How Digital Wallets Will Bring 1.3 Billion People into the Financial Mainstream
By Dan Kadlec
January 17, 2018
Digital wallets hold great promise for societies trying to bring underserved populations into the financial mainstream. Nowhere is the potential greater than in India, home to 1.3 billion people and where the government actively promotes a cashless economy.
The push began five years ago as part of the nation’s first formal national strategy for financial education. Among other things, that strategy called for coordination among the nation’s highest regulatory authorities and financial industry leaders. It also stressed the value of mobile payments and set sights on persuading India’s underprivileged masses to embrace the technology.
Digital accounts could help the nation’s millions of micro businesses more easily accept payments and gain access to more customers. These accounts also provide better records, which can help micro businesses and individuals secure credit. Electronic accounts may help a family save more by keeping cash out of the hands of children or a spendthrift spouse.
To bolster the push, two years ago Prime Minister Narendra Modi launched a Digital India campaign to connect rural areas. India’s efforts have produced some success: 280 million new bank accounts were opened over just a few years. In one record-setting week, 18 million new accounts were opened through a simple form and using India’s unique biometric ID system. Life and health insurance and overdraft protection add to the appeal of these accounts. So too low transaction costs.
Still, the program has not been as successful as had been hoped. Many of the new accounts now lie dormant-and a cashless, more inclusive economy remains elusive. Even now only a third of India’s residents have access to the internet. It is important to make the internet accessible across the board as it can connect people and provide opportunities to those who are willing. In the U.S. residents are able to change up their earthlink plans or any other internet plans they have, which can give them the best connection for their business and/or personal needs. This should apply throughout the world, so working on this is essential as time goes on and technology is more accepted.
Many citizens of India continue to favor cash, fearing…
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…the move to digital payments will create opportunities for thieves and that digital accounts may be mostly about the government having greater able to collect taxes. Of those with Internet access, just 14% make mobile payments at least once a week.
Trying to turn the tide, the government has sponsored various Internet campaigns including videos, short films and interactive quizzes to raise awareness about the advantages of mobile payments. Some have argued that Bollywood should play a larger role, creating film scenes where upper middle-class characters embrace digital payments and make it cool.
Certainly, the need is great. Like many developing countries, India lags badly in financial literacy. Three quarters of Indian adults do not understand key financial concepts, according to a global survey conducted by Standard & Poor’s Financial Services. That is a worse-than-average reading on par with nations like Brazil, Russia, rural China and South Africa. In India, only 39% of adults with a formal loan are financially literate. Nearly half do not have a bank account, and 80% of those without a bank account have poor financial skills.
Financial inclusion is an important part of the global financial literacy movement. Cashless payment and savings systems may not directly teach things like saving, investing and credit. But they offer valuable exposure even as they give economically disadvantaged people greater access to the financial mainstream, which should lead to better outcomes.