Celo and digital money: overcoming Mexico’s main financial inclusion pain points
Mexico is magical. It has a vibrant culture, huge economic potential and hospitable and hardworking people. At the same time, Mexico’s financial system is failing to include a large portion of its population. Lack of access to basic financial services currently holds back a large portion of the population, which in turn limits the realization of the country’s huge economic potential. The people of Mexico deserve innovative and disruptive tools that can respond to their needs.
As a diplomat for the EU, my father worked in various locations throughout his career. As a result, my brothers and I grew up in different countries in Europe, Africa and Latin America. We witnessed very vividly how access to a series of services that many of us take for granted — such as a quality school system, access to water or electricity — can be so disparately distributed throughout the world, even among people living in the same country, city, or neighborhood. And until recently I had never really thought of access to a bank account or a credit card as one of those essential services that have an impact on quality of life. When I first arrived in Mexico two years ago, I had no local bank account and no credit card. And when I lost the only foreign payment card I had, I became totally dependent on my community. Like 79% of Mexicans, my cell phone is a prepaid phone that I occasionally have to recharge. After losing my credit card, once I ran out of credit on my phone, I was not only out of cash but couldn’t contact anyone. One day, I walked 30 minutes to my friend’s house and waited 3 hours for him to show up so I could ask him for a loan in order to make my payments. Just the same way that Jose, our housekeeper, occasionally needs to ask us for several advanced paychecks or loans just so she can cover her most urgent and unexpected expenses. Because she has no access to a bank account, she cannot really save for rainy days, and has no chance of being granted a bank loan. Today, I not only realize, but also have a strong conviction of the importance of financial inclusion in guaranteeing quality of life and development in a society.
Celo is an open platform that makes financial tools accessible to anyone with a mobile phone. The mission is to build a monetary system that creates the conditions for prosperity for all. Just the kind of mission I identify with.
But before getting into millions of Mexican phones and becoming a financial reference for everyday payments, you first need to get to know and learn from your potential users. What are their needs? How and why do they behave the way they do? How could Celo respond to their aspirations?
A need for financial access
Today, only 34% of Mexicans (26.9 million people) own a credit card, and around 47% (37.3 million) have a debit card associated with a bank account. The path to access banking is a complicated one and strewn with so many pain points. According to the International Labour Organisation, nearly 60% of Mexican workers have informal jobs. This situation translates into low income, a lack of knowledge of the financial products and services available, low confidence in the formal financial system, and lack of access to many of its services. The perfect recipe for a vicious circle.
Trust in the financial system has seriously eroded. In 1994, the Mexican government ordered a sudden devaluation of the peso against the U.S. dollar, which sparked a major economic crisis and resulted in the collapse of several Mexican banks. With this, a lifetime of savings vanished for many. This traumatic experience still daunts the minds of Mexicans. Those that receive their salary on a payroll account (one type of checking account) decide to withdraw most, if not all, immediately. You can witness this phenomenon twice a month in the lines that form at each bank’s corner on payday.
Going to the bank not only generates distrust. For many people it is also physically difficult to access and highly inefficient, especially when you consider that someone that has a car and lives in an urban setting takes 30 minutes to get to an ATM, and up to two hours if they live in a remote area.
Finally, only 32% of Mexicans made or reported some type of transaction through a digital medium (digital payment, virtual cards, interbank transfers, as well as payments using a smartphone) and only 10% of adults made payments of goods and services through their bank account (Global Findex Database).
Relying so massively on cash for transactions has many perverse effects. It makes it more complicated to save, as well as increasing insecurity and diminishing access to other financial services like credit and insurance. So there lies great potential for innovative and disruptive solutions in a country where over 70% of Mexicans (62.2 millions) have a smart phone but only 2.7% make payments through their mobile phone.
The Celo research pilot
To untap this potential and find a solution that solves the problem, you first need to learn directly from the experts: the people themselves. That’s why for the pilot, we chose to work with 38 participants, most between 25 and 34 years old, all women that did not previously have access to quality education and are now studying at Laboratoria’s bootcamp to become Web Developers or UX Designers.
The participants used the Celo Wallet for 12 days, transferring amounts among themselves and purchasing goods from 4 different merchants that joined the pilot. Each participant could enjoy a meal, drink, haircut, or manicure, by paying with a QR code on the Celo wallet app.
The location of our study, west of the city’s historic center in the Roma neighborhood of Mexico City, was ideal. Our team rented an office at the coworking space where the participants study and one merchant has a coffee shop. The other merchants are conveniently located on the same street. It was a perfect setup to observe comfortably without disturbing the daily interactions of our fellow participants, identifying how they used the technology and analyzing all the payments and transactions occurring in front of us. We conducted several surveys, interviews, and focus-group discussions to further understand the financial behaviors and mental models of our participants. All this information translated into on-the-go iterations that progressively improved the Celo app.
Insights
Learnings and iterations from previous pilots, like the one conducted in the Philippines, were starting to pay-off. Despite some occasional app crashes and UX issues that were swiftly resolved, the app showed unprecedented reliability and functionality. The new home screen displaying the local currency ($MXN) resonated with the user. Sending and receiving money was intuitively perceived as the primary purpose of the app, and payments as a secondary purpose.
Our interviews showed that users were particularly receptive to the concept of financial self-custody. As we’ve seen above, history has given Mexicans good reasons to be suspicious and somewhat distrustful of financial institutions. Any solution that allows safe and flexible transfers and payments, without restricting control of your own money, will inevitably gather support. In that sense, the Celo Wallet was highly valued by the participants as a safer and more secure option than cash or cards.
One of the cornerstones of Celo Wallet’s security lies in its Backup key, which protects your funds so that only you can access them. During the pilot, the participants had to request and keep this backup key somewhere safe. And since print screens were not allowed by the app, other ways of remembering had to be used, such as writing it down on a notebook or downloading it on your computer. Most of the participants compared it to a recoverable password and over 90% saved it properly. This reflected understanding and proper use of the backup key, although our research pointed out that there is still room for improvement in the backup key messaging when onboarding the Celo Wallet.
The Celo protocol supports an ecosystem of stable currencies, the first of which, the Celo Dollar (cUSD), will be pegged to the US Dollar. The native asset of the Celo platform is Celo Gold (cGLD). Our participants understood very intuitively the use of Celo Dollars to make payments, and to send and receive money. However, the Celo Gold’s concept was confusing to them, which highlighted the need to develop a Celo Gold-specific onboarding feature that would better explain it.
The pilot confirmed the identification of a promising target group for launch. Our pilot participants were mostly in their late 20s to mid 30s, underbanked or about to become banked. As bootcamp students, these tech savvy and crypto-educated users, showed interest in handling cryptocurrencies once they had an income. A key factor will be to identify the influencers among this group of users, as recommendations and peer-to-peer dynamics showed very effective results within this group.
How Celo can help
Previous generations’ tools are currently not meeting core needs. People do not trust banks and suffer from their inefficiencies: being refused because of low or informal wages, waiting long hours in lines, being charged excessive fees, etc. Celo provides a new, secure and flexible alternative for any transaction.
It’s undeniable that there exists a real enthusiasm amongst youth for the next wave of financial products. The open-source and decentralized nature of Celo disrupts the old ways. Its blockchain technology is transparent, reliable, and modern; miles away from the traditional financial services. It is a new human-centered solution that provides access, agency, and trust.
Conclusion
We were able to identify a cohort with a use case and adapt the Celo Wallet to the particular circumstances of a tightly defined group of users. Mexico is a patchwork of cultures and people. To confirm that Celo can provide a viable solution on a country-wide level, we would need further research in different and more remote areas. We learned through the pilot in Mexico City that there is a real need for a financial solution like the Celo Wallet and genuine interest for something that can connect people and transform them into active economic players. The Celo app has shown to be reliable, functioned efficiently, and was valued as being very user-friendly. The future is promising, fast-moving, uses blockchain technology, and simple. Here comes Celo.
