• Saturday, March 02, 2024
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BusinessDay

Promoting financial inclusion

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Showy and appealing, prize-linked promotions (PLPs) are the modern version of ‘Million Adventure’, a savings programme launched in the UK in 1694. Anne Murphy in “Lotteries in the 1690s: Investment or Gamble?” described it as “an unprecedented large-scale financial saving tool”. Thomas Neale, who was in charge of the promo commenting on its success said: ‘many Thousands who only have small sums, and cannot now bring them into the Publick, [may now] engage themselves in this Fund’.

In a way PLPs in Nigeria reflect, or capture, the aspirations, saving and spending habits of Nigerians. Prize-linked promos are a veritable and untapped social lab for classical and behavioural economics. Prize-linked promos, by banks, telecoms operators, FMCG are immensely popular. They promise the consumer instant millions, gifts and cash prizes, say, brand new cars and wonders of wonders a plane. All consumers have to do is save more, drink more, eat more, talk more etc.

A close look underneath the numbers shows Nigeria’s domestic demand is resilient. According to the National Bureau of Statistics (NBS) Household consumption expenditure (HCE) at 61 percent is the largest component of Gross Domestic Product GDP (when measured by expenditure).

Euromonitor international a firm engaged in strategy research for consumer markets, estimates that the size of the consumer spending market in Nigeria will approach $223 billion by 2016, a doubling from 2010 levels. This trend will be driven by rising incomes and affluence as well as urbanization. Nigeria is expected to grow by 7 percent in 2014.

Nigeria’s 160 million plus population is a valuable asset in its quest to grow and diversify its economy, provided the country can build a manufacturing base that services the consumption needs of the citizens, and a financial services industry willing to extend consumer credit. Curiously, the lack of credit has made many justify dabbling into lotteries – there are stories of how a game N50 turned into thousands of naira that served as start-up capital.

Betting, on the other hand, is a different ball game. There is a surge, in Lagos at least, of football betting companies. Football-mad Nigerians are placing bets on a combination of their favourite teams in England, and Spain.

Last year, Chelsea, Arsenal, Barcelona, Real Madrid, Manchester United, Liverpool, AC Milan, Super Eagles, Everton and Manchester City were the football clubs Nigerians searched for the most, according to Google Zeitgesit 2013. No surprise that Gonzalo Higuain, Luis Suarez and David Moyes were the third, eighth and ninth on the list of most searched for personalities in Nigeria.

Is participating in prize-linked promos the same as buying a right to fantasize, a manifestation of irrational optimism or a cheap ticket to daydream about a better life?

All prize-linked promos urge consumers to either spend or save. PLPs are structured as a no principal loss and liquidity, leveraging on loss aversion by offering highly asymmetric payout: heads you win and tails you don’t lose. With frequent prize drawings – for instance, an instant gift for opening a savings account or 5 times your daily airtime spend.

Though obvious, this contrast between spend and save nudges consumers in different directions as FCMGs, banks and telecoms are competing for share of Nigeria’s domestic market. Telecoms promos add sweeteners like reduced call rates, or induce consumers with 2-in-1 SIM offers bundled with the chance of a surprise gift.

The language and design of PLPs by banks are similar to that of telecoms. Fidelity Bank, for instance, wants its existing customers to “to up their account balance” to qualify for the promo. However there are contrasts. For Fidelity Bank, “the more you save, the more you win” whereas for the telcos, it’s about usage of airtime.

Though the benefits are tangible (Nigerians like to talk), the question is: which households are likely to set more store in PLPs? Do they see it as a means of wealth rather than savings? Are they more likely to accumulate N1m by saving? Or do they prefer to spend a minimum of N200 airtime or a maximum of N3000 airtime, during promo period, to qualify for a draw? Such bonanzas don’t happen every day and, besides, most Nigerians earn income as they go i.e. daily.

In the case of banks PLPs are used to for deposit account drives and as such make savings tangible. Or as is the case of money transfer, the goal is to increase the volume of transactions. Back-to-school money transfer promos are examples of PLPs by money transfer companies, in conjunction with banks. (A 2010 survey by EfiNA showed that international and domestic remittances received were for school fees.)

Beyond their appealing offers PLPs present a way to encourage financial literacy and a savings habit – especially if the no principal loss and liquidity structure is de-emphasised. A well-designed and transparent programme could teach people the value of compounded interest.

In South Africa, MaMa (Million-a-Month-Account), a PLP by First National Bank, was designed to reach the unbanked. Saving bonanzas that appeal, which attracts people with incentives not far-fetched fortune, will have to compete with consolation prizes that seem more than one month’s interest on savings deposit.

Re-engineered PLPs could move mobile money in Nigeria from sub-scale to scale: create urgency in customers to learn and use the service; backed by heavy investment in above-the-line and below-the-line promos: road shows radio, TV etc. Such a bonanza could be used to scale mobile money transfers and thus increase financial inclusion.

Getting low-income households, with their small and uncertain income, to understand compound interest as giants would be a feat. This is because “normal return earned is low – due to size of account and demand for liquidity, waiting/holding periods is short and uncertainties leaves little time for compounding interest of original sum deposited and accrued interest.”

By: Tayo Fagbule