BankingonTrust:

HowDebitCardsHelpthePoorSaveMore

PaulGertlerUCBerkeley

WithPierreBachas,SeanHigginsandEnriqueSeira

May2016

Trust"Virtuallyeverycommercialtransac1onhaswithinitselfanelementoftrust....[and]muchoftheeconomicbackwardnessintheworldcanbeexplainedbythelackofmutualconfidence."

--KennethArrow(1972)

Trust"Virtuallyeverycommercialtransac1onhaswithinitselfanelementoftrust....[and]muchoftheeconomicbackwardnessintheworldcanbeexplainedbythelackofmutualconfidence."

--KennethArrow(1972)

❑  Importantwhenexchangemoneyforpromises

❑  EssenValwherelegalinsVtuVonsthatenforcementofcontractsisweak

Lowtrustinbanks:aworldwidephenomenon

Source:WorldValuesSurvey

LowtrustinbanksinMexico

❑  FinancialCrises•  1995-96•  2008-09

❑  HighProfileBankFraud•  1338newspaperstorieson

bankfraudin2014-15•  “HowtoSaveforYour

Gradua1onandAvoidFraud”•  “Re1rementSavings

AccountswithMinimalRiskofFraud.”

❑  Worriedabout•  Hiddenfees•  Outrightfraud

Source:WorldValuesSurvey

LowTrustAssociatedwithLowUseofBanks

DebitCards&MobileMoney❑  TrustnotinnatecharacterisVc,

butinfluencedbyexperienceandinformaVon

❑ Mobilemoney&debitcards▪  LowertransacVonscostsfor

accesstofunds▪  Alsolowercostofmonitoring

(checking)balances

▪  Monitorforfraud&buildtrust

ExamineEffectofDebitCardsonTrustandSavingsinOPORTUNIDADES• CondiVonalcashtransferprogram•  Programreaches6millionfamilies(20%ofMexico)

• In2005Transferdepositeddirectlyintoasavingsaccount•  Paideverybimester($150average)• Nodebitcards

•  In2009,Ahacheddebitcardstoaccounts

TimingofRoll-outandBankAccountData

AdministraVveBankAccountData

 Over340,000Bansefibankaccounts◦  UrbanOportunidadesrecipients

 Averagebalanceofeachaccounteachbimester

 Fouryears:Nov-Dec2007toSep-Oct2011

UseofAccounts:WithdrawalsperBimester

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

•  SinceFEwithlaggeddependentvariablebiased(Nickell,1981),esVmateusingsystemGMM(BlundellandBond,1998)•  SEsclusteredbybranchwithWindmeijer(2005)finitesamplecorrecVon

EffectonMarginalPropensitytosave

WhatexplainsdelayedeffectoverVme?

 Learningtousetechnology(ATM,debitcard)

 Fearthatsavingswillleadtobeingdroppedfromprogram

 BuildingtrustinfinancialinsVtuVons Analyses:◦  Twosurveysdesignedtoevaluatethechangetodebitcards

◦  AdministraVvedataonaccountbalancechecks

TesVngtrustvs.learning

TesVngtrustvs.learning

Buildingtrustthroughbalancechecks•  SameresultinadministraVvedata•  BalancechecksdecreaseoverVmewithcard

IncreaseinoverallsavingsorsubsVtuVon?EvidencefromHouseholdSurveys

• FromMPSspecificaVonusingadminaccountdata,amer1yearsavingsincreaseby5.4%ofincome

• Fromhouseholdsurveydata,savingsincrease4.8%ofincome

IncreaseinOverallSavings(BackofEnvelope)

DoesMoneyBurnaHoleinYourPocket?

Conclusions• Trustinbanks1reasonpoordonotusefinancialinsVtuVons

• Debitcards(mobilemoney)•  Reducecostofaccessingsavings•  butalsoreducecostofmonitoring•  Buildtrustandtherebysavings

• SavingsinBanksmayhelpdealwithproblemsassociatedwithinformalsavings

• Policies• Depositinsurance&Hotlinehelp• Trusttrainingpartoffinancialliteracyprograms

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