The transition from cash to digital payments presents a unique challenge in Peru, where reliance on cash remains deeply entrenched despite the availability of a wide array of secure, user-friendly digital financial tools (e.g., Yape, Plin, presence of POS terminals). 

In 2022, this issue persisted even as the COVID-19 pandemic had prompted a 30% increase in mobile banking usage (Ipsos, 2020). In 2021, 48% of Peruvians remain unbanked, and 40% still used cash as their primary payment method (INEI, 2021). 

Collaborating with the IMF Creative Lab, my team and I conducted a research project aimed at understanding the behavioral barriers that prevent Peruvians from adopting digital payments, specifically, the inhibitors of the use of credit cards, debit cards, bank apps, and other mobile payment services.

Understanding the barriers

For this project, we combined different sources of information:

• Building a theoretical foundation: We conducted an extensive review of literature about biases and heuristics that explain perceptions and behaviors under uncertainty.

• Reviewing past research: We reviewed available studies about barriers and facilitatos of digital payment from around the world.

• Gathering direct user insights: We conducted 27 in-depth interviews with participants from urban and rural areas who primarily relied on cash for their transactions. 

For this project, we utilized the COM-B model of behaviour developed by Susan Michie and colleagues (2011) as the foundation of our research. This framework emphasizes that for any behavior to occur, three factors must interact:

• Capability: Refers to an individual’s capacity to perform a behavior, shaped by their physical and psychological abilities. This includes knowledge, skills, memory, reasoning, and physical capacity required to engage in the behavior.

• Opportunity: Encompasses external factors that influence the behavior, including physical resources (e.g., infrastructure, technology) and social factors (e.g., cultural norms, interpersonal influence) that make the behavior possible.

• Motivation: Involves internal processes that drive behavior, which can be reflective (e.g., deliberate planning, evaluation of outcomes) or automatic (e.g., habits, emotions, impulses).

This qualitative approach allowed us to uncover nuanced insights into the barriers that hinder digital payment adoption.

Our research identified several key obstacles across the COM-B factors. Some of them include:

Capability:

• Awareness: Limited awareness of available digital payment methods, such as mobile apps, debit cards, or online banking platforms.

• Knowledge & Skills: Lack of knowledge about how to acquire or use these tools effectively, or their security measures.

• Behavioral regulation: Problems controlling their spending while using credit cards.

Opportunity:

• Environment: Cash dependency is reinforced, for example, by employers pay wages in cash and businesses refuse digital payment options.

• Infrastructure: Particularly in rural areas, including unstable mobile networks, lack of internet access, and limited phone storage for banking applications.

• Social influence: Some participants relied on household members who were already using digital payment methods, reducing the perceived necessity of adoption for themselves.

Motivation:

• Beliefs: Distrust of financial institutions due to prior negative experiences, such as unexpected fees and maintenance charges.

• Emotions: Fears about security, including concerns over fraud, hacking, or errors in large transactions.

• Identity: Some felt that digital payments were not "for people like them".

The designed solutions

Based on these findings, we proposed interventions designed to address the complex interaction of barriers and facilitators across the three factors. Some of them included:

• Develop educational campaigns to increase awareness of digital payment solutions and provide clear guidance on their use.

• Collaborate with mobile network operators to offer data-free access to banking applications.

• Ensure banking apps are lightweight to function on devices with limited storage.

• Introduce double confirmation screens and short cooling-off periods for large transactions to reduce fear of errors and fraud.

Reflections

This research demonstrated the value of applying behavioral science to tackle systemic challenges in financial inclusion. By addressing the interconnected factors of the COM-B model, we identified specific barriers and created actionable solutions tailored to the specific needs and contexts of Peruvians that only use cash. 

However, it is essential to consider that behavioral interventions need to be built over strong foundations regarding infrastructure. We could design the "best" intervention and use the "best" nudges to boost the adoption of a service, but if there is a population that has no internet access 6 days a week, people will simply not use it. 

Key takeaways

• Behavior change requires a systemic approach that considers capability, opportunity, and motivation.

• Addressing both psychological and logistical barriers is essential to foster adoption of digital payment methods.

• Interventions that empower users and build trust can have a transformative impact on financial inclusion.