In contrast to many jurisdictions where CGAP works, Mexico has a highly urbanized population of well over 70%, enabling its population to have relatively easier physical access to banks and other financial service providers. Yet, current estimates indicate that between 50-65% of the population are unbanked and a large proportion of them are de-banked” – meaning that they once had access to a formal financial service but then decided to stop using it.
To understand why this is the case and to determine if there are ways in which low income Mexicans can be attracted to formal savings and other financial products, CGAP partnered with design firm IDEO.org and one of the largest banks in Mexico Bancomer over the last three months. The purpose was to incubate possible financial products that are financially sustainable for Bancomer but could reach scale and attract the low income Mexican market. In a country where many customers are already relatively familiar with banks and usage of informal credit and savings mechanisms is widespread and highly efficient (90% of the market segment save through informal means and customer satisfaction is high), it became obvious that making a “successful” financial product for low income Mexicans simply might not happen without a different and invigorated approach to truly understand the behaviors, preferences and needs of this key market segment.
As a result, IDEO.org’s human centered design process was employed to help obtain valuable demand side customer information, through in-depth interviews focusing on low-income people’s use of formal and informal financial services and tools, what they liked and disliked about them as well as their needs, desires and aspirations. A variety of clever techniques were utilized to extract information , such as developing prototypes that enabled customers to both make an abstract scenario more real and elicit more emotional reactions to a conversation, which otherwise might have been limited to a more “rational” level. The result was that customers simply responded better — they provided more nuanced and better contemplated answers, which could ultimately inform product design. For example:
- One prototype used was a drawing that showed four hypothetical ways for people to save their money: inside a brick, sewn inside a pillow, inside a locked chest and inside an envelope. These four concepts represented different degrees of difficulty for accessing the money saved inside each item and generated more nuanced reactions around different ways of creating distance from money. Hence, an opportunity was identified that could ultimately inform the design of a potential banking product: aka. a savings account where customers separate their money by different degrees of difficulty to access it.
Prototypes such as this and many others, along with innovative customer interview methods and techniques, brought other key insights on customer behaviors, such as:
- Poorer Mexicans do not save just for the sake of saving. People save for tangible things, not for having general funds for “possible” use in the future or long-term security. They intuitively categorize money for specific projects, daily expenses and emergencies and use a variety of analog methods to keep track of it and/or ‘distance’ themselves from it. These go from literally keeping money under the mattress, to storing it in drawers, jars, boxes, envelopes, jacket pockets, giving it to other people to look after or purchasing goods to later sell or use. We learned that organization, separation and categorization help them create mental and emotional structures around money and prioritize its use.
- Poorer Mexicans seem to think they’ve never saved before. When questioned, this market segment tends to answer that they have never “saved” when in fact the above suggests they do. The reason is that savings was perceived as something that is done when you have an income in excess of your needs, which is something the interviewees expressed they never, or hardly ever, had. Savings is seen as something beyond their reach, unattainable and practically impossible to do. However, they did, in their own words, “put money away,” “store it,” “keep it,” “set it aside,” “put it to work” (in Spanish: sacarlo, juntarlo, guardarlo, apartarlo, ponerlo a trabajar) but they didn’t “save it” (ahorrarlo). Hence, we learned that offering a savings account as a gateway to formal financial services would require using very different language than Mexican banks had traditionally used in order to attract people to a savings product they otherwise would consider not relevant to them.
These insights derived into two design principles that, among other things, highlight the importance of taking into account people’s practices and ‘people speak’ when designing financial products:
- Design products that directly cater to the categorization within people’s real lives. While this might seem intuitive and obvious, we see much too often that financial providers across the board offer a very standard set of products (e.g. typical savings account, credit, insurance). However, providers striving to serve low income markets may reap financial sustainability if they offer products that mimic and improve on the categorization and prioritization that people already do in their everyday lives. This would ensure that the products offered are intuitive, relevant and add value to potential clients of this market segment and that their transition to using formal services is natural and painless.
- Speak people speak, not bank speak. This refers to the many ways in which financial service providers convey information and communicate with their clients regarding, for example, disclosure and product information, fees, specific product offerings. The more familiar the terms used, the easier they will be understood and the more transparent the provider will come across. People naturally mistrust what they don’t understand and they will not be attracted to things they don’t think they need, such as being charged commissions for an intangible service (e.g. account handling fees). We found that fees and other charges evoked negative emotions in people, but they reacted positively to them when it was clear that they were receiving a tangible benefit in return and that they had a choice in the matter. Hence, fees and other surcharges should be framed and marketed in a language and manner that allows customers to clearly identify tangible gains and tradeoffs.
Our experiences in Mexico have reinforced that a key and primary challenge is to design and sell products that are truly relevant, affordable and accessible and that will motivate people to forego what they currently use and are familiar with — especially if what they already use is working quite well for them. The only way to develop a better and more popular product will be to observe and understand our target clients without any previous assumptions and biases — to learn from the actions they take to manage their money and the words they use to refer to these actions. For effective product design, we must mimic the habits they have and the language they use in a way that is tangible, intuitive and ultimately more valuable than anything they’ve ever used previously.
Thanks for attacking this
Thanks for attacking this very important topic! In 2005 Pilar Campos published a book on savings habits of Mexican’s rural poor populations (El Ahorro Popular en Mexico, published by CIDAC and Porrua); the descriptions of savings habits support your conclusion with regards to the importance of categories of savings but not the supposition that poor people seem to be unaware of their savings. In my own work on national level studies of rural and urban poor, I find that people are aware of their savings habits and will describe them as “savings” when the word savings is defined. The fact that the poor save for categories of proximate expenses related to health, housing, education and business investment needs may reinforce that this seems different from what “people who have savings in banks do”. Indeed they don’t relate their savings to “bank savings” and recognize an enormous social distance. Interestingly, one national level study of financial services for this segment revealed that resistance to use of ATM machines was not related to self perceptions of an inability to learn the skills to use the machine, but to the perception of a lack of effective recourse if a problem occurred during the transaction. This underscores the importance of not speaking bank. Indeed the process of becoming “de-banked” may relate to experiences that “banks don’t like us and we don’t like banks”. Participants of studies perceived a lack of opportunities to have conversations, to obtain information adequate to their needs about the characteristics of minimum balances and commissions that effectively erode the savings create. Indeed conversations with poor populations around commissions as investment that permits banks to provide services closer to the client do elicit positive responses. The conclusions about language remind me of the importance of conversations and interaction. Perhaps further studies could help understand the importance of the client agent relationship required for robust/permanent financial inclusion.
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