As Digital India takes shape across the country, the impact the mission will have on financial inclusion will depend on how low income customers adopt the new transaction modes. Last month, Akodara, a small village in Gujarat, was in the news for becoming India’s first village to go truly digital. A recent article in the Hindu (Samrat Chakrabarti, July 14, 2015) details the new cash-less payments mode that has set in at the small kirana shop, integration of mandi payments within the digital fold etc. An initiative of ICICI Bank in partnership with the Government of Gujarat, this village of 200 households has, over the past six months, been transformed into a model digital village. While the initiative has translated the vision of digital financial inclusion on the ground, there are many challenges to overcome if this model is to be extended across India. Apart from the basic infrastructure for the digital network, financial literacy and consumer awareness need to be taken up on a war footing.
For the mission to succeed, as the government and industry work towards setting up the enabling infrastructure, financial service providers should move away from treating the digital platform as just another channel. Financial literacy should move away from merely educating the poor and unbanked on using existing products and services. Rather, as Ignacio Mas points out in a a blog post for CGAP, “digital services are able to replicate what people already do informally, in everyday life, much more closely than standard bank products delivered over brick-and-mortar channels can ever achieve.” The key to change lies in first understanding the current behaviour and financial lives of the poor, and then using new digital tools to replicate these existing behaviours through the new medium. In the paper Money Resolutions, A Sketchbook, Ignacio Mas characterizes the common financial decision-making practices of poor people; with precarious, unpredictable incomes, they cannot afford to live by hard-and-fast rules set by formal financial services. Fortunately, the digital financial service environment allows for a unique engagement that empowers customers and in his paper, Money Resolutions, Digital Simulations, Mas shows how the new tools can be used to (i) engage with customers in two-way communication more frequently and possibly more meaningfully; (ii) offer higher levels of service targeting and personalization and faster product development; and (iii) convey a greater sense of service availability and convenience. It is only once people are comfortable using the new tools for their old ways that service providers should move to using the new tools to introduce new products and services. The process will definitely be slow, but must be managed such that the poor and unbanked are gently nudged over time into greater usage of regular financial products and services digitally.