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:
- 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.
- 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.
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.
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/
4. http://www.urban.org/sites/default/files/publication/49116/2000178-How-are-Income-and-Wealth-Linked- to-Health-and-Longevity.pdf