By Moin Qazi
Finance is the glue that holds all pieces of life together. It enables money to be in the right place, at the right time and for the right situation. To borrow and save is to move money from the future to the present or from the present to the future.
However, the existing bricks and mortar banking system does not work for poor people. This is partly because most of their transactions are conducted in cash. Handling cash transactions is costly for banks, utility companies and other institutions, which pass along the costs to their customers. This takes the services beyond the financial reach of consumers.
Towards digital financial inclusion
The global revolution in mobile communications, along with rapid advances in digital payment systems, is creating opportunities to connect poor households to affordable and reliable financial tools through mobile phones, and other digital interfaces.
Digital financial inclusion (DFI) has emerged as a new wave in the hope that it will reach the last mile consumer in the most convenient and affordable manner. DFI is defined as digital access to and use of formal financial services by excluded and underserved populations.
Digital financial literacy
Digital financial literacy is defined as having the knowledge, acquired skills and necessary habits to effectively use digital devices for financial transactions. This intersects with an individual’s basic literacy levels and their ability to use digital devices/technology.
In a digital world, safety and security are the top priorities for everyone. Remaining safe is an individual’s own responsibility which has to be taken seriously. Payment providers can put in the most fool proof systems in the world but the human element of payments, and hence actions resulting in fraud, cannot be emphasised enough. Whether it is reducing risk, improving uptake and usage, enhancing consumer protection or avoiding over-indebtedness, digital financial literacy is the (convenient) marriage of all three paradigms: digital, finances and literacy.
Challenges: Low literacy and distrust
Although digital technology is opening new vistas, challenges persist. Sparse populations, inconsistent network coverage, insufficient capital for building new business models, lack of trust and low technical literacy of consumers can stand in the way of success, particularly in connecting remote or underserved communities.
In India, an early and quick transition may not seem plausible because of the magnitude of the geographical and cultural divide. People’s aversion to digital finance has more to do with their aversion to everything that has to do with technology. And this stems from their lack of trust in it. It is also partly on account of lack of comfort with technology and literacy needed to fully use these services. Women often face additional barriers: less access to mobile phone, lower literacy levels, less confidence in using technology and restrictions on travel or social interaction.
The spike in cyber attacks
The push for digitisation has escalated risks relating to cyber crime. Last year saw cyber attacks that compromised more than 3 million ATM and debit cards through Hitachi-engineered ATM machine hacking. India needs to urgently upgrade its defences by setting up a cyber security commission on the lines of the Atomic Energy and Space Commissions, according to an IIT Kanpur study.
The study said cyber security centres set up by the Reserve Bank of India would be insufficient. Incidents of cyber crime in India grew from 71780 in 2013 to 1.49 lakh in 2014 to 3 lakh in 2015. The study pointed out that since the government was pushing Aadhaar-based financial transactions, securing the Aadhaar database against unauthorised usage must be looked at carefully.
Impact of financial education programmes
It has been found that financial education programmes that focus only on imparting knowledge rarely deliver impact unless they are backed by a suitable product and its usage support. A recent UNDP survey on financial literacy programmes in India revealed that in areas where a service provider was involved in the programmes, the participants had a better understanding of products and used them regularly.
Some banks use a decision tree to help customers open saving accounts that match their needs. Going through the decision tree in itself leads to an understanding of improved product features. Similarly, in one model, a bank undertook a project to deliver financial education training to young women in rural communities through a cascade training model where core trainers trained peer educators, who in turn trained community members. These examples show that there is a need to approach financial education using a model that involves experiential learning and use of products, rather than theoretical approaches.
To use financial services to their full potential, to protect their families and improve their lives, the low-income people need products well suited to their needs. They also need appropriate training and education for adapting to these financial services. All this requires attention to human and institutional issues such as quality of access, affordability of products, familiarity and comfort in use, sustainability for the provider of these services, and outreach to the most excluded populations.
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