Digital technology plays a pivotal role in developing countries and underprivileged people who live in remote areas would now have the access to digital technology which they would otherwise have not been exposed to. However, some people from developing countries still do face challenges when accessing formal financial services via traditional channels. To counter this, technological developments offer the opportunity to overcome these hurdles and facilitate the access of formal financial services that would be delivered via digital channels to unbanked folk.
Therefore, financial inclusion advocates have expended tremendous efforts into offering access to financial services via digital channels (DFS or Digital Financial Services) for people living in remote areas. It is believed that delivering such services would create greater impact among underprivileged people and make technology more accessible to them. However, a number of DFS continue to experience irregular usage and small uptake. Owing to this, solutions have been identified and more effort is involved into ensuring higher efficiency and applicability to end-users and great emphasis is given to building customer trust in DFS in order to ultimately enhance financial inclusion. This, in turn, will enable a rigid framework that supports innovation, protect end-users and builds trust in the new systems.
Asian Development Bank or ADB as it’s also known, conducted a research on this matter and presented the results from using DFS in order to enhance financial inclusion. The report highlights that up-and-coming pragmatic and subjective evidence strongly supports the idea of using DFS to improve financial inclusion in order to benefit both, the consumer and the economy. The study also reveals a number of challenges that needs to be overcome before DFS is sustainable. These include insecurities regarding the role of interoperability, infrastructure and resource limitations and launching of customer value proposition.
There are a range of solutions and plans in order to address the constraints and various other challenges. These include progressive approaches towards amalgamating behavior research with product design and financial regulatory measures to minimize the regulatory weight and support the continued innovation.
The crux of the matter is that as per the popular belief of market regulators, participants and international development organizations, DFS can indeed be used in order to enhance the financial inclusion in spite of the challenges that have been faced up to date. It’s interesting to note that considerable support has been provided in order to design solutions to counter the challenges. The common principle to enhance the financial consumer protection framework for financial inclusion reasons is that it should offer the same outcome as the effect of augmenting frameworks in order to address a specific risk that arises as a result of using DFS. The outcome of it would be enhanced economic welfare for the unbanked. Consequently, in light of building consumer trust in DFS and protecting the end-users, the report submitted by ADB commends that financial regulators must access how well the financial consumer frameworks provide solutions for mitigating any risks that arise as a result of using DFS.
Furthermore, it is recommended that financial regulators should conduct relevant surveys with digital payment providers in order to gain an understanding of the consumer concerns of using DFS. Through increasing the financial consumer protection frameworks by taking the needs and concerns of the end-users into consideration will allow market participants and regulators to create an effective digital ecosystem that will not only enhance the financial inclusion but also improve the economic welfare of the people in general.
The ADB report wraps up with precise focus on understanding new consumer risks that are likely to arise when using DFS and how the financial consumer protection framework can be augmented. The countries reviewed in the mini-case studies related to this subject highlight a common trend where the financial consumer protection framework is regarded as one facet of the broader national financial inclusion schemes. With more focus being given to financial education, frameworks are being strengthened and the latest research on financial inclusion is being incorporated to reach out to the unbanked in the best way.