Leaving cash behind: Can we build swipe behavior for small buisness loans?

Background

According to a 2016 Gallup survey, 24% of Americans still make most, if not all, of their purchases with cash. However, operating in the cash economy has many drawbacks. Not only are cash users more vulnerable to theft, but they are also locked out of beneficial financial services such as expense tracking, budgeting, or automatic savings.

To understand how to help consumers shift from cash to cards, we partnered with Grameen America, an organization dedicated to helping women who live in poverty build small businesses to create better lives for their families.

Key Insights

Grameen America offers low-income women microloans to help them build businesses, achieve higher family incomes, and develop entrepreneurial skills. The Grameen lending model fosters accountability among its members – the women entrepreneurs it lends to – for their loan repayments.

Members must repay their loans in person during a weekly “Center Meeting.” Requests for membership, loans, and loan increases must be approved by all members in the group at the Center Meeting. Grameen reports over 99% repayment rates.

Recently, Grameen has started to disburse loans using a card. Their goal is for members to use the disbursement card to buy goods directly from vendors. Although the disbursement card is a much safer and more secure option for members, most members are not using the cards as intended. Instead, over 90% of members take out the full amount on the card as cash.

In order to understand the barriers to card usage, we observed nine Center Meetings in Brooklyn and the Bronx. Additionally, our team visited four different Grameen branches to observe the loans being disbursed to members. During these visits, we had the opportunity to talk to Grameen staff, members, and branch managers, and get their insights on barriers to using the card to pay directly. From these conversations, we’ve gathered the following insights:

• There are no rules around using cash versus the card. There are no clear guidelines around how and when cash should and should not be used. This makes it easy for members to continue using cash.

• Choosing a payment method for loan purchases (whether using the card or using cash to buy goods) is not a visible or social behavior. A great deal of the success of the Grameen model (repayment in particular) is around social forces and accountability to others. There are no real opportunities for members to “see” the payment methods other members use when buying goods and services for their businesses.

• Members do not feel that they know how to use the card, even if they have been given instructions. Members may not have knowledge of or familiarity with digital banking and card usage. Some members resort to asking family members to help them use the card to withdraw cash from an ATM because they can then interact with the loan without further assistance. As a result, members don’t use the card because cash is a readily available and familiar alternative.

Experiment

We sent a text message to members that was intended to deliver a “just-in-time” reminder of loan disbursement card a few days after they received the loan. We felt that the reminder would be more effective if we sent it closer to the time that the member would likely be using their loan funds to buy goods or services. The weekly Center meetings are at the forefront of the Grameen program; however, the behavior in question (spending on loan items) doesn’t take place during the meeting.

The experiment was conducted in the New York market, and reminders were sent between August and November in 2019. During this time loans were disbursed to 1,700 members. These members were randomly assigned either to a control group (no text message) or treatment group that received a reminder.

Results

The just-in-time reminders did not appear to change spending behavior. There was no significant difference in the likelihood of using the disbursement card between the control group (no text message) and the treatment group (got a text message).

However, the analysis suggested that repeated exposure to Grameen and the card did affect how likely members were to use the disbursement card instead of cash. If the loan was the first loan with Grameen, the likelihood of using the card decreased. If the member had previously been issued a Grameen disbursement card, they were more likely to use it to buy goods and services directly.

Ultimately, the text message was a fairly light-touch nudge. The analysis suggested that the barriers to card usage, particularly concerns about institutional trust, run deeper than what the nudge was likely to impact.