UptakeofDigitalFinancialServices:BehaviorChangeaChallengeIrisBraunandShrutiKorada,IFMRLEAD1BarrierstoUseofDigitalFinancialServicesNearlyhalfofallIndianshaveaccesstodigitalfinancialservicesthroughtheirbankaccording to the latest Financial Inclusion Insights (FII) survey in 2015. Theseservices include ATM/debit or credit cards, mobile or internet access, or digitalmoneytransferservicesandareaccessibleto44%oftheruralpopulation,43%ofthepopulationbelowthepovertyline(BPL),and42%ofallwomen.2However, many users despite having bank accounts are hesitant to use suchservices. According to a 2015 CGAP report, consumers perceive several risks tousing the services that hinder their participation. Foremost among them arenetwork/service downtime that disables transactions, agents not having enoughmoneytotransact,confusinguserinterfaces,fraudandhiddenfees,andthelackof data privacy. A study on Digital Payments by Visa also points to low digitalliteracy and cultural norms of saving in cash. Supply side barriers persist too. A2016 study shows for example, that agents have little interest, or knowledge ofcreditcards,whiletherearemanysecurityconcernsaswell.(USAID,2016)

UptakeContinuestoGrowThis does not take away frompositive growth forecast-according to a report byGoogleandtheBostonConsultingGroupdigitalpaymentswillmultiplyten-foldby2020,andnon-cashpaymentswillovertakecashpaymentsby2023.

ThePradhanMantriJanDhanYojana(PMJDY) isseeingyear-on-year increases inregistered bank accounts and their usage. One week after the currency banannouncement,PMJDYaccountsnumber25.58 crorewithaggregatedepositsofRs 64,252.15crore.3 Zero-balance accounts have decreased to 23% of the totalaccounts.TheFinanceMinistry’sDirectBenefitTransfer (DBT)program launchedin2013isresponsiblefortheconversiontodigitaltransfersof74schemesfrom17ministries(seeBox1forprominentschemes).

InsightsfromBehavioralResearchResearch on innovative design in digital banking and services has identifiedseveral promising approaches that can increase uptake. A few of these arediscussedbelow.

• Opt-indefault:Inmobilemoneyandmicro-insurancemarkets,a“freemium”meanstogivepeoplethebasicversionofanew,complexproductforfree,expectingthatcustomerswillexperiencethebenefitsandagreetopayforapremium version. While this may work to introduce a product to a newmarket, it is a less cost-effective strategy in developedmarketswhere theproductisfamiliarandthefreeincentiveisnotneeded.

• Pre-commitment: Commitment savings accounts rewardusers for saving aparticular amount regularly or penalize them for not doing so. Thesehavedemonstrated impacts on helping the poor save.4 For example, BETA, acommitmentsavingsprograminLagos,Nigeria,foundthatamaindriverofsuccess is the commitmentof a correspondent (or “BETAFriend”) tobringcustomer service directly to the client, in addition to the client’s desire to

1PaymentsGoingthePlasticWay,EconomicTimes,Nov23,20162http://finclusion.org/uploads/file/reports/InterMedia%20FII%20Wave%203%202015%20India.pdf,pg.55.3TheEconomicTimes,“DepositsinJanDhanaccountsrisetoRs64,250crore.”UpdatedNov25,2016.4InnovationsforPovertyAction,“ReducingBarrierstoSavinginMalawi.”

saveregularly.• Automated pay-as-you-go: Consumer can use

mobile payments to remotely pay for essentialservices likewaterandenergy insmall increments,with providers tracking usage through low-costmicro-controllers embedded in the products. Themodelisalsobeingusedinhealth,education,cabletelevision,andevendigitaltextbookrentals.

• Leveraging social networks: South Africa’s MaanaMobile connects borrowers and investors forinformal peer-to-peer (P2P) lending, cutting outunnecessary middleman fees. Such lending is alsotaking hold in high-income contexts, as with theUnited States’ Lending Club, which has over $4billioninloans.5

• Making saving fun: First National Bank in SouthAfricaoffersprizestoregularsavers,andSaveUpinthe United States uses game-style interface toinducesaving.

The success of behaviourally informed product designalso depends on profitability, overcoming organizationalimpediments,andnavigatingregulatoryenvironments6.A2014 CFI workshop on behavioural insights produced 4keyrecommendationsontheseissues:havea“champion”atthetop,involverepresentativesfrommanydepartmentsearlyon,makethebusinesscaseattheoutsetofanewproject,andplanforscalefromthestart.

TheWayForwardAsthe latestFIIsurveyshows,the largestgap inactivebankaccountuse isbetweenthoseabove(60%)andbelow(37%)thepovertyline,andnotbygenderortheurban/ruraldivide.Innovativedesignwillhavetoaccountfortheneeds(lowticketsizesetc.)andcapabilities(simpleuserinterfaces)oflow-incomepopulationstoincreaseoveralluseofdigitalfinancialservices.Itisimportanttorememberthatuptakeofaproductdoesnotimplyitsuse.Customersneedanecosysteminwhichmostoftheirproductscanbedelivereddigitally.Developingandmarketingproductswithanecosystemapproachcangreatlyincreasetheirlikelihoodofsuccess.Someofthestepsthatcouldbetakentoachievethisare:• Buildingnetworkeffects:Openloopsystemsallowcustomerstousetheiraccountorpaymentsystemacrossvendorsand

typesofconsumption.AsCGAPnotes, theclosed-looptechnologysystemisonereasonwhy16millionG2Paccountsareused only oncemonthly - to collect disbursements from the government.7 The network effects are important for bothuptakeanduse.Byenablingcustomerstousedigitalservicesformultipleservicessuchasmasstransit,easeoftransactionswillincrease,therebyincreasinguptake.

o Akodara-avillageof250householdslocated90kmfromAhmedabadisIndia’sfirstdigitalvillage.AdoptedbyICICIBankin2015thevillagehaswifi,anATM,andalmosttheentirepopulationhasabankaccountandisfinanciallyliterate.Alltransactionsinthevillageincludingmonthlyrentandgroceriesarecashless,completedbymobile,net-banking,ordebitcard.

o SBI is partnering with the government of Madhya Pradesh in efforts to make the state cashless by activating500,000hand-heldpoint-of-sale(PoS)machinesavailableacrosssmalltradersinsmalltownsandruralareas.8

• Bundlingservices:Bundlingservicesisonewaybothcustomersandagentscantakeadvantageofthedigitalchannelsatthelastmile.CGAP/WBhaveworkedwithTelanganaandAndhraPradeshtolaunchone-stopshopsthatprovideallservicesinoneplace(receivepension,checkbankbalance,deposit,applyforhealthinsuranceclaims,paybills,addressgrievancesviaahelplinenumber).9Forexample,payment-delayrelatedgrievanceswillbeaddressedviarealtimemonitoringofpaymentsandtrackinghotspots.

• Promotingfinancialliteracy:CommonServiceCentres(CSCs)undertheMinistryofElectronicandInformationTechnologyhavebeensanctionedtoprovidedigital financial literacy for1croreruralcitizens.CSCsareaccesspointscreatedtohelpruralcitizensavailgovernmentprogramselectronicallyandpromotetheuseofICT.TheprojectisapartofDigitalSakshartaAbhiyan(DISHA)underthegovernment’sDigitalIndiainitiative.10

5InternationalFinanceCorporation,“IntheFastLane:InnovationsinDigitalFinance.”6CenterforFinancialInclusion,“BeyondDesign,BehavioralScienceforthePilotandScaleofProductInnovations.”2014.7CGAP,“DoingDigitalFinanceRight:TheCaseforStrongerMitigationofCustomerRisks.”2015.8http://smartcity.eletsonline.com/sbi-madhya-pradesh-tie-up-to-make-the-state-cashless/9CGAP,“FromCashtoDigitalTransfersinIndia:TheStorySoFar”.February2015.10http://www.business-standard.com/article/pti-stories/cscs-to-offer-digital-financial-literacy-in-rural-india-116113001294_1.html

Abehaviouralapproachaddressesmultiplepainpoints tocreateamoreeffective,human-centered design. Results of an Ideas42 study looking at how to increaseretirementsavingsinMexicobyadaptingbehaviouralresearchtolocalcontext.1