Section 4 presents our empirical strategy and experimental results, while Section 5 presents the design and results of the supplemental audit study. Section 6 concludes.

# **2 Background and Research Design**

## **2.1 Payroll Accounts for Low-Income Workers**

We study consumer learning in the context of a simple financial technology: payroll accounts for low-income workers. Despite rapid advances in financial inclusion, cash wage payments are still the norm in low and middle-income economies. Approximately 85% of all salaried employees in developing economies receive their wages in cash and are often unable to open a formal financial account without the assistance of their employer, despite having documented regular income.<sup>9</sup> The introduction of employer-sponsored payroll accounts addresses the inefficiencies of cash wage payments from the perspective of the firm as well as that of the employee.From the firm’s perspective, payroll accounts are efficiency-improving because they dramatically reduce transaction costs of administering regular wage payments. Payroll accounts also reduce the scope for corruption and wage theft, as well as security and insurance costs associated with disbursing wages in cash. With the increasing integration of international supply chains, firms have faced greater calls for wage transparency and adherence to international labor standards, often as a prerequisite for doing business with large multinational buyers in the export market.<sup>10</sup> The introduction of payroll accounts reduces the scope for violations of minimum wage laws and limits on weekly work hours and enables employers to transparently document wage payments to employees. More recently, the Covid-19 pandemic has led to a dramatic increase in the use of payroll accounts globally, as many firms have sought to phase out cash payments that require person-to-person interactions. Many countries have, in fact, made it mandatory for employers to phase out cash payments. In Bangladesh, the government made a bailout for the garment sector conditional on the introduction of payroll accounts for workers, which led to 800 firms digitizing wage payments for more than one million workers within one month.<sup>11</sup> From the employee’s perspective, payroll accounts are attractive because of their potential financial inclusion benefits. The majority of salaried employees around the world remain unbanked and face significant barriers that prevent them from accessing a formal account. Such barriers include prohibitive minimum balance and documentation requirements and a wide range of social

> 9See Demirg ̈u ̧c-Kunt et al. (2017) for details and additional statistics on financial inclusion around the world.

> 10In many industries, including the garment manufacturing sector where our study is set, paying wages through payroll accounts is increasingly becoming a requirement for doing business with large buyers in the export market. These requirements have largely taken effect after we completed our intervention and have led to a steep worldwide increase in the adoption of payroll accounts. Relatedly, Boudreau (2020) shows how multinational enforcement of labor regulations can improve compliance and worker safety.

> 11 See “Scaling the Impact of Digital Financial Services: The Opportunity and Imperative during Covid-19”. Mastercard Center for Inclusive Growth, September 2020.

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