Carlos lives in Chile and was never approved for a bank account. Whenever he wants to send money back to his home country, Paraguay, he’s required to pay astronomical commissions. He doesn’t know how to evaluate the APR in his installments and he’s paid in cash every month. Carlos represents a huge untapped market in Latin America.
According to World Bank’s 2020 data only 51% of the Latam population have bank accounts with only 35% of them using them. Additional research has shown that only 54% have financial access to accounts while only 41% own a debit card. Diving into per country markets, research illustrated that only 35% of the population in Mexico has access to an account, 25% owns a debit card while astonishingly only 10% has a credit card.
Yet in regions so ripe with opportunities, the system is overly regulated and the process of opening an account can be really tricky and transaction-fee heavy. The banking is majorly held by 5 institutions and there’s great mistrust from Latin Americans.
This mistrust and fear of banking can be largely attributed to the barriers for trying a bank being too high and low financial education. If the illiteracy levels in any country are low, so are financial literacy levels. When people grow up in households that have little knowledge or use of a bank account and with a problematic educational system, it is hardly a surprise that they are not accustomed to such products.
A large portion of the Latin American populations lacks general knowledge about how banking is done and how it can benefit them in their daily lives and in the long run.
Latam banks in order to tap into that promising market need to create a culture of education and support financial literacy, educating people on the very fundamentals. But before that they have to rethink the elements of banking one by one and reconsider how these serve actual needs for Latam customers. First Principle Thinking can really be a great method to reverse-engineer such a complicated issue. By actively questioning every assumption there is for products such as a bank account, they can reach new knowledge and solutions about how these can meet the specific needs for the Latam population.
This presents a great opportunity of Latam banks to invest in financial education for products that truly relate to the needs of the people that will use them. Digital banking teams need to also consider the Jobs-to-be-Done framework through which they will re-address customer needs. Jobs to be done is centered around the notion that every person has specific jobs to complete during their day (e.g., send money to a friend, pay a bill). Trying to understand exactly what these specific financial jobs have to be done every day it will immensely help banks re-design products according to the Latam population.
Thinking about your banking products as completing real jobs customers have will translate them into needs catered.
This way financial education will be more targeted and supported on what the population needs to be educated about and now what banks select to teach them.
With that in mind and with the help of the digital banking research platform, , we compiled a list of various ways and means through which banks in Latin America can promote financial literacy. This would include bank-wide initiatives and digital banking applications and features.
1. Community programs
Latam banks can begin working to raise the levels of financial literacy through collaboration with local communities. By offering financial support and volunteers they can organize and fund educational programs in communities around whole countries with the aid of non-for profit groups. Additionally, they could provide their own educational programs to children as well as adults and seniors that present to have limited financial knowledge. This way they will be investing in the nurturing of long-term relationships with customers who will have been educated by a bank and will be prone to choosing that bank to serve their needs in the future.
2. Online educational platformsLatam banks can have a massive impact on raising financial literacy levels by beginning education from an early age through online platforms. The Kenyan fintech Eneza serves as a great example of that. Eneza is a fintech company that created mobile education courses via SMS, leveraging mobile network APIs. It allows for children who had to drop out of school and don’t have access to educational resources to continue their education. Millions of students have been allowed to resume their learning including lessons on financial management. Eneza’s venture has proven to be extremely successful with the product launching in more Africa countries. Such important initiatives clearly demonstrate that there’s a lot of potential in banks promoting education through platforms that factor in population needs.
3. FAQ/Learn Pages/Community pages
Another way Latam banks can educate their customers in the financial banking and digital banking processes is through building comprehensive Learn Pages. Since more and more customers appreciate self-servicing themselves when it comes to using financial products these pages serve to achieve the same for their education. US Challenger bank, SoFi, has constructed an educational financial learning webpage where customers can choose to learn anything from student loans, to budgeting, investing and paying their debt off.
Starling bank, a UK-based Challenger, on the other hand, has concentrated all offered financial knowledge and aims to teach customers about processes and products through a FAQ page. Customers can write their questions and be navigated to the best answer for their questions. Additionally, Brazilian Nubank offers an educational dictionary page where customers can learn what a digital wallet is and how automatic debit works. It also offers a community page where customers can help one another on financial matters.
4. Video Tutorials
In a time when users can find the solution to almost every problem in a video format, it is bizarre that not so many banks have invested in financial education through helpful videos. These videos could explain in simple terms all functions and transactions to be carried through the app, on their youtube or blog page. These represent a great opportunity for Latam banks to educate customers from teaching them the basics (e.g. what is a bank account and why they need one) to provide step-by-step guides to how to complete whole digital banking processes.
Chase bank seems to have understood the importance of video tutorials in educating customers. The bank offers a small but quite useful library of videos where customers can find out useful information about products and how to complete specific processes. Credit Union Affinity has also tap into the potential of video tutorials offering a helpful Learn page to customers with how to videos of different digital banking processes for online and mobile banking.
With the recent surge in demand for podcast content, it is safe to say that it is a medium that customers seem to appreciate. It is also a medium that favors enlightening discussion with many companies around the world using them to educate listeners in all matters. Podcasts could serve as a convenient way for customers to learn financial basics and even receive instructions about products or processes. QR codes in buses that could be an excellent idea to begin the onboarding process and financial education. They can easily listen to teaching content while completing another chore. Affinity Plus Federal Credit Union, having realized the potential of podcasting in expanding customer financial literacy. The Credit Union offers useful advice through podcasts that customers can listen to through Google or even Spotify.
6. Banks personalized apps
In a mobile-centric world it stands to say that mobile applications can be a highly successful way to promote financial education. This could be materialized through a partnership with a learning application or through the development of a specific ban app. In the first case banks can collaborate with other applications that offer financial lessons such as gamification app, Long Game. According to the app users learn how to save money and are rewarded for that with more chances to play fun games and win real cash prizes. This provides for an entertaining and appealing way to educate customers.
The second way is through a custom bank application. The app can have 3 learning levels (Beginner, Intermediate, Proficient Mode) that will adjust according to the level of banking literacy of the user. Customers will advance levels as they become accustomed to certain processes and as the app notes their progress. Learning Money with Leo by the Royal Bank of Canada is an example of such a custom-made educational bank app. Through that, kids are taught important lessons on money concepts as they begin to learn earning, saving, and spending their money from an early age.
Mobile app learning has proven to be extremely successful in many educational settings, but for banks it can serve to both educate customers and promote trust and loyalty.
7. Intuitive Chatbots
Chatbots have become extremely popular to customers due to their AI built-in intuitiveness that aid customers find quick solutions to their issues with a banking provider. Latam banks can leverage such technology to both offer support to their customers and educate them. Revolut can show the way in this instance as they provide a chatbot system that fully serves the customers. Users can ask their question and be directed to article and community posts that provide solutions to their problems. They can also be navigated to other parts of the mobile application that caters to their need or simply talk to a representative.
Banks can adopt this structure and create an educational digital system in their own apps or web channels where customers are shown learning blogs or videos and community threads that will inform them on everything they need to know. The benefits of AI optimized chatbots are manifold for banks. And as technology advances it will become more the more pertinent to include them on all aspects of banking, including alleviating financial illiteracy.
The Latam market is a highly prospective digital banking market. It is however a market that banking advancements and penetration demands to be combined with a strong educational foundation for its population. Banks first need to understand the roots of digital illiteracy, promote education, before beginning serving larger portions of that market.