Behaivorally-informed approaches to disclosure: What works for - - PowerPoint PPT Presentation

Behaivorally-informed approaches to disclosure: What works for consumers?

1

Rafe Mazer Financial Education & Investor Behavior Conference Rio de Janeiro – December 8, 2015

2

3

Behavioral economics matter in financial consumer protection because…

• Financial products are particularly complex
• Trust is key for products and financial sector
• verall
• Certain business models exploit consumer

biases

• Economic consequences of financial

mistakes particularly harmful for low-income consumers

4

• Scarcity and stress of low, informal

income can impact decision-making

• Social & economic barriers to formal

finance & suitable products

• Increased access via innovative channels

and platforms

• Lack of research and data on these

consumers, providers, and markets

5

Behavioral research matters more for BoP financial consumers

When thinking about pre-sale and choice of financial products and services, there are a number of critical elements to consider

1. Content of information 2. Timing of information delivery 3. How the choice and product is framed 4. Source of the information 5. Channel  This becomes even more complicated when transitioning from traditional, brick and mortar products to digital financial services

6

CAT= 267% CAT= 107%

Disclosure Challenges for Consumer Credit & Savings Accounts in Mexico

Lab Experiment to Improve Savings and Credit Product Disclosure

Low-income subjects from Mexico city and surroundings were invited to a session to test several savings and credit disclosure forms (treatments). Each session had 30 participants and lasted between 1.5 – 2 hours. Each session had 4 rounds, each with a different disclosure treatment. Participants were paid 200 Pesos (USD $16) to show up and could win 100 Pesos more depending on answers. Prior to the session, some participants received SMS and live calls about financial decision-making

Experiment Design

Savings

– Participants with a fictional endowment of 5000 Pesos had to choose the best savings product. – Participants were assigned to one of two usage profiles:

• Profile 1: 2 inquiries and 2 withdrawals of 250

Pesos per month.

• Profile 2: No monthly activity

Credit

– Participants had to choose the best 12 months, 10,000 Pesos loan product.

Treatments Tested

• Each treatment presented 5 or 10 credit or

savings products with information on different terms.

• The terms of the products were simulated using

distributions taken from the market and then they randomly assigned to participants.

• None of the participants received the same

combination of products

• Participants could win additional money

depending on answers.

Producto Institución GAT (Ganancia Anual Total)* Ganancias en un mes sin ninguna actividad Ganancias en un mes con actividad** A Batoamigo

• 0.02%

$0.50

• $3.75

B Finamigo 1.79% $7.92

• $4.88

C Santander

• 0.68%
• $1.00
• $1.00

D Banco Ahorro Famsa

• 0.08%
• $0.17
• $0.25

E Financiera FinComun

• 0.63%
• $0.42
• $12.88

* GAT (Ganancia Anual Total) es un porcentaje que representa el dinero obtenido de una inversión o ahorro durante un año, se

• btiene de restarle al rendimiento generado las comisiones cobradas.

** Incluye dos consultas y dos retiros al mes de 250 pesos cada uno, sin ninguna penalidad por no mantener el saldo promedio mínimo mensual requerido.

Producto Institución Monto mínimo de apertura Comisión por apertura Comisión por manejo de cuenta Saldo promedio mínimo mensual requerido Comisión por no mantener el saldo mínimo requerido Comisión por consulta de saldo en cajeros propios del banco Comisión por retiro de efectivo en cajeros propios del banco Comisión por inactividad Tasa de interés anual GAT (Ganancia Anual Total)* Ganancias en un mes sin ninguna actividad Ganancias en un mes con actividad** A Libertad Servicios Financieros $100 $20 $9 $250 $45 $9 $1 $0 2.0%

• 0.61%
• 0.43%
• 0.48%

B Financiera FinComun $650 $15 $7 $300 $40 $0 $8 $0 1.0%

• 1.01%
• 0.39%
• 0.43%

C Banco Compartam

• s

$750 $20 $0 $950 $90 $0 $0 $0 1.5% 1.06% 0.11% 0.13% D HSBC $200 $0 $0 $900 $55 $0 $0 $0 1.8% 1.77% 0.14% 0.15% E Caja Popular Mexicana $400 $15 $2 $300 $65 $0 $3 $0 1.6% 0.78%

• 0.04%
• 0.04%

* GAT (Ganancia Anual Total) es un porcentaje que representa el dinero obtenido de una inversión o ahorro durante un año, se obtiene de restarle al rendimiento generado las comisiones cobradas ** Incluye dos consultas y dos retiros al mes de 250 pesos cada uno, sin ninguna penalidad por no mantener el saldo promedio mínimo mensual requerido.

5

Producto Institución Monto que recibes Pagos mensuales Seguro de vida En Total Pagas

A

Bancoppel $10,000 $1,224 Si 146.85%

B

Financiera a Emprender $10,000 $1,281 Si 153.76%

C

Banorte $10,000 $1,162 Si 139.49%

D

Financiera Ayudamos $9,173 $1,205 Si 144.60%

E

HSBC $10,000 $1,177 Si 141.22%

F

Caja Popular Mexicana $10,000 $1,191 Si 142.87%

G

Banamex $8,797 $1,075 Si 129.03%

H

Finamigo $10,000 $1,286 Si 154.27%

I

Libertad Servicios Financieros $8,878 $1,231 Si 147.67%

J

Financiera Independencia $10,000 $1,137 Si 136.50% *CAT (Coste Anual Total): Coste total del crédito expresado en porcentaje anual que incluye los costes y los gastos totales del crédito a contratar y permite efectuar comparaciones entre diferentes ofertas de crédito.

27

Producto Institución Monto que recibes Pagos mensuales Seguro de vida En Total Pagas

A

Crédito Familiar $10,000 $1,150 Si $13,796

B

Financiera Ayudamos $9,611 $1,045 Si $12,934

C

Dimex $9,484 $1,075 Si $13,419

D

Scotiabank $10,000 $1,306 Si $15,674

E

Bancomer $9,602 $1,087 Si $13,445 *CAT (Costo Anual Total): Costo total del crédito expresado en porcentaje anual que incluye los costes y los gastos totales del crédito a contratar y permite efectuar comparaciones entre diferentes ofertas de crédito.

Fewer Options and Simpler Content Improves Consumer Choice

38,7% 36,9% 67.3%*** 55.7%*** 60.7%*** 42,1% 40,6% 45.5%*** 0% 10% 20% 30% 40% 50% 60% 70% 80% Credit Savings

Percentage of people that chose best product

Original leaflet 5 Simple 5 Complex 10 Simple

Summary of results

Treatments improve decision making compared to the current leaflets. Positive impact of changing APR/APY to pesos. SMS / calls showed no effect. Financial education and educational level correlate positively with the ability to choose a cheaper product.

Mystery Shopping in Mexico Shows Why Disclosure Matters—but may not be sufficient

» Points of information

provided to credit shoppers

» Percentage of all mystery shoppers receiving

any printed materials

14.2 of 33 items

*Graphs independently scaled

“Experienced” Profile “Inexperienced” Profile 6.2 of 33 items

Savings .77

» Points of information provided

to savings shoppers

9.8 of 22 items 6.6 of 22 items

30%

» Mean printed materials provided

to shoppers Credit .65 Points of information provided to mystery shoppers during sales visits

20

Tariffs are widely published at agents, but often unavailable at the time of the transactions

Disclosure of prices and fees in mobile money

How does digital delivery of credit change consumer behavior and risks?

In a digital environment, do borrowers. . . … resist temptation better/worse with unexpected SMS offer? [take-up rate] … focus adequately on how they will repay? [hyperbolic discounting] … perceive turning down offer as a loss, or feel “honored” to receive an offer that is “pre-approved” (ref push marketing)? … respond to “framing” re the amount they qualify for, above or below the amount they would request if they had to ask? (ref automatic approvals of certain amounts) … “feel” loss/gain of digital money differently than cash?

21

Initial evidence from CGAP experiments with digital lenders

• 1. Adjustments in framing of summary product

costs made consumers more likely to review these terms, and reduce delinquency.

• 2. Timing of SMS and use behavioral “nudges”

in repayment reminders can increase repayment rates.

• 3. Consumers more frequently opted into

educational content for a digital savings/loan product when the loan component was emphasized.

22

How does digital delivery of credit change consumer behavior and risks?

vs.

Choose your repayment plan: 1.Repay 228 in 45 sec 2.Repay 236 in 1min and 30sec 3.Repay 244 in 2min and 25sec Choose your repayment plan: 1.Repay 200 + 28 in 45 sec 2.Repay 200 + 36 in 1min and 30sec 3.Repay 200 + 44 in 2min and 25sec

Separating finance fees leads to better borrowing decisions

Clarifying interest rates led to a reduction in default rates on first loan cycles from 29.1% to 20%

Terms and Conditions viewing increased from 9.5% to 23.8% by making it an active choice

Welcome to TOPCASH: 1.Request a loan 2.About TOPCASH 3.View T&C’s Choose your loan amount: 1.KES 200 2.KES 400 3.Exit Loan Welcome to TOPCASH: 1.Request a loan 2.About TOPCASH Kindly take a minute to view Terms and Conditions of taking out a loan:

• 1. View Ts&Cs
• 2. Proceed to

loan request

vs.

Active choice approach increases viewing of T&Cs

***

Behavioral Framing Variation Behavioral Framing Variation

10 20 30 40 50 60 70 Control TCs Salience

Loan Selection by Treatment

Low Amount Medium Amount High Amount 0% 5% 10% 15% 20% 25% 30% 35% Control TCs Salience

Treatment Effect on Default Rates

**

Increasing upfront price disclosure reduces borrower default

Variable Value Total Number of Messages Sent 22,881 Number of Invite Message Treatments 7 Average Number of Messages for each Invite Variation 3,268 Number of Reminder Message Sent 14,860* Average Number of Messages sent each timeslot 4,576 Average Number of Messages sent each day 3,268

Interactive SMS Educational Content for Digitally-Delivered Credit and Savings Products

26/21

Adoption levels varied significantly based on the framing of the message

1 2 3 4 5 6

Control Cognitive Load Price Savings Loss Framing Call to Action Grow Your Money Social Norms

Adoption Percentage 10.2% Increase 20.8% Increase

27/21

1 2 3 4 5 6 7 Control Cognitive Load Price Savings Loss Frame Call to Action Social Norms Grow Money

Adoption Percentage

Combined Savings Loans

Referencing the loan feature was significantly more effective at driving engagement than referencing the savings feature

28/21

Interaction on the digital learning platform leads to significantly more savings on the digital platform.

200 400 600 800 1000 1200 Not on Arifu Platform - Did Not Receive Invite Not on Arifu Platform - Received Invite On Arifu Platform - Received Invite

Average Total Savings in Local Currency

29/21

Not invited Invited but did not join Invited and joined

Narrative and personality driven content streams led to 20-24% increase in savings levels over the standard fact-based training.

200 400 600 800 1000 1200 1400 Not on Arifu Program Fact Based Training Narration Based Training Social Norms Based Training Personality Driven Trainer

Average Total Savings in Local Currency

30/21 Not in program

What is next in digital finance?

31/35

32

Advancing financial inclusion to improve the lives of the poor

www.cgap.org

Questions/Perguntas: rmazer@worldbank.org