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The Promises of Digital Bank Accounts for Low-income Individuals

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  • Hernández Romero, Karla
  • Vera-Cossio, Diego A.
  • Hoffmann, Bridget
  • Pecha, Camilo

Abstract

The push for adopting digital modes of payment rests on three promises: increased efficiency of transactions, increased financial inclusion, and improvements in the financial well-being of low-income individuals. We experimentally test the extent to which these promises are fulfilled. We exploit the random assignment into an intervention to encourage direct deposits of recurrent government benefits into digital bank accounts in Colombia. Switching from cash to direct deposits reduces disbursement errors and increases access to benefits among eligible beneficiaries. It also increases the ownership of bank accounts, the demand for formal loans, and loan take-up among individuals without a financial history. However, we do not find evidence of improvements in financial well-being across any of our metrics.

Suggested Citation

  • Hernández Romero, Karla & Vera-Cossio, Diego A. & Hoffmann, Bridget & Pecha, Camilo, 2024. "The Promises of Digital Bank Accounts for Low-income Individuals," IDB Publications (Working Papers) 13379, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:13379
    DOI: http://dx.doi.org/10.18235/0005521
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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