Leveraging Chatbots to Drive Financial Inclusion

Quick author’s note: I originally wrote this paper with the DFS Lab team as part of my application for a grant from the Bill and Melinda Gates Foundation. I recently found out that my application was successful so I wanted to share this ‘Theory of Change’ document for anyone else interested in financial literacy and mobile-messaging applications. I know I still have a lot to learn about this space so please reach out if you want to discuss this paper or Teller.

Improving Access to Financial Services Through Mobile Messaging Applications

In recent years, the rise and spread of mobile phones has provided a valuable tool for people to connect with each other, access information, and interact with businesses in new ways. In the same period, however, banks and other financial institutions have been slow to embrace mobile technology to provide widespread access to financial guidance and services.

We believe that mobile phones, and especially mobile messaging applications, provide the perfect channel to increase access to financial services and also deliver financial coaching and guidance. Coupled with the ability to understand ‘natural language,’ mobile messaging applications can allow everyone in the world to have their own personal financial coach in their pocket. In the not-too-distant future, these financial coaches will not only have a full picture of an individual’s financial situation, but will be able to proactively provide tips and manage their financial services and accounts.

“We believe that mobile phones, and especially mobile messaging applications, provide the perfect channel to increase access to financial services and also deliver financial coaching and guidance.”

In this paper, we discuss the state of financial education and literacy, why banks and financial institutions are the ideal organizations to provide messaging-based solutions, and how Teller’s technology can enable these financial institutions to improve access and use of their financial services.

Section 1: Financial education is proven to raise economic outcomes

Two of every three adults worldwide are financially illiterate, meaning they lack the knowledge and skills to use their financial resources effectively for lifetime financial security. This staggering share of people is disproportionately concentrated in developing countries, where formal financial services and financial assistance programs are often lacking. Among the financially illiterate, women, the poor, and lower educated respondents are more likely to suffer from gaps in financial knowledge.1

Financial literacy only provides an educational descriptor of a population. To actually see why it matters to general well-being, we need to go one step further. Numerous studies have shown a strong relationship between financial literacy and positive economic outcomes. In one of the first studies in this vein, Hilgert et al. (2003) document a “strong relationship between financial knowledge and the likelihood of engaging in a number of financial practices: paying bills on time, tracking expenses, budgeting, paying credit card bills in full each month, saving out of each paycheck, maintaining an emergency fund, diversifying investments, and setting financial goals.”2

Furthermore, as household income and wealth begins to increase, numerous studies demonstrate marked improvements in both health and happiness.34 Building better financial habits and accumulating savings is one small, but important, tool to increase general quality of life.

Section 2: Banks and financial institutions should provide coaching programs

One strategy to improve financial literacy is to simply improve access to financial services and encourage usage. According to a 2015 S&P Study on Financial Literacy, “adults who use formal financial services like bank accounts and credit cards generally have higher financial knowledge, regardless of their income. Even poor people who have a bank account are more likely to be financially literate than poor people who do not have a bank account.”

Even more importantly, academic work by the DFS Lab team has shown that access to formal financial services can improve income and well-being and help bring people out of poverty.5

Clearly, greater access to financial education and financial services offer a straightforward path to better economic outcomes for the financially uneducated and underserved. At the intersection of these two spaces (education and services) lie formal financial institutions such as banks.

A financially educated population not only offers these positive externalities, it is also actually good business for banks. Financial education can be the difference between a profitable loan repayment and an unprofitable loan default. Financially savvy customers are also more likely to use additional banking products. So why haven’t there been wide scale efforts by banks to tackle financial illiteracy?

Historically, providing a wide-scale, in-person financial coaching program would encounter the following obstacles:

  • Location dependence — a bank would only be able to serve an audience in its geographic vicinity
  • Labor dependence — financial counseling would require educated financial counselors or volunteers
  • Time dependence — requires that bank customers be free and available during the financial counseling sessions
  • Language dependence — the bank must provide support in multiple languages
  • Fear of the unknown — research has shown that for many, formal financial services can seem intimidating, inaccessible, and only for the wealthy.6

All of these factors contribute to a very high cost for educating and serving the most at-risk customers: women, the poor, and the uneducated.

Section 3: Teller is the first truly scalable financial coaching tool

How can banks provide financial education at scale and also address the many challenges posed by existing models of educational programs? The answer is through mobile messaging applications such as SMS, Facebook Messenger, and Whatsapp.

In the past few years, messaging applications have grown exponentially, and now have over four billion monthly active users.7 Adding in SMS, messaging apps are available to nearly everyone in the world. After all, unlike smartphone mobile applications, even the most basic feature phones are capable of sending and receiving messages. In this same time frame, two very important developments have taken hold:

  1. The opening of messaging platforms for developers — As of two years ago, it was impossible to build a messaging application ‘inside’ one of the popular messaging platforms. However, more recently, the major tech companies have recognized the same potential that we are highlighting right now: businesses and other organizations will want to communicate with users through messaging. Accordingly, many of the major messaging platforms including Facebook Messenger, Line, and WeChat have already opened the gates, and many others will follow in the next few quarters.
  2. The rise of ‘natural language understanding’ engines — Just a few years ago, if you wanted to build any kind of chat-based software, you would need to hire PhD’s to help you build the artificial intelligence backend of your application. These days, major tech companies are racing to release their cutting edge ’NLU’ tools to give developers access to the same technology that powers IBM Watson and Amazon Alexa.

With these new NLU tools, and messaging apps to deploy them, businesses are exploring brand new ways to provide services. These new services are commonly called ‘chatbots.’

Teller is a messaging platform, or ‘chatbot,’ that uses natural language understanding to help banks and other financial institutions, on-board, educate, and provide continuing support to their customers. A potential bank customer can chat with Teller to learn step-by-step how to open a bank account, set savings goals, build their income, and more.

Teller directly addresses many of the previous hurdles to chatbots.

  • Location agnostic — users can message their financial institution from anywhere in the world
  • Automated — because the entire system is automated, a chatbot can talk to ten or tens of thousands of customers at once (with only minimal staff needed for escalations)
  • Time independent — users can start a conversation, and if they get busy, resume hours or days later whenever they have time
  • Language independent — Teller will be available in multiple languages such as English, Hindi, Swahili, and others
  • Low barrier to use — talking to a real person in a bank can be intimidating, while chatting with a virtual banking assistant through a messaging app is much more approachable

Because no humans are involved, and the technology is hosted on cloud services (like Amazon Web Services), the cost for providing these tools is extremely low. Teller is currently exploring pilots with major financial institutions in both South Asia and Africa. These financial institutions are leveraging the Teller technology to scalably provide quick and convenient customer service and education to their customers. They are also excited at the prospect of using Teller to expand their reach to new customers.

Conclusion

Existing research, including and especially work done by the DFS Lab members, indicates that increasing financial literacy and access to financial services provide an achievable solution to improving economic well-being. Banks have historically been unable or unwilling to take on this challenge based on their own internal cost-benefit analyses. However, recent developments like NLU technology and the opening of messaging applications have created an opportunity. Teller allows banks to cheaply and scalably provide financial coaching and guidance to new and existing customers. With the help of Teller, financial institutions will finally be able to offer quick, convenient, and personalized financial guidance to anyone in the world.

Footnotes:
1. http://gflec.org/wp-content/uploads/2015/11/Finlit_paper_16_F2_singles.pdf 2 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3753821/
2. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3753821/
3. http://www.apa.org/monitor/oct01/wealthhealth.aspx
4. http://www.urban.org/sites/default/files/publication/49116/2000178-How-are-Income-and-Wealth-Linked- to-Health-and-Longevity.pdf
5. http://www.nber.org/papers/w22633
6. https://www.fdic.gov/consumers/community/research/qualitativeresearch_may2016.pdf
 7. https://research.hubspot.com/charts/messaging-apps-have-over-4b-monthly-active-users

Teller at Digital Banking 2017

Super excited to attend my first Digital Banking conference, especially since it's in Austin! I can't wait to meet everyone and learn more about the innovative technologies coming to the retail banking world. 

If you are attending and want to meet up or grab a coffee, please let me know by sending a message to info@textteller.com. See you there!

 

(Link) Can Chatbots Promote Financial Inclusion?

Since attending the DFS Lab in Sri Lanka, I've been thinking a lot about how chatbots can be used to promote financial literacy and access to financial services. I believe that given mobile penetration around the world and the proliferation of messaging apps, chatbots present a great opportunity for formal financial institutions to reach new customers. Many of the same thoughts are echoed in this write-up about chatbots being used to promote financial inclusion. 

Attracting Millennials Through Online Support

I found this article on LinkedIn and am really glad I came across it. While I had an intuitive sense for much of the findings in this report, I was glad to see it confirmed through this research study. One thing really stuck out to me: 

  • Online before Phone Support: >60% of the respondents that eventually call the support line for their bank first look online at the banks website or do a search on Google.

It's clear to me that customers actively try to answer their questions themselves if they can (or conversely, really dread calling customer support). This is just one of the reasons that I feel like a chatbot solution is perfect because it provides customer support answers without the time and effort required to call your bank. 

Buzzfeed Money Hacks

I don't usually love Buzzfeed 'listicle' articles, but this one caught my attention. I have a lot of thoughts about the author's approach but regardless of any of her tactics, I applaud her for trying to change her habits and spend more consciously. 

Now, a few (completely personal) thoughts on her 'hacks': 

  1. Making your coffee at home and cooking in bulk are great tips! I make coffee at home, and especially love making this cold brew kit. 
  2. I have mixed opinions on using cash instead of credit cards. On one hand, it is much easier to see how much cash you are spending. On the other hand, cash doesn't offer any of the protections or benefits of using credit cards: digital record, purchase protection, cashback, etc. But if this works for you, go for it!
  3. I feel pretty strongly that 'entering contests' isn't good financial advice. 
  4. Instead of 'signing up for loyalty programs', I would broaden this tip to be smart about shopping. Look for coupons, comparison shop, buy store brands, etc. Another great tool is the chrome extension Honey, that automatically tries to find discount codes. 

I still believe that there aren't perfect tips for every person. You really have to do what this author did and see what works for you. 

FinX Financial Services Workshop

This past week, I was invited to a workshop run by the Center of Financial Services Innovation (CFSI) and hosted by J.P. Morgan Chase. The workshop started early in the morning with breakfast and introductions. The next hour was spent setting context for the workshop, describing the goals for our activities, and planning logistics for our “field activities” (described below).

Income Stability

During the intro presentation, we covered many of the sobering facts concerning the financially underserved community. One specific statistic that I hadn’t seen before was that nearly 90% of the U.S. adult population preferred income stability to income growth. Both are clearly desirable, but it was surprising to me that the breakdown was so heavily skewed towards stability. To supplement the figure, we walked through the finances of a real household in N.Y. in which the husband is a construction worker, and the wife worked in childcare. On average, they made enough money to get by, but the month-to-month fluctuation of their income was staggering.

The takeaway for me was that any financial empowerment program should not just assume that a higher income or more money is going to solve every problem. A key focus should be on teaching people how to reduce or manage the weekly or monthly fluctuations in their income. It also made me think about just how crucial it is to have a emergency fund.

 

Fieldwork

The second part of the workshop involved putting ourselves in the shoes of the underserved communities. We were tasked with completing several financial transactions the same way that many lower income households accomplish them. The tasks were:

  • Cashing a payroll check
  • Cashing a personal check
  • Purchasing a reloadable debit card
  • Adding money to the reloadable debit card
  • Sending money via Western Union
  • Receiving money via Western Union
  • Getting a money order
  • Visiting a pawn shop

Our assigned location was in Harlem and was centered at the intersection of Malcolm X Blvd and 125th St. We had about 20 minutes to develop a plan, so we used our phones to locate a few check cashing places, Western Union locations, and other local financial shops. After that we took off on the subway, and quickly arrived to start working on our tasks. While we weren’t able to finish everything, here are quick highlights from what we did get to.

Cashing a Check

Part of our package included a payroll check made out in my name, that we needed to cash. The first check cashing place we went to rejected us because the check was issued by an out-of-state company. Thankfully, we hadn’t waited in line for that long and decided to leave and try another place. The second check cashing place we visited didn’t have that restriction, so I was able to cash my $80 check and get back about $78.40. Thankfully, NY regulates these rates and has set a standard 2% fee.

Prepaid/Reloadable Debit Card

Part of the assignment was to also buy a reloadable/prepaid debit card. Although I wasn’t aware of this, many people use these to give money to kids, babysitters, or themselves when they don’t want to carry plain cash. To purchase a new $10 card, I had to pay a $3.95 fee. Later, when I wanted to add $20 to this card, I had to pay another $3.95. For a total transaction amount of $30, I paid $7.90 or about 26%. At least for those given values, that is a pretty hefty fee.

Sending Money

In order to send money, we decided to locate a Western Union store. We quickly realized that we could send money from a Duane Reade store, and accomplishing this task was relatively easy. The particular Duane Reade we went to had a Western Union machine that was able to guide us through the whole process (yay technology!). However, when we went to receive this transfer at a Rite-aid, there was simply a Western Union telephone that we could use to call Western Union. This process was much harder as the call quality was terrible and it involved transcribing a lot of information. While I didn’t personally conduct these two transactions, and therefore didn’t mark down the fees, I still realized how slow and inefficient this process is in the age of Venmo, Square, Apply Pay, etc.

Overall Thoughts

  • The people who worked at the check cashing stations were very helpful. Perhaps they could tell that it was our first time, but they did a great job explaining the products and what information was needed. This job must require endless patience.
  • The wait times weren’t too bad, but I can’t imagine waiting in line multiple times a week, and potentially with small children.
  • The fees were probably the most upsetting part of the exercise, because for every single transaction, we had to pay a few dollars to get it done. Tragically, and paradoxically, it confirms the notion that ‘being poor is very expensive’.

As we debriefed with the other attendees, I noticed everyone was a little more energized to help solve the problems we witnessed. Many of the J.P. Morgan employees pointed out that they have a ‘Liquid’ card, which could help eliminate many of the fees we incurred. Another attendee made a great point that instead of trying to solve these issues with new products, we could also try to improve the technology of the existing institutions to better serve their customers.

 

This workshop was extremely valuable to me because although I had written about these topics before, I had never truly experienced the difficulties of being unbanked. That is not to say that a half-day’s worth of pretending can truly help me understand. On the contrary, I felt even more empathetic for people who aren’t ‘pretending’ and have to accomplish these tasks every single day.