Providing a human interface at crucial touch points such consent, disclosure, and grievance redressal will allow for trust in fintech to rise, driving financial inclusion
End-to-end digitisation of value chains and the use of non-financial, personal-data distinguish fintech from traditional finance. Backed by personal data, fintech can potentially overcome economic frictions such as information asymmetry and leverage economic forces such as economies of scale, scope, and network effects. Put simply, fintech can offer formal financial services to those who have been invisible to formal finance, at lesser costs and with better product fit.
On the supply side, there exists deep, digital infrastructure in the form of the Indiastack, the Central KYC Record Registry, Information Utilities etc., enabling modularisation of finance and allowing providers to innovate. Both commercial capital and the stock market appear to be in service of fintech. The regulators are supporting fintech by promoting a less-cash society, regulatory sandboxes and creating entities to enable data flow within the financial sector.
On the demand side, the volume of UPI-enabled payments is rising secularly. The insurance sector is experimenting with the use of IoT to customise premium for health and life insurance. Alternative credit is transforming borrowing habits and disbursing small ticket loans, a feat regarded unviable until recently. Reports suggest that the average size of personal loan has reduced from INR 2.4 lakh in 2017 to INR 1.5 lakh in 2021. More than a fifth of these loans are below INR 10,000. About a third of fintech users are new to credit. Thus, fintech enables a wider range of ticket sizes and serves a greater number of unserved consumers, meeting them where they are. This bodes well for financial inclusion.
The regulators are supporting fintech by promoting a less-cash society, regulatory sandboxes and creating entities to enable data flow within the financial sector.
It seems that we have cracked the technology, however, we have yet to crack the sociology of serving the underserved/excluded consumer:
The last mile is not a destination, it is a context
Amidst growing access to smartphones, internet subscription, and time spent online, it is important to not lose sight of the context of the lives of the underserved. There are reasons to believe that consumers from structurally excluded and underserved segments, such as women and oppressed castes, may not benefit from fintech equally. Reports suggest that 55 percent of women do not actively use their PMJDY bank account. According to the All India Debt and Investment Survey 2019, fewer women than men have access to e-wallets and credit and debit cards. Dvara Research’s upcoming survey of ~2700 low income individuals indicates that 34 percent women own smartphones as opposed to 55 percent men. Even when women own smartphones, they use fewer features, make fewer calls and prefer using the phone within the confines of their homes. Women also have a heightened fear of harassment when using social media. Similar patterns are also observed among users from the oppressed castes. Given these usage patterns, the digital footprint generated by these underserved segments will differ from the digitally savvy both in kind and volume. It is unclear to what extent algorithms that are built for digital savvy users and feed on data exhumes generated by unfettered use of smartphones will benefit this user group and bring them into the fold of formal finance.
Dvara Research’s upcoming survey of ~2700 low income individuals indicates that 34 percent women own smartphones as opposed to 55 percent men.
Supplement, not substitute human touchpoints
Mis-sale of financial services is a well recognised consumer protection risk. The risk of mis-sale rises in digital finance when disclosure forms are digitised, served on small screens and without human intermediation. It impedes consumers’ ability to fully understand financial products and make informed decisions. Further, digital interfaces also give rise to new forms of mis-sale of financial services. When offering digital financial services, tweaking the choice architecture of the screen to lead the consumer to a sub-optimal financial decision, a feature called dark patterns is both feasible and prevalent. These features can coerce users to provide more data than they would prefer, buy financial products without actively understanding what they are signing up for, and make sub-optimal financial decisions. These factors warrant the revision of conduct guidelines in the context of digital financial service providers.
Literature shows that users feel ill-equipped to navigate the digital ecosystem and find it hard to trust it given their unfamiliarity. Failures in digital finance can dissuade users from formal finance altogether. Deploying human touchpoints at milestones such as disclosure, consent and grievance redressal could have an outsize impact on uptake and consumer protection.
When offering digital financial services, tweaking the choice architecture of the screen to lead the consumer to a sub-optimal financial decision, a feature called dark patterns is both feasible and prevalent.
Not all personal data is fair game
The evidence on users’ privacy preferences is challenging the notion that all data is fair game. Dvara Research’s upcoming work shows that users would not want to share information such as religion, caste, amount of gold and jewelry held with financial service providers, even for a benefit. Another experiment found low-income individuals willing to pay a premium for privacy-protecting financial services.
Build for users’ trust
Active trust presupposes a decision, namely exposing oneself to a risk toward the counterpart, in the expectation that the counterpart will not profit off of the situation. Consumers at the last mile have unequivocally expressed the need for a guarantee against harm when parting with their personal data and using digital interfaces. Fintech’s access to granular data empowers it to provide financially and socially relevant products to consumers and earn their trust. By melding users’ social context with the potential of technology it can positively impact their financial well-being, distinguish itself from the infamous caveat emptor approach of traditional finance and become truly inclusive.