BankingonTrust:HowDebitCardsHelpthePoorSaveMore

PaulGertler,UCBerkeley

WithPierreBachas,,SeanHigginsandEnriqueSeira

WorldBankJune2016

Trust"Virtuallyeverycommercialtransactionhaswithinitselfanelementoftrust....[and]muchoftheeconomicbackwardnessintheworldcanbeexplainedbythelackofmutualconfidence."

--KennethArrow(1972)

Trust"Virtuallyeverycommercialtransactionhaswithinitselfanelementoftrust....[and]muchoftheeconomicbackwardnessintheworldcanbeexplainedbythelackofmutualconfidence."

--KennethArrow(1972)

q Importantwhenexchangemoneyforpromises

q Essentialwherelegal institutionsthatenforcementofcontractsisweak

Lowtrustinbanks:aworldwidephenomenon

Source:WorldValuesSurvey

LowtrustinbanksinMexico

q FinancialCrises• 1995-96• 2008-09

q HighProfileBankFraud• 1338newspaperstorieson

bankfraudin2014-15• “HowtoSaveforYour

GraduationandAvoidFraud”• “RetirementSavingsAccounts

withMinimalRiskofFraud.”

q Worriedabout• Hiddenfees• Outrightfraud

Source:WorldValuesSurvey

LowTrustAssociatedwithLowUseofBanks

DebitCards&MobileMoneyq Trustnotinnatecharacteristic,

butinfluencedbyexperienceandinformation

qMobilemoney&debitcards§ Lowertransactionscostsfor

accesstofunds§ Alsolowercostofmonitoring(

checking)balances§ Monitorforfraud&buildtrust

ExamineEffectofDebitCardsonTrustandSavingsinOPORTUNIDADES• Conditionalcashtransferprogram• Programreaches6millionfamilies(20%ofMexico)

• In2005Transferdepositeddirectlyintoasavingsaccount• Paideverybimester ($150average)• Nodebitcards

• In2009,Attacheddebitcardstoaccounts

TimingofRoll-outandBankAccountData

AdministrativeBankAccountDataOver340,000Bansefibankaccounts◦ UrbanOportunidadesrecipients

Averagebalanceofeachaccounteachbimester

Fouryears:Nov-Dec2007toSep-Oct2011

UseofAccounts:WithdrawalsperBimester

• Thisleadstoa“mechanicaleffect”onaccountbalances• Wecalculatemechanicaleffectattheaccount-bimesterlevel• Subtractitfromaveragebalancetogetnetbalance

• SinceFEwithlaggeddependentvariablebiased(Nickell,1981),estimateusingsystemGMM(BlundellandBond,1998)• SEsclusteredbybranchwithWindmeijer(2005)finitesamplecorrection

EffectonMarginalPropensitytosave

Whatexplainsdelayedeffectovertime?

Learningtousetechnology(ATM,debitcard)

Fearthatsavingswillleadtobeingdroppedfromprogram

Buildingtrustinfinancialinstitutions

Analyses:◦ Twosurveysdesignedtoevaluatethechangetodebitcards

◦ Administrativedataonaccountbalancechecks

Testingtrustvs.learning

Testingtrustvs.learning

Buildingtrustthroughbalancechecks• Sameresultinadministrativedata

• Balancechecksdecreaseovertimewithcard

Increaseinoverallsavingsorsubstitution?EvidencefromHouseholdSurveys

• FromMPSspecificationusingadminaccountdata,after1yearsavingsincreaseby5.4%ofincome

• Fromhouseholdsurveydata,savingsincrease4.8%ofincome

IncreaseinOverallSavings(BackofEnvelope)

DoesMoneyBurnaHoleinYourPocket?

Conclusions• Trustinbanks1 reasonpoordonotusefinancialinstitutions

• Debitcards(mobilemoney)• Reducecostofaccessingsavings• butalsoreducecostofmonitoring• Buildtrustandtherebysavings

• SavingsinBanksmayhelpdealwithproblemsassociatedwithinformalsavings

• Policies• Depositinsurance&Hotlinehelp• Trusttrainingpartoffinancialliteracyprograms

• Cashtransferprogramsofferseasywaytotargetthepoorthrough“opt-out”strategies•Mayneed“trustTraining”tobeeffective