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DIGITAL FINANCIALINCLUSIONTheprocess of providing and ensuring access to appropriate and formal financialproducts and services to the excluded and undeserved population of the society suchas weaker sections and low income groups at an affordable cost in a fair andtransparent manner by mainstream institutional players.

through digital meansis called as digital financial inclusion. The goal of financial services made available via digital meansis to contribute to the reduction in poverty and deliver on the recognizedbenefits of financial inclusion in developing countries. Financial inclusionmeans the sustainable provision of affordable financial services that bring thepoor into the formal economy. An inclusive system includes a range of financialservices that provide opportunities for accessing and moving funds, growingcapital, and reducing risk. Such services may be provided by banks and othertraditional financial services organizations, or by non-bank providers.PROVIDERS(i)                a full-service bank offering a basic transactionalaccount for payments, transfers, and value storage via mobile device or paymentcard plus point-of-sale (POS) terminal(ii)             a limited-service niche bank offering suchan account via mobile device or payment card plus POS terminal(iii)           a mobile network operator (MNO) e-moneyissuer(iv)            a nonbank non-MNO e-money issuerKEY COMPONENTS OF ADIGITAL FINANCIAL INCLUSION MODELAllthe four models function via three components(i)     adigital transactional platform,(ii)  anagent network(iii)                       customer’s access device.

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Withthese components in place, payments and transfers, as well as credit, savings,insurance, and even securities, can be offered digitally to excluded andunderserved customers.(i)    Digitaltransactional platformA digital transactionalplatform enables a customer to make or receive payments and transfers and tostore value electronically through device such as mobile phones that transmitsand receives transaction data and connects—directly or through the use of adigital communication channel—to a bank or nonbank permitted to storeelectronic value. Any Innovative digital financial service will typicallyinvolve at least one bank and one nonbank in both the electronic storage andmanagement of data and the holding of customers’ funds.

Two main factors thatplays a crucial role in protecting customer’s funds a)      Participationof the holder in a deposit insurance system.b)      Specifictype of account in which the insured funds are held.Coverage limits may applyto the account that pools multiple customers’ funds as a whole or to customers’individual balances. Even if the customers’ funds are insured, if they arepooled and a third party (such as an MNO) is responsible for storing andmanaging records of customers’ account balances, then there are certain risksrelated to real-time accuracy and reconcilability of the records of the failingholder of funds with those of the entity managing the accounts.(ii)  Retail agentRetail agents that isarmed with a digital device connected to a communications infrastructure helpsin transmitting and receiving transaction details will enable customers toconvert their cash into an electronically stored value and to transform storedvalue back into cash. Depending on applicable regulation and the arrangementwith the principal financial institution, agents may also perform otherfunctions.

(iii)                        Customer’s access deviceThe device used can bedigital, such as a mobile phone that helps in transmitting data and informationor an instrument, such as a payment card that connects to a digital device(e.g., POS terminal).

 RISKS Digitalfinancial inclusion also involves some risks for the samevulnerable financially excluded and underserved customers that benefit themfrom the opportunities. Access to digital financial services do not alwaysbenefit the society without involving risks to customers as well as to theproviders. Digital financial inclusion introduces participants in the newmarket and allocates them their roles and risks (both new and well known) indifferent ways compared to the traditional approaches to retail financialservice delivery. The three key components of digital financial inclusionmodels correspond to the three main triggers of new or shifting risks. They are(i) the newparties and arrangements involved in the management and storage of accountdata   and the holding of customer funds. (ii) the digital technology.(iii)the use of agents as the principal customer interface. Thesethree components, as well as the typical profile of the financially excluded orunderserved customers in question, introduce various risks such as operationalrisks, consumer-related risks, and risks related to financial crime.

1.     NoveltyrisksLackof familiarity with the products, services, and providers and their resultingvulnerability to exploitation and abuse by the customers leads to noveltyrisks.2.     Agent-relatedrisksAgents and agent networksintroduce new operational, financial crime and consumer risks, many of whichare due to the physical distance between agents and the provider or the agentnetwork manager and the resulting challenges to effective training and oversight.Operational risks include fraud, agent error, poor cash management by theagent, and poor data handling. In addition to the financial crime risks offraud and theft (including data theft), agents may fail to comply with antimonylaundering and combatting the financing of terrorism (AML/CFT) rules regardingcustomer due diligence, handling records, and reporting suspicioustransactions. Agents may also take actions that reduces transparency (e.

g., onpricing, terms, and recourse), engage in abusive treatment of customers whichincludes overcharging or failing to handle sensitive data of the customersconfidentially. Agent-related risks dueto the new providers offering services are not subject to the consumerprotection provisions that apply to banks and other traditional financialinstitutions.

 3.     Digitaltechnology-related risksThepoor quality and unreliability of the digital technology causes risks likedisrupted service and lost data which includes payment instructions (e.g., dueto dropped messages), as well as the risk of a privacy or security breachresulting from digital transmission and storage of data.

These privacy andsecurity risks are of a great concern as large number of agents handlecustomers’ transactional and other data and the profile of previously excludedand underserved customers.ADVANTAGES1.     Helps in easy access to formal financial services such as payments, transfers,savings, credit, insurance, securities, etc. Migration to account-basedservices typically expands over time as customers need to gain familiarity andbuild trust in digital transactional platform. Government-to-person payments,such as conditional cash transfers, that can enable digital stored-valueaccounts provides a path for the financially excluded into the financialsystem.2.

     Bothprovider as well as customers have to incur only a small amount of coststhrough this digital transactional platform. It also allows customers to transact locally in irregular, tiny amounts,helping them to manage their characteristically uneven income and expenses.3.     If the customer has any additional financialservices needs and financial circumstances, it is made possible by the payment, transfer, andvalue storage services embedded in the digital transaction platform itself, andby the data generated within it.4.

     Itaids in promoting the economicempowerment by enabling asset accumulation and, for women in particular, increasing theireconomic participation.5.     It reduces the risks of loss, theft, and other financial crimes posed bycash-based transactions, as well as the reduced costs associated with transacting in cash and throughinformal providers.ISSUES ON POLICY MAKINGHORIZON1.      Product-and model-specific issues in digital financial inclusion.In some countries, creditand insurance products are also offered in addition to payments, transfers, andvalue storage, to previously excluded and underserved customers via digitaltransactional platforms. Such products and the complex relationships among thebanks and nonbanks combining to offer them introduce both operational risks tothe provider and customer risks. When the products are bundle such as lifeinsurance packaged with a prepaid mobile plan, both regulation and supervisionbecomes more complicated which will require coordination among regulators 2.

      Consumerprotection issues.New financial servicesand products offered digitally to excluded and underserved customers posechallenge to the traditional thinking about disclosure and recourse and raiseother consumer protection issues. Some policy makers are leaning towardsproduct standards and guidelines to complement digital innovations indisclosure and recourse. If the consumer suffers a loss, liability can beunclear due to the multiple parties involved in service delivery: both agentsand third-party providers of communications and technology services.3.

     Increased need for cross-sectoralcoordination and communication. Digital financialinclusion requires significant cross-sectoral coordination and communicationamong regulators and supervisors. This is true both at the country-level (e.g.,credit, insurance, and investments offered via digital transactional platforms requirethe attention of multiple financial regulators and supervisors, and may callfor involvement of the telecommunications regulator as well) and at the globallevel of SSBs and other international bodies, such as the International TelecommunicationsUnion.

4.      Customeridentity—new opportunities and challenges in the digital context.Financial identity forpoor people carries the potential for both inclusion and AML/CFT gains, butalso raises privacy and fraud risks when services are delivered digitally. Meaningfuland manageable privacy principles which will involve work at both the nationaland global level offers the prospect of win-win solutions. DIGITAL JAGRITILack of awareness of digitalfinancial literacy, especially among the rural population is a major challengein the country, more so in light of the Government’s recent demonetization andplans to make India a cashless economy.

There is an urgent need to createawareness among the citizens, especially in rural and semi-urban areasregarding basics of digital finance services.The project titled “Digital Finance for Rural India: Creating Awarenessand Access through CSC’s aims to enable the CSCs to become DigitalFinancial hubs, by hosting awareness sessions on government policies anddigital finance options available for rural citizens as well as enablingvarious mechanisms of digital financial services such as such as IMPS, UPI,Bank PoS machines etc. Thisproject intends to target around 1 crore (10) Million rural citizens acrossIndia such as Farmer, Women, Marginalised Section, Hawkers, Small Traders andArtisans and would reach out to all 2, 50,000 Gram Panchayats across thecountry through 200,000 CSCs which are operational across rural and semi urbanlocations. The overall objective of theproject is:·        Createawareness in rural India through workshops and awareness drives.

·        Toenable the CSC’s to become Digital Financial Education Hubs, by hostingawareness sessions focused in their community and Panchayat.·        Tosensitize and enable merchants at Panchayat level to use Electronic PaymentSystem.·        Toenable citizens to access and use electronic payment system (EPS) such as IMPS,UPI, Bank PoS machines etc.

·        Toinform rural citizens about government policies and about digital financialoptions available to themDIGITAL FINANCIAL INCLUSION AND UNSUSTAINABLE DEVELOPMENT GOALSCountries can achievetheir 2030 Sustainable Development Goals by adopting digital payments andfinancial services. Digital financialinclusion directly supports ten of the 17 UN Sustainable Development Goals  GOAL IMPACT FROM DIGITAL FINANCIAL INCLUSION No poverty ·         Poor people and small businesses are able to invest in their future ·         More government aid reaches the poor as leakage is reduced Zero hunger ·         Farmers are better able to invest during planting seasons and smooth consumption between harvests ·         More food aid reaches the poor as leakage is reduced Good health and well-being ·         Increased government health spending as leakage is reduced ·         Financial inclusion for women can increase spending on health care Quality education ·         Digital payments to teachers reduce leakage and absenteeism ·         Micro tuition payments increase affordability ·         Financial inclusion for women can increase spending on education Gender equality ·         Digital reduces women’s physical barriers to gaining an account ·         Women have more control over their finances and their businesses Affordable and clean energy ·         Mobile pay-as-you-go schemes create access to clean energy ·         Better targeted subsidies increase use of renewable energy Decent work and economic growth ·         Greater pool of savings increases lending capacity ·         Data history of poor and small businesses reduces lending risks Industry, innovation and infrastructure ·         Digital finance enables new business models and products ·         More public and private capacity to invest in infrastructure Reduced inequalities ·         Financial inclusion gives greatest benefit to very poor people ·         More government aid available as fraud and theft are reduced Peace, justice and strong communities ·         Digital records of financial transactions increase transparency and enable better monitoring of corruption and trafficking DIGITAL FINANCIAL LITERACYDigitalFinancial Literacy is the knowledge and skills for effectively using digitaldevices for financial transactions. It is simply the ability to have arelationship with a bank/Financial Institution to keep the money safe, use facilitiesto transact using own money in the most secure way and to be aware of one’s ownfinancial identity IMPORTANCE OF DIGITAL FINANCIAL LITERACY AsIndia focuses on the biggest digital transformation in recent history, UnionBudget 2017 had a section on PromotingDigital in the budget speech apart from PolicyProvisions in the Union Budget to impact thesechanges.

Keeping this in mind, it is necessary to empower every citizen withthe information and knowledge necessary to join the revolution and help Indiaprogress along the path of a Less-cash economy.TENETS OF DIGITAL FINANCIAL LITERACY(A) Inform citizens about government policies, initiativesand digital financial options available for themItis essential to ensure that every citizen regardless of financial status,current literacy levels and geographical distance from the main cities isempowered with all necessary information. India is a diverse country withlanguages, cultures changing every 100 kilometers, to standardize a method orapproach to imparting a program with mass impact is next to impossible. Thus astandard template can be created which can be customized to meet the needs ofvarious target groups. A decentralized approach lead locally with theassistance of local communities is the best and most efficient way. Thegovernment should make policies but local administration should be take theresponsibility of measuring success along with periodic program tracking andreviewing success parameters.

(B) Building Awareness of Digital Payment MethodsDigitalFinancial Literacy is the (convenient) marriage of all three paradigms:Digital, Finances and Literacy. An Individual and family may be at variousdifferent stages of each or all put together. The government providesvolunteers for building such awareness among people.

For example, for a ruralfarmer who doesn’t even own a bank account, a USSD method of payment on mobileis not suitable. However, helping the farmer open a bank account and learn tounderstand how to put cash and withdraw from the bank account can be the firststep followed by how to use a bank card and transacting on mobile. (C) Impartingknowledge of Safety and Security of Digital PaymentsIna digital world, safety and security is of importance to everyone. Thus theknowledge of safety and security need to be imparted in the minds of peopleusing the digital payments.FACILITATORS OF DIGITAL FINANCIAL LITERACY(A) Digital Payments Infrastructure to allow digitaltransactions: Merchants and Consumers”Thegoal of education is not to increase the amount of knowledge but to create thepossibilities for a child to invent and discover, to create men who are capableof doing new things. “-         JeanPiagetCreatingpossibilities and avenues for customers (consumers using the service ormerchants providing the service) is key to ensuring the education drive bearsfruit and allows the citizens of a Digital Economy to transact digitally aseffortlessly and without barriers. Consumer choice is paramount and shoulddrive what merchants provide for payments as well(B) Assisting less-cash behavior shiftSomeamount of hand holding will be needed through this transition period.

Itsfoolhardy to presume a onetime effort can result in long lasting change. Usingpublic service communication channels like National TV, Radio, Print andDigital campaigns will ensure the message is delivered to recipients andreiterated many times over. consumer issues and pain points with activelistening and fast action are other necessary actions.(C) Incentivizing less-cash behaviorThemost effective method in introducing trial and creating a habit is incentives,carefully timed to an individual’s progress in usage of a product with periodicinterventions to ensure instant gratification and drive habit change. Monetaryincentives such lotteries, cash backs and prizes will certainly motivateindividuals to first try and later stick to paying digitally.REFERENCES—key-enabler-for-a-less-cash-india     

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