In the following post, CFI Fellows Shreya Chatterjee and Misha Sharma of IFMR Lead offer an overview of their research project for CFI.

thumb_1b4e5caeaab54bb5bbbbf9384089e357-1Background and Research Questions

India is at the cusp of a digital financial revolution. From payment banks to ‘India Stack’ to demonetization, policy makers and financial service providers are energetically pursuing digitization of financial services.

Yet, for certain segments in lower income household groups, going digital presents a series of challenges, given that:

  • Only 17 percent of women and 27 percent of men use smartphones in India.
  • Only 9 percent of those with lower education levels are online, compared with 38 percent of those with higher education levels, per a Pew Research Center survey.
  • Forty-five percent of urban Indians and 51 percent of rural Indians have lower levels of digital literacy, according to the Financial Inclusion Insights Survey 2015, which defines digital literacy in terms of knowledge, skills, and behaviors used with a broad range of digital devices such as smartphones and laptops.

In this context, for financial service providers presenting entirely digital products like mobile wallets, online loans and mobile banking applications, it is an arduous task to usher users from cash-based to digital modes. To this end, last mile agents or human touch points can be hugely beneficial. Here are a few ways:

  • With low product take up, over-the-counter (OTC) transactions are possibly more effective in introducing consumers to digital products and providing handholding services through the initial installation of mobile applications or opening of accounts
  • Overcoming the technical limitations of using digital products, such as convenient, timely, and human troubleshooting
  • Building trust and confidence among first time digital money users
  • Transitioning customers into higher order digital financial products after initial take up

However, there are certain pitfalls associated with over-deploying human touch in the form of OTC or doorstep agents. There is the potential for overdependence, which has been known to reduce customer stickiness or retention. Such overdependence can also diminish the value of replacing cash with digital. In Bangladesh and Pakistan, 73 percent and 86 percent, respectively, of mobile money OTC users are unregistered. These individuals don’t register for an account, and agents help them use the few services available to them – meaning there is a limited customer financial footprint and the customer has less incentive to register for and use certain digital products. Additionally, over-deploying human touch in the form of agent networks is expensive , and thereby possibly not sustainable.

Given these pros and cons of deploying human touch in digital financial services, it is important for service providers to tread cautiously and arrive at an optimal mix of human-centric and technology-enabled digital financial solutions.

This study, initiated as part of the CFI Fellows Program, will examine the various human touch points available in the context of digital financial inclusion in India by looking at two broad questions:

  • What are the different human touch points of digital financial services available in India for the poor and how are these leveraged by consumers and financial service providers?
  • What are the key challenges and opportunities for financial service providers in building effective human touch that is both sustainable and successful in transitioning the lower end customers from manual to digital modes of transaction?

Research Design and Objectives

This study will thoroughly explore the supply context within which the digital finance delivery mechanisms in India operate.

  • The study will conduct a top-down assessment of the supply side, through interviews and field surveys with top management officials at financial entities, branch managers who deploy last mile agents, and last mile agents themselves.
  • To capture a representative sample, the study will examine a range of financial service providers of savings, credit, and payments products to primarily lower income households as well as the diverse channels of last mile agents they use (see figure).
  • The study design also aims to account for the diversity of factors affecting financial service providers’ decision-making. For example, while in microfinance institutions in India, typically, all loan disbursals and repayments are in cash, payment banks are mandated to function on technology-powered platforms. This variation in the level of technology is bound to have implications for the approaches taken towards last mile agents and human touch points.

figure-1

What can we expect?

Through this thorough investigation the study will capture: critical insights into how financial service providers design their last mile strategies; experiences of ground agents in bringing first time consumers into the digital fold; and the supply side perspective of how service providers are motivating a digitally lagging consumer base to use digital financial products and to transition to using these products independently.

Another CFI Fellows research project, by Alexis Beggs Olsen, will examine some of the same human touch questions from the customer perspective. For more on the CFI Fellows Program, click here.

Image credit: Accion

Have you read?

Introducing Our 2017 CFI Fellows

What Does Responsible Online and Digital Credit Look Like?

2016 Global Microscope Highlights Gains in Financial Inclusion, Led by India; Digitization on the Rise