Field Note 9 BANKING ON THE FUTURE: YOUTH AND DIGITAL FINANCIAL SERVICES IN SUB-SAHARAN AFRICA Contents Introduction........................................................................3 Findings..............................................................................5 Characteristics of youth and their financial behavior............5 Financial literacy.......................................................................5 Money management practices.................................................5 Education and employment......................................................6 Exploring drivers of adoption for youth.................................... 7 Young people’s awareness of digital financial services............8 Young people’s usage of digital financial services....................8 Youth’s use case of digital products and services.....................9 Exploring the reasons for inactivity among youth................. 10 Conclusion.........................................................................13 Method............................................................................. 14 2 INTRODUCTION Young Africans are less likely to have a bank account Digital financial services (DFS) could be the than adults on the continent. At the same time, solution to banking the youth. African youth are they are more likely to have a mobile phone, try out tech savvy and curious about digital channels. new things and be aware of digital channels. This Research shows that youth’s ability to use seems to suggest that digital banking could be a mobile phones has attracted them to mobile winning strategy for advancing financial inclusion money. According to the Global Findex Database among the youth. Youth in Sub-Saharan Africa in 2017, 30 percent of youth across Sub-Saharan have limited access to formal financial services Africa received digital payments (compared to despite their active financial lives. In the past year, 37 percent of adults). In comparison to the gap 51 percent of young adults across the continent between youth and adults in holding accounts saved money and 44 percent borrowed money at a financial institution, the gap for mobile while only 26 percent have an account at a financial money accounts is smaller and sometimes even institution.1 This demonstrates that many young reversed. This is shown in Table 1. With a clearer Africans are actively using informal options to meet understanding of youth’s needs and behaviors, their financial needs. DFS providers can target youth with strategies and products to meet their financial needs. Table 1: Access to traditional and mobile money accounts across four countries Country Traditional account Mobile money account Adults (25+) Youth (15-24) Adults (25+) Youth (15-24) Uganda 35% 29% 50% 51% Zambia 39% 30% 25% 28% Ghana 48% 29% 36% 33% Senegal 24% 13% 35% 27% Source: Findex 2017, World Bank Databank 1 The Global Findex Database, 2017 3 This report provides insights from existing With the spread of mobile phones, youth are research on youth and financial services in Africa. increasingly using mobile money for simple It provides data on youth’s awareness and use of transactions such as sending and receiving money. DFS, investigates the drivers of adoption of DFS, However, they also show an appetite for mobile and examines the reasons youth hold inactive DFS savings and other services and in general have accounts. It draws on research completed during good financial literacy skills. Despite this increased the implementation of the IFC and Mastercard interest and basic access, there is still a need for Foundation Partnership for Financial Inclusion suitable financial services that offer incentives for program in Sub-Saharan Africa 2012-2018, and youth to adopt and use DFS. defines youth/young people as the population between the ages of 16-25. The report gleans insights into possible strategies to further increase DFS usage among youth, by The research studies which inform the findings identifying drivers of usage among youth as well in this report are as follows: (1) “An Ethnographic as reasons for youth inactivity on DFS platforms. Study of the Perceptions and Attitudes to Mobile In sum, these findings provide the context for Money in Sub-Saharan Africa”2 (a qualitative industry actors to design products and strategies ethnographic study); (2) “Youth and Digital Financial to better meet the needs and desires of their Services in Four Markets in Sub-Saharan Africa” (a current youth clientele and to expand reach to quantitative study); (3) “Customer Segmentation new youth customers. Study of Microcred Senegal” (a randomized control trial (RCT); (4) “Drivers of Digital Financial Services Inactivity in Cote d’Ivoire”3 (an inactivity study); and (5) “Find The Gap: Can Big Data Help to Increase Digital Financial Services Adoption?”4 (a socio- economic and big data analytics study), as well as some preliminary findings from consumer research conducted by IFC in Ghana and Kenya. 2 A Sense of Inclusion: An Ethnographic Study of the Perceptions and Attitudes to Mobile Money in Sub-Saharan Africa, IFC and Mastercard Foundation, 2017 3 The Mobile Banking Customer that Isn’t: Drivers of Digital Financial Services Inactivity in Cote d’Ivoire, IFC and Mastercard Foundation, 2015 4 Find the Gap: Can Big Data Help to Increase Digital Financial Services Adoption?, IFC and Mastercard Foundation, 2014 4 FINDINGS Characteristics of youth and their financial behavior Financial literacy In Zambia, young people’s second preference is to deposit their money into a mobile money account, Evidence from Zambia and Uganda shows that young followed by depositing their money into a formal people have a good understanding of how to use bank account (the rank preferences hold for Zambian digital financial services. Compared to adults, youth adults too). In Senegal, youth surveyed consistently are particularly familiar with technology, and as a indicated ease and safety as the main reasons for result, have easily adapted to digital platforms. It is their preferred method of saving money at home. therefore unlikely that youth (unlike adults in rural areas who are less accustomed to these technologies) When it comes to how youth use their money in would have low aptitude for using DFS. Senegal, 27 percent said that they would invest their money in agricultural activities or in their Money management practices own business, 28 percent said that they would use their money to buy goods and services, while 25.3 Our research findings show that many youths are percent said that they would save their money. keeping their savings at home rather than with a This demonstrates a strong savings culture, even financial institution or in a mobile money account. though most Senegalese youth prefer not to save In both Senegal and Zambia, youth prefer to save with a bank. at home. Figure 1: Use of 8,100 CFA by Young People (age 16-25) in Senegal, percentage use per purpose 28,3% 26,5% 25.3% 14,5% 5,4% 0% 20% 30% 40% 50% 60% 70% 80% 90% 100% Buy goods and services Give the money to family and friends Save the money Pay o debts Invest in agricultural activities or own business 5 However, the story is different in Ghana where Other considerations for youth include the the youth surveyed prefer to deposit their money information they are provided with and into bank accounts over saving in mobile money knowledge about services that banks can offer accounts. This is mainly due to easier access to them, and the perceived higher interest rate they ATMs or bank branches in Ghana compared to receive on bank deposits. other countries. Figure 2: Use case for excess money of young people versus adults in Zambia and Ghana, percentage use per purpose 80% 60% 40% 20% 0% 16-24 25 and above 16-24 25 and above Ghana Zambia Deposit in bank saving account Keep in safe place on my person or home Deposit into mobile money account Invest in my business Buy something for myself Invest in treasury bill I do not have money over at the end of the month Research shows that in some contexts where youth for bank-only customers than DFS-only customers or do use mobile money for transacting, they are for users of both services. One possible explanation starting to use it for savings as well. In Uganda, out for this might be that bank-only customers aim of 72 percent of young respondents who said they for the scarce skilled jobs, often in government, have deposited money into their mobile money and are reluctant to accept casual/part-time jobs. account at least once, 31 percent reported using The bank-only customers have high rates of mobile their account to save. DFS providers thus have phone usage (voice, SMS, data), indicating that this a clear opportunity to mobilize youth savings on customer segment is aware of DFS and uses their their platforms. mobile phones frequently but does not currently use DFS. Our findings suggest that bank-only (i.e. Education and employment no DFS account) customers and DFS-only (i.e. no bank account) are two relatively distinct groups Level of education and employment status impact of youth. The former is an interesting group for the likelihood of youth to use mobile money versus Mobile Network Operators (MNOs) to target with formal banking services. Findings in Ghana show appropriate marketing and financial products. that young “bank-only” customers, are, on average, better educated than young “DFS-only” users.5 In Ghana, the unemployment rate appears to be higher 5 Ghana inactivity study conducted by IFC in 2016. Mastercard partnership for financial inclusion. 6 Figure 3: Education and unemployment levels of young “DFS-only” versus “Bank-only” users in Ghana, percentage of users Bachelor degree Post Secondary Diploma (HND Teacher Training) Nursing Certificate / Teacher Training/A Vocational/Technical/Comm Secondary School SSS/SHS JSS/JHS Primary School None Unemployment rate 0 10% 20% 30% 40% 50% 60% 70% Both (DFS & Bank) Bank-Only DFS-Only Exploring drivers of adoption for youth Perhaps this is because while adults and older youth have had more exposure to other methods Research from Uganda shows there are four common of financial services that are more difficult to drivers of DFS adoption by youth, including the use, younger youth have come to age during the increase in accessibility through agent networks; boom of mobile money and therefore take the ease low transaction costs; stable and reliable networks; and simplicity of mobile money as a given. This and the ease of use and receiving fast service. suggests that industry actors may want to focus Results from Côte d’Ivoire showed that compared on other drivers of youth’s adoption of DFS when to adults who greatly value the simplicity and ease advertising to peak their interest and increase their of using DFS, youth put less of an emphasis on commitment to products. this factor. Similarly, in Uganda, while adults value simplicity, only 3.8 percent of youth (ages 16-20) surveyed said their preference for using a mobile money service is because it is simple. 7 Young people’s awareness of digital financial Young people’s usage of digital financial services services Young people are very aware of digital financial Findings from Ghana, Senegal, Uganda, and Zambia services. A quantitative study in Ghana, Senegal, show that young people’s awareness of DFS does Uganda, and Zambia shows that in all four countries not necessarily translate into usage. Across these 96-100 percent of youth are aware of digital financial four markets youth usage rates of DFS vary. In services. However, the channels for building DFS Zambia, at least 64 percent of study respondents awareness vary across countries. In Ghana and who have registered for a mobile money account Zambia, traditional media outlets such as radio are active, which is above the average compared to and TV are influential in driving awareness. In other age groups. comparison, in Uganda, social networks and word- of-mouth are the main sources for information on In Ghana, youth are using their mobile money DFS. Across all four countries, word of-mouth is accounts regularly and at the same activity rate to an important channel for raising awareness. This other age groups. Thirty-two percent of respondents finding is supported by external research on youth in the 18-25 age group stated that they used mobile and their participation in society, which shows money “yesterday”, with 19 percent responding that that family and peers are instrumental in shaping they had used their mobile money accounts “in the the choices young people make.6 past seven days”. Overall, there is no significant gap between the activity rate of the youth cohort in comparison to the other age groups, with at least 37.9 percent of the respondents reporting that they have used their mobile money accounts within the past 30 days. Interestingly, results in Ghana showed that the 16-24 age group had the highest proportion of mobile money users and was the age group with the smallest gap between awareness of mobile money services and actual usage. Figure 4: Mobile money usage in Ghana, percentage per age group More than 90 days ago In the past 90 days In the past 30 days In the past 7 days Yesterday 0 10 20 30 40 50 55+ 46-55 36-45 26-35 18-25 6 Nielsen, Trust in Advertising – A global Nielsen Consumer Report, 2007 8 In Kenya, a study that identified trends around The second most mentioned reason is the pure product development and the behavior of youth interest in the product and the curiosity to try it. customers over three years found that the adoption Finally, a third reason is the ‘ease of use’ of the and usage of DFS grew consistently over time. The mobile money transfer method. The findings are analysis indicates that over the three years a total similar for youth in Ghana. number of 521,000 youth accounts were opened. On average, 166,000 of these accounts were active in Findings from Uganda show that remittance a month. Over three years, the number of active transfers are a popular financial product for youth. accounts increased by 38 percent with a 56 percent At least 50 percent of youth surveyed in Uganda increase in the number of transactions. These said that they use their mobile accounts to receive impressive trends set the stage for what growth money from family members and friends, compared could look like in other markets for the DFS sector to 30 percent who reported using their mobile if the right elements are in place. An analysis of money accounts to send money to family members the average account balance per customer also and friends. provides interesting insights. It shows that among the youth segment, the average account balance The use case for youth surveyed in a separate for females is consistently higher than that of their consumer study for bank clients in Ghana male counterparts. shows that the 18-25 age group uses mobile money to receive (58.2 percent) and send Youth’s use case of digital products and (22.94 percent) money. services The most common reason for signing up for a DFS account among young people in Uganda and Zambia is the pragmatic need to send or receive money. Figure 5: Use case for mobile money in Ghana, percentage use per category 60 20 15 10 5 0 I had to receive money I had to send money Requested I opened an account Safe place to store my money Other Had to pay a bill Recommended to me An agent/sales person convinced me I saw other people using it To receive money from an organisation An organization requested I signed up I saw advertising that convinced me To start saving money with m-money acc I got a discount on airtime Received promotional money Most of my friends/family use it 9 Youth in Ghana, Uganda and Zambia are making mobile money users across country contexts, it deposits into their mobile money accounts. A also confirms the damaging impact that a negative household survey conducted in Ghana, Senegal, first-time DFS experience can have for youth user’s Uganda and Zambia on youth and DFS showed future take up of DFS. that 23 percent of the youth respondents in Ghana deposited money into their DFS accounts in the Financial literacy is another possible contributing prior three months compared to 9.5 percent of factor to youth’s DFS inactivity, but this does not the adults. In Zambia, 13 percent of youth stated appear to be the case across contexts. In Uganda that depositing money is their most frequent and Zambia, financial literacy affects activity transaction, compared to 10 percent of adults. differently in each context, despite both countries’ Almost 72 percent of youth respondents in Uganda survey participants scoring equally high on their reported depositing money into their mobile money knowledge of DFS. Researchers were unable to account at least once (compared to 68 percent of find a statistically significant correlation between the adults), while 31 percent reported using their higher literacy and an increase in the likelihood account to save for future purchases. In general, the of being a DFS user among youth in Zambia. findings from the surveys in Ghana, Senegal, Uganda In Uganda, however, results showed a positive and Zambia indicate that young people in SSA are correlation between financial literacy and activity eager to deposit their money in mobile money among youth. An increase of financial literacy by accounts and that a significant share of youth one unit (one more correct answer) increased the use mobile money accounts to save their money.7 predicted probability of being an active DFS-user However, it appears to be a complex endeavor by 5 percent, holding everything else constant. for both MNOs and FIs to create the appropriate This effect remains robust even after controlling savings account and successfully introduce them to for socioeconomic factors (e.g. education, the young target group. YouthSave (2015)8 pinpoints unemployment). The difference seen between the need for financial institutions to ensure low (or Zambia and Uganda may be explained by the fact no) minimum balances and a transparent and low- that Uganda has a competitive market with well- price cost schemes for youth. functioning DFS services; whereas in Zambia, only money transfer services function well and MNO- Exploring the reasons for inactivity led products have yet to become attractive to among youth customers. The continuing preference for keeping money under the mattress however means that The same household survey showed that even efforts to support financial literacy are important though almost all youth respondents indicated that in order to better explain real life use cases for DFS. they are mobile phone users and aware of DFS, many But this can only be effective if industry players are inactive customers. The most commonly used find a way to more effectively communicate DFS definition for mobile money inactivity is “90 days products and services offerings to young people. inactive”. This means a customer has not performed This means tapping into their social networks as a transaction in the past 90 days. This survey social networks are effective in persuading youth revealed that first-time experience using DFS is a to try out DFS. crucial factor in its subsequent use and adoption. Results show that an early-on negative experience using DFS plays a key role in determining whether a young person will continue to use DFS. This finding is consistent for adult mobile money users as well. Although the study shows an overwhelmingly positive experience for many first-time youth 7 It should be noted that for respondents who indicated that their first transaction was to send money, the agent technically performs the deposit transaction and the customer receives it as a first transaction. However, in this case, the customer initiates the deposit by going to the agent and asking for it. Their first active transaction is then the P2P transfer even though they had previously been on the receiving end of a passive transaction. 8 The YouthSave Consortium. “Design and Delivery of Youth Savings Accounts: Five Lessons from YouthSave”, 2015 10 Lack of income and irregular income affect the Legal and regulatory barriers also prevent young activity rate of youth engaging in any type of people from accessing financial services in financial service. Most of the young people developing countries.9 The typical age requirement surveyed in Ghana, for example, expressed that to open an account is 18 years old and youth that the reason for their inactivity is that they do not do not meet this requirement need a parent as have money. Similarly, youth surveyed in Zambia a cosignatory to open an account and even to said they do not send or receive money due to withdraw money. In addition to the limitation of age, insufficient funds and a perception that service fees identification requirements are also often a barrier are too high. Young people in all surveyed countries for youth to access financial services. According stated that not having money prevents them from to the Commission on Legal Empowerment of the using DFS. Students, who are presumably and Poor and United Nations Development Program predominantly young, were twice as likely to report (2008), 70 percent of young people in developing that lack of finance is the reason for being inactive. countries do not have birth certificates or other Additionally, irregularity of income also impacts the identification documents. Thus, the requirements use of DFS. While it is complex to address youth’s for youth account openings (e.g. minimum age, lack of income, mobile network operators and identification cards, and parents as cosignatories) microfinance institutions could work to provide must be adjusted as favorably as possible for products and services that better cater to customers young people. with low and irregular incomes. This could include providing transparent and lower charges for young Network and service limitations are other people, and to put special emphasis on financial important reasons for DFS inactivity. In Uganda, literacy in marketing campaigns targeting youth. when asked about reasons for mobile money inactivity, adults cited inaccessible service and blocked lines. In comparison, youth mentioned unreliable network, high transaction costs and lost SIM cards. Figure 6: Reasons for inactivity of mobile money accounts in Uganda, percentage per reason 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Unreliable Inaccesible High Lost my SIM Line was Most people Network Services Transaction Card blocked I send to are Costs not on this network 16-20 21-24 9 The Mastercard Foundation, Understanding youth livelihoods in Ghana and Uganda, 2017 11 Additionally, consumer survey data from Addressing these network and services challenges Ghana shows that at least 51.9 percent of youth to using mobile money will be crucial to attract and respondents indicated service downtime as the attain youth customers. biggest challenge faced when using mobile money, followed by agent system downtime (18.6 percent). Figure 7: Challenges using mobile money in Ghana, percentage per challenge Service system downtime Agent system downtime Di culty operating the phone / using menu Unclear transaction charges / fees Agent float/cash availability Contacting customer care Sending to a wrong number 12 CONCLUSION Overall, the findings from this paper show there is Digital financial services have increased financial potential in the market for youth financial services inclusion for the underserved adult population in Sub-Saharan Africa. Results show that receiving, in Sub-Saharan Africa. However, gaps persist in sending, and storing money - as well as purchasing youth accessing financial services. DFS offers great airtime or cellphone data - are the main products potential for youth, as they are generally more used by youth. This can provide a possible template inclined towards digital trends and are starting to for types of mobile banking services that should be use mobile money services for basic transactions. offered to youth, i.e. savings accounts; checking Lessons drawn from this research provide initial or prepaid accounts, and micro lending accounts, insights around opportunities for financial service to support youth’s financial lives. Prioritizing the providers to scale DFS to youth. As evidenced in creation and marketing of these products could the findings, many youths still save their money lead to increased use of digital financial services at home. There is a big opportunity to provide and ultimately to greater financial inclusion for the incentives to them to save on mobile money future of inclusive economic development in Sub- platforms. Encouraging mobile savings can become Saharan Africa. a precursor for youth to pursue other digital products and services, such as micro loans. The existence of “voice only”, inactive DFS users suggests that the product offering of DFS is not engaging enough to young people yet, despite the potential for higher uptake as younger people use their mobile phones regularly. The youth segment should be approached with tailored marketing strategies and appropriate financial products and services to meet their needs. 13 METHOD The purpose of this paper was to synthesize insights on youth and DFS usage based on research conducted in Sub-Saharan Africa by IFC and the Mastercard Foundation over the past six years. The analysis included 5 out of 37 research studies completed through the joint Partnership for Financial Inclusion. The studies were selected because the research questions and findings, while not directly related to youth, provided information on the youth segment. The high-level review question that guided the analysis for this report was: What are the drivers and the barriers of the adoption and use of digital financial services for youth in Sub-Saharan Africa? The selected studies listed below used quantitative, qualitative or mixed methods approaches. Together they included analysis of the financial needs of target beneficiaries, the use of financial products, delivery channels and consumer behavior. Key findings on youth and financial inclusion guided the information extracted from these studies for this report. • An Ethnographic Study of the Perceptions and Attitudes to Mobile Money in Sub- Saharan Africa - provides a description of the usage, perceptions and attitudes towards DFS in four countries in Sub-Saharan Africa (Cameroon, Democratic Republic of Congo (DRC), Senegal and Zambia) in the voices of the users. The purpose of the study is to provide insight into why people are motivated to use DFS and to contextualize these motivations. • Youth and Digital Financial Services in Four Markets in Sub-Saharan Africa included surveys conducted with youth respondents in four markets in Sub-Saharan Africa. The study resulted in an initial report that provided an overview of the awareness and usage of DFS in the four markets. • Customer Segmentation Study of Microcred Senegal a randomized-controlled trial study that focused on the characteristics of selected client segments, their money management practices, and their use of financial services. The RCT explored the drivers of taking up financial services, the role of agents in facilitating access to financial services, and the direct effect of financial service offerings through branches and agents on clients. • Drivers of Digital Financial Services Inactivity in Cote d’Ivoire explores the reasons for client inactivity and provides recommendations on how they can be addressed. • Find the Gap: Can Big Data Help to Increase Digital Financial Services Adoption provides insights into the ways in which big data and socio-economic research can assist in increasing adoption and usage of DFS. 14 AUTHORS Soren Heitmann leads the applied research and learning program for the Partnership for Financial Inclusion. His background is in data science, development economics and cultural anthropology. Zenobia Peterson supports the monitoring, evaluation and applied research program for the Partnership for Financial Inclusion to promote effective and sustainable digital financial services projects in Sub-Saharan Africa. Johannes Kinzinger works as a monitoring and evaluation consultant, supporting the knowledge and learning agenda of the Partnership for Financial Inclusion. His research focuses on the factors that influence the take-up and usage of financial services in Sub-Saharan Africa. Acknowledgements: The authors acknowledge the editorial support from Anna Koblanck and Rachel Coleman as well as the contribution from Morne Van Der Westhuizen, Lesley Denyes and Richard Chamboko. Contact the Publisher: Anna Koblanck AKoblanck@ifc.org +27(0) 11-731-3000 IFC, Sub-Saharan Africa 14 Fricker Road, Illovo, DECEMBER 2018 Johannesburg