Consultant: Management of Using a Behavioral Approach to Expand Financial Inclusion in Mexico

1.Background

The Alliance for Financial Inclusion:

The Alliance for Financial Inclusion (AFI) is the world’s leading organization on financial inclusion policy and regulation. Currently, nearly 100 member institutions make up the AFI network including central banks, ministries of finance and other financial policymaking or regulatory institutions from over 85 developing countries and emerging markets. AFI empowers policymakers to increase the access and usage of quality financial services for the underserved through sustainable and inclusive policies and an effective use of digital technologies.

Policies developed and implemented by the members of the Alliance contribute to a range of the Sustainable Development Goals. By setting their own agenda, AFI members harness the power of peer learning to develop practical and tested policy reforms that enhance financial inclusion with strategic support from both public and private sector partners.

AFI has seven Working Groups (WGs): Consumer Empowerment and Market Conduct Working Group (CEMCWG), Digital Financial Services Working Group (DFSWG), Financial Inclusion Data Working Group (FIDWG), Financial Inclusion Strategy Peer Learning Group (FISPLG), Global Standards Proportionality Working Group (GSPWG), Inclusive Green Finance Working Group (IGFWG) and SME Finance Working Group (SMEFWG).

The working groups receive strategic guidance and insight from the High-Level Global Standards & Policy Committee, while the Gender Inclusive Finance Committee, supports WGs in integrating gender considerations into all aspects of their work and support members in fulfilling their Denarau Action Plan (2016) commitment to promote women’s financial inclusion.

AFI members have made further commitments in a range of other accords which can be read here.

The AFI’s five regional initiatives support policy implementation in Africa (AfPI), Latin America and the Caribbean (FILAC), the Pacific Islands (PIRI), Eastern Europe and Central Asia (ECAPI) and the Arab Region (FIARI).

2.Project Background

One of the critical challenges Mexico faces in terms of financial inclusion is the limited usage of the formal financial system. Nearly half of the adult population in the country, 53%, according to the 2018 National Survey of Financial Inclusion (ENIF 2018, for its acronym in Spanish), do not have an account. Furthermore, a large portion of the population uses informal financial services, which may put them at risk of over-indebtedness and of taking part in risky models in which their savings are not protected.

There are two sub-populations: individuals who do not have an account, and individuals who have it through their employer (also-called payroll account) or to receive government benefits. ENIF 2018 shows that 37.3 million adults report having an account. However, administrative records show that a large portion of the formal accounts is inactive. Another part is used only as a mechanism for receiving and withdrawing salaries and government cash-transfers at an ATM. People face significant risks when they switch from formal to informal jobs because they tend to close or stop using their accounts.

It is worth noting that women are a key segment of the population that needs to be included. According to ENIF 2018, of those Mexicans without a formal account, more than half, 22.5 million, are women. Second, a large portion of the beneficiaries of government transfers are women and their accounts are mostly used to withdraw funds.

Thus, evidence shows that there is a lack of adequate financial services and products, as consensus flags are one of the critical factors underlying the limited usage of financial products and services. There is a pressing need to design products and services that fulfill the needs and preferences of unattended population segments.

In this context, it becomes necessary to have a more in-depth understanding of those behavioral bottlenecks that result in limited take-up and suboptimal usage of financial products and services in Mexico. The recommendations from this project will provide all the financial sector stakeholders with insights about what they can do to serve better the population.

On the one hand, financial institutions, either private or public, need to adapt their strategies to ensure better financial services for Low and Middle Income (LMI) individuals. On the other hand, the insights will guide financial sector authorities in policy design and regulatory changes aimed to guarantee that new and innovative products can be developed and introduced promptly into the financial market, mostly to serve LMI individuals. Specifically, they will be used by CNBV in its regulatory sandbox (created by the Law to Regulate Financial Technology Institutions (so-called Fintech Law)) in 2018 to help select and approve those projects deemed as genuinely innovative to contribute to financial inclusion of underserved individuals.

Furthermore, CNBV is prioritizing addressing this specific problem because the main goal of the National Strategy for Financial Inclusion is to increase the efficient access and usage of financial products and services for population, MSMEs, and vulnerable groups. Thus, this project will help CNBV make regulatory changes and other public policy actions that promote the design of products that fulfill the needs of the population with limited financial resources and those activities aimed at increasing the formal financial system usage.

3.Goal

The objective of the consultancy is to contribute to the efforts to identify critical behavioral bottlenecks that lead to low participation in the formal financial sector. It would also provide specific design solutions and recommendations for private and public financial service providers, regulators, and policy makers on how to improve it using a more consumer-centric approach and thus better align with customer needs. Finally, the design solutions and recommendations will be implemented among LMI population through a pilot project, and its outcomes will be recorded and evaluated.

4.Tasks and Deliverables

The consultant will be required to work together with CNBV staff towards coming up with the deliverables. It is also required to have meetings every two weeks to inform the progress of the consultancy. The assignment entails the following:

1. Definition Stage, the objective of the work will be to generate a behaviorally informed definition of the problem by gathering behavioral insights, as well as review of relevant academic literature.

2. Diagnose Stage, the research firm will construct a behavioral map to generate insights on the attitudes, mindsets, context, and other behavioral features that contribute to the problem. At this stage, the data for making the behavioral map will be gathered from in-depth interviews with LMI individuals, site visit observations and focal groups.

3. Design Stage, the research firm will address the behavioral bottlenecks identified in the analysis and will state specific design solutions and recommendations for increased uptake of formal financial services by LMI individuals.

4. Implementation Stage, Based on the solutions and recommendations found in the Diagnose and Design Stages, a pilot behavioral intervention that will look to increase the uptake and usage of formal financial services among that population will be implemented, through 3-5 financial institutions (including fintech) serving LMI individuals. The selected implementation partners will be in charge of putting the pilot project plan into practice, applying recommendations, and recording the results and lessons learned. The consulting firm will be responsible for monitoring the pilot implementation through weekly status meetings with its implementation partners to oversee progress, results, and lessons learned. They will also record and evaluate the outcomes of the pilot intervention.

5.Key Deliverables

1. Definition Stage, the assessment report will include the barriers to access and usage of formal financial products and services in Mexico, and the financial institutions that serve LMI individuals. For the development of this deliverable, the consulting firm must perform at least the following activities:

Activity 1.1.** Analysis and segmentation of LMI individuals’ market.

Activity 1.2. Conduct desktop research of the existing data in Mexico and review relevant academic literature about the barriers in LMI individuals. Including research and findings from randomized controlled trials (RCT) and other governments or financial institutions policies would be helpful, have found about these barriers and their solutions.

Activity 1.3. Deliver a report of barriers to access and usage of formal financial products and services in Mexico, and what has been doing other governments’ or financial institutions’ experience to face them.

Activity 1.4. Make a presentation to AFI and CNBV’s team on their main findings to discuss them and set further steps.

1. Diagnose Stage, first phase report; the consulting firm will conduct interviews to set the first findings on behavioral insights:

Activity 2.1. Conduct primary interviews with stakeholders, in-depth interviews with LMI individuals, site visit observations, and focal groups.

1. Diagnose Stage, the consulting firm, will construct a behavioral map to generate insights on the attitudes, mindsets, context, and other behavioral features that contribute to the problem. Also, will identify the behavioral bottlenecks and drivers for increased participation in the formal financial sector among LMI individuals:

Activity 3.1. Behaviorally informed definition of the problem that the project aims to address will be conducted by gathering key behavioral insights through 1) a thorough review of academic literature on financial inclusion and behavioral economics, and 2) primary interviews with key stakeholders.

Activity 3.2. “Behavioral mapping” of the relevant decision-making processes and contextual features around adopting and using formal financial products. In order to pinpoint the decision and action processes around adopting and using formal financial products, in-depth interviews and focus groups will be conducted.

Activity 3.3. Insights from interviews and focal groups conducted during Activity 2.1 will be complemented with visits to places commonly used by LMI individuals for making financial transactions, in the selected locations, in order to observe the processes of facilitating these formal services and collect any additional behavioral observations from these sites.

Activity 3.4. Deliver a report and have a meeting with AFI and CNBV’s team to inform the diagnostic results about behavioral insights and bottlenecks found through the academic literature, the behavioral mapping, and the interviews.

1. Implementation Stage, will include the specific solutions and recommendations based on the findings of the Diagnose and Design Stages and start the pilot behavioral intervention:

Activity 4.1. Behaviorally designed concepts aimed to address one or more specific behavioral bottlenecks to uptake and usage of financial products offered in the formal financial sector.**

Activity 4.2. Inform the general and behavioral insights from the research findings, and specific design solutions and recommendations to address them.

Activity 4.3. Start the pilot project through 3-5 financial institutions (including fintech) serving LMI individuals, to implement the design solutions and recommendations from the behavioral research aimed at improving financial inclusion levels among the studied population segments.

1. Final report that includes the behavioral research findings and specific solutions and recommendations to increase participation of LMI individuals in the formal financial sector, as well as the outcomes and evaluation from the pilot project. All the reports must be delivered in English.

Thus, the final report will contain the map of the top 3-5 financial institutions, the segmentation of LMI individuals participating in the formal financial market, a summary of the main findings on behavioral bottlenecks and drivers of participation of them, strategies and recommendations for private and public service providers, regulators, and policymakers. Finally, it will also include the outcomes of the pilot project that tests the strategies and recommendations obtained from the behavioral research.

1. Paper “Behavioral Insights for Financial Inclusion: Lessons from Mexico’s Case.”

To promote working towards the fulfillment of Denarau Action Plan, interim and final reports should provide relevant gender-based insights and recommendations. Understanding the context in which women make financial decisions will certainly be an important component in the research to outline recommendations of what features could be changed and/or added so that women use their accounts more actively.

6.Travel

Travel within the country will depend on the selected financial institutions. As the target population of this study is people with low and middle income, it would be convenient to choose several locations and not just Mexico City to capture a better perspective of their needs.

7.Timeline

This work would be undertaken in 9 months. The key timelines are summarized in the table below:

Deadlines

Deliverables by the Consultant

Week 3

Deliverable 1: Definition Stage, assessment report of the barriers to access and usage of formal financial products and services in Mexico. For the development of this deliverable, the consulting firm must perform at least the following activities:

Activity 1.1.** Analysis and segmentation of LMI individuals’ market.

Activity 1.2. Conduct desktop research of the existing data in Mexico and review relevant academic literature about the barriers in LMI individuals. Including research and findings from randomized controlled trials (RCT) and other governments or financial institutions policies would be helpful, have found about these barriers and their solutions.

Activity 1.3. Deliver a report of barriers to access and usage of formal financial products and services in Mexico, and what has been doing other governments’ or financial institutions’ experience to face them. The report should be written in English.

Activity 1.4. Make a presentation to AFI and CNBV’s team on their main findings to discuss them and set further steps.

Week 6

Deliverable 2: Diagnose Stage, first phase report, the consulting firm will conduct interviews to set the first findings on behavioral insights:

Activity 2.1. Conduct primary interviews with stakeholders, in-depth interviews with LMI individuals, site visit observations and focal groups.

Week 10

Deliverable 3: Diagnose Stage, second phase report, the consulting firm will construct a behavioral map to generate insights on the attitudes, mindsets, context, and other behavioral features that contribute to the problem. Also, will find the behavioral bottlenecks and drivers for increased participation in the formal financial sector among LMI individuals:

Activity 3.1. Behaviorally informed definition of the problem that the project aims to address will be conducted by gathering key behavioral insights through 1) a thorough review of academic literature on financial inclusion and behavioral economics, and 2) primary interviews with key stakeholders.

Activity 3.2. “Behavioral mapping” of the relevant decision-making processes and contextual features around adopting and using formal financial products. In order to pinpoint the decision and action processes around adopting and using formal financial products, in-depth interviews and focal groups will be conducted.

Activity 3.3. Insights from interviews and focal groups conducted during Activity 3.2 will be complemented with visits to places commonly used by LMI individuals for making financial transactions, in the selected locations, in order to observe the processes of facilitating these formal services and collect any additional behavioral observations from these sites.

Activity 3.4. Deliver a report and have a meeting with AFI and CNBV’s team to inform the diagnostic results about behavioral insights and bottlenecks found through the academic literature, the behavioral mapping, and the interviews. The report should be written in English.

Week 22

Deliverable 4: Inform solutions and recommendations based on the findings of the Diagnose and Design Stages and start the pilot behavioral intervention:

Activity 4.1. Behaviorally designed concepts aimed to address one or more specific behavioral bottlenecks to uptake and usage of financial products offered in the formal financial sector.**

Activity 4.2. Inform the general and behavioral insights from the research, findings, and specific design solutions and recommendations to address them.

Activity 4.3. Start the pilot project through 3-5 financial institutions (including fintech) serving LMI individuals, to implement the design solutions and recommendations from the behavioral research aimed at improving financial inclusion levels among the studied population segments.

Week 28

Deliverable 5: Final report with behavioral research findings, and specific solutions and recommendations for increased participation of LMI individuals in the formal financial sector, as well as the outcomes and evaluation from the pilot project. All the report must be delivered in English.

Thus, the final report will contain the map of the top 3-5 financial institutions (including fintech), the segmentation of LMI individuals participating in the formal financial market, a summary of the main findings on behavioral bottlenecks and drivers of participation of them, strategies and recommendations for private and public service providers, regulators and policy makers. Finally, it will also include the outcomes of the pilot project that tests the strategies and recommendations obtained from the behavioral research. The final report should be written in English.

Week 30

Deliverable 6: Paper “Behavioral Insights for Financial Inclusion: Lessons from Mexico’s Case.” The paper should be written in English and Spanish.

8.Qualification

CNBV and AFI are seeking a consultancy firm with the following qualifications:

· Higher degree of expertise in a field related to Finance, Economics, Behavioral Economics, Public Policy, International Development or another related discipline.

· Solid professional experience in broad financial regulatory and policy interventions, digital financial services and financial technology innovations.

· Verifiable knowledge in designing and deploying pilot projects.

• The leader consultant should have 10+ years of proven professional experience in broad financial regulatory and policy interventions, digital financial services and financial technology innovations, financial regulation for Digital Financial Services (DFS) and FinTech, public policy, financial inclusion and international development.

· Fluency in English (oral and written) is mandatory for the senior consultant, Spanish is desirable.

All the members of the team including the leader should have:

· A basic understanding of financial products, services and markets, including lending, savings products and services, retail payments, and digital innovations in the financial sector.

· Verifiable expertise in behavioral economics, social psychology, and cognitive science to design evidence-based solutions.

· Solid experience in developing comprehensive strategy recommendations based on multiple factors such as in-depth financial customer insights analytically derived.

· Excellent analytical skills and ability to analyze and advise design solutions and recommendations to financial services providers, regulators, and policy makers.

· Strong managerial and organizational skills with experience in project design and management of consultants and budget and proven ability to plan, direct, organize and administer diverse activities to ensure successful and timely delivery of work programs.

• The team in the field should have excellent oral and written Spanish language communication skills. Fluency in written and spoken English and Spanish to a professional communications standard is highly desirable.

9.Reporting

Throughout the contract period, the Consultant will be reporting to Marco Del Rio Chivardi, General Director for Access to Financial Services of CNBV and Zaira Badillo, Head, Regional Office Latin America & Caribbean of Alliance for Financial Inclusion. The contract will be with the consulting firm with specific names of the team member(s) that would be working on the assignment. The consultant(s) are expected to have good knowledge and technical background related to behavioral science and financial inclusion.

10.Criteria of Evaluation

The proposals submitted will be evaluated based on the following criteria:

Technical Scoring

1. Academic Qualification; 10%

2. Experience and competence of the key staff for the assignment related: working with behavioral science and financial inclusion in general, policies and regulation; 40%

3. Adequacy for the assignment 20%

4. Regional/Global experience 20%

5. Adequacy of the proposed work plan and methodology in responding to the Terms of Reference; 30%

6. Technical approach and Methodology 15%

7. Workplan 15%

8. Quality of the submitted sample work 20%

Total: 100%