By Roberto Veronese, Creative Director, frog San Francisco
The use of digital banking and electronic payments is expanding in many countries, as consumers embrace technology that facilitates financial services. Yet in Russia, people still cling to cash for most of their financial needs. In fact, more than 90 percent of all commodity purchases are in cash, according to the Bank of Russia, and the country loses over one percent of its annual GDP due to the huge amount of cash circulating and its maintenance costs. This poses a challenge to financial institutions, like Russia's largest bank, Sberbank, which is eager to transition customers to digital services. Sberbank asked frog to envision product and service concepts that could effectively support that transition.
We began our work with extensive qualitative research in the field, investigating the deeply personal reasons why cash remains so popular among customers in Moscow. "I cannot go around without cash," a young, wealthy and tech savvy Muscovite told us, while shopping at GUM, the city's main department store. This was a typical response, even for younger Russians who are regularly online. More than half the population uses the Internet at least once a week, and appreciates the convenience of new digital tools to browse for information and media content. Yet in some cases these technologically sophisticated consumers refuse to open a bank account, preferring instead to pay their bills with cash at ubiquitous payments kiosks, despite the high commission applied to these transactions.
We found a number of reasons for this reluctance to adopt digital banking and electronic-payment services. Foremost is the fact that only a small number of merchants accept credit card payments, due to charges of up to 4 percent on the seller's side and widespread tax evasion. Meanwhile, salaries are still largely paid with cash, despite the introduction of "salary cards" issued by a bank chosen by the employer. This is the main type of card issued in Russia, which on payday contributes to an extremely high volume of cash withdrawals that are usually not transferred to bank accounts.
Moreover, the stories we heard from Russians suggested a broad lack of trust in banks and other formal institutions, an attitude that dates back to the Soviet era. Russians tend to rely on their immediate social circle because social and family ties are extremely strong. If you need credit, most Russians would tell you, it's better to ask friends and family. "Friends understand more than banks," one middle-class person told us. "There are no hidden terms and conditions, and no pressure to pay on schedule." Even big purchases, like a car, were paid for with bags of banknotes, people said.
Finally, we heard from Russians that "cash is easier" while current digital services are intimidating. With few exceptions, middle-class customers acknowledged a lack of understanding and bad experiences using their banks' digital tools. Just by walking into any bank branch in Moscow we could see the consequences of this: even younger customers prefer spending hours in line to complete traditional operations like bill payment, because online services are too obscure or complicated. Typical comments from people standing in long bank lines included "I'm too busy, and I don't have time to learn about new tools" or "I'm afraid to make mistakes [online], too complicated."
Our qualitative research became the foundation for the creation of six archetypal customers comprising a spectrum of behavioral patterns based on two factors. One was financial and digital literacy, which is influenced by age and education, while the second was affinity for sophisticated products, which closely correlates with social status and personal preference.
Archetypes with significant financial literacy and high understanding of sophisticated tools were more attracted to higher interest rates on deposits and self-service solutions that provide a wide range of tools, control and security. In this group, high spenders in areas such as traveling and socializing were keen to learn about new ways to help them earn and spend smartly, but they didn't have too much time to figure out all the details. They tend to act as key influencers on their families and peers.
The archetype representing those with less confidence in advanced tools were looking for simple, essential ways to better manage day-to-day finances and support for savings and mortgages. Money transfer and sharing account information are recurrent needs, especially among families.
For those classified as social elites, who tend to delegate their wealth management to third parties, there is a demand for highly personalized finance solutions as well as products that demonstrate their premier social status. At the other end of the spectrum are people resistant to change who are not technologically savvy and have simple banking needs. Transactions tend to be routine and restricted to a few basic functions, usually offered by self-service terminals accepting cash. While it might be difficult to completely transform this group's behavior, education and improving the self-service experience could help alleviate their dependence on cash and branch services.
Building on these findings, frog devised several new product and service concepts designed to move customers from predominantly cash transactions and traditional bank branch services to the safety, security and convenience of digital banking and electronic payments. These strategies empower and educate customers across multiple touchpoints. They redefine the experience of saving money and accessing credit by anticipating financial needs according to major life events, and provide not just information but also guidance. Online banking was extended beyond personal-finance management to commerce, while electronic payments and bill payments represented two other key focus areas.
The design concepts developed by frog have become initiatives that are currently being developed by Sberbank and will be rolled out incrementally across the country. King cash, you have been warned.