Africa Finance Forum Blog
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For the Kenya Post Office Savings Bank (KPOSB) and the WSBI Programme, a really powerful tool for better understanding the client journey was the analytical work we collaboratively started late 2014 with the aim to understanding reasons and finding solutions for people not using their account after a first initial deposit had been made.
Account dormancy is an industry-wide problem. It turned out to be bigger than expected, although at most WSBI's Programme partner banks, inactivity is less pronounced compared to the industry average rates for formal financial institutions.
Account inactivity rates
Industry average inactivity
WSBI Program partner inactivity
A dormant account is a lost opportunity. Account dormancy or inactivity means different things to different groups of people. Irregular use and periods of inactivity are common patterns. Some clients use the account to save for a purpose, others may only access it in an emergency, and farmers save and withdraw alongside their crop cycles. It is crucial to provide multiple use options from the start and data analytics can help to classify usage and to tailor marketing messages. Therefore WSBI and KPOSB wanted to analyses and test how best to re-engage with the customer through an in-house built solution for data analytics and messaging.
Some of the questions needing answers:
What is a typical time gap between the first and the second transaction? Are our customer's savings and transaction patterns changing if nudged by messaging? Is there any hope that some of the accounts that have only seen an opening deposit may come live again? How frequent do customers require engagement?
Using a new fully enabled mobile banking product and after looking at activity within a sample of 3,500 accounts from May through August 2015 as a benchmark, we found that 79% of the accounts were inactive. Of these, 28% had zero balance. For a new mobile money product, these benchmarks fell far short of expectations. From May to August 2015, KPOSB sent inactive customers of the 3,500 sample "reengagement messages" to test whether this could increase their activity levels. Whilst some customers increased their savings balances, the messaging failed to produce the expected boost in activity rates. What we found was that in order for the messaging to work, the timespans between the first client contact and the following message shouldn't be too long (50 days instead of three months). This is because the majority of active users who transacted multiple times (more than 70%), would do their second transaction within 50 days of the first contacts made.
Small-data analytics work best for datasets not going beyond 300,000 transactions and are a simple segmentation tool for understanding people's transaction cycles and for identifying non-use. It is however not a silver bullet for massive take up in account activity. An in-house-built solution stands and falls with the insights into how macros can be built around the customer journey and how (seasonal) transaction gaps could be interpreted. Tracking and interpreting larger client numbers requires big data analytics, i.e. proper business intelligence tools. Subsequently nudging customer behaviour requires repeated client engagement and messaging. Therefore it looks more like an investment than an operating cost with an immediate pay-back. Investment costs into paying specialist FinTech firms for doing the interactive messaging business need to be looked at in this light. Purchasing segmentation tools externally is costly, even for mid-sized banks targeting the unserved poor. Donor support can really help here to operationalise client centricity.
As we look for comprehensive solutions to emerging dormancy, doing qualitative research with customers before engaging in quantitative analysis and sending out messages turns out to be absolutely essential.
About the Authors
Weselina Angelow is part of WSBI (World Savings and Retail Banking Institute)'s global efforts to providing an account for everyone and making a contribution to universal financial access. She manages the WSBI Programme for making small scale savings work, a Programme run with WSBI member banks worldwide.
Winnie Omondi is an Assistant Manager - Business Systems Support at Kenya Post Office Savings Bank (KPOSB) She has been actively involved with project work at Postbank with various local and international partners where she handles data extraction for onward analytics by these partners. Her focus is on deriving patterns of account usage and studying customer behavior over time.
Benson Wanyoike is a graduate in Marketing with nineteen  years' experience in fields related to Marketing & Sales, Customer Service, Microfinance and Management of Alternative Banking Channels. He has experience in capacity building in the above areas and has interacted with various stakeholders in managing customer relationships. He participated in the process of developing a customer service strategy for Postbank and the transformation of Postbank Kenya.
 Activity for mobile money users is measured for at least 1 transaction within 90 days. Activity for savings account users at WSBI partner banks is measured for at least 1 transaction within 180 days. Industry average calculations: Worldbank Findex Estimate of Total Adults with an Account at a FFI - formal financial institution (total / depositing) and IMF FAS Estimate of Total Accounts, S. Peachey Proxy Method 2015.
 Tanzanian Banks were recently required to clean-out dormant accounts; WSBI partner bank data is based on figures prior to clean-out.
What we learned from the Conference on Financial Sector Development in African States Facing Fragile Situations? - Part 119.07.2016,
Last month, leaders from the public and private sectors and development partners gathered in Abidjan to discuss the links between fragility, resilience and financial sector development in Africa. This event, a joint initiative created by the African Development Bank, the Making Finance Work for Africa Partnership (MFW4A), FSD Africa, FIRST Initiative and the Initiative for Risk Mitigation in Africa (IRMA), also provided an opportunity to explore prospects for partnerships, innovative policies and private sector-led solutions to accelerate financial sector development in fragile situations in Africa.
In this first instalment of a six-part series, Amadou Sy, Senior Fellow and Director of the African Growth Initiative, Brookings Institution, looks at some of the major takeaways of the conference.
What is fragility?
Using a "harmonized definition," the African Development Bank (AfDB), the Asian Development Bank, and the World Bank classify states as being fragile when they exhibit poor governance or when they face an unstable security situation. For practical purposes, governance is measured by the quality of policies and institutions (states with a CPIA score less than or equal to 3.2) and insecurity is assessed by the presence of United Nations or regional peace keeping operations (PKO). In sub-Saharan Africa most fragile states are also low-income countries (LICs).
While the focus of the "harmonized definition" is on institutions and insecurity, participants stressed that fragility is a multi-faceted concept. In particular, fragility implies weak state institutions, poor implementation capacity, underdeveloped legal and financial infrastructure as well as low social cohesion and the exclusion of a large share of the population from financial and other services. The nature of fragility is also fluid and fragile states face situations ranging from violent conflicts to post-conflict economic recovery. The sources of fragility go beyond poor governance, low GDP per capita, and conflicts to include vulnerability to commodity shocks and other macroeconomic shocks, and exposure to the risk of pandemics.
The need to broaden the definition of fragility was further explored with reference to a quote from President Ellen Johnson Sirleaf of Liberia "fragility is not a category of states, but a risk inherent in the development process itself". Mr. Sibry Tapsoba, Director of the Transition Support Department of the AfDB argued for a multidimensional approach, which applies a fragility lens to (i) look beyond conflict and violence; (ii) focus on inclusiveness and institutions; (iii) recognize the importance of the private sector; and (iv) recognize the presence of asymmetries in resources, policy, and capacity.
Participants also insisted on the need to go beyond the negative connotation of fragility and recognize instead that fragile states are in transition and present opportunities for human and financial sector development.
What role for financial sector development (FSD) in fragile countries?
Empirical evidence points to the positive role that financial sector development (FSD) can play in fragile countries. There is a positive correlation between financial sector and economic growth, poverty reduction, and inequality reduction. FSD can be a driver of growth through increased job creation and it can help mitigate risks through increased savings, loans, and insurance.
A key finding stressed by Ms. Emiko Todoroki, Senior Financial Sector Specialist at FIRST Initiative is that fragile countries fare worst in all macro and financial metrics, except one: the share of adults with mobile accounts. Digital financial services are offering solutions in fragile states and there is a need to understand better their role.
In the same vein, Ms. Thea Anderson, Director at Mercy Corps argued for the need to focus in on micro issues such as the role of delivery channels, payments infrastructure, insurance, and blended finance (including impact investment), and Islamic finance. As she noted, FSD is relevant even in the more volatile security situations. For instance, refugees and internally displaced persons (IDPs) can be viewed as a market segment and their financial inclusion can be kick-started with the use of functional identification (which also help comply with Know Your Customer (KYC) requirements). Mr. Paul Musoke, Director of Change Management at FSD Africa also highlighted the role of markets and market building in a difficult context. He noted the need to look for scale, sustainability, and systemic change. As markets are dynamic and not predictable, taking a systems approach can be useful. Such an approach includes asking questions such as what factors are going to play a role in the future? Who is going to pay for infrastructure? What level of development should we target?
Lastly, Mr. Cedric Mousset, Lead Financial Sector Specialist, World Bank reminded the audience that governance remains a key dimension of fragility. Weak governance in fragile countries exposes them to a higher risk of non-compliance with regulations such as anti-money laundering and combating the financing of terrorism (AML-CFT) regulation. Improving governance, although it may be a slow process, is needed to support FSD. Measures to support political stability, improve the business and macroeconomic environment, ensure legal security, and build capacity remain important.
You can download all the presentations on the conference website.
You can also view a selection of photos here.
For more information, please contact:
Pierre Valere Nketcha Nana