The Virtuous Circle of TrustBy Marlene Garayzar | Thu, 09/08/2022 - 12:00
Not being able to access financial products hurts people and businesses in many ways. In a country like Mexico, with more than 60 million financially excluded people, it is important that we talk about the great, positive impact generated by companies that provide access to credit. Even more important, it seems to me, is that we analyze what factors make this access possible. The first factors that come to mind are the availability of information that enables risk analysis and institutional and legal certainties to recover loans; however, thinking about it more carefully, the factor that I consider most important to enable access to credit is that of trust, in the broadest sense of the concept.
Yes, entrepreneurs and companies that are dedicated to providing access to credit products are, to a lesser or greater extent, creating an ecosystem based on trust. Trust is our catalyst: only with it will we be able to impact the lives of our users; only through it will we be able to support their well-being and economic growth.
In our company, when we approve a credit card, our first intention is to confirm to our applicants that we trust them. Our users deserve a product like ours and by approving a credit line to them, albeit a small one, we prove that we believe in them and trust their word. That's what it's about.
Trust is a key ingredient in conducting all types of transactions. It is enough to understand how much it facilitates transactions between individuals and between them and other entities, such as businesses, to confirm this. The financial entities are there, in the middle of such transactions: we connect individuals and merchants and we say "yes" to the users by approving their purchases when we are notified about them and when we know we will get paid.
The relevance of trust in relation to our finances is indisputable, both as users of financial services and as providers. When we approve a credit card to a user who had never received approval from a credit institution, we are doing much more than trusting him: we are not only giving him access to a means of payment that he can use in physical and electronic stores in a secure way, we are also telling merchants and the world in general that they are dealing with a trustworthy person, a person whom we stand behind. This, in turn, is a very powerful message. The trust we place in our clients empowers them in many ways; it gives them security and opens doors that were previously closed to them.
In Mexico, during the pandemic, e-commerce experienced exponential growth, leading to a decrease in the use of cash. The Mexican Association of Online Sales (AMVO) reported that in 2020, e-commerce grew 81 percent compared to the previous year.1 Thanks to the trust that the financial institutions placed in their clients, many of them were able to access this type of commerce, carried out in most cases through digital platforms, during a time when staying at home became an act of responsibility toward oneself and toward others. Financial entities have, therefore, become an enabler of safe and risk-free transactions in all senses
The access to credit made possible by financial institutions not only benefits users. I am convinced that their work has a profound impact on the economy of our country. In his text, Trust in Transactions: An Economist's Perspective, Niko Matouschek, an economist and professor at the Kellogg School of Management, asserts that “trust facilitates trade and fosters economic activity ... Trust can become a radical competitive advantage."
It is also known that countries with higher levels of trust have populations with greater well-being and productivity; in contrast, countries with low trust stand out for tax evasion and informality. Increased trust is also synonymous with social capital in any country and this, in turn, has a direct impact on national GDP. Alberto Alesina and Eliana La Ferrara state that “When people trust each other transaction costs in economic activities are reduced, large organizations function better, governments are more efficient, financial development is faster: more trust may spur economic success.”2
All this suggests the existence of social multipliers since if credibility increases between individuals, this will generate a more positive environment. Trust brings further growth and growth, in turn, fuels trust again. It is a virtuous circle. Somehow, Francis Fukuyama reaffirms this idea in his book Trust, where he asserts that prosperity, liberal democracy, capitalism and economic development are based, to a great extent, on the culture and social fabric of a country, as well as on the inherent levels of trust that exist in a society.
In Mexico, people who already have access to financial products and who are already formally part of the economic system have the support of their financial institutions and, to a greater or lesser extent, trust the services they provide. But this is not the case for most Mexicans, who, because they are not trusted by financial institutions and vice versa, have no choice but to use only cash.
The use of cash as a form of payment not only closes the doors to people, it also harms the government: this causes informality, low competition and insecurity. Less use of cash, in the medium term, represents higher tax revenues and, in the long term, allows combating illicit activities, such as money laundering and corruption.
I like to think of Mexico as a country with trust under construction. At Stori, we believe that building trust in those who have never had the opportunity to have a quality financial product is a way of contributing to the social capital of our country. We want to help build a future in which people trust that Mexico's economy will allow them to achieve their dreams and goals. That is our dream.
1These data comes from the Study on online sales in Mexico - 2020, published by the Mexican Association of Online Sales.
2 Alesina, Alberto y Eliana La Ferrara (2002), Who trusts others?, Journal of Public Economics, North-Holland Pub., Amsterdam, pp. 207-234.