Fintech Finds a Way to Reach Domestic Workers with Financial Services in Mexico
Lola, a single mother of three, earns a living cleaning houses in Mexico City. She gets paid in cash every week, and asks for an advance from her employers when she really needs it, like when her mother passed away in her village and she had to cover transportation and funeral costs or when she was mugged on a public bus. Lola stores small sums of money at home to pay for food, rent, electricity, water and gas. As is the case with many domestic employees, her job is informal and unsecured. Sometimes, she has to miss work when her kids get sick and, depending on the employer, she may or may not get paid for those missed days. She is unfamiliar with her labor rights and her employers, who are primarily concerned with employee retention, are generally oblivious to their legal obligations. Although Lola uses several financial instruments to make ends meet, pay her bills and provide for herself and her children, her transactions generate no records in the financial system, thus making her invisible to banks and other financial institutions.
According to National Institute of Statistics and Geography (INEGI) there are 2.5 million domestic workers like Lola in Mexico, most of whom are informally employed and, according to the InterAmerican Development Bank (IDB), are excluded from the financial system. This means they get paid in cash, make no contributions to a social security or a pension fund, and are uninsured, but yet have a relatively stable source of income when work is available. By and large, domestic workers depend on ad-hoc, informal solutions and are invisible to the financial system in all but very few of their financial transactions, such as when they enter into rent-to-own agreements with formal retailers. Since domestic workers are not part of an organized association nor do they live in one place, it is practically impossible to offer them formal financial services.
Inspired to help domestic workers reduce their vulnerability and to address the pains that affect both sides of the employer-employee relationship such as related to liability/injury risk, cost of health-related issues, and salary cash payments, Comunidad4Uno (4UNO for short) — an early-stage Mexican fintech startup and Catalyst Fund company — saw an opportunity to reach domestic workers through their employers. BFA, which manages Catalyst Fund, recently worked with 4UNO to learn how fintech can avoid the pitfalls that traditional financial institutions have encountered when serving the low-income market.
4UNO’s online platform offers employers a suite of carefully curated, affordable financial and non-financial products and services that benefit both the employer (the purchaser) and employee (the recipient). 4UNO offers various annual “benefits packages” that employers can purchase for their employees, which can include accident and life insurance, unlimited medical phone calls, an annual health checkup, and up to four doctor visits. The basic package costs the equivalent of about USD 15 cents a day and can be extended to immediate family members for a moderate fee (USD 10 cents more a day). Additionally, employees can receive a debit card linked to a commission-free, simplified bank account which 4UNO helps them activate. Employers can automate payment of their workers’ wages for a fee and employees can withdraw their money at agents or ATMs, or use their card to pay for goods and services directly. In the near future, both employers and employees will be able to make pension contributions to the employees’ fund of choice as well.
4UNO provides benefits to all parties involved. Providers (e.g. banks, insurance companies, pension funds, other fintech startups) can reach a population segment they would otherwise not serve. Employers gain convenience, peace of mind, an opportunity to be altruistic, and potentially, increased employee retention. And most importantly, employees (domestic workers) gain access to financial services and benefits than can help them reduce their vulnerability, feel safer, build assets, and become financially “visible” to potentially access other financial services, such as credit, in the future.
