to much.
• People’s perception is that in order to save successfully, one has to make
a substantial effort and put in substantial savings.
Issue 7: Indebtedness, practical and psychological
• Temptation in the midst of a consuming culture leads to indebtedness.
• Being burdened by paying off debt prevents people from saving. This
creates vicious cycle.
• Potential users are overwhelmed by the amount of debt they have, thus
creating psychological and practical barriers to saving and managing
money.
Issue 7: Indebtedness, practical and psychological
Having difficultiesNome
cleaning
sujoyour name has
something to do with people your social class?
A
B
C+
CD
E
17%
21%
34%
41%
54%
70%
Source: PlanoCDE, 2010
Sample: Recife 609 – São Paulo 1006 (dados não ponderados)
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1
What is special about Brazil?
2
What has CGAP learned from the CDE classes?
3
How can Brazilian banks serve these segments?
Few financial institutions are organized to use consumer insights
Enabling
environment
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Why few financial
institutions are
organized for
consumer insights
to lead to products
consumers want
View and process of
product development
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Cost of delivery
Basic understanding
of poor
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Restrictions on types of channels,
products and prices
Ability to strike partnerships
Managers feel alone in tyring unproven
products or reaching new segments
Inflexibility in the process
No ability to trial and iterate
Low margins on services to low income
consumers mean dramatically cheap
delivery channels
Focus on channel slows down product
development
Assumptions about the poor often
constrain product thinking
Poor consumers are treated as one
segment
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How financial institutions are developing products and innovating
Collect ideas from
consumers
Global view of how
financial intitutions
develop products
and innovate
Collect ideas from
Experts / Employees
Partnerships with
start-up providers
Test ideas, incubate
• Citibank’s Innovation Labs, Japan/NYC
• Bankinter Labs
• Standard Chartered and Singapore
Management University
• BBVA Plant 29, Spain
• EasySave, Kenya
• Standard Chartered China Innovation
Lab
• Uganda AppLab
From client observations to innovative products
Challenges and Opportunities: Foundational Research
• There are not enough efforts around the
wrold to carry out this kind of research.
• One of the best known examples is Finscope:
nationally representative research of
consumers’ perceptions on financial services
and issues.
• At CGAP we are considering foundational
research in various select markets: Mexico,
Ghana and Brasil
Example: Foundational Research in Mexico
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Segmentation analysis of the base of the pyramid with qualitative insights by
segment.
Idea: to understand the financial needs and perceptions of the lower income
segments in Mexico
Mexicano context: Banks are increasing their capilarity, but they are still not
reaching the poorest
Existing studies are only demographic and offer information that is too general
Mixed research methodology: qualitative and quantitative (carried
out with McKinsey)
1. Quantitative survey (426 interviews, nationally representative);
linked to household statistics (ENIGH)
2. 31 interviews in more depth (2 hs)
3. 3 focus groups to validate conclusions
Market research based on four dimensions: (1) structure of income and
expenditure flows, (2) preoccupations, (3) aspirations and (4) strategies in
money management.
(1) Foundational insights for product development
(2) Common understanding of financial inclusion
52%
Families at the BOP that have an active relationship
with a formal financial institution
10%
Only 10% use formal savings
mechanisms*
* In the broadest sense, including temporary storage
50%
Only 50% of credit is formal
(3) Common understanding of impact of financial inclusion on
GDP
Advancing financial access for the world’s poor
www.cgap.org
www.microfinancegateway.org