Technology and finance have been old bedfellows. The financial sector in India has been a gung-ho adopter of technology, using it to improve interactions between financial institutions and consumers. In the last 25 years, we have witnessed rapid digitisation of the ‘back-end’ of finance in India — our core banking system (the RBI’s e-Kuber), state-of-the-art digital payment systems like the RTGS, NEFT and IMPS, security depository systems like NSDL and KYC systems such as CERSAI and e-KYC.
In many ways, the last decade has been the story of the heady adoption of technology by government and private sector on the hope that it will enable better service delivery to people.
Has this digitisation translated at the consumer ‘front-end’ of finance? Consider that 10 years ago, smartphones were just beginning to become a reality, ownership of bank accounts was not universal in India, Aadhaar enrolments had not begun, and the related e-KYC infrastructure did not exist. It begs the question: how has digitisation changed the experience of finance for low-income Indians on the ground?
An Indian conundrum: Access versus usage
From the perspective of financial institutions, technology offers solutions to many traditional barriers to financial inclusion. By meeting people literally in their own houses through digital interfaces on personal devices, banks can overcome the challenge of distance and drive down unit costs of service provision.
Individuals also create data trails through digital interactions, giving financial institutions a more accurate sense of consumer earnings, spending behaviours and overall financial lives. This enables them to interact with consumers they may have previously turned away due to information asymmetries. In this context, the dramatic increase in access to bank accounts and mobile technology in India was expected to be accompanied by a spike in usage of digital finance. Nearly every household now has a member with a bank account as a consequence of PM Narendra Modi’s Pradhan Mantri Jan Dhan Yojana. Together with the rise in mobile phone usage — India has more than a billion mobile subscriptions currently — we seem to have the perfect enabling environment to create a better engagement with finance for a wider section of society.
However, we are confronted with a unique Indian conundrum: universal digital access has not directly converted into higher usage of financial services. Data from the Global Findex database reveals that despite high bank account ownership, the proportion of Indian respondents who had neither deposited nor withdrawn funds from a financial institution rose from 22 per cent in 2014 to 38.7 per cent in 2017. Only 6.6 per cent of the respondents in 2017 reported borrowing from a formal financial institution in the past year (despite 79.9 per cent of them having bank accounts). What explains these low usage patterns despite some years now of higher digital access to bank accounts?
Building for ‘mainstream’ Indian consumers
To understand the factors potentially at play, we must recognise the reality of the majority of Indian consumers.
The 2011 Census revealed that roughly 68 per cent of Indians live in rural areas. India’s Fifth Annual Employment – Unemployment Survey (2015-2016) indicated that the majority of these households could be earning below Rs 10,000 a month, with a large proportion (42 per cent) earning only seasonally. Meanwhile, mobile and internet adoption is rising, but the differences between urban and rural India are stark. Although nearly half of the country’s mobile subscriptions are held by rural Indians, tele-density (the number of subscriptions per 100 people) is 160 in urban areas compared to roughly 57 in rural areas. This means although urban users might have multiple mobile SIM cards, rural users may be sharing their phones.
What does this tell us about the ‘mainstream’ Indian user? That she is likely to be living in a rural area and sharing a mobile phone with many people. This phone is likely to be a feature phone, given that smartphone penetration is still low in the country (unofficial figures indicate roughly 34.5 crore smartphones currently exist). Another reality a rural user wrestles with is patchy ICT (information and communication technology)infrastructure: network downtime, power shortages and even internet shutdowns.
Sadly, our experience of the exclusionary impacts of technological design failures has also grown in the last decade as seen in the cases of Aadhaar authentication failures and de-duplication problems. Any mobile-first digital financial inclusion strategy needs to be aware of this reality and build for it — rather than an imagined future (which remains aspirational) of ubiquitous smartphone ownership, smooth highspeed internet and universally higher incomes.
Addressing realities and building trust
In the Indian fintech landscape, we see relatively fewer entities targeting the mainstream Indian users i.e. lower-income rural consumers and higher-income urban consumers. Given the realities outlined before, the assumption that products and services built for one segment of the population can be used by the rest of the market simply does not hold.
Thankfully, we already know the areas where digital financial service providers must innovate for the mass market in India. For instance, members of many low-income households work in the informal or agricultural sector where they transact in cash. We need to create bridges between their digital and analogue financial lives through Cash-In and Cash-Out (CICO) networks. This could enable a migrant worker, for instance, to easily send money back home across states.
Providers also need to build for the reality of feature phones, vernacular languages, patchy internet access. Some innovative players are using Interactive Voice Response (IVR) systems and interactive messages to support users through a transaction on feature phones. Another core requirement to build trust is an immediate response to complaints and actions to mitigate financial risks. For individuals living on Rs 10,000 or less a month, an unauthorised transaction of a few hundred rupees can be debilitating (even if they are reimbursed after several days).
A long way to go
Developers and designers also need to become aware of well-developed social norms that exist in India around technology. Families often use a single phone, restrict or monitor women’s access to technology, or handover the device to literate acquaintances to complete transactions. In such situations, building on the assumption that each person will own and operate their own device can even be dangerous, for example, when it comes to interpreting the data trails from such a device.
The use and sharing of such data could also have serious implications for users if done inappropriately and without respect for privacy. Many of us would know the story of the American father who found out about his daughter’s pregnancy based on financial transactions at a department store – consider the repercussions for a similarly placed young woman in India today.
Reflecting on the country’s journey of digital financial inclusion, it is clear that India has come a long way in the last 10 years. Technology can help create these products, but ultimately it is their design and deployment that will drive up usage and trust. The design of technology and finance must reflect users’ lived realities to become truly inclusive.
This article is part of a series examining The Future of Data in partnership with Carnegie India leading up to its Global Technology Summit 2019 in Bengaluru from 4-6 December 2019. More details about the summit are available here.
The author is Head, Future of Finance Initiative, Dvara Research. Views are personal.