The ﬁnancial needs of Mexicans...preference for cash to transfer value. The bias towards informal financial services, particularly assistance from friends and family, is also clear

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The financial needsof Mexicans

How do Mexicans solvetheir financial needs?

September 2019

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AuthorsChristine Hougaard (insight2impact)

Isabelle Carboni (insight2impact)Wicus Coetzee (insight2impact)

Leonard Makuvaza (insight2impact)Marco Antonio Del Río Chivardi (CNBV)

Christopher Edmundo Castro Solares (CNBV)Julissa Hernández Godínez (CNBV)

Yolanda Sosa Juárez (CNBV)

AcknowledgementsThe authors of this report would like to thank staff at the commercial

bank who provided the transactional data and valuable comments. Our sincere thanks also to Gabriela Zapata for her valuable input and

review throughout the project.

Editorial Design and Style CorrectionRicardo Gómez Ortega (CNBV)

Tonatiuh Estrada Sandoval (CNBV)Carlos Alberto Godínez Haro (CNBV)

Publication date: September 2019.

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Contents

Executive summary

Introduction

Why measure financial needs?

Methodology Findings

Howdopeoplemeettheirfinancialneeds? Useofthefinancialdevices

Why do these findings matter?

GPFGlobal Policy Forum for Financial Inclusion

AFIAlliance for Financial Inclusion

ENIFEncuesta Nacional de Inclusion Financiera (National Financial Inclusion Survey)

CNBVComision Nacional Bancaria y de Valores

POSPoint-of-sale

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Thisreportoutlinesthefindingsfromastudy carried out by insight2impact in collaboration with Comision Nacional Bancaria y de Valores (CNBV) of Mexico to gauge how Mexicans meet their financialneeds,especiallywhenitcomestosendandreceivemoney,manageliquidity,buildresilienceforfinancialshocks,andtomeetgoals.

The study was conducted to provide a complementarylensintothefinancialinclusionlandscapeinMexico,alongsidethe existing National Financial Inclusion Survey(ENIF2018,foritsacronyminSpanish),aswellastheMexicoFinancialDiariesfindings.ItcombinedinsightsfromasurveyonfinancialneedsimplementedintheStateofPuebla,with transactional data obtained from a commercial bank to make a complete picture of people’s formal and informal financialdeviceschoices.

Thefindingssuggestthattheformalfinancialsectorisbarelyusedtosatisfythe needs of Mexicans. This is seen clearly through people’s continued preference for cash to transfer value. The biastowardsinformalfinancialservices,particularly assistance from friends and family,isalsoclearwhenpeoplefacealiquidityconstraintorafinancialshock.Giventhat,afterthreemonths,two-thirdsof respondents had yet to recover from suchfinancialshocks,andthepreferenceforinformalservicesisnotsufficientto build resilience. Formal services are used more frequently for meeting financialgoals,thantheotherneeds,butthis could be further strengthened with moreuse-case-specificproducts,suchasfor housing or education.

The transactional data shows that despite growing usage of point-of-sale transactions,muchcardusageremains

in ATM withdrawals to transact in cash. Thisconfirmsthesurvey’sfindingsthat,whetherbankedorunbanked,peoplecontinuetomeettheirfinancialneedsmostly in cash. In turn digital payments are growing for some consumer segments – income level and education wereidentifiedasdriversofthis.

Receiving an income digitally is a potential driver for digital payments. It would be necessary to analyse the relevance of policies and incentives so merchants can offer digital payments and expand the opportunities for non-cash usage. There is an expectation that the implementation of new instant paymentmethodsbythefinancialinstitutions generates competition with cash usage.

The combination of the survey’s data and transactional data provides insights forpolicymakersandfinancialserviceproviders. Taking a more customer-centricperspective,byunderstandingpeople’s choices through the lens of financialneeds,canbeusedtodesignmoretargetedfinancialproducts.Giventhe size of the needs that remain unmet byformalfinancialservices,thereisa large market opportunity as well as welfare imperative to offer better value toconsumers,inawaythatcancompetewith a broad presence of informal alternatives.

Thefindingssuggestthatpeoplecannotrelyonlyoninformalfinancialservicestoeffectivelysolveliquidityconstraints,build resilience and meet their goals. In short,theycannotbecomefinanciallyhealthy in the long-term without the supportofformalfinancialservices.However,withoutbetterformalfinancialserviceofferings,thepopulationwillcontinue to use informal services.

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INTRODUCTIONMexico is at the forefront of advancing financial inclusion. In 2011,theMexicanGovernmenthosted the Global Policy Forum for Financial Inclusion (GPF) of the AllianceforFinancialInclusion,which gave rise to the Maya Declaration and the National Strategy on Financial Inclusion. This demonstrates the concerted efforts of the Government to extend the reach of financial inclusion.

The National Financial Inclusion Survey2018(ENIF2018,foritsacronyminSpanish),showsthat68% of working-age adults have access to at least one formal financialproduct.Yet,cashcontinuestodominatetheeconomy,with most Mexicans borrowing from friends and family when their expenses exceed their income. This highlights the challenges that still need to be addressed to ensure that financial services deliver advantages to consumers.

There have been global successes in meeting financial inclusion targets,butquestionsraisedaboutthe impact on welfare. The 2017 World Bank Global Findex Survey revealed that accounts holding has not led to regular usage of them. Mexicowasnottheexception,withdormancy rates of 22% in 2017.

How can financial inclusion be increased to enhance welfare effects?Cantheformalfinancialsector meet the financial needs of Mexicans?

This report outlines the findings and insights from a study on financial needs implemented by insight2impact in collaboration with Comision Nacional Bancaria y de Valores (CNBV). The purpose of the study was to assess the role of the financial sector in meeting

people’s underlying financial needs. This research complements the existing financial inclusion data from ENIF 2018 and Mexico’s Financial Diaries1.

The study found that people largely meet their financial needs in cash and outside of formal financial services. They choose to borrowmoneythroughtheir,socialnetworks instead. Those decisions did not show any link to a lack of access nor low financial knowledge (ENIF 2018). They were rational choices based on preferences for informal services that provided greaterconvenience,flexibility,andsenseofbelonging.However,this reliance on informal financial services has not reduced the financial vulnerability.

This creates an imperative need to design financial inclusion policies.

The untapped market presents an opportunity for formal financial services providers to develop more targeted and relevant products that enable people to meet their financialneeds.Forpolicy-makers,these insights into people’s financial lives and behaviours can contribute tostrategies,programs,actions,as well as indicators that measure financial needs satisfaction.

This report is structured as follows:

• Section 2 deals with the relevance ofmeasuringfinancialneeds.

• Section 3 describes the study methodology.

•Section4statesthemainfindings.

• Section 5 sets the implications ofthefindingsforthemarketandfinancialinclusionpolicies.1/ http://bfaglobal.com/projects/mexico-

financial-diaries/

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Peopleusefinancialservicesbecausetheseservicescanhelpthemmeettheirneeds.Mostusesofmoneyorfinancialservicestypicallyfallintooneofthefourfinancialneeds2 that are the following:

1. to pay or receive payments for something (transfer of value);2. to be able to meet expenses within an income cycle (liquidity);3. tomeetlargeexpensesthathaveresultedfromanunexpectedfinancial

shock (resilience); and4. to save for larger life goals that cannot be funded from a single income

cycle(meetingfinancialgoals).

The reasons for using money are referred to as use cases. All use cases canbecategorisedintooneofthefinancialneeds;so,theyareawaytosummarise and classify all the different use cases for analysis purposes.

Forexample,savingforretirement,yourchildren’seducation,orbuyingahouseareusecasesthatcanbeclassifiedunderthemeeting-goalsneed.Ifapersonexpressesausecaseinaneedcategory,itiscountedinthatcategory. This enables to draw broader conclusions at the needs level.

Everybodymeetstheirfinancialneedsinsomeway,beitthroughwithonsavings,creditsfromfamilyandfriends,byadjustingtheirconsumptionorworkpatterns,oronthegovernment’ssupport.Thesestrategiesarecalledfinancialdevices3 which are used to meet each use case.

2/ Thiscategorisationcorrespondslargelytothatidentifiedbyothers.FSDKenya,forexample,throughthefinancialdiariesandotherresearch,refersto“bridges”(liquidity),“safetynets”(resilience)and“ladders”(meetinggoals)asthreecorefunctionsoffinancialservicestowardsfinancialhealth.CFSI(2016),alsoaspartofameasurementframeworkforfinancialhealth,classifiestheneedto(i)spend,(ii)plan,(iii)save,and(iv)borrow.Spendspanstheabilitytospendlessthancurrentincomeandpaybillsontimeandinfull(liquidityneed).Savehasaliquidityandresiliencecomponent(theabilitytohavesufficientliquidsavingstomeetday-to-dayneeds),aswellasameetinggoalsand‘longer-term’resiliencecomponent,(whatCFSIterm‘havesufficientlong-termsavingsorassets’).Underborrow,theyclassifyhavingasustainabledebtloadandhavingaprimecreditscore(whichcontributestomeetinggoalsandresilience).Lastly,underplanitisclassifiedhavingappropriateinsurance(resilienceneed)andtheabilitytoplanaheadforexpenses(meetinggoals).Follow-upresearchconductedtoapplytheCFSIframeworkglobally,viaadedicateddemand-sidesurveyofmorethan1,000respondentsinKenyaandIndiaaswellas89qualitativeinterviews(Dalberg,2016),listskeyneedsasmeetingday-to-dayneedsplusshapingandsmoothingvolatileincome(correspondingtoourliquidityandtransferofvaluecategories),pursuingopportunitiesandbuildingfinancialreserves(meetinggoals)andbuildingresilience.Likewise,CGAP(Peachey&Arora,2016)classifyfunctionalvaluerenderedbyfinancialservicesassupportingcustomerstodealwithhealthandothershocks(resilience),tobalancecashflowsbetweenincomeandexpenditurecycles(liquidity)andtoseizeopportunitiestoenhanceincomeandassets(meetinggoals).

3/ Thetermwastakenfromthefinancialdiaries’methodology(see,forexample,Collinsetal.,2009,andZollman,2014),whichmapsallfinancialtoolsorinstrumentspeopleusedundertheterm“financialdevices”.

Financialneeds

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Transfer ofvalue

Meetinggoals

Liquidity Resilience

WHY MEASURE FINANCIAL NEEDS?

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Formal Anytransactionthroughanauthorisedandsupervisedfinancialinstitution,suchasbanks,creditunions,insurers,orsavingsandcreditcooperatives.

Informal4 Anydeviceprovidedbyathird-partyinstitutionthatisnotalicensedfinancialserviceprovider,suchasaninformalmoneylender.

Social Borrowingorassistancefromfriends,family,employer,anycollectiveorcommunity-baseddevicesuchassavingsclubs.

Personal Cashkeptathome,athand,orpersonalassets(watches,jewellery,cars,etc.)

Under this framework, financial devices can also be categorised by type of product: savings, payments, credits or insurances.

Financial device categories

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Afinancialdeviceisanyphysical,social,orelectronicmechanismthatstores,accumulates,distributes,ortransfersvalue,andcanbeusedtomeetafinancialneed.Cashathomeorphysicalassetswouldbea“personal”mechanism,while assistance from family and friends would be a “social” mechanism. While afinancialdeviceincludesanyfinancialservice,itisabroaderconceptthanformalfinancialservicesprovidedbyfinancialinstitutions.Inshort:afinancialdeviceiswhatpeopleusetomeetafinancialusecase.

Indecidinghowtomeetausecase,peoplenotonlyconsiderformalfinancialproductssuchascredit,payments,savingsorinsurance,butalsotheotheroptionsavailabletothem,suchastheirsocialorfamilynetwork,cashathomeorliquidassets.Theymayuseacombinationofthesedevices,depending on the use case.

Figure 2 illustrates how people may use different types of devices to respond to a single use case of covering medical costs for a sick child.

Example of devices used to meet specific

use case

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Child is sick

CashLoan Medical insuranceRelatives

4/ Whencontrastingoverallformaluptaketootherdevices,theterm“informal”isalsousedbroadlytorefertoanydevicenotprovidedbyaregulatedfinancialinstitution.Thus“informal,”appliedinthebroadsense,groupstogetherinformaldevicesandsocialandpersonaldevices,suchascash.

Theneedsmeasurementframeworkusedinthisreport,exploresthefinancialneedsofapopulationandconsiderstheuptakeofdifferenttypesoffinancialdevicestorespondtousecaseslinkedtoeachneed.Bybuildingapictureoftheportfoliooffinancialdevicesthatpeopleuseforeachneed(seeBox1forexamples),insightscanbedrawnonhowdifferenttypesoffinancialservicescomplement,orsubstitutefor,meetingeachfinancialneed.Forfinancialservicesproviders,suchinsightshighlightuntappedmarketopportunitiesthatcanbeusedinthefinancialproductorchanneldesign.Fromapolicymakerperspective,theframeworkhelpstoidentifymarketgapswheretheformalfinancialsectorisnotservingtheneedsofthepopulation,andguidingpublicpolicies,orregulatorystrategies.

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This study applied a new research approach that combined a face-to-facesurveyonfinancialneedswith transactional data from a commercial bank. It wanted to build a deeper understanding of thepopulation’sfinanciallives.

First step. A survey was administeredto1,154adultsinPueblaState,inDecember2017,toanalyseneeds,usage,anddrivers. Insight2impact designed the survey in collaboration with CNBV,andsub-contractedapollster enterprise to administer it. The survey’s methodology design allowed capturing a sample that is representative of Puebla’s adult population. This State was chosen as its demographics roughly resembles that of the Mexican populationtoyieldfindingsthatare indicative of the overall adult population.

The survey data was analysed accordingtothefourfinancialneeds(i.e.transferofvalue,liquidity,resilience,andmeetinggoals),andinmoredetailbyrelevantusecases.Thefindingscannot be generalized at a national level and should be read alongside thefindingsoftheNationalFinancial Inclusion Survey (ENIF 2018).

METHODOLOGY

Second step. A commercial bank provided anonymous transactional datafrom616,867clients(arepresentative sample of its full client’s base) across different types offinancialserviceaccounts;so,insight2impact can analyse the usage patterns. This included transactions over a one-year period fromsavingaccounts,creditcards,insuranceproducts,andcredits,as well as the corresponding demographic information. Transactionaldatafromafinancialservice provider complements survey data by providing more granular and reliable data on actual usage patterns. The transactional data was used to characterised clients,basedonhowintensivelytheyusedformalfinancialproducts,suchascreditanddebitcards,andtheir demographic characteristics.

Third step. The survey was administered to an additional 400 respondents drawn from the commercialbankclients’sample,tocreate a merged data set that links the same customer’s demand-side and supply-side data. The use of a merged dataset allowed assessing how consumers use formal and informal devices to meet their financialneeds;also,tounderstandwithgreaterdepththeirfinanciallives.

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Overview of study methodology

Comparison of financial needs

survey, ENIF 2018 and Financial

Diaries

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Bankdata

analysisSurvey:Usage towards

needs

PueblaState

Boostersample:

bankclients

This methodology complements boththeENIF2018,whichisrepresentative and measures access anduptake;also,theFinancialDiaries,whichisanin-depthlongitudinal study that provides an in-depth understanding of households’financialdecisions(seeBox3foranoverviewoffindings).

This study analyses quantitative findingsontheusageoffinancialservicestomeetneeds,andtheoutcomes of this usage. Table 1 shows how the three studies complement one another for a deeper understanding of the financiallivesoftheMexicanpopulation.

Insight2impact surveyin Puebla ENIF 2018 Financial diaries in

Mexico

State-wide Nationalandregional Municipal

Sample 1,154 14,500 185

Survey type Transversal Transversal Longitudinal

Aspects considered:

Sociodemographic characteristics

√ √ √

Cash flow √ √ √

Means of payment √ √ √

Savings √ √ √

Sample 1,154adults,representativeofPueblaStateFieldworkcompletedinDecember2017

Booster sample 400individualbankclientsFieldworkcompletedinJuly2018

Bank clients' sample 616,867clients,transactionaldataforaperiodof12months

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Insight2impact surveyin Puebla ENIF 2018 Financial diaries in

Mexico

Credits √ √ √

Income sources √ √ √

Unforeseen expenses √ √ √

Saving frequency and activity

√ Partiallyincluded √

Goal achievement √ √ X

Remittance transfers √ X √

Usage incentives √ X Partiallyincluded

Socio-economic context √ √ Partiallyincluded

Retirement savings Partiallyincluded √ √

Financial channels Partiallyincluded √ √

Insurance Partiallyincluded √ √

Asset ownership √ √ √

Reasons for no uptake/use √ √ Partiallyincluded

Financial education √ √ √

Households operate on very tight budgets.

On average, they earn income from over seven different sources but still struggle to smooth income.

Respondents make over 85% of all purchases and financial transactions within 30 minutes’ walking distance from home.

During the study, households on average used seven financial instruments and relied more heavily on informal financial devices.

Credit allows families to cover daily expenses, acquire assets that make their lives better, start and run small businesses.

Due to a reliance on credit, some families channel short-term savings to credit repayments.

Some households use informal savings, like savings groups, due to the rigid structures of formal financial products, such as minimum account balance requirements.

Preparing for emergencies and achieving key aspirations such as building a home, buying land, and financing education are the primary motivations for saving.

Transactions for saving at home are of meaningful size, suggesting a potential opportunity for formal savings.

Respondents value certainty and predictability, but at the same time, they appreciate and need flexibility in financial products.

Highlights from Mexico's Financial

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FINDINGS

This section has two parts:

•Thefirstsectionoutlineshowpeoplemeettheirfinancialneeds.Itusesthedatafromthesurveytoexplorecommonusecasesandthefinancialdevicesthat people choose. The outcomes are analised from a market perspective toseewhetherthefinancialsectorcontributestoneedssatisfaction.

• The second section takes a closer look at the transactional data from the commercialbankabouttheusageoffinancialproducts.Therearestatisticaltechniques to identify distinct customer segments based on the intensity of usageofdebitandcreditcards.Also,thereisacomparativeexerciseabouttheusageofformalandinformalfinancialdevicesofpersonsthatholdasavingaccount.Itwasmadebasedinthemergeddataset,whichlinkstransactional data with the survey’s data.5

How do people meet their

financial needs?

5/ Notethatthesampleofclientsinthemergeddatawastoosmalltoconductmeaningfulstatisticalanalysis.Thus,itwasusedtoderiveindicativeinsightsacrossthetwodatasources.

Even though Mexico has made remarkable progress in extending financialinclusion,thestudyoffinancialneedsshowsthattheformalfinancialsectorisgenerallynot the primary channel for people tomeettheirfinancialneeds.Cashcontinues to dominate when they need to make or receive payments. Whenpeoplefacedafinancialshock or cannot meet their liquidity needswithinanincomecycle,mostof them turn to their families and socialnetworkfirst,ratherthantoformalfinancialservices.Whenitcomestomeetinggoals,peopletendtousethecashsavedathome,

rather than formal savings or credits. Thishighlightsasignificantgapinthe market not yet served by formal financialservices.

Figure 3 shows the split between formalandinformalfinancialdevices usage for each of the four needs. Each circle represents the adults who expressed use cases linkedtothatneed.Forexample,ofall the adults who are expressing a use case for meeting goals (such as wanting to buy a house or save for theirchildren’seducation),only15%reportedusingaformalfinancialservice.

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Use of formal financial services,

by adults expressing each

need6 FIG

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Source:PueblaFinancialNeedssurvey(2017).

Transfer ofvalue

29%

Liquidity

7%

Resilience

13%

Meetinggoals

15%

% Adults who use at least one formal financial service to meet their needs

To understand why the uptake of formalfinancialservicestowardsneedsissolow;first,itisneededto understand why people choose specificservicesandnotothers.Tothisend,thesurveyincludeda series of questions designed to gauge the importance of certain products or providers attributes in determining why people choose certain device mixes to meet their use cases. This generated a large volume of information from which there are the following patterns: • Formal services are selected more fortheirfunctionalbenefits(i.e.theproduct delivers functional value at a reasonable cost).

• Informal or social devices are chosen for their relational benefits(i.e.,thepopulationtruststhe provider and feels a sense of belonging when using their product).

• All socio-economic strata skew towards the relational aspects providedbysocialdevices,exceptfor the highest socio-economic segments,whichemphasisefunctionalbenefitsinstead.

Thefollowingsub-sections,unpackthe details of how people meet their use cases in each of the four need categories.

Transfer of value Most respondents expressed the need to transfer cash or digital value from one person to another. The transfer of value use cases can be grouped into howpeoplereceiveincomeandhowtheymakepayments.Forexample,theincomeincludewagesandremittances,andpaymentsincludedailypurchasessuchasrent,schooltuitions,andutilities,aswellassendingremittances to others.

The following results are based on all adults in Puebla. The bars represent howtheincomewasreceived,orthepaymentwasmade:wasitthroughadigital(formal)channelorincash?

Income

Mostadultsreceiveanincomeincash.Forexample,37%ofadultsreceiveanincomefromwages,butmorethanthree-quartersofthosereceiveitin cash. Although a high proportion of remittances are received digitally (international67%anddomestic64%),onlyasmallnumberofadultsinPueblareceivesuchremittances(11%and8%,respectively).Basedonthis,remittancesseemtobethemostdigitisedfinancialservice.However,alarge

6/ Transferofvaluen=1,139;Liquidityn=700;Resiliencen=561;Meetinggoalsn=683

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How do people receive their

income?7

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% Received digitally % Received in cash

0%

20%

40%

60%

100%

80%

Wage orsalary

Payments forproducts or

services

Paymentsfrom a

governmentprogramme

Remittancesin Mexico

Remittancesfrom

abroad

Payment forassistance

from family

Otherpayments

Investmentincome

37% 23% 21% 11% 8% 7% 4% 4%

% Adultswith incomesource

proportion of those transactions are through e-money transmitters (44%). This impliesacashlink,asthetransactionisconductedoverthecounter,whereasendercashesinanamountthatiswireddigitallyandfinallycashedout.

Note. The survey did not capture how value is stored once it received. If receiveddigitally,isitconvertedtocashorviceversa?Thislineofinquirywould add value to future surveys.

Payments

Cash also remains the dominant means of making payments. The two most significantusecasesreportedforpaymentsaredailyexpensesorpurchases(91%)andregularpayments(90%),whichincludestheusecasesofrent,schoolfees,andutilitypayments.Bothofthesearepredominantlypaidincash(94%and90%,respectively).Feweradultsexpressedausecaseforother regular payments for non-essentials such as TV and insurance (45%).

Consistentwiththefindingsonincomefromremittances,mostpeoplewhosend money domestically (64%) or outside the country (75%) use the formal financialsectortodoso.However,thisusecaserepresentsonlyasmallnumberofadults(8%and1%).Furthermore,only25%ofthosewhosendremittancesdosoviabanktransfers,ratherthanusingcashore-moneytransmitters.8

7/ n=1,154

8/Inthecaseof–e-moneytransmitters,remittersoftendepositcashwithanagentorwithdrawcashfromagent.Therefore,thistypeoftransactionisdistinctfromanend-to-enddigitaltransactionsuchasanelectronicbanktransfer.

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How do people make payments?9

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% Digital payments % Cash payments

0%

20%

40%

60%

100%

80%

Dailyexpenses

Regularpayments (rent,utilities, school)

Regularpayments

(TV, insurance)

Pay salaries(i.e. domestic

worker)

Remittancespayments within

Mexico

Repaymentof informal

loan

Remittancespayments to

outside ofMexico

91% 90% 45% 11% 8% 4% 1%

% Adultswho makeeach type of payment:

9/ n=1,154

10/ Regularexpensesn=1,154;Dailyexpensesn=1,145;Withaccountn=293;Withoutaccountn=859.Notethatthisdoesnotdenoteexclusivecashusage.

TheENIF2018datarevealedasimilarpattern,thebulkofadultsinMexico(91%) use cash as predominant payment means when making purchases of500pesosorless;forpurchasesof501pesosormore,thepercentagedecreases slightly to 87%.

Bank account ownership, financial literacy and cash usage

Thefindingsshowthattheuseofcashremainshigh,evenforthosewhohaveanaccount.ItcomplementstheENIF2018findingsthatshowthatcashusage is high even for those who hold an account.

The two largest transfer of value use cases (daily expenses and regular payments)remainheavilycash-based.AsillustratedinFigure6,80%ofadultswhohaveabankaccountstillusecashfordailyexpenses,whichisonly slightly lower than adults without an account (87%).

Cash usage by adults with and

without bank account10

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With account Without account

% Adults thatuse cash for

regular expenses

% Adults thatuse cash for

daily expenses

0% 20% 40% 60% 80% 100%

70%

85%

80%

87%

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Cash usage by score of financial

knowledge

FIG

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Source:ENIF2018,nationallyrepresentative.

% Adults with high score in financial knowledge (0-4 points) % Adults with low score in financial knowledge (5-7 points)

Use cash forpurchases of 500

pesos (26 USD)or less

Use cash forpurchases of 501pesos (26 USD)

or more

0% 20% 40% 60% 80% 100%

94%

89%

86%

73%

11/ FinancialknowledgeisgaugedintheENIF2018surveyusingtheOECDmethodology,ascontainedinthe2015OECDToolkitforMeasuringFinancialLiteracyandFinancialInclusion.Themaximumscoreforthissub-indexis7points.

12/ ForanoverviewoftheCoDipaymentsystemforMexico,seeforexample,https://cbpaymentsnews.com/assets/CBPN_Volume1/CBPN-December-2018-Vol1_4_Web.pdf.Theisight2impactstudyinNigeriashowedrapiduptakeoftheinstantpaymentequivalentinNigeria,NIP.

Atthesametime,ENIF2018revealsthatusageofcashisalmostthesame,regardlessofthefinancialknowledgeoftherespondent11. The difference betweenthoseadultswithahighfinancialknowledgescore(5-7points)andthosewithalowscore(0-4points)islessthan5%,asillustratedinFigure7.

Summary

Cash dominates across all transfer of value use cases. A notable proportion ofadultshaveanaccount,yetthemajorityofthemcontinuetomakepayments in cash. Even when income or payments are primarily conducted viatheformalfinancialsector,asisthecaseforremittances,thereisoftenstillacashlink.AsthediscussioninSection4.2shows,manydigitaltransactions also involve cash-in or cash-out at an ATM.

Thispreferenceforcashisnotafunctionoflowfinancialliteracy.Fromapolicyperspective,strengtheninganenvironmentwithmoredigital-payment options and receipt of income is fundamental to reduce the use of cash. Supporting policies would need to incentivise regular payment providers as well as small and medium-sized merchants to offer digital-paymentsolutionsforcustomers,andmustensurethat,forconsumers,digitalpaymentsarejustascost-effective,convenientandubiquitousascash. The introduction of the CoDi instant payment system in Mexico bodes well for digital payments to mimic and compete with cash12.However,itisabout to launch.

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13/ n=1,154.Thisgraphshowstheuptakeofallfinancialdevicesregardlessofwhetheradevicewasusedtowardsmanagingaliquidityneed.

Managing liquiditty

The liquidity need is about balancing your income and expenses across income cycles. Peopleusefinancialservicesto enable such consumption smoothing. When a person is unable to meet their expenses within a regularincomecycle,itcreatesliquidity distress and triggers a need forfinancialservicestohelpregainliquidity.Animportantfinancialinclusion objective is to understand whether people are at risk of relying on situations that reduce their long-termwealthtostayafloatintheshort term.

People experience liquidity shortages to varying degrees. In thissample,thereisadistinctionbetween people who did not experience a liquidity shortfall withinthepast12months(classifiedas“nodistress”),thosewhoreportexperiencing a liquidity constraint in one month (“some distress”) and those who experienced it in more than one month (“severe distress”).

AsFigure8indicates,closetohalfofthe population (48%) experienced severedistressinthelastyear,while

14% experienced some distress. Only 39% of the population could cover day-to-day expenses out of their regular income throughout the year. These results are similar to thoseobtainedintheENIF2018,inwhich 42% of the population were not able to cover their monthly expenses in any month of the last year.

Dealing with liquidity shortfalls

Figure 8 shows the uptake of all financialdevicesbypeoplewhoexperienced different states of liquiditydistress,dividedintothefollowingcategories:informal,formal,andsocial/personaldevices.

The results show that across all categoriesofdistress,thereisastrongrelianceonsocialnetworks,relatives,andpersonaldevices(i.e.moneyathome,sellinganassetorcuttingbackonconsumption),ratherthanformalfinancialservices.There is a correlation between overallrelianceonsocial,personalmechanisms and the level of liquidity distress experienced.

Device uptake by liquidity distress

level13

FIG

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Formal Informal Social/Personal

0%

20%

40%

60%

100%

80%

No distress Some distress Severe distress

39% 14% 48%% Adults

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14/ n=700.

15/ Thesumofthepercentagesmaybegreaterthan100%,astherespondentcouldanswerwithmorethanoneoption.

16/ Themaximumscoreforthissub-indexis7points(OECD,2015).

Percentage of adults that use

different devices towards liquidity

need14 FIG

UR

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0%

5%

10%

15%

20%

30%

25%

Supportfamily and

friends

Formalsavings

Socialsavings

Personalsavings

Formalcredit

Informalcredit

Socialcredit

25%

7%

20%

5%8%

19%

1%

Further questions in the survey explored the product market lens for those experiencing liquidity distresses. Which devices did people turn to when they experiencedliquiditydistress?Wasthe device that people turned to during times of liquidity need any

formofcredit?Diditcomefromsavings?Wasitadonation?Figure9 suggests that the distribution betweenassistance,credit,andsavingsissimilar,withslightlymorepeople drawing on credit than on savings.

Again,thesefindingssupportthatoftheENIF2018,whichshowsthat 62% of those who could not to cover their expenses used their personalsavingsinresponse,63%

used social credit and only 9% used formal credit15. These percentages show very little variation with regard tofinancialknowledgescores16,asillustrated in Figure 10.

Percentage of persons with

distress using different types of products to meet

liquidity needs, by financial

knowledge score

FIG

UR

E 1

0


Personal savings Social credit Formal credit

61% 63% 64% 61%

8% 10%

% Adults with high score in financial knowledge (0-4 points)

% Adults with low score in financial knowledge (5-7 points)

19

17/ n=1,154.

18/ NotethattheENIF2018survey,whichisnationallyrepresentative,detectedhigherlevelsofinsurancepenetrationoverall.

Financial shocks experienced by

respondents in the last 12 months17

FIG

UR

E 1

1


0%

5%

10%

15%

20%

30%

25%

Big sicknessor healthproblem

Naturaldisaster

Loss ofincome

Death infamily

Theft /damage

Bigaccident

Other

7%1%

12%13%14%16%

27%

How do people address

resilience needs?

The resilience need refers to the claim for dealing with unexpected shocks thathaveafinancialimpact.Figure11showsthemostcommonlycitedresilience use cases amongst all adults. Sickness and health-related costs representthelargestusecase(27%),followedbynaturaldisasters(16%)and loss of income (14%). It is important to note that Puebla suffered an earthquakeearlierduringtheyearinwhichthesurveywasadministered,whichmayhaveinflatedthenumberofadultsexpressingaboutnaturaldisasters.

Coping with the impact of financial shocks

Aswithliquidity,Figure12showsthatmostpeoplewhoexperiencedaresilience use case turned to their social circle to cope with the impact of theshock,ratherthanusingformalfinancialservices.Nearlyathird(32%)ofadults who experienced a shock in the last 12 months turned to their social networkforcredit,while30%reliedonsupportfromwithintheirsocialcircle.Dealingwithfinancialshockswiththeirownresourcesalsoplaysanimportantrole.Thisincludesusingtheirsavingsorothermeans,suchas selling an asset (together 32%). The formal sector plays a small role in addressing resilience needs: almost no-one had insurance18,andonly10%turned to formal credit providers.

Thishighlightstheopportunityforformalfinancialservicestoplayamoresignificantrole,providingbetter-suitedproductsthathelppeopleaddresstheir resilience needs.

20

19/ n=561

20/ Thesumofthepercentagesmaybehigherthan100%,astheinformantcouldanswerwithmorethanoneoption.

Devices to address resilience

use cases19

FIG

UR

E 1

2


0%

5%

10%

15%

20%

30%

25%

35%

32%

10% 10%

32%

5%3%

30%

Support family and friends

Formalsavings

Socialsavings

Personalsavings

Formalcredit

Informalcredit

Socialcredit

Again,thesefindingssupporttheresultsfromtheENIF2018:whenaskedahypothetical question on how they would pay for an economic emergency equivalenttoonemonth'sincome,67%ofadultssaidtheywouldaskforacreditfromfamily,friendsoracquaintances,43%wouldpaywiththeirsavings and 16% with formal credit20. These percentages show very little variationwithregardstofinancialknowledgescoreofpopulation,asillustrated in Figure 13.

Ability and time to recover from a financial shock

Surveyrespondentswhohadexperiencedafinancialshockmorethanthreemonths ago during the last year were asked about how long it took them to recover.Atthetimeofthesurvey,63%hadnotyetrecovered,asindicatedin Figure 14:

Devices to pay for a hypothetical

economic emergency by the

score of financial knowledge FI

GU

RE

13


Personal savings Social credit Formal credit

38%46%

69% 66%

13%18%



21

Proportion of people who

experienced a financial shock

more than three months ago, by

recovery status21

FIG

UR

E 1

4Source:PueblaFinancialNeedssurvey(2017).

Have not recovered Took longer than 3 months to recoverRecovered within 3 months

0% 20% 40% 60% 80% 100%

20%17%63%

These results point to high levels of vulnerability: almost two out of every threerespondentsarenotabletorecovertheirpreviousfinancialpositionwithinthreemonthsofariskevent,suggestingthattheyarenotresilienttofinancialshocks.Thiscreatesapolicyimperativetoensurethatthefinancialsector works to support building people’s resilience. Although people rely primarilyoninformalmechanisms,thesechoicesarenotensuringthattheyrecover without welfare losses. A complementary relationship between the formal and informal sector could deliver better outcomes and reduce the timeittakestorecoverfromafinancialshock.

Thenextsectionlooksathowpeopleengagewiththefinancialsectortomeettheirlong-termfinancialneeds.

21/ n=408.

22/ n=1,154.

How do population meet

their goals?

The meeting-goals need refers to people’s long-term funding plans to achieve life or business objectives or obligations that require funding across multiple income cycles. Of alladultsofPuebla’ssurvey,themost commonly expressed goals

werechildren’seducation(36%),buying land or a house to live in (24%) and paying off debts (24%). InFigure15,thetopthreeusecasesare highlighted light orange. These findingscloselymirrortheFinancialDiariesfindings.

Percentage of adults expressing

different goal´s use cases22

FIG

UR

E 1

5


Children’seducation

Land /house to

live in

Pay offdebts in

lump sum

Big thingsfor personal

use

Retirementsavings

Landhousefor

rent

Vacations Vehicle Other Don’tknow

24%24%

36%

17% 16%

10% 10%8%

5%3%

22

Device usage to meet goals, as

percentage of all adults expressing the meeting-goal

need23 FIG

UR

E 1

6


0%

5%

10%

15%

20%

30%

35%

25%

Support familyand friends

Formalsavings

Socialsavings

Personalsavings

Formalcredit

Informalcredit

Socialcredit

15%

6%

14%

35%

11%

5%

10%

23/ n=683.

24/ Thesumofthepercentagesmaybegreaterthan100%,astheinformantcouldanswerwithmorethanoneoption.

Device choices for meeting goals

AsFigure16shows,mostoftherespondents who expressed a use case for meeting goals utilise their savings (35%). Social networks also playaprominentrole,with15%ofpeople seeking support from family andfriends,14%usingthemoney

saved within their network and 10% borrowing from their social circles. The formal sector plays a larger role in meeting goals relative to the otherfinancialneeds.Theusageof both formal credit (at 11%) and formal savings (6%) is higher for meeting goals than for resilience and liquidity.

The highlighted opportunity is for targeting formal products to helppeopleattaintheirgoals,for example savings products earmarked for education expenses.

TheENIF2018findingsemphasizeretirement as a use case where there is a particular opportunity fortheformalfinancialsector.Themost common response to the question of how adults expect to do during their retirement is through financialsupportfromfamilyandfriends (57%). The second most chosenfinancialdeviceisthrough

government subsidies (48%). Of all adults,35%indicatethattheywilldraw on their assets (rent or sale). Significantly,justlessthanhalfofthepopulation (47%) mentioned that theywoulduseonaformalfinancialdevice for their retirement24. This showsasignificantroleintheformalfinancialsectorinmeetingtheretirement use case. Unlike for the otherneeds,financialknowledgedoesmakeasignificantdifferenceinthe likelihood of taking up a formal financialdevicetowardsretirement,as Figure 17 illustrates.

23

Percentage of adults planning

to cover expenses during retirement

through various devices, by

financial knowledge score

FIG

UR

E 1

7


Financial supportfrom family and

friends

Governmentsubsidies

Formalproduct

Usage ofassets



40%

53%

36%30%

51%

36%49%

60%

Use of financial devices

Buildingupfromthefinancialneeds,thefollowinganalyseshowconsumersusethefinancialdevicesthattheydohave.Byusingtransactionaldata,togetherwiththesurveydata,thenewknowledgegeneratedcanaddvalueforunderstandingfinancialinclusion,withimportantimplicationsforrelatedpolicy and market approaches.

Most of the analysis in this section is based on transactional data from a sample of clients that use debit and credit card from a commercial bank. Thisper-customertransactionaldata,withitsassociateddemographicinformation,givesamoreaccuratesnapshotofthefrequencyofcardusage,plussavingsandspendingbehaviours.Subsequently,amoredetailedanalytical process was then used to cluster customers into usage intensity segments,profileeachsegmentaccordingtoitsdemographicprofile,andbuild a model to explain the determinants of usage.

Finally,thetransactionaldataforasub-sampleofclientswerelinkedtothesame customers’ responses in an additional sample of the Puebla’s survey to gainmoreunderstandingofsuchcustomers’usecasesandfinanciallives.

The survey results suggest that savings behaviour differs between informal and formal devices. In Figure18,itisseenthat–oftherespondents in Puebla who reported saving money – the majority (39%) save their money at home in relativelysmallamounts.Likewise,those saving in social groups save

Savings behaviour

only small amounts (an average of 200pesos),butsavingsaremostlymadeweekly.Incontrast,thosewhosave using formal accounts tend to make higher-value (at a median valueof1,000pesos)depositsonaless frequent (fortnightly or monthly) basis.

24

Transactional data allows exploring the frequency of bank account and card usage with a higher degree of accuracy than what is rendered by the survey.Highlevelsofdebitcardusagewerefound,with78%ofcustomersusingtheircardseveryweek.Creditcardusageisalsowide,withalmosthalfusing their cards on a monthly basis and 31% using them weekly. Although thedataisfromasinglebank,andassuchisonlyindicative,itsuggestsarelatively high frequency of card usage.

Thenextsub-sectionexploreshowthecardsareusedbycustomers,followed by a more detailed analysis on merchant transactions27.

Savings behaviour25

FIG

UR

E 1

8


Daily Weekly Two weeks

Monthly Less often

0% 25% 50% 75% 100%

Formalaccount

%Sample

Depositamount

Frequency of deposits

Savingsat home

Savingsin group

MXN1000

MXN300

MXN200

14%

39%

12%

14% 32% 32%

33% 17% 21%

70% 14%4%

25/ Groupsavingsn=146,Savingsathome n=457,Formalaccountn=124

26/ Debitcardn=357,572;Creditcard n=77,697

27/ InENIF2018,adultswereaskedaboutthereasonsfornotusingcreditanddebitcards,thetwomostfrequentcitedreasonsfordebitcardswere"prefertopayincash"(61%)and"lackoftrust"(12%).Thetwomostfrequentcitedreasonsforcreditcardswere“onlyuseitforemergencies”(39%)and“donotliketobeindebted”(35%).

Frequency of transactions

Frequency of card

transactions26

FIG

UR

E 1

9

Source:Banktransactionaldata.

Weekly Monthly Infrequent Dormant

0% 25% 50% 75% 100%

Debit card

Credit card

78%

31% 49% 7% 14%

18%

2%1%

25

Usage of cards, by channel28

FIG

UR

E 2

0


ATM and practicaja POS Internet

0% 25% 50% 75% 100%

Debit card usage

Credit card usage

60%

87% 13%

35% 5%

The transactional data was further analysed to identify how customers used their cards (see Figure 20). This revealed that 60% of debit card usage was at an ATM or in-store terminal (“practicaja”) transactions. The prevalence of channels with a cash interfaceresonateswiththefindings

Channelsused

on high cash usage to meet daily needsandregularpayments,evenbythosewithaccounts.However,35%of debit card usage and 87% of credit card usage was for purchases using point-of-sale (POS) machines and a smaller amount in online sales (5% and13%,respectively).

Thefollowingsub-sectionaddressesthespecificmerchanttypesthatdrivecardusagetoidentifyinsightsonspecificusecasesfordigitalpayments.

28/ Debitcardn=357,572;Creditcard n=77,697

UsingthecodeslinkedtoPOStransactions,itwaspossibletoroughlyidentify how people spent their money when using a credit or debit card. InFigure21,thepie-chartrepresentstheshareofdebitcardusageatmerchantPOSterminals,andthebarchartrepresentsthecategoriesforPOS usage.

Merchant analysis

26

Merchant analysis for debit card

POS payments29

FIG

UR

E 2

1


Without information Merchant ATM

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Store

Services

Travel

Transportation APP

Entertainment

Gasoline

Medical

Clothes

Wholesale

Hardware

Other

School

Financial

Airline

Insurance

29/ n=9,734,193.

30/ POSn=4,965,299;Internetn=964,676

Thefulldetailsforeachmerchantwerenotavailable;thus,someofthegroupingsarequitebroad,suchas“store”and“services.”Nevertheless,thedata gives insights into where digitisation is making inroads with merchants. Notable is the sizable proportion spent on transportation and travel through digital platforms.

Figure22showswhatcreditcardswereusedfor,usingbothPOSandonlinepurchases. The most recurrent online payments are via international digital platforms. POS transactions with credit cards are similar to debit card usage.

Credit card usage for POS

and online transactions30

FIG

UR

E 2

2


POS Transactions Online Transactions

0% 5% 10% 15% 20% 25%

ServicesStore

TravelFinancial

EntertainmentGasolineMedicalClothes

WholesaleInsurance

OtherHardware

SchoolAirline

0% 10% 20% 30% 40% 50% Uber

Lodging websitesPaypal

Facebook AirBnB

Amazon Itunes

Google Games

Vehicle rentalMicrosoft

Spotify Visa

Cuballama Shutterstock

Udemy Skype

27

Toknowwhatdrivesusage,statistical modelling approaches were applied to determine a usage intensity score31,whichcombinedthe information about the frequency ofuseandthedate,theaveragemonetaryvalueofthetransaction,and for how long they had been a client. Usage intensity was then modelled against demographic variables in the dataset to determine statisticallysignificantdeterminantsof higher usage. This revealed that: • Income is the most important driverofusage,byafactorofseveral times.

• Education is strongly associated with higher usage.

• Living as a couple is also associatedwithhigherusage,though less so than education and much less so than income.

• Gender and age have small but statisticallysignificanteffects.

However,thisanalysisdoesnotprovideacompletepicture,asitonly reveals the usage of formal financialservices,particularlythecredit card and debit card usage. It also cannot draw on determinants

What drives higher usage?

other than the demographics included in the dataset to explain usage.Forexample,whenaskedabout their reasons for device choice,thePuebla'ssurveyrespondents indicated that trust,asenseofbelongingandconvenience all play into these choices–afindingthatheldacrossmost socio-economic strata. The transactional database usage model cannot account for such variables.

Moreover,transactionaldatacannotpronounce on how usage interplays withpeople’sunderlyingfinancialuse cases. Adding an understanding of the consumer perspective on device choices in response tofinancialneedsrevealsnewinsights on usage patterns and why customers choose certain device mixes.

Inthefollowingtwosub-sections,transactional data is employed to create clusters based on usage patterns and demographics. Then,bylinkingthesurveydataforthesamecustomers,customerusageprofilesaredevelopedandcompared formal versus another deviceuptaketowardsfinancialneeds.

31/ Eachoftheinputvariableswasstandardised,capped,andflooredanddividedintoquintiles.Individualswerethenassignedausagescoreequaltotheaggregateoftheirvalues(1–5)foreachofthequintiles.Theinverseofrecencywasused,toaccountforitsinverserelationshipwiththeotherinputvariables.

28

Customer segments34

FIG

UR

E 2

3

Source:Banktransactionaldata

Payingdigitally

Copingthe expenses

Livingday-to-day

Averageincome

Professionals

Youngprofessionals

0

5

10

15

20

25

30

35

40

0 500 1,000 1,500 2,000 2,500 3,000

Ave

rag

e n

um

ber

of m

on

thly

tra

nsa

ctio

ns

Average amount transacted

Except for Paying digitally, most do more

transactions in ATMthan in POS.

Creatingusageprofilesrevealsinsightsintocustomerbehaviourandthesizeofthosecustomergroupings.Byseparatingtheclusters,thedifferencescan be shown to identify ways to deliver better value to customers.

Using statistical clustering techniques33 applied to the debit card transactionaldatabase,customerswhohavesimilarusageprofileswereidentified.Thereweresixstatisticallydifferentsegmentsbasedontheaverage value of a client’s transactions and the number of monthly transactions. To each segment was assigned a pseudonym to describe their characteristics. These segments are laid out in Figure 23. The higher up the bubbles,themorefrequentlythegrouptransacts.Eachsegmenttransactsrelativelyfrequently,rangingfrom11to33transactionspermonth.Thepopulation segments represented by the bubbles to the right transact with higher values than those to the left.

The largest cluster of clients is “Coping the expenses.” These are typically young,lower-valueandlower-frequencytransactors.Alargeproportionofclients are grouped into the relatively high-frequency transactor segments of “Young professionals” or the high-value transaction “Average income”. Allcustomerssegments,exceptforthesmall“Payingdigitally”,transactpredominantly using ATM rather than POS or online sales.

Figure24providesamoredetailedprofileofeachgroup,includingtheirincome,maritalstatus,andlevelofeducation,whichtheregressionanalysisindicated to be the biggest drivers of usage.

Using transactional

data to create customer

segments32

32/ Aclusteringexerciseisamathematicaltechniquetoidentifyclustersofobservationsthataremostsimilaralongaspecifiedsetofdimensions.Thistechniquedoesnotestablishcausalitybutisadescriptivetoolthatshouldbecomplementedbyathoroughunderstandingofthecontext.

33/ K-meansclusteringondebitcarddatausingthefollowingasinputvariables:averagenumberoftransactions,averageamounttransacted,gender,age,income,andeducation.

34/ n=350,674

29

Customer segmentprofiles35

FIG

UR

E 2

4

Source:Banktransactionaldata

%Sample

Male

Female

17% 37% 14% 7% 8% 17%

Livingday-to-day

Coping theexpenses

Averageincome

Payingdigitally Professionals Young

professionals

Income Low Medium low Medium High Very high Very high

%Tertiary

education18% 12% 31% 60% 51% 55%

Averageage 42 32 50 41 43 36

%Married or

livingtogether

37% 35% 58% 47% 54% 55%

42%58% 53%

47% 56%44% 39%

61%30%

70% 57%43%

•The“Livingday-to-day”group,alongwith“Copingtheexpenses,”arethelowest-usage groups. It also has the lowest income and level of education and is mainly female.

•The“Averageincome”segmenttransactsinhighamounts,butthismayrepresent large ATM withdrawals to meet their needs and those of their families,giventheirhigheraverageageandlikelihoodofbeingmarried.

• The “Paying digitally” and the “Professionals” segments are predominately womenintheirearly40s,withhighlevelsofeducationandincome.

•“Youngprofessionals”,whotransactmorefrequentlythanthe“Professionals”cluster,havealoweraverageageandaremorelikelytobemale.

•Althoughthe“Payingdigitally”segmenttransactsinsmalleramounts,theiraveragenumberoftransactionsissignificantlyhigherthanothers,suggesting that they may be more likely to use their cards for smaller day-to-day payments.

35/ n=350,674

30

36/ Applyingthebroaddefinitionofinformal,namelyanydeviceprovidedbyaninformalinstitution,oranysocialorpersonaldevice.

37/ Mergedsamplen=68; Transactionsamplen=129,433

The bank data shows customers with reasonably high levels of usageofformalfinancialservices:all six clusters transact relatively frequentlyontheirbankaccounts,withvalues,dependingonincomelevels.However,addingdatafromthe survey for the same customers reveals that formal accounts are only part of the picture. This analysis shows that across all clusters,customersmeettheirneeds mostly outside of the formal financialservicessector.Onlythe ”Paying digitally” segment a larger proportion reported using formalfinancialservicesinsteadofinformal devices to meet all their needs.

Note that the challenges with linking bank customers in the sample database with demand-sidesurveys,asoutlinedinSection3,resultedinasmallsample.Thus,

New insights from combining

the transactional and demand-side

data

thefindingshereareindicativeofpatterns and trends in how bank customers transact both formally andinformally,buttheyarenotrepresentative.

Threeofthesixprofilesareoutlinedbelow,drawingonthemergeddataset.Theprofilescombine the transaction data insights (left) and the survey data (right-handsidetable),whichreveals the percentage of the cluster reporting formal versus informal36 device uptake towards each need. It is important to note that most customers use both digital and cash to meet needs; hence,thepercentagesindicatedadd up to more than 100%.

The ”Coping the expenses” segmentisthelargestcluster,andcustomers in this cluster make the fewest transactions per month.

“Coping the expenses”

profile37

FIG

UR

E 2

5

Source:Mergeddataset(debitcardtransactionaldataoverlaidwithdemand-sidesurveyresponsesforthesamerespondents)

Financialneeds

Coping the expenses

Transaction types used

37% of customers fallinto this segment

Transactions per month

Average value per transaction

Average monthly expenditure

13

MXN 766

MXN 8,596

Formal

Type of financialdevice

Informal

60%digital

45%Cash

57%digital

96%cash

15% 97%

13% 47%

34% 72%

Incomereception

Makepayments

Balanceexpenses(Liquidity)

Managerisks

(Resilience)

Meetsgoals

POS

Internet

ATM

28%

3%

66% Dominantchannel

31

"Young Professionals"38

FIG

UR

E 2

6


Young professionals






19

MXN 1,162

MXN 19,250

71%digital

49%cash

74%digital

91%cash

30% 87%

22% 31%

54% 46%

POS

Internet

ATM

17%

1%

68% Dominantchannel

Financialneeds Formal


Informal

Incomereception

Makepayments


Managerisks

(Resilience)

Meetgoals


AlthoughtheirATMusageishigh,their use of POS is higher than some higher-incomeclusters,suchasthe“Young professionals.” Adding the datafromthesurveyshowsusthat,inmeetingtheirneeds,“Copingtheexpenses” use a mix of formal and informal devices. Although 57% make some payments using digital means,theyalmostallusecashaswell. The choice of informal devices dominatesforliquidity,resilience,and meeting goals.

The “Young professionals” have a higher income and a corresponding highermonthlyspend,buttheymake fewer POS transactions than the “Coping the expenses” segment. Although 74% report making digital payments,cashisusedaswellbyalmost all. The majority of customers use informal means to meet liquidity needs,butinterestinglyahighernumber of customers use formal (as opposed to informal) means to meet goals.

32

"Paying digitally"39

FIG

UR

E 2

7


Paying digitally






33

MXN 821

MXN 23,427

88%digital

46%cash

92%digital

92%cash

73% 53%

45% 45%

60% 50%

POS

Internet

ATM

50%

9%

38%

Dominantchannel

Financialneeds Formal


Informal

Incomereception

Makepayments


Managerisks

(Resilience)

Meetgoals


The ”Paying digitally” segment is a small group that has the highest frequencyoftransactions,ofteninsmaller average amounts. This is the only cluster that uses POS as a dominant channel (rather than ATM) and that uses formal devices more thaninformaldevices,towardseach

need.Interestingly,cash,orcashaswellasdigital,isstillusedby91%.Aswiththebroaderfindingsfromthe demand-side survey on how people meet use cases to transfer value,cashcontinuestobeadominantmodeofpayment,albeitalongside digital here.

33

WHY DOTHESE FINDINGS

MATTER?The discussion above has shown that surveys and transactional datasets provideaviewofpeople’sfinanciallivesandhowtheymeettheirneeds.Bymergingthedatasetsforsomecustomers,indicativeprofilesaredevelopedofcustomerusageandbehaviours.Theseinsightscan,inturn,beusedbypolicymakersandfinancialserviceproviderstostatebetterstrategiesandapproachesthatcansupportfinancialinclusionforenhancingwelfare.

Falling short of its policy purpose

Despitesomeformaldevicegrowthpoints,particularlypensionsandaccounts(ENIF2018),remittancesandreceivingincome(asoutlinedinFigure4),thefindingssuggestthat,overall,consumers’choiceoftheportfolioofdevicesthattheyuseineachcaseofuse,favorsinformalfinancialdevices.Thisholdsacrosssocio-economicstrata40 and all four financialneeds.

TheENIF2018hasshownthatlevelsoffinancialknowledgeandawarenessarereasonablyhigh;thus,peoplearemakingrationalchoicestousecashandinformalservicesinsteadoftheavailableformalfinancialservices.Thesurvey data reveals that informal services are preferred for the relational aspects,easeofaccess,andtrust.Socialandfamilynetworksareeasytoaccessandflexibleintimesofneed(forexample,nominimumaccountbalancesorcharges,andofferflexibleaccesstofunds).Cashispreferredbecauseitisavailable,easytouse,interchangeable,andbearsnoapparentcosttoconsumers.Thefindingsthussuggestthatthereisamismatchbetweenpeople’sfinancialneedsandthecurrentmarketoffering.

Thepolicyimperativeforleveragingfinancialservicesisstrong,givenhighlevelsoffinancialvulnerabilityamongthepopulation:Thirty-sevenpercent (37%) of adults in the survey ran out of money in more than one month in the past year. Two out of three persons who had experienced a shock had still not recovered after three months. These issues affect those with,andthosewithout,accesstoformalfinancialservices.Thus,formalfinancialinclusionhasalimitedcontributionatpresentinimprovingwelfare.Usinginformalfinancialservicesdoesnotensureresilienceeither,despitepeople’s preferences for such devices. This reinforces the imperative for apolicyandmarketstrategytoensurethattheformalfinancialsectorcanmatchthevaluepropositionofinformal,socialandpersonalalternativestomeetpeople’sunderlyingfinancialneedseffectively.

40/ Thedemand-sidesurveydataquotedthroughoutthisreportwassegmentedandanalysedbykeyvariablessuchasgender,education,andsocio-economicclasstocomparedevicechoicesacrossconsumersegments.Manyofthefindingsheldacrosssocio-economicgroups,includingtheuseofcashandrelianceonsocialnetworkstomeetneeds.Thelengthofthisreportdoesnotallowfortheinclusionofallanalysisdetails,butfurtherdetailsareavailableuponrequest.

34

A substantial market opportunity

The current prevalence of informal devices in meeting most use cases presentsamarketopportunityforfinancialserviceproviders.Table2outlineshowweseetheseopportunitiespanningoutforeachofthefinancialneedsmarkets.

Market Opportunities

TAB

LE 2

Need Transfer of value Liquidity Resilience Meeting goals

Market opportunity (%)41 71% 92% 90% 85%

Imperatives to unlock opportunity

Digitalproductsmustcompetewithcashonfungibility,presence,convenienceandcost.Existinggrowthpoints:incomereceipts,remittances,payments.

Largeopportunityifconsumerincentivescanchangetowardsformalbyensuringthatformalofferingmatches ease ofaccessandflexibilityofsocialandpersonaldevices.

Informalcannotfullyprotectorbuildenoughresilience.Thispresentsanopportunityforformalfinancialservicestailoredtospecificusecases,forexampleuse-caseearmarkedsavingsandloansforhealth,ortangible,bundledinsurancebenefits.

ENIF2018showspensionsasananchorforretirementusecase.Opportunityforthesametohappenforotherkeyusecases,i.e.forhousingoreducation,throughgoal-targetedproductoffering.

41/ “Untapped”isusedheretodenotepercentageofrespondentsexpressingausecaseinthisneedcategory,butnotusinganyformofformaldevicetowardsthatusecase.

2

Documents

The ﬁnancial needs of Mexicans...preference for cash to transfer value. The bias towards informal financial services, particularly assistance from friends and family, is also clear