By Ariadna Vargas

Virginia owns a small business outside of Mexico City. Her brother, whom she cares for, suffers from a chronic health problem, so Virginia needs to have some cash available for covering expenses from sudden medical emergencies if they arise. Until recently, she maintained her savings with an informal community savings group, run by her neighbor, who stores the pooled money in his home. Even though Virginia knew that there was no formal guarantee that her savings would be safe in her neighbor’s home, she hadn’t considered using a formal savings account with a financial institution. Why?

Throughout Mexico, small business owners or informal sector workers like Virginia are 40% less likely to have a savings account than employees with a formal job in the Mexican economy. Informal workers have irregular income flows and therefore are in great need of mechanisms that help them actively manage their financial lives. But because they often don’t have a proof of their income in order to have access to services offered by banks, they instead tend to rely on informal financial mechanisms like Virginia’s savings group. And savings accounts are generally rare across the country, regardless of employment sector or status: only 47% of Mexicans have a bank account, and only 42% of these accountholders use their accounts for saving. For someone with limited experience with financial institutions, using a large bank branch in an upscale neighborhood can feel off-putting. That’s one reason why some, like Virginia, choose familiar (but less secure) alternatives like informal savings groups. More troublingly, others may not save at all, leaving them vulnerable to financial crisis in the event of an emergency expense.

Many people who work in the informal sector have, however, interacted with microfinance institutions to obtain loans. CAME, a large microfinance provider, has been serving the underbanked population in Mexico for over two decades by providing access to loans and credit. It has established trust with small business owners from low-income communities across the country.

Recently, the staff at CAME launched a simple savings product to meet their clients’ need for formal savings accounts . However, very few CAME clients opened an account, even though CAME’s market research had revealed an interest in this type of product. To help more people save money securely, we collaborated with CAME to use behavioral insights to help clients overcome the barriers standing in the way of opening and using an account to build a savings reserve.

We redesigned the process a client goes through to open a savings account in order to make it easier and faster. Our redesign included the introduction of a goal-setting activity that prompted clients to think about concrete savings goals and their intention to save. In order to motivate people to make regular deposits once they had opened their savings accounts, we also designed:

  • A savings card that served as a commitment device, displaying the client’s personal savings goal, chosen deposit amounts and frequency, and their signature
  • A small pouch for setting aside money for the regular deposits
  • Small prizes for reaching savings goals
  • Personalized text messages to mobile phones reminding clients about their savings goals and the amount they had committed to deposit over time

We used the newly designed process in certain CAME branches during a three-month pilot. Following the pilot, savings balances were eight times higher in those branches than other control branches where the new process was not implemented.

We also found that among clients who visit branches regularly, the probability of opening an account after completing the goal-setting activity was 14 percentage points higher compared to branches without a goal-setting activity offered.

Why were our simple, light-touch designs so effective?

Familiarity. By highlighting the similarities between the savings account and informal savings groups in the messaging for our redesigned account-opening process, we aimed to make CAME’s product feel more familiar to clients. Most clients have participated in a savings group before, and therefore have a preconceived idea, or mental model, of how savings should work based on their experience with such groups.

Simplicity. The simplicity of the CAME savings product itself meant that it could be explained in a straightforward way during the account opening process, without confusing or potentially intimidating clients with complicated account features and technical language.

Trust. CAME branch staff have built a good relationship with their clients over time. To build on this existing trust, we trained savings promoters, hired to tell clients about the benefits of savings when they visited a branch to make a loan payment, to approach clients using a familiar tone and avoiding using technical language to inspire confidence and remove the potential for alienation.

A clear value proposition. After identifying clients’ savings needs through a goal-setting activity, CAME staff presented the product as a tool to help them achieve those goals. They also highlighted that this product is a safer channel for their savings—not only because of the more secure storage, but that their money was harder to access than at home and therefore better protected from being spent. Many clients shared that this feature is one they valued the most with CAME savings accounts, including a provision that they are only able to withdraw money after a certain number of months had passed from deposit (a number which they chose themselves when they opened the account).

After our pilot, we interviewed clients, including Virginia, to better understand why they decided to open and use a CAME savings account. Virginia told us that after she learned from her CAME loan officer about a new savings product and its benefits, she didn’t hesitate to approach the savings promoter to open a savings account. She carries her savings pouch with her at all times, in order to store any extra coins she accumulates throughout the course of the month and then easily deposit them during her next visit to the branch without having to remember to collect them beforehand.

Now, Virginia has nearly met her savings goal, thanks to the text messages she receives twice a week to remind her to set aside funds and deposit them at her CAME branch. She also shared that she intends to renew her initial account commitment ‘contract’ once it expires, since her aim is to make her savings grow.

The results from our work with CAME correct two common misconceptions: first, that people living on lower incomes don’t have an intention to save in the first place, and second that those who do want to save don’t have enough money to do so. Rather, these results show that intentionally designing services specifically to meet the real-life needs of people with lower incomes can support their financial health and bring traditionally underbanked people into the formal financial system to their benefit.

Taking a real-world lens to product design using behavioral insights to useful financial products, such as CAME’s savings account, can help more people actively save toward their goals—and reduce hardship and negative outcomes when unexpected expenses arise.

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