Gravity Ideas improving client debt management at Capitec Bank
The stakeholders
Gravity Ideas is a behavioural design consultancy based in Cape Town, South Africa, that focuses on using insights from the behavioural sciences to create or improve the design of company products, services, systems, and communications.
Capitec Bank is a South African commercial bank that has rapidly grown to the third largest in the country by prioritising simplicity, affordability, accessibility, and personal service.
THE CHALLENGE
As soon as clients fall into arrears (i.e. miss one payment), the bank makes full provisioning for their loan, which becomes a liability on the bank’s financial statement and negatively affects the profitability of the bank. By resolving this challenge, that is preventing clients from falling into arrears by making their debt payments on time, a direct contribution to the bank’s profitability is actualised.
The target audience was quality banking credit clients that had a medium risk score on the propensity model for reverting and falling into arrears. This meant that there was a high probability that they would fall into arrears, but also that they were still in a financial position not to do so if the right intervention was put in place.
The objective
How do we stop Capitec Bank clients from falling into arrears (missing a debt payment) and closing their accounts?
Our Method
In order to tackle this challenge, qualitative and quantitative research tools were used in combination with a review of behavioural science literature relating to financial health and capability in order to accurately diagnose the causes of the existing behaviour.
OUR FINDINGS
The diagnosis revealed several important and interrelated behavioural insights:
- The target audience often had multiple channels of debt open from store and furniture credit accounts to loans with other banks and informal loans from within their community. Among other reasons, this is due to their myopic approach to money management that stems from the belief that access to many channels is a sure way to deal with the unexpected events that they commonly experience.
- In South Africa, many people still withdraw their salary on a monthly basis as they prefer to manage their money and pay their debts with cash. This creates decision-making situations that do not exist when payments go off via automated debit order, such as which creditors to prioritise.
- Although it is assumed that the rational approach would be to prioritise these debt payments based on their interest rates or long-term implications, the reality is that this decision is far more emotional and social in kind. This means that organisations that remain top of mind and have a strong, positive relationship with clients tend to be picked over others where this type of relationship is not present.
THE SOLUTION
Our Intervention: A Financial health programme
In order to overcome these barriers, a direct communications programme was set-up that offered financial support to clients over a six week period. The programme included a sample of 64000 clients who had been randomly selected from the target group that met the pre-defined requirements (as discussed above).The programme ran for a 12 month period.
These clients were first called by a call centre agent whose approach to these conversations was adapted to be personable, empathetic, non-threatening, and conversational. Along with their optimised approach, the agents were afforded the ability to offer immediate solutions to the client’s problems, as well as offer educational material. This material contained conversational and simple ‘rule-of-thumb’ financial tips to help clients take ownership of their financial situations and manage their money more effectively. In turn, this would frame Capitec as salient, supportive, approachable, and top of mind.
THE RESULTS
The results indicate that the programme was successful in influencing the debt payment behaviour of the target audience. The results showed that R25.2 million, which had been provisionally written off, was saved and turned into actualised profit for the bank. In terms of the costs incurred to execute the programme (R750 000), this meant an ROI of 3360%.
WE SAW A ROI OF 3360% FOR CAPITEC AFTER THE INTERVENTION HAD BEEN COMPLETED.
Besides the financial impact of programme, its success has had a profound influence on the direction of the bank which has since focused its attention and resources towards expanding their, and thus their clients’, financial health capabilities by launching a new department with this objective.
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