How much does what you wear impact how much you know about your new loan or savings account? Perhaps more than you think.
A recently completed study in Mexico sought to determine how the perceptions sales staff have of different types of consumers and their knowledge impacted the quality and quantity of information consumers receive when shopping for an individual credit or savings product.
The study was funded as part of the Russia Trust Fund for Financial Literacy and Education, conducted by Xavier Gine and Cristina Martinez of the World Bank, Rafe Mazer of CGAP, and CONDUSEF—Mexico’s Financial Consumer Protection Agency.
The study used mystery shopping methodology, a familiar tool for many supervisors, but with a few innovations. First, instead of professional shoppers in the credit portion of the study, actual low-income financial consumers were recruited and trained so that we could measure the credit sales process right up until the point of receiving the final product offer. Second, we wanted to see how providers’ perceptions of consumers impact both the quality of information they provide, and the product offers consumers receive. To measure this, shoppers were trained to portray a range of different profiles, both in terms of knowledge and experience, as well as financial needs. Two of the main profile modifications were around experience level and financial needs:
- Neophyte versus experienced shopper. To signal to providers a shopper’s relative knowledge level, “experience” shoppers mentioned at the outset they had been shopping around, and even referenced a specific interest rate offered elsewhere. The neophytes used less financial terms, and expressed only a basic need—e.g. “I need a place to put my money” in the case of savings.
- Product suitability and product needs. In credit shoppers either asked for a high loan amount relative to income—70% of annual income—or a low amount—20%. While in savings shoppers expressed either a need to put money away for a year, or to manage cash flow and expenses—mimicking a preference for either a term deposit or current account.
Our findings demonstrate that disclosure of product information depends in part on the perception of the consumer by the sales staff. In both credit and savings, experienced shoppers were given more product information, spent a longer time with the sales staff, and received more printed materials. However, we should caution that the amount and quality of information provided to consumers was low for all shoppers, with an average of only 0.9 of a possible 8 points of information on costs and commissions in savings, and 0.22 of 9 possible points of information on costs and commissions in credit. Worse still, printed materials per visit were only 0.8 and 0.6 for savings and credit respectively. If one of the fundamental assumptions in disclosure is the importance of pre-contract summary sheets or key facts statements, this is a very concerning finding.
This methodology also provides useful insights on the incentives sales staff may have to support responsible financial inclusion. Providers responded strongly to the relative loan amount to income of the shoppers, reducing amount offered compared to amount requested by an average of 9,000 Mexican pesos for shoppers with the 70% debt profile. However, in savings, despite the strong fit with the needs of low-income consumers looking to manage household cash flow, only two of more than 50 shoppers seeking non-investment savings accounts was offered one of the “No Frills” basic savings accounts that all providers must have on offer under Mexican law. These products do exist at each institution, but clearly there is a strong disincentive for providers to make consumers aware of this product when they come in seeking a current account.
Mystery shopping is a tool that is already being used by many supervisors across the globe to monitor the market and detect issues for further follow-up. However, we believe there is still much to be learned about how the sales process can differ depending on the type of consumer, and how well providers match product offers with consumers’ expressed needs. It is our hope that the methodology piloted in Mexico can be easily adapted and integrated for supervisors in other markets to expand the data they gather through this tool and inform policy reforms.