MAYANK SHARMA AND SHAWN HUNTER |
Digital financial services (DFS) have the potential to be transformative for developing nations, especially among low- to middle-income individuals. Yet, these services, have performed below expectation, as adoption is hindered by technical and behavioural factors. In a previous blog post, we delved into the DFS experiences of people in Bangladesh and Indonesia, highlighting the significant challenges they face. Despite technological advancements, cash transactions are still preferred over digital methods, driven by a lack of trust, confidence, and perceived value in DFS, especially in cash-heavy economies.
We highlighted an important issue: How does the digital divide impact individuals at the bottom of the economic pyramid (BoEP), and what support mechanisms can promote the adoption and effective use of financial technology among the economically disadvantaged?
The specific circumstances of individuals and their communities play a significant role in this process. For instance, take Hina, a small business owner in Munshiganj, Bangladesh. Despite having access to a mobile payment app and understanding the benefits of DFS, Hina chooses to conduct her transactions at her local bank, which consumes valuable time and energy that could be better utilised for family or business purposes. Hina’s reluctance to independently use DFS despite her active engagement in other smartphone activities such as social media and gaming underscores broader issues of limited financial literacy, perceived complexity, and distrust.
In 2023, a survey of 2,000 respondents from low-income households in Bangladesh and Indonesia revealed the growing popularity of digital payment platforms like bKash, Rocket, Nagad, Gopay, OVO, and ShopeePay. These platforms offer services such as savings, loans, bill payments, and money transfers, catering to those without access to traditional banking. The survey showed that while digital banking is significantly used in Indonesia (55 per cent of households), it is not as prevalent in Bangladesh (17 per cent).
Key findings
According to the survey, there are noticeable differences in the levels of trust, confidence, and willingness to use digital payment methods, with a higher perception of risks in Bangladesh. In Bangladesh, over 33 per cent of survey participants expressed concerns about fraud and financial losses with digital banking services, compared to just 12 per cent in Indonesia. Most respondents in Bangladesh (86 per cent) indicated a preference for using cash when shopping and (73 per cent) when sending money to family, citing convenience as the primary factor driving their choice. Conversely, these percentages were lower in Indonesia, at 49 per cent and 46 per cent respectively.
Research suggests that inefficiencies in digital payment systems contribute to this issue. They propose that user-friendly designs, simple interfaces, and comprehensive onboarding processes could increase DFS adoption. Our survey data clearly shows that over 90 per cent of respondents in Bangladesh frequently use social media apps and YouTube. However, only 14.5 per cent of males and 15.3 per cent of females use mobile banking apps, and merely 11 per cent of males and 6 per cent of females frequently use mobile payment apps. This signals the need to design digital financial services (DFS) to be as user-friendly as social media apps in order to increase its adoption.
In Indonesia, the situation is slightly different. There is a high prevalence of social media and YouTube usage, with 79 per cent of males and 80 per cent of females engaged, alongside a strong embrace of mobile banking and e-commerce apps. About 55 per cent of Indonesians utilise digital banking services, indicative of a higher level of trust and confidence in digital financial transactions. This increased adoption is attributed to superior customer facilitation and support mechanisms as well as higher income. The structured support effectively addresses concerns and fosters trust in DFS, which is not as prevalent in Bangladesh.
Our regression analysis of survey data from Bangladesh shows that the presence of local agents significantly boosts the probability of individuals downloading and using DFS apps (p<0.01). Agents offer crucial handholding and personalised guidance, which is especially important for users with limited technological proficiency. This discovery emphasises the significance of deploying agents in rural areas to promote the adoption of DFS.
Given these insights, Bangladesh is an ideal choice for our randomised control trial (RCT) and intervention. The lower baseline of digital payment adoption, coupled with lower confidence and trust in DFS, offers fertile ground for studying the impact of targeted interventions.
Next step
Identifying best practices for DFS adoption and addressing the factors hindering its acceptance among non-users and low-frequency users is crucial. In response, the Griffith Asia Institute, in partnership with the Asian Development Bank Institute (ADBI), MSC (MicroSave Consulting), and with funding support from the Citi Foundation, are conducting an RCT in the Munshiganj district of Bangladesh with 230 participants from two upazilas. The experimental design has established treatment and control groups with similar observable characteristics, enabling reliable evaluation of the program’s impact by comparing outcomes between these groups. An endline survey, along with periodic Technology Acceptance Model (TAM) surveys, will collect data on the factors affecting individuals’ decisions to adopt and use DFS. Additionally, a Diary data collection tool will be used to capture data on changes in participants’ financial behaviours, decision-making processes, and challenges over the one-year period of the survey.
The interventions for the treatment group are aimed to increase their adoption and usage of DFS relative to the control group. The interventions have two main components:
- Personalised discussion and handholding: Offering hands-on learning experiences from trustworthy sources to establish credibility.
- Establishing trust in and capability of using digital financial services: Providing practical guidance from credible experts to enhance users’ confidence and knowledge levels, thereby increasing the adoption and learning rates of DFS.
Our main objective is to provide in-depth information that can be used to develop effective policies. These insights are designed to be used by policymakers and other stakeholders to encourage and strengthen the adoption of digital financial services. Ultimately, our aim is to improve financial inclusion and empower individuals, making sure that more people have access to and can benefit from financial services.
Mayank Sharma, MicroSave Consulting (MSC), New Delhi, India and Shawn Hunter, Griffith Asia Institute, Griffith University, Australia.
