While defining the problem is the first step towards a solution, crafting the right problem statement is inherently difficult. As we mentioned in our last post, a well-crafted problem statement should not be defined too broadly, too narrowly or with hidden presumptions. Here’s how we refined the problem statements at each of our three pilot sites in the BETA Project.
Neighborhood Trust Financial Partners
The initial problem statement from Neighborhood Trust’s application to the BETA Project was:
Barriers such as inconvenient locations of credit unions and banks keep “unbanked but bankable” clients from using asset-enhancing bank accounts and remain reliant on expensive fringe financial services.
This problem definition seemed too broad to our team because it concentrated on the use of fringe financial services. It presumed that bank account use is a perfect substitute for fringe financial services, while these services can actually address very different financial needs (e.g., using a checking account to pay bills vs. taking out a payday loan). We also felt that focusing too narrowly on “unbanked but bankable” clients would unnecessarily restrict the sample of clients we seek to serve through the project and prevent other client segments from potentially benefitting from an intervention.
Our refined problem statement is:
Low-income individuals sign up for accounts with affiliated credit unions during Neighborhood Trust’s financial education course, but do not fully utilize them.
In contrast to the original statement, the refined statement focuses purely on client account use, without any assumption that this will necessarily lead to reduced use of fringe financial services, and includes the full client population.
Accion Texas, Inc.
In contrast to the Neighborhood Trust example, Accion Texas’ application contained a problem statement that seemed too narrow:
For individuals with credit scores lower than 522, having separated personal and business checking accounts almost doubles the probability of repayment in comparison to individuals that only have one checking account or have no bank account at all. Accion hopes to help the underbanked borrowers improve loan repayment rates so they can build or improve their credit and move up the asset-building chain.
The original problem statement directed us to look at loan repayment rates, but when we gathered more information about delinquencies, we found that Accion’s customers repaid their loans at rates on par with, if not better than, the rates expected for a non-profit microlender. Additionally, Accion’s problem statement concentrated specifically on underbanked individuals with low credit scores. Segmenting borrowers based on their credit scores or banking status precluded an accurate diagnosis of the problem. A person’s financial status can be in a state of flux: credit scores go up and down, bank accounts are opened and closed. Furthermore, while the underbanked may face unique challenges in repayment, we did not want to exclude the possibility of interventions targeting all of Accion’s clients.
Based on conversations with Accion staff, we learned that late payments took a significant amount of staff resources to manage and that there were negative consequences for borrowers. Customers were charged late fees and Non-Sufficient Funds fees and were at risk of damaging their credit scores if Accion reported their delinquencies. Additionally, most borrowers were enrolled in automatic electronic payments, but sometimes did not have enough money in the account on the date their payments were withdrawn. This led the BETA Project team to revise the problem statement to target on-time loan payments:
Borrowers have difficulties making consistent, on-time repayments using the Automatic Clearing House (ACH) electronic withdrawal system.
This changed the focus to preventing borrowers from becoming past due and entering the collections process, rather than on borrowers who are already past due on their repayment.
Cleveland Housing Network
Finally, problem statements can contain hidden presumptions that limit the possibilities for diagnosis and design. Cleveland Housing Network’s original problem statement contained this kind of presumption:
Barriers such as poor marketing inhibit residents in the Lease Purchase Program from paying rent online.
This statement made two presumptions. First, it presumed that poor marketing of the program is what is preventing online payment. Second, it presumed that if more people signed up to pay rent online, they would be more likely to pay their rent on time. This second presumption is hidden—meaning it is implied rather than directly stated. In our initial discussions with the Cleveland Housing Network, management indicated that on-time rent payment was the goal, and that online payment was a means to reach that ultimate goal. We felt the presumptions would limit the range of possible solutions to the ultimate goal of repayment. Further, we checked the second assumption against one month of data and found that many people paid their rent late even if they had signed up for the online payment system.
After further discussion with the Cleveland Housing Network, we revised the statement:
Despite multiple payment options, clients in the Lease Purchase Program fail to pay their rent on time.
The revised problem statement eliminates these presumptions. It also presents us with a different target: we attempt to encourage residents to pay their rent on time, rather than focus only on online payments.
Next BETA Project Post: Diagnosis
This post and other helpful insights from the BETA Project are available on the Behavioral Economics blog and the BETA Project website. Our next post will look at how reworking the problem statements for the BETA project sets the stage for our next phase: diagnosis. We will discuss how we started the process of moving from these problem statements to a diagnosis of the underlying behaviors and psychologies that may be preventing clients from achieving their desired outcomes.