Increasing financial and digital literacy alone will not be enough. Some things are better addressed through regulation. If there are things that are clearly negative for the consumers, then they don't need to exist
Finance is the glue that holds all the pieces of our life together. It enables money to be in the right place at the right time for the right situation. The ideal financial societies are those which provide safe and convenient ways of managing these simple monetary affairs. The global revolution in mobile communications is creating opportunities to connect poor households to affordable and reliable financial tools through mobile phones, and other digital interfaces.
India is currently in the midst of a large effort to modernise its financial services and move individuals into electronic financial space. The year 2017 is an important milestone and will mark the epochal transition from a cash economy to a less cash and a digital economy.
The Aadhaar innovation is India’s singular contribution to accelerating development in the social sector through biometric technology. lauding it in its World Development Report for 2016, the World Bank said, “A digital identification system such as India’s Aadhaar, by overcoming complex information problems, helps willing Governments promote the inclusion of disadvantaged groups.”
However, there are several challenges peculiar to India that may constrain a full-scale digital transition in the foreseeable future. On the surface, this transition may not appear to be profoundly deep. But as it pans and plays out, the tectonic shift will have much wider implications and the policy executioners will have to contend with a diversity of exponential societal changes. The race to go digital cannot be turned into a marathon sprint. India culturally believes in cash and a paradigm shift in thinking will need time and resources. It will actually involve a migration to new social and cultural patterns and habits. In a way, it is more of a cultural-economic revolution.
There are marked demographic and class issues which are built into India’s cashless transition. The tech-class has poor exposure to critical social theory and will have to get a better grasp of the impact on the ground. India has 438 languages, according to The Economist, with each having multiple dialects and different scripts.
The new revolution will have better chances of success if it is driven less by financial punditry and more by empathetic governance. People take to new technologies when they see clear benefits, have greater confidence in the markets and services, find it convenient and can afford it. The painful reality is that providers too often focus on short-term incentives at the expense of long-term consumer trust and loyalty.
Migrating from a cash economy to a digital economy will demand a recast of the entire mindset for the consumers. In fact, the last mile of the digital highway is not infrastructure but the skills of the users. Equally critical is the smooth functioning of the last mile touch point. Making gadgets available will not help unless we bring about a change in the overall outlook of people. It will require thinking very hard about the motivators that will pull the consumers into this new space. The issue is a lot more nuanced than what we are sensing today.
Nuances change from culture to culture and consumer segment to consumer segment. The consumers will come into the digital platform and embrace the new opportunities believing that, if they change their behavior and exert the effort to get into the new world, then certain specific pains will disappear. We have thus to address real pains, not just offer benefits. “You have to look really hard and ask, ‘What problems are being solvedIJ’” says Nick Hughes, who shepherded the team that turned M-PESA into a revolutionary financial tool. “Unless problems aren’t being solved, it becomes a bit of hype.”
Increasing financial and digital literacy alone will not be enough. Some things are better addressed through regulation. If there are things that are clearly negative for consumers, then they don’t need to exist. But changing the financial framework is also not enough. Consumers will have to walk that extra mile if they want to reap the harvest of these new financial tools.
Building inclusive digital economies requires the collective action of Governments, industry, financiers, and civil society. Before speeding ahead, we need to build the infrastructure, align the policies, and create the tools that will enable the poor to comfortably board the digital train.
When we design solutions that recognise all as equal partners, we have a real chance of making it to the goalpost. Each society is at different stages of the digital financial inclusion and the necessary solutions and interventions must be appropriate for the cultural and economic context.
By respecting the cultural outlook of the people and embracing their concerns we enlist their support, and that is what paves the way for lasting and sustainable success.
(The writer is the author of Village Diary of a Heretic Banker. He has spent more than three decades in the development sector)