July 28, 2014
Washington, DC – The Consultative Group to Assist the Poor (CGAP) released a report today that examines the business considerations for financial service providers offering savings products to young people. The report, “The Business Case for Youth Savings: A Framework,” analyzes the different factors that financial service providers need to consider when entering or being active in the youth savings market.
With almost half the world’s population today under the age of 25, youth finance represents a largely untapped business opportunity. Despite this potential, there are surprisingly few examples of providing youth savings in a profitable manner. Few financial service providers, especially in developing countries with large young populations, target youth specifically as a segment.
Based on interviews with a dozen financial service providers, this report provides a framework to analyze the business case for financial service providers looking to offer savings products to young clients in a profitable way. It outlines key “decision points” at the market, institutional, and client-segment levels that affect the cost and revenue streams of offering youth savings products.
Practical considerations for financial service providers covered in the report include how to control marketing and transaction costs and how to choose a particular youth segment. Case studies from Mongolia, Nepal and Germany illustrate how specific financial service providers have approached the business case for youth savings.
“The goal of this report is to provide financial service providers with practical guidance to make sound business decisions when it comes to youth savings,” said Tanaya Kilara, Financial Sector Analyst at CGAP. “In doing so, we want to encourage financial service providers to consider youth as a viable segment for the long term. While financial service providers are beginning to realize the business potential that this largely unbanked population segment holds, there is a need to evaluate the circumstances under which serving this segment makes business sense.”
“The youth of today will be tomorrow’s adults in need of financial services,” said Barbara Magnoni, President of EA Consultants and co-author of the report. “Offering formal financial services to young people now will pay off in the long run for financial service providers.”
According to Scarlett Aldebot-Green, Senior Policy Analyst at New America: “We need to approach development solutions with an eye to multi-generational solutions and this resource for financial service providers facilitates their analysis. Banking youth can be the first step toward financial inclusion for entire households and can have long lasting effects on communities. Banks can also profit through banking this sector provided they have the right approach and evaluate the context carefully; this report can help them do that.”
CGAP’s research on savings focuses on business models targeting low-income customers. To better understand the needs of youth as a specific client segment, CGAP conducts research as part of the YouthSave Consortium project, a partnership that aims to develop sustainable savings products for low-income and vulnerable youth and assess saving performance and development outcomes.