Roughly a quarter of Mexico’s population lives in rural communities (30 million of Mexico’s 122 million people). Living outside Mexico’s major cities can mean limited access to higher level education, employment, and financial services. It is not uncommon for children to begin working with their parents in their youth assisting with attaining basic living necessities and leaving school after only having completed grade school. Until recently these rural communities lived in fair isolation making trips into major cities infrequently. Mobile phone data connectivity is allowing greater access to information and services to those living in rural Mexican communities. See the link: Cell Phone Data Coverage Map Mexico. This being said, smartphone penetration in Mexico carrying information the “last mile” is only about 40%. There is still a significant gap to be closed before access to the worldwide web reaches all.
So what does smart phone penetration mean for financial services in Mexico? I came across a fascinating blog post by Jeanette Thomas (@) that talks about how CGAP (an organization focused on financial inclusion), in partnership with BBVA Bancomer, hired IDEO (@) to produce savings products for Mexico’s unbanked. IDEO’s findings were very interesting. They stopped speaking of the “unbanked” and started calling them “de-banked.” The reason for this being that many of the unbanked were simply disillusioned with banks in Mexico. They excluded themselves from financial services because they had bad experiences with banks. In the place of savings accounts many Mexicans empowered community members to act as savings agents for between 10-30 local friends and family. These savings agents hold on to funds and counsel fund participants. This is a perfect example of an un-met need. It isn’t that Mexico’s unbanked don’t have a need for saving money, it is that the products that should fill this need are unsuitable for them.
This opens up a really interesting line of thought as it relates to financial inclusion. How do you bank the de-banked? How do you get someone disenchanted with traditional financial services excited about giving them another shot? The basic premise behind financial inclusion is that when people participate in the traditional financial system, with some proficiency, opportunities for economic well being increase; which provides access to better education, which leads to enhanced quality of life. Fundamental to the premise is access and use of credit. If you want to see a great high level video on how this works click here: How the Economic Machine Works by Ray Dalio. The de-banked have very little access to credit; if at all. Without credit or access to funds, college is a distant dream. Lack of credit prevents you from acting on business opportunities or taking a risk on starting your own business. As the unbanked or de-banked the unfortunate consequence is that you simply have less opportunity.
One fairly recent innovation allowing the unbanked to be banked, is the advent of digital currencies. For example, use of digital currencies have taken hold in many parts of Africa. Mobile payments are becoming the infrastructure for local African economies. In Kenya the mobile payment solution mPesa saw nearly 50 million transactions in the first 60 months since its launch and according to CNBC 66% of the adult population are using the service. In Mexico, however, there is not nearly the same adoption rate for digital currencies, by some estimates only a mere 3%. Perhaps the existing digital currency solutions are missing the market in Mexico. Many of the digital currency solutions cultivating in the Mexican financial ecosystem are based on feature phones (phone’s lacking smart capability). With smart phone penetration increasing rapidly in Mexico, perhaps the solution is a melding of traditional financial products and digital currencies made possible by smartphones. Such a solution could connect rural communities and urban communities alike to financial services and access to credit.
There is never a simple answer to complex problems, and providing a right market fit product for banking the unbanked is overly simplistic. There is most assuredly a trust gap between many Mexican’s and their traditional financial system; where fine print and lack of transparency lead to unexpected fees and commissions. As always, I don’t claim to have all the answers, but hopefully broaching the topics will get people thinking about solutions.