Field Note 8 CHANGING CHANGE MANAGEMENT: ADAPTING INTERNAL AND EXTERNAL CULTURE IN TIMES OF DIGITAL TRANSFORMATION INTRODUCTION The ease with which customers access digital financial services (DFS) can make such implementations appear deceptively simple – with just a click on a mobile phone and a customer will be able to make payments, save money, access credit, and even become insured. Launching a digital channel is not a simple endeavor however. It requires a relevant strategy, the right technology solution, the operational know-how, and a very good understanding of customers. The changes involved in ‘going digital’ touch all External aspects include how to introduce levels of the business and may even challenge the new digital channel to customers and the the established business model or institutional support they need in transitioning from mainly identity. The successful implementation of a face-to-face interaction to a more digital digital channel thus requires a sound change one. The guidance presented here is based on management plan. In fact, many digital projects evidence from nine financial institutions in Sub- that failed or struggled have done so because Saharan Africa that the research team followed they did not address the change factors related during a period of four years, 2012-2018, as part of to digitizing different areas of the organization1. the Partnership for Financial Inclusion initiative by IFC and the Mastercard Foundation. When implementing a DFS, FIs often tend to focus on the “hard” or technical implications When introducing their digital channels, these of the digital venture, paying little attention institutions first established strategies generally to other areas affected by the project. Hence, centered on increasing outreach, gaining this Field Note mainly focuses on addressing operational efficiency, and mobilizing savings. the “soft” or interpersonal aspects of the digital As part of their strategic implementation, some transformation. FIs tested and adopted change management mechanisms to support the introduction of the The internal aspects deal with how a DFS DFS, while others did not. This research note project can transform an organization and draws on their experiences and learnings on how how that transformation should be handled; to deal with the cultural, organizational and the challenges of managing change and staff business process changes that impacted staff, expectations and the adaptation of business customers and funders. processes for accommodating the launch of a digital solution. Mckinsey https://www.mckinsey.com/featured-insights/leadership/changing-change-management 1 2 BOX 1: DFS CHANGE MANAGEMENT FRAMEWORK A change management strategy refers to the processes and activities put in place to prepare and support organizational change. The traditional framework for change management involves two main angles: • Change strategy definition • Technology (implementation, change requests, Technical development / release management, helpdesk and issue tracking) (Hard) • Work flow management • Monitoring and evaluation • Stakeholder Involvement People • Skills Development & Training (Soft) • Communications • Customer Support The implementation of DFS is a profound organizational endeavor. In addition to the traditional elements listed above, a DFS change management framework should also include: • Customer centricity: Most DFS target new and broader market segments than historically catered for by financial services providers. To ensure digital services and products are relevant and accessible to customers, it is important to understand the needs and desires of the different customer segments. When putting together the DFS change management strategy, the same logic needs to be applied. The strategy needs to put the customers at the center for the different elements of the strategy to be able to respond to the potential fears and psychological barriers customers might have in the adoption DFS. • Constant feedback and adaptation: When changes are introduced, it is essential to generate constant feedback loops and to set up mitigating measures to address failure or discontent with change. It is a similarly iterative approach as for product and channel development, where customers’ or users’ feedback is collected through the development process to ensure the new service meets expectations. Feedback can be collected during meetings with staff or customers, or via surveys. The FI should ensure that it has the mechanisms in place to collect, analyze and integrate this feedback into the digital service and the change management plan. • Addressing emotional aspects of change: The change from a mostly face-to-face interaction to a more or less digital one tends to produce a range of emotions and negative reactions in customers and staff that need to be appropriately acknowledged and addressed to ensure adequate levels of trust for the full adoption of the service. • Implementing a structured step-by-step approach: The upheaval that a digital transformation brings can clash with the institutional ability to process the changes. To avoid feelings of exhaustion and uncertainty among staff and customers, the FI should introduce changes in a gradual manner over a period of time. 3 MANAGING THE INTERNAL ASPECTS OF A DIGITAL TRANSFORMATION Digitization & Organizational Change 3. Process review & improvement The introduction of a DFS requires changes From the experience of the nine participating in the daily processes of FIs, with a focus on FIs of the study, the introduction of DFS affected automating resource-intensive, cumbersome their culture and identify on three levels: and paper-based procedures through process redesign in order to provide an adequate level of 1. The organization itself digital customer experience. The digital channel offered some FIs an It is advisable for FIs to adopt a step-by-step opportunity to reinvent themselves. Previously, change management strategy when deploying all the participating institutions were credit- new digital channels. This can be done by oriented microfinance banks, focused primarily implementing a sequential pilot for a new mobile on offering lending products (such as individual application first tested with staff at the bank’s and group loans). The digital channel created head office, for instance. The application can an opportunity to better understand their then be rolled out to branch staff, after which customers’ needs and to begin offering other it can be tested with customers at one branch, financial and non-financial products and then one region, before it is rolled out to the rest services such as savings, government to people of the market. In each of these stages, the FI’s payments (G2P), and bill payments. The new management should collect feedback. ability to serve a broader market with multiple products fundamentally questioned the identity This feedback should not only include KPIs but of some of the FIs, raising questions regarding also qualitative information about barriers ‘what we do’, ‘who we are’, ‘how we work’, and encountered by staff and customers when ultimately, ‘who do we serve’? As a result, some using the new channel. The stepped approach FIs in the study fundamentally changed their allows for testing, re-testing and fine-tuning business identity. Most of the participating of new processes and services in a controlled institutions now market themselves as multi environment. This approach may also facilitate products/services. One of the institutions even a better acceptance of changes, as new services changed its name, taking on the name of its and processes are gradually introduced and agent network brand. It also eliminated any sensitized in the organization and the market. reference to lending-only operations to reflect its new multiproduct approach. 2. Gaining staff acceptance Using digital channels tends to make operations more efficient, representing potential reductions in the number of staff needed to carry out some operations. DFS also require the bank staff to become more “technology savvy” as they might need to explain or train clients on the use of the digital channels and may require staff to work more digitally themselves. These factors generate fear and resistance to change from some staff and can adversely impact morale and the work climate. 4 BOX 2: THE CHANGE ACCEPTANCE CURVE FOR STAFF AND CUSTOMERS As presented in Chart 1, the introduction of a digital channel requires a shift in the mindset of staff and clients. The FI needs to understand the path that staff and customers must go through to accept and commit to the new digital channel. The institution should create strategies for helping them to move along the change acceptance curve. For this purpose, the FI could put in place change management mechanisms to help these two stakeholder groups deal with initial resistance, creating awareness and understanding for the need of digital change, and finally foster willingness and commitment for adoption. Chart #1: Change Acceptance Curve – Staff and Customers2 Commitment to the adoption of new technology, systems, processes and procedures Acceptance and willingness to adopt the change Transformation Understanding of the nature of the change, as well as the way they fit into the change Awareness of the need for change, but without clarity about the depth or level of impact Resistence to change can be either active or passive in order to keep the status quo Time A robust communication scheme can play a key role in helping staff and customers move up in the change management curve. Good communication strategies help to keep these two stakeholders informed and engaged. It can also serve as a way to introduce and train people on the key aspects of the DFS. In particular, communications targeted at customers or the end-user of the DFS should highlight the value of the adopting the DFS, relying on digital means of communications such as social media networks, mobile applications and SMS for promoting and providing customer support for the new digital solution. A digital channel requires a digital communications strategy. It would defeat the purpose of having a digital channel to rely primarily on traditional communications channels such as a complaints book, newspaper advertising. Based on the Kubler-Ross change curve and John Kotter’s change management approach. 2 5 URWEGO: USING CULTURAL CHANGE TO RE-THINK THE BUSINESS Urwego Bank, formerly known as UOB, is a licensed microfinance bank in Rwanda. The name change came after HOPE International acquired a majority shareholding in Urwego in late 2016. Its Mission is to further financial inclusion, with strong social and Christian faith components. Urwego offers individual and group loans as well as savings products. In recent years, the bank—which has traditionally focused on the lower income segments, especially in rural areas—decided to transition to full-fledged banking services, multiplying the offering of products and services and focusing more on serving individual customers. In 2013 the bank implemented a digital strategy to further increase outreach, especially in rural areas, and also limit cash handling by loan officers3. The strategy combined a USSD mobile banking solution with a proprietary agent network, MHose. However, the implementation soon faced significant challenges. For example: • The high cost of agent liquidity management: Traditional group lending methodology dictated that every member in a 15-60 person group receive their loan and make payments on the same day. This resulted in liquidity management challenges for agents, who could often not handle the required float and cash to disburse over 30 loans in a given day. It was also fundamentally challenging to provide adequate liquidity management in rural areas. To solve this, Urwego partnered with an external company that offered a super-agent solution. Despite satisfactory results, this was stopped due to the cost of the service. Urwego then decided to centralize liquidity management services from HQ. This discipline took time to evolve and an initiative to develop an overdraft facility for agents spearheaded by the super-agent was also terminated. • Lack of agent support mechanisms (especially in rural areas): The expansion to rural areas via agents was more difficult than anticipated. Urwego found barriers to agent recruitment and customer uptake of the digital channels due to lower financial awareness and literacy. In 2016, due to restructuring measures, staff dedicated to the agent network were transferred to other roles linked to branches. Customer training became less frequent and no longer included any training on how to use the digital channel. Beyond the contextual factors that made it difficult to roll out a successful agent network, the bank also faced internal challenges to adopt this radical new way of doing business: • Lack of Internal Alignment and Sufficient Communication: Digital finance and retail banking were led by separate executives, and retail staff perceived agent banking as a threat to their relevance. The success of converting existing customers to the digital channel was dependent on retail staff selling the new offering to customers. However, often staff would encourage customers to use traditional cash payment methods to undermine what they falsely perceived as a threat to their job. Despite many senior staff acknowledging this challenge, there was no unified internal communication strategy to address the emotional aspects of change and sell staff on the efficiency gains derived from going digital. Nor was there a clear plan to integrate the digital channel into daily operations. This situation coincided with a period when the bank was already underperforming, resulting in high stress levels and increased portfolio at risk. At branch level, management enforced KPIs did not include metrics for the digital channel. Loan officers did not have the time or the right incentives to encourage customers to use the digital channel and instead focused most of their time on loan recovery. Lonie, Susie, “Field Note N7: Turning MFI Digital Strategy into Reality”. The Partnership for Financial Inclusion. January 2018 3 6 In 2017, to response to these challenges, HOPE International decided to harmonize the digital and traditional channels and to rethink the way the institution operated. It focused on increasing staff acceptance of the digital channel and on reviewing and improving processes. These on-going actions aim to address the following: • Internal buy-in: One significant component of the new strategy is to address staff concerns and create the right stimuli to drive internal buy-in from branch staff. The first step was a coordinated internal sales effort to give a clear vision for mobile banking, identify staff concerns, and to provide clear and reassuring answers. Urwego then revised the incentive structures at branches and transferred ownership of many agent management processes from HQ to the branches. Monthly branch incentives include a significant component related to MHose performance. Finally, management of agent banking and the branch network were combined under one “service delivery” executive. This unification began to diminish internal competition and helped drive collective ownership. • A stepped approach to process improvement: Group loan disbursement and repayment processes have been standardized to improve the customer experience. The new goal is to digitize all group transactions by early 2019 so that group disbursements and repayments will be done exclusively via MHose. This conversion is taking place via a stepped approach, first converting customers closest to agents and then extending the roll-out to all groups. Because of these change management actions, the institution has seen an increase in the number of micro-loan customers handled via agents, from 20 percent in November 2017 to 62 percent in August 2018. The institution has also increased training for staff to enroll clients on MHose and given young staff an opportunity to take a leadership role with a positive impact on staff morale and engagement. 7 Supporting Staff through the Digital Some tellers expected their roles to become redundant in the emergence of agents. Loan Transition officers felt a loss of “ownership” of the customer. The research finds that such fears are primarily A critical—and sometimes overlooked—issue perception-based and not necessarily realized. when implementing a new digital channel is the In fact, the most successful agent network emotional aspect of change, dealing with the deployments work in tandem with existing sentiments a digital transformation can provoke branches to help drive customer activity4 . in staff. A DFS project can trigger uncertainty, fear, or insecurity, which creates resistance to To overcome initial resistance based on such the implementation due to low morale or staff perceptions, it is essential to transmit the fear about job security. appropriate messages to branch staff; they need to understand the role of agents and A way to acknowledge and mitigate these how it complements their work. Furthermore, negative emotions is for management to branch management should take ownership implement a change management strategy that of the success of the DFS. Some techniques for presents the benefits of the digital channel in communicating the right message to field staff order to create understanding, acceptance and include: commitment. To arrive at such a strategy, the FI should: • To branch staff, it is necessary to explain how agents can support the lending process, • Listen and document the potentials fears of client acquisition activities, and cross-selling. staff regarding the new channel. For instance, a communication strategy can emphasize how loan officers will become able • Analyze those fears to identify the drivers to devote more time to loan promotion and behind them and develop ways to address or origination or recovery tasks when an agent mitigate such emotional risks. network can take care of loan repayments. • Design communication and training • FI management also need to explicitly activities that support the change and determine and clearly communicate who enhance staff’s understanding of the channel is responsible for managing agents at the and highlighting the benefits the channel can branch level, and the level of involvement of bring to them. branch managers to harmonize digital and traditional channels. • See change management as an open iterative process that allows bidirectional During pilot and roll-out of the digital channels, communication with staff. FIs can implement specific communication initiatives to prepare staff for the cultural • Engage staff in the project, potentially change; newsletters, videos, briefings, and Q&A through staff piloting and digital KPIs for all sessions with staff, are some of the activities staff among other measures. All staff should management should consider. Appointing a feel part of the change and take responsibility charismatic champion who is well regarded for its success. within the institution to transmit core messages can also be useful for obtaining buy-in In the case of the FIs participating in the throughout the institution. study, agent networks brought cost saving opportunities by moving transactions from branches to agents. This element created fear among the FIs’ staff as staff saw their positions and salaries at risk. It was noted that branch staff—in particular tellers and loan officers— perceived agents as competitors and felt threatened. 4 Buri, S., Cull, R., Giné, X., Harten, S. and S. Heitmann “Banking with Agents: Experimental Evidence from Senegal,” World Bank Policy Research Working Paper, December 2017 8 Complementary to sensitization and In some cases, when the digital channel surpassed communication, successful FIs in the study the number of transactions at branches, this also implemented incentives for branch staff required a restructuring of those branches. It was based on agent performance. Implementing then important to offer branch staff alternative organization-level performance KPIs that opportunities, including training and retraining, incentivize harmonious integration between and new roles and functions as part of the digital agent and branch help to mitigate staff fears channel team. Two FIs in the study experienced about potential job losses and also serve to back this. up the communications strategy to enhance credibility of messaging. One trend observed in the study was the restructuring of the role of commercial and front In one of the FIs, branches competed among office employees. One participating FI modified themselves based on the numbers of customers job descriptions of tellers and customer service and transactions using the digital channel. Three staff at branches to allow them to take over new of the participating FIs created operational functions, including the option of performing dashboards for branches with KPIs linked to the agent management functions. . performance of the digital banking channel. Two FIs introduced targets for field staff on deposit mobilization and usage of the digital channel. One institution provided incentives to customer relationship managers to support the agent network as well as branches; part of their salary was fixed, and the variable element was linked to the transactional performance of branches and agents. 9 LAPO: SHARED IDENTITY AND CHARISMATIC LEADERSHIP5 LAPO Microfinance Bank is the largest national microfinance bank in Nigeria and it offers financial services mainly via the group lending methodology. It is led by its founder and Managing Director Godwin Ehigiamusoe, has a workforce of about 5,500 employees, and more than 3 million customers. One significant asset of LAPO is the brand. The word ‘LAPO’ has become a generic expression for credit among Nigerian micro-entrepreneurs, mainly in the informal sector. For many clients, LAPO represents the only opportunity to access finance for expansion and progress. Such a strong brand acts as a cohesive force, maintaining customers and staff loyalty. In 2017, LAPO piloted an agent network recruiting agents only from its very engaged customer base. This approach meant that LAPO had agents who knew the institution well and were very motivated to serve other clients, helping to reinforce a sense of shared identity. LAPO was the first MFI to put in place an agent network in Nigeria, and over time agent loyalty and a common identity have become essential assets as competition is growing and targeting LAPO agents. LAPO’s pain point lays not in customers’ uptake of the service, but with internal buy-in. Branches saw agents as competitors, affecting promotion and growth of the digital channel during the pilot. Due to the scale of the pilot (50 agents), the MFI did not consider it necessary to communicate to all employees the benefits of having an agent network - a fundamental aspect of promoting change and internal buy-in. As a result, staff did not have a broader understanding of why LAPO was implementing an agent network and the potential impact on the growth of the institution. The lack of communication contributed to field staff viewing the new channel as a threat, resulting in a lack of support for critical activities such as facilitating customer acquisition and deposit mobilization. The initial result of the pilot revealed this challenge, and LAPO decided to develop a change management strategy to address field staff resistance to the digital channel. The strategy took a two-fold approach, introducing both communication and training activities to keep employees informed of the change process and its impact, to remove obstacles and opposition to change, and to ensure continued productivity throughout the agent roll-out process. • Robust communication plan: The first step was to inform all staff via e-mail about the change management initiated and to open multiples channels of communication, including through videos and a dedicated e-mail address. • Addressing emotional aspects of change: Another component was to create an institutional video in which the MD explained to the team the nature of changes, the reasons behind them, as well as the impact that digitization may bring. Through this video, the MD addressed feelings of uncertainty and fear staff could have and assured them that the digital strategy would not lead to job losses. The MD also described his vision for LAPO and established a sense of urgency, inviting staff to engage with and support digital financial services as the catalyst for institutional growth. His charismatic leadership and legitimacy helped to gain internal support for the digital channel. • Training sessions: A change management plan, which included training strategies (such as training trainers and general induction for all 5,500 staff on digital channels) was presented to LAPO’s senior management. Regional facilitators participated in the training trainers’ sessions in Lagos and Benin City. This training was then rolled out to branches and the regions. As a result, every LAPO employee has received training on digital channels. It is important to note that all training included an evaluation form to gather feedback from staff about the training as well as the level of retention of critical knowledge about the digital channel. • Constant feedback and adaptation: The dedicated change management e-mail address helped to facilitate employee feedback on the ongoing change management program, as well as to amplify messaging to staff. Management sends frequent e-mails to reinforce critical messages supporting the change management strategy following training sessions. Acknowledgement to Judyth Engels (IFC HR consultant) 5 10 Integrating digital channels into daily The FIs in this study primarily revised existing processes and introduced new ones with regards operations: process improvement with a to customer enrollment, loan origination, loan customer centric focus repayment and disbursement, withdrawal, account opening and savings collections. A thoughtful digital transformation requires changes in the organizational structure and daily 1. Customer enrollment processes, such as abandoning resource intensive, cumbersome and paper-based procedures New channels usually rely on new technologies through process redesign and automation. such as tablets and biometric readers to facilitate remote customer registration. For As part of the digital transformation, FI’s key most institutions in the study, bank customers business processes—such as loan evaluation, needed to register separately for the use of the disbursement, and repayment as well as savings’ mobile banking channel or the agent network. account opening and collections—need to be In the case of two financial institutions in the reviewed, improved and remapped according to study, all customers had to register for mobile the needs and potential uses of the new digital banking and were then automatically enrolled channel. Some new procedures will have to be in the agent network, avoiding the need for created, including for customer enrollment, dual enrollment and making the change more reporting and fraud prevention measures. The FI comfortable for clients. will need to acquire new technology tools or replace legacy infrastructure to support automation, In many cases, customers need to register at system integration, and data extraction and branches first where biometric information is analysis. Additionally, new skills will be brought taken and digitized. In some cases, if the customer in and some staff will have to be retrained to is not enrolled, she can still use agents but only move from paper-based processes to new digital for cash-in transactions for which biometric solutions. To coordinate all these transitions, FIs identification is not required. Although this need to have in place strong strategies or ways process is not completely digital, ensuring that that will help staff and customers adapt to the it works properly, and that the client only has to new digital era. enroll once is an excellent way to create trust in the service and promote change. It is important that FIs keep the user in mind when making these process improvements Furthermore, branch enrollment is an opportunity and changes. Users can be the staff of the for institutions to educate customers on the use of institution, the agents, or clients. Understanding the new channel. The first contact with the digital and including the user perceptive allows the channel is critical—the customer will benefit from institution to design processes and services that some hand-holding during this first encounter. On are intuitive, facilitating change and supporting the downside, customers must visit the branch channel adoption. In order to this, FIs will find it for enrollment and onboarding, which means this helpful to: strategy is not easily scalable. • Identify the primary users of a process and invite In one participating FI, branch staff accompany them to participate in process development new customers to the closest agent, make and to provide feedback on how to simplify or introductions and support the customer and improve it. agent during this first encounter, ensuring a seamless transition to the digital channel. • Map out changes and discuss these with users to verify that revised processes meet users’ 2. Loan processes expectations. Loan processes may also change with the • Test the revised processes with actual users introduction of digital channels. If the regulation before the revised processes are rolled out allows, the individual loan application can be to gather additional feedback and make redesigned so that it can start remotely at the necessary adjustments. agent or another digital channel. When loans can be repaid at agents or via mobile phone, those business processes should be adjusted to reflect the use of technology. While credit committees 11 are still required for larger loan amounts, the Lastly, new technologies bring opportunities digitization of the processes for microloans to incorporate traditional and informal ways frees up time for the loan officer and field staff. of saving and to digitize them. In the case of The FI should be aware of this new free time to one institution in the study, a mobile teller recalibrate loan officers’ productivity targets, collects savings on demand in a way that mirrors e.g. number of loans processed and number of informal ‘susu collectors’, which helps to engage clients handled. the customer through a familiar service. A customer who cannot visit a branch or an agent Two FIs in the study launched nano-loans to make deposits can pay a monthly fee and be supported by a fully digital process, eliminating visited by roving staff who collect the savings in- the need for staff-led credit committees for situ and the customer immediately receives an small loan amounts and requiring a significant SMS confirming the transaction. mind-set change for branch staff. When the institutions introduced the nano product, they Another institution launched a digital group made it a point to communicate the reasons for account, targeting low-income SACCO groups. these new loans and the role of field and branch This account connects the group account to a staff in supporting and promoting the service. mobile banking platform, which also reduces Agents also needed to be adequately trained so the possibility of fraud. Group account holders that they understood how the nano loan worked exclusively use agents to perform cash-in or and were able to promote it to customers. cash-out transactions. 3. Account opening and savings collection Additionally, it is important to avoid misassumptions on the type of DFS customers Mobile applications and the use of a tablet or might want to use. For example, one institution a mobile phone allow customers to open MFI assumed customers wanted debit cards and accounts on site, instead of visiting a branch. issued these to many existing customers. The For one FI in the study, field staff can use the institution required that customers picked digital application to register customers, open up the cards at the branches. However, since accounts, and immediately send a digital version customers did not see the use of the cards, less of the collected documentation to the back than 10 percent of the cards issued were picked office, which performs final check-ups on the up and used by customers. same day. In another participating FI, roaming staff gather information and facilitate KYC via a smartphone application. In some markets, agents can facilitate account opening by collecting documentation and information for the KYC (although only bank staff are authorized to open accounts on behalf of the MFI). 12 BOX 3: APPROACHES TO INTEGRATING GROUP OPERATIONS INTO THE DIGITAL CHANNEL The banks participating in the study have used digital channels for two primary services: (1) the collection of loan repayments and; (2) to mobilize savings. The case for loan repayments One of the main challenges shared by several of the participating institutions was to not disturb the group lending methodology that they traditionally employ. The microfinance group lending methodology has been an efficient way to expand access of credit to customers who cannot provide collateral or who only qualify for loans of smaller amounts. Groups’ social cohesion and peer pressure act as risk mitigation as group members guarantee each other’s loan repayments. Traditionally, all payments are done in cash during in-person group meetings, where deposits are physically handed to the loan officer to take to the financial institution. The established group lending model requires physical presence of borrowers and loan officers. The digitization of the repayment process in the group lending methodology can be a challenge. The primary dilemma is how to maintain the group dynamics when clients can individually repay their loans at agents at their convenience, as opposed to repaying in-person at group meetings and being subjected to the social pressure and solidarity to attend meetings and make timely payments. For example, FINCA chose to revise its methodology and processes to demonstrate to the market and microfinance industry that repayments at agents can also be effective for group clients. The MFI put in place a change management strategy that reviewed existing group lending methodology and processes and communicated those changes to both clients and field staff to properly integrate the digital channel in its operations. Methodology changes included enforcing groups meetings to ensure group dynamics and trust did not get diluted because of the digital channel. FINCA now asks customers to bring their individual agent payment receipts to the group meetings for accounting purposes and does not allow cash payments to the group leader. Additionally, FINCA DRC also uses roving agents that participate in the group meetings to process payments in situ. As a result of these changes, agents perform 72 percent of all of FINCA’s cash-in transactions6 (mainly loan repayment. This has improved operational efficiency, allowed for cost savings, and ultimately improved the customer experience. The case for promoting savings mobilization At the core of LAPO’s success is the group methodology, which reinforces the idea of community and shared values among customers, and in which members—the vast majority being women—repay their loans, save and share experiences during the weekly group meetings. Given that LAPO’s group lending methodology has been key to its expansion, it needed a change management mechanism to preserve the group lending methodology while introducing the use of the digital channel for savings mobilization. 6 As of December 2017 13 To promote the digital channel, LAPO decided to develop an agent network to facilitate savings for customers outside the group meetings. Given that LAPO’s customers typically make daily or weekly small deposits with informal susu collectors, its management saw an opportunity to mimic and leverage the susu collector model through its agents. This provided its customers a familiar channel that would mobilize savings but also preserve the group lending model. After deciding to focus on savings mobilization for testing the agent network model and with a stepped change approach for the introduction of this channel, LAPO obtained the following results: • The institution was able to increase the amount of savings mobilized through the agent channel seven-fold from January 2017 to December 2017. • In March 2018, the number of deposits through the agent network was over NGN 50 million (around USD 140,000). Of these, 35 million (USD95,000) are retained; that is, 70 percent of those micro-savings are held by the institution. • Initial cost comparison indicates that it is cheaper to mobilize deposits through agents (versus branches). In fact, LAPO’s initial cost-saving analysis shows a 17 percent cost saving per transaction when using agents for deposit mobilization. It is important to note that after finalizing the pilot, LAPO is now exploring how to incorporate loan repayment as part of the services agents provide. It will however, only happen after piloting the service first to understand and document clients’ reactions and how it may impact the social dynamics of the group lending model. 14 UNDERSTANDING AND MANAGING EXTERNAL EXPECTATIONS: CUSTOMERS AND FUNDERS Digitization and customers of ensuring commitment to change and future adoption. Building customers’ trust in the new Introducing digital channels changes the touch digital channels involves dealing with three points between the FI and customers. In some aspects: FI’s operational readiness to the delivery cases, it makes face-to-face interactions less of the digital channel, market characteristics, and frequent while increasing the ability for clients customers’ expectations about the appropriate to transact at their leisure. It also broadens user experience. the variety of touch points between the FI and customers, requiring FIs to ensure a unified user • FI’s operational readiness to deliver the experience across interfaces (for example, agent digital channel: The FI’s inability to fulfill and self-service through mobile applications). customers’ expectations regarding the reliability It is thus key to adoption that the perspective of a new DFS can hinder customers’ acceptance and feedback of clients are incorporated into of change process and trust. It was noted in the the concept, prototype and final version of the study that the following operational areas can digital channel. Additionally, using digital tools create problems for building customer trust: for collecting customers’ feedback (i.e. chat bots, online platforms, social media) on the new service ºº Poor agent quality: Customers’ trust and contribute to improving the DFS by creating the reputation of FIs can be damaged if acceptance and commitment among customers agents are not selected on proper merits. In to the use the digital service. . the study, FIs have generally recruited agents from their own customer base or agents who There is a delicate balance between the use of have a previous record working with MNOs to enhanced technology and the expansion of digital address this issue. financial inclusion. New technologies, such as smartphones, are still not available to the majority ºº Connectivity issues: and delays in transaction of the poor in developing markets. Focusing on processing and notifications (i.e. SMS receipts) developing sophisticated technology can thus can create doubts among clients about the create a mismatch between advanced technology safety of their money. To address connectivity and the FI’s customer base, backfiring in terms of at agents, FIs should put in place network poor uptake. For example, one of the FIs in the connectivity redundancy plans. This could study chose to create a mobile solution available include using a POS with more than one SIM only for smartphones based on the prediction that card (from different MNOs) or providing two the mobile Internet would soon overtake USSD Internet lines for those agents connecting technology. This resulted in most of its customer online. Additionally, system integration is base being excluded from the mobile banking critical to ensure that transactions from the service as they did not have access to smartphones, digital channel system are correctly recorded affecting adoption and activity rates. in all back-end systems of the institution. ºº A lack of a clear enrollment process: In Building customer trust to facilitate change eight out of nine institutions in the study, bank acceptance customers needed to separately register to be eligible to use digital banking. Some of these Using digital channels, such as agents and registration processes are still manual and require mobile applications, has the potential to enhance the customer to go to branches more than once, the customer experience with the institution. presenting an obstacle for customers to start Nevertheless, the introduction of digital using the channel. Designing a paper-lite (or paper channels can represent a major change from free) process for client enrollment can facilitate a the way customers interact with FIs, creating better customer experience. If regulation allows, initial resistance and a need to properly support registration should be done directly in the field customers through the change acceptance curve. by the agent. Two FIs in the study tested using a tablet with a biometric reader to register clients It is therefore critical to ensure that all key at the agents, contributing the digitization of the operational processes for the digital channel customer registration process and providing a implementation are working seamlessly to avoid better customer experience. creating customer pain-points and provoke initial resistance. It is also important to build customers’ trust on the new channel as a means 15 ºº Inadequate issue resolution: can make cards. In other cases, a customer relationship customers feel vulnerable or at disadvantage. officer or loan officer accompanies the They may fear that the institution accepts customer to transact with agents or their money without accountability. Hence, FIs perform a mobile banking transaction for should put in place the processes and tools (call the first time. This interaction has proven centers, data extraction tools, system alerts, crucial for assuring customers’ active reports) for prompt resolution of customers’ adoption of the service. issues and complaints. One participating FI uses a system that allows the call center ºº Marketing and promotion materials play staff to access all information regarding a a pivotal role in helping clients understand transaction, enabling them resolve issues the value of the channel. These materials while on calls or, where necessary, escalate should be clear and self-explanatory; and if the issue to the right level. necessary, available in local languages and with guiding illustrations and clear step- • Market characteristics: It is essential to by-step instructions. For example, one FI’s understand the level of maturity of the market’s marketing department has started distributing current usage of DFS. The study found that “Welcome Flyers” to onboard new customers. transitioning customers to a digital service and However, the marketing materials are yet to building initial trust was more challenging for be translated into the local languages, which FIs operating in markets where DFS is a new could constitute a barrier to adopting new phenomenon and where these FIs are first technologies. movers. Therefore, the FIs operating in this type of market needed to invest more in marketing, ºº In the case of agent banking, providing proper training, and hand-holding clients to support signage and recognizable branding (the same the learning process, and in so doing, building color scheme as branches, for example) creates trust in the digital channel. In markets where the sense that the agents are part of the FIs, the use of DFS was more common, customers thus fostering trust. were more adept in using agents and mobile banking for financial transactions. The In the study, three FIs benefited from word-of- customers in these markets do not see DFS mouth promotion. The use of ambassadors can agent networks as something new, but rather also help generate trust and credibility for new as a different version of the familiar MNO users. One institution is using videos featuring a mobile money agents. Hence, in such markets, famous local actor as an ambassador and training FIs tend to have an easier task in building trust customers on basic financial literacy concepts, in the use of the digital channels. Marketing with the goal of increasing trust in digital financial and promotion campaigns centered around services. One institution uses social networks the value proposition of DFS, and it was more (Facebook and WhatsApp) to facilitate the critical for each FI to differentiate its offerings promotion of new digital services and interact from those of other actors in the market. with customers. FIs may reinforce the digital aspects of the channel by leveraging social media (Messenger, Social media can be useful also for gathering WhatsApp, Facebook) and other digital tools feedback about customers’ digital experience with (such as, SMS) to promote the channel and to the institution, and thus be useful tools in the provide customer support as this can also help change management strategy. Customer feedback to facilitate the transition from face-to-face helps the FI refine the digital services offering. interaction to a digital experience. One of the MFIs in the study is using Facebook and chat bots to interact with customers and to • Customers’ previous digital experience resolve issues, while all the institutions have put in and perceptions: If the customer base is place call centers to manage the relationship with new to the DFS, some handholding may be customers and agents. Another MFI participating necessary to support the change and adoption in the study is exploring potential partnerships process of the customers. Here, it is important with a Silicon-Valley fintech company to engage to provide necessary training to support the digitally with customers via a platform to influence client to understand the value of the digital their financial behavior, while one MFI is already service and how it works: working with the same Fintech company on a similar approach (see case study on next page). ºº To introduce clients to the new channel, some participating FIs use their branches to provide customers with an overview of the channel. At the branches, customers can watch videos or read marketing materials explaining how to use m-banking, agents or 16 JUNTOS AND ACCESS BANK TANZANIA: DIGITALLY ENGAGING CUSTOMERS TO INCREASE ACTIVITY Juntos is a Silicon Valley technology company designing financial tools that drive engagement and usage of financial services among the newly banked. JUNTOS’s technology allows FIs to build a trusting relationship with end-users, improving overall customer activity rates. Juntos develops personalized customer engagement messages based on data-driven segmentation strategies. These personalized messages are designed using human-centered design principles. Users receive messages on their mobile phone and can reply to them, initiating an interaction that can last months. Juntos employs automated ‘chatbots’ to understand the impact of these messages on customer activity. Over time, Juntos is able to segment users into groups according to their engagement level (i.e. the frequency users respond to messages).7 Using a digital solution like Juntos can help an FI support customers’ transition to digital services for the following reasons: • Stimulates clients to use technology to solve problems or questions related to DFS. By using the same device (ex. mobile phones) for transacting, doing inquiries or getting support customers get used to the technology that enables DFS. • Allows FIs to gather data that can be used for improving the DFS. For example, if customers have specific questions or inquiries regarding a particular process or functionality of the DFS, the FI can investigate why that particular process is creating those questions and make improvements as needed, facilitating the adoption of the digital service. • Support the training of customers. FI can send personalized messages in local languages to train clients in the use of the digital channel as well as highlighting key attributes or messages that can help customers embrace the DFS. AccessBank Tanzania is a FI serving its customer base via mobile and agent banking. In 2017, the FI partnered with Juntos to increase customer activity and educate new users about the mobile banking product. During the project, Juntos digitally communicated with approximately 140,000 AccessBank customers, ranging from small business owners in the capital Dar es Salaam to farmers in rural areas.8 Firstly, Juntos tested 125 messages in Swahili during a four-month period. These messages were crafted based on previous customer segmentation and were intended to prompt customers’ interaction on topics such as planting for farmers, savings for small business, registering for mobile banking, trust in agent and banking institutions, and establishing saving habits after completion of a loan. During this stage, Juntos was able to learn and iterate rapidly based on customer reactions to the messages. This iterative process constantly incorporates customer’s feedback, putting customers’ needs and concerns at the center. After the initial test period, the messages were then transformed into multi-month messaging experiences. Hence, Juntos designed a randomized controlled trial (RCT) intervention—randomly assigning users who receive the message and matching them to control group customers with similar pre-experiment activity who do not receive the messaging service. By comparing these two types of customers, AccessBank was able to understand the way Juntos messages affected the behavior and usage of the digital channel. The results showed that the group receiving the messages experienced an 8 percent increase on overall balance (Current + Savings Accounts, Monthly) and a 40 percent increase on the Average Current Account Balances (Monthly). The group not receiving the messages experience a dropped in balances over RCT period. Per these results, it appears that the use of digital communications with a human centric design can positively contribute to engage customers, foster trust and adoption of the new digital channels. 7 Dean Caire, Leonardo Camiciotti, Soren Heitmann, Susie Leonie, Christian Racca, Minakshi Ramji and Quiyan Xu, “Data Analytics and Digital Financial Services” . The Partnership for Financial Inclusion. 2017 8 Marc, Katie and Johnson, Kate, “Juntos White Paper: Building Customer Relationships at Scale in Digital Financial Services http://juntosglobal.com/wp-content/uploads/2018/07/Juntos-White-Paper-Building-Customer-Relationships-at-Scale.pdf 17 Aligning external funders’ expectations to reputational risks, FIs should not enter into a partnership with an external funder if the the goals of FI’s digital channels intended digital service is not adequate for its market niche or segment. For example, Due to the potential for massive customer support for a mobile banking application outreach, digital channels have attracted that runs only on smartphones is probably the attention of a variety of funding sources, not appropriate for a FI aiming to serve the including the donor community and private base of the pyramid. investors. The international community of funders offer support such as partial subsidies for • Understanding the FI’s internal capacity: technical assistance, investment in to research To properly manage change and funders’ and development, and debt and equity financing expectations, it is important for both the FI (commercial, blended and concessional) to and external funder to assess and recognize expand services to underserved segments and the FI’s internal capacity to deliver a digital markets. Several funders have expressed interest channel strategy. Assessing the internal in supporting innovative digital delivery models capacity of the FI should also help to manage as a development initiative, as they could the risk of not being able to deliver the reduce costs and support outreach to new client funder’s expected targets. For example, if an segments while expanding financial inclusion. FI has legacy systems that cannot integrate to digital applications, heavily manual For this purpose, funders have supported FIs processes, and/or a lack of internal human to move into the digital financial services era, resources capacity, the FI should not take including the design and testing of new digital external funding for a digital venture until financial products and delivery methods. This those areas are improved. Alternatively, the FI funding allows FIs to innovate with less financial can work with the funder to explore using a risk. For example, one FI in the study was able portion of the funding to build the necessary to be the first bank in its country to offer agent internal capacity as a first step in the digital banking, giving it a competitive advantage over transformation. other financial services providers. Similarly, another FI in the study was able to redefine • Recognizing that the external funding will its strategic orientation because of access to help to launch the channel: The FI should external funding. Before offering DFS, this FI make realistic assumptions and adequately was mainly focused on lending. By having access model the income and expenses of the digital to external funding to test DFS and create new channel so that it can get a sense of when financial products, this FI now considers itself a the channel can become self-sustainable9. multi-product bank, with a focus on both savings Doing so should help to manage the financial and lending. risk as the FI can evaluate the impact of a potential exit of the funding source on future However, partnerships with funders can also expansion and operations of the digital create key challenges and risks for both the FI and channel. Additionally, this should help to the external funder. Aligning partnerships with keep the vision that the channel or product the right strategic relevance for both institutions should be commercially viable. can mitigate risks that the partnership is unequal or distracts the FI from its overall vision. In order to overcome these challenges and as part of its change management strategy, FIs should consider the following: • Aligning the vision of the FI with the goals for the external funding: FIs should seek to obtain funding for digital ventures that respond to their needs of improving operations or that are market-driven. In order to avoid strategic, operational and Rodriguez, C and Conrad, J, “Aligning Expectations: The Business Case for Digital Financial Services. Best practice financial modeling for financial 9 institutions. The Partnership for Financial Inclusion. July 2018. 18 CONCLUSION When implementing digital channels, FIs face changes that can impact identity and culture. The digital metamorphosis affects an institution at multiple levels, including its culture and structure. In the case of the former two, a digital transformation can represent a unique opportunity for FIs to reinvent themselves. As a case in point, for all of the FIs in the study, the introduction of digital channels allowed them to redefine their business models and operations. Reaching new segments and offering new products influenced their core business strategies, such as the types of clients they aimed to reach and how they should reach them. In some case cases, the digital transformation helped to reposition the FI in the market, from a mono- to a multi-product institution. Consequently, the change management strategy must consider this broader impact on an institution and its stakeholders to identify the appropriate internal and external communication techniques, and incorporate continuous feedback mechanisms to quickly assess and react to the results of the digital transformation. In the case of the effects of the DFS implementation on staff and customers, the study shows that it is not easy to successfully manage change as this requires dealing with the emotional aspects and initial resistance of staff and customers. Hence, a FI should design change management strategies that foster acceptance and commitment, such as training for staff as well as using promotion and marketing techniques to help clients understand the new channel and build trust. Additionally, the FI must demonstrate the value of change for both staff and clients and/or provide incentives to embrace the change to successfully implement and manage the digital transformation. The digital channel opened up options to offer new financial products and services and to reach new customer segments and geographic areas. 19 AUTHORS Gisela Davico For 13 years, Gisela has been an advocate for the development of better policies for financial inclusion as strategies to achieve greater social wellbeing. She was the research lead for IFC’s MFI Longitudinal study. Christian Rodriguez Christian is a digital financial services specialist with the World Bank Group. He has over 15 years of experience working with financial institutions in Africa, Asia and Latin America in the design and implementation of digital banking solutions. Contributing Authors Julia Conrad, Lesley Denyes, Soren Heitmann, Susie Lonie and Rita Oulai Acknowledgements: Judyth Engels Contact the Publisher: Anna Koblanck AKoblanck@ifc.org +27(0) 11-731-3000 IFC, Sub-Saharan Africa 14 Fricker Road, Illovo, Johannesburg