Originally posted on Stanford Social Innovation Review.
$700 billion. That’s how much banks and other financial service providers could generate in additional annual revenue if they do nothing more than provide financial services to women at the same rate they are provided to men. In overlooking the women’s market, the financial industry is missing out on an enormous business opportunity. To put this $700 billion opportunity in context, that’s almost double the size of Elon Musk’s net worth.
Nearly one billion women around the globe are completely excluded from the formal financial system even though, in most of the world, women wield considerable influence in financial and purchasing decisions as household finance managers or business owners. Financial service providers, particularly in the emerging markets, have been very slow to design products that meet women’s needs and are leaving a lot of money on the table in doing so. This inertia is certainly not in their best interest: Women are loyal clients for financial service providers; in developed markets, 61 percent of female customers stay more than five years with a bank compared with 46 percent of male customers. Women typically have better loan repayment rates than men and are less likely to “bounce” checks; likewise, they tend to be longer-term, “stickier” savers and typically build higher savings to income ratios than men.
The gender gap in access to business capital provides a particularly rewarding opportunity. There are 12 million women-owned micro, small & medium enterprises (MSMEs) in the world, more than half of which are in the developing world. Seventy percent of these female entrepreneurs report inadequate access to growth capital, representing an unmet financing need that totals a whopping $17 trillion. This market failure is driven by a combination of regulatory obstacles and restrictive social and cultural norms, in addition to the overall lack of financial products that work for women.
In my recently released book, There’s Nothing Micro about a Billion Women: Making Finance Work for Women, I illustrate through the personal stories of numerous female clients in emerging markets that underserved women are a lucrative customer segment. The book lays out a convincing business case for closing the gender gap in financial services and explores the powerful macroeconomic benefits that would accompany women’s full inclusion in the financial system.—Mary Ellen Iskenderian
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Financial service providers across the board—from traditional legacy providers such as banks and insurers to newcomers such as fintechs and mobile money providers—have failed to optimize the commercial opportunity in serving women clients. In its latest Women in Financial Services report, Oliver Wyman refers to women as “the single largest underserved group of customers in financial services . . . needs consistently are not being met.” The report then goes on to identify at least a $700 billion revenue opportunity that financial service providers are missing each year by not serving women customers. To put that figure into context, the money that Oliver Wyman estimates banks, insurers, and asset managers are leaving on the table represents 5–20 percent of total revenue for each of those sectors of the industry and far exceeds the annual revenue of the world’s leading financial institutions. The world’s largest bank, China’s Industrial & Commercial Bank, had 2019 revenues of $123.6 billion; JP Morgan Chase was in the number two position at $114.6 billion. As financial service providers respond to technological disruption and the economic fallout of the pandemic, this overlooked market opportunity is long overdue for serious consideration.
Though low-income women constitute only a portion of that underserved customer group, they represent a loyal client base with an increasingly influential role as buyers for themselves and other members of their households. Many of the adaptations and new ways of thinking that financial service providers embrace in order to serve more affluent women will be equally applicable to women in other income segments. In particular, acknowledging that the design, marketing, and delivery of financial products and services is not gender-neutral will open up possibilities to serve all women regardless of their socioeconomic status. Applying a “gender lens” will not only result in products that do not simply default to men’s preferences, it can lead to better products for men as well.
Here are some things financial service providers, whether cutting-edge fintechs or traditional banks and insurance companies, can do to realize the commercial potential of women’s financial inclusion:
Develop a “women’s proposition” with buy-in from executive leadership. Research indicates that women across the economic spectrum are often put off by their interactions with financial service providers. Equally consistent, though, is women’s stated desire to build relationships of trust with people within financial institutions; indeed, trust is the single greatest obstacle for women in choosing to engage with a financial product or service. While women clients are not a monolith and customer segmentation for both business and personal banking customers is essential, there are some common characteristics that span segments. Organizations that have built successful, trusted platforms for women-led businesses and women retail customers have done so by offering both financial and non-financial services. For instance, women generally want more information than men do and prefer taking more time to decide on significant financial actions. And, across the socioeconomic spectrum, women express less experience, confidence and knowledge than men in making financial decisions. Women are also more likely to have limited access to networks than men, but also tend to engage more deeply than men with those relationships. Paying attention to these types of customer insights, rather than making assumptions about women’s preferences or, even worse, slapping a pink “wrapper” on a man’s product, can lead financial service providers to rethink the design and delivery of financial service. To reinforce the understanding of women-led businesses as a dis- tinct segment with a well-defined value proposition requires buy-in from the board and executive management and clear communication and training for employees about the importance of this customer segment and how best to serve them. The most successful women’s banking programs also institute clear accountability to a new or existing business unit and KPIs to track both individual and institutional performance.
Collect gender disaggregated data, then use it. Mandating the collection of gender-disaggregated data is a recommendation for policymakers, but even in the absence of a formal policy, financial institutions should be collecting and analyzing such data on their own as the key to getting inside the heads of women customers. Chances are that financial service providers already have a lot of information about their women clients that they simply aren’t using. In this age of big data, there are ample tools for spotting patterns in the way women transact or trends in usage that might diverge from their male counterparts’ usage. Using those tools can shape product design and delivery and customer service. It can also influence other managerial decisions, such as the recruitment of women agents or the choice of delivery channel strategies, leading, for instance, to locating satellite services in retail shops frequented by women.
Encourage “discouraged borrowers.” A substantial body of academic literature is dedicated to the behavior of the “discouraged borrower,” the term for an otherwise creditworthy borrower who declines to apply for credit, assuming their application will be rejected. Virtually all of this research—whether explicitly focused on the gender dimension or not, whether in developed or developing markets—finds that majority female–owned firms are more likely to be among the discouraged group. There is some evidence that there is not a significant gender gap in small business loan applications from owners with relatively little business experience. However, as men and women entrepreneurs gain more business experience, the gap in their willingness to apply for credit widens substantially. Likewise, majority male-owned businesses that have been operational for longer (i.e., they are not startups) also tend to apply for loans more than female-owned businesses of long standing. But here’s the kicker: this same research indicates that majority women-owned businesses are no more likely to be rejected for loans than those owned by men. The fact that acceptance rates are the same suggests that if more women applied for loans, more might receive them.
Building an ongoing connection with a financial institution, particularly with an individual relationship manager, appears to be effective in coaxing both reluctant men and women borrowers to take that first step and apply for a loan. And if that relationship is established long before a discussion of credit is even on the table, the financial institution is able to learn more about the enterprise over time, enhancing the chances that an eventual loan application will be approved. Research indicates that men entrepreneurs are more likely than women to build that banking relationship early on by seeking banking services other than credit. For their part, women entrepreneurs can reward those financial service providers who are ready to build those relationships, rather than assuming that a loan won’t be granted and self-selecting out of this opportunity for business growth.
Build more gender-diverse teams. The importance of gender diversity within the ranks of financial service providers can’t be emphasized enough—and neither can the benefits. All financial service providers would benefit from greater gender diversity so that they can take advantage of the full range of perspectives necessary to win with women customers. Women in leadership positions in the banking sector correlate with everything from fewer nonperforming loans to higher profitability and even to greater levels of innovation. Despite the linkage between gender diversity and greater innovation, however, fintech companies in the aggregate have not emerged as a disruptive force for gender equality. Only 14 percent of fintech company directors are women, and nearly 40 percent of fintechs globally have no women on their boards. But diversity and inclusion efforts must go beyond the mere recruitment and retention of people from underrepresented groups. Instead, the different experiences of previously excluded people must be tapped as sources of learning about how to improve a company’s core business. Research shows that teams that value a variety of views outperform both homogeneous teams and diverse teams that tamp down differences in favor of group cohesion.
Mobile Money Providers Are on the Front Lines of Inclusion
Much of the recent gains in financial inclusion are directly attributable to cell-phone access and the proliferation of financial services delivered through mobile phones and the internet. Conversely, the persistence of the gender gap in access to finance is exacerbated by inequality in access to smartphones. The acceleration of digital financial services in response to the COVID-19 crisis, particularly through digital government relief payments, offers an unprecedented opportunity to expand access to cell phones.
Once women have the phones, make sure they use them by employing women agents. A mobile money provider’s agent network is the retail “human face” that drives the successful business model. Offering both “tech” and “touch” is particularly important to women customers; women agents and banking correspondents have proven adept at listening to customers’ needs, answering questions related to digital technology or the products on offer, and, overall, establishing trust with both men and women.
Expand the number of cash-in/cash-out (CICO) points. Despite the growing reach of mobile money, roughly 90 percent of transactions in the developing world are still completed in cash. To put this figure in context: one-third of transactions in the US are settled in cash, while Sweden is on track to become the first cashless society, with only 12 percent of transactions taking place in cash. The growth trajectory of digital financial services throughout the developing world will still require a sufficient number of CICO points so that people can continue to make cash payments until enough products and services can be paid for digitally. The experience with M-Pesa in Kenya demonstrates that the inclusion impact of digital financial services is directly linked to the proximity of agents. For women, who, because of social norms or household responsibilities, often have less mobility than men, the convenient location of CICO points is an even more significant factor in driving inclusion. In the context of COVID, where social distancing is so vital, the India Post Bank has found an innovative solution: it has equipped postal workers with handheld devices to provide doorstep cash withdrawal based on a customer’s biometric ID.