Bridging the digital divide by enhancing effective digital finance usage among the poor: An RCT project | Part 2

• by Mayank Sharma and Shawn Hunter
• Jul 30, 2024
• 5 min

Digital financial services (DFS) have been hailed as a game-changer that transforms developing nations, especially the lives of low- and moderate-income individuals. However, disappointingly, these services have performed below expectation, as several technical and behavioral factors hinder their adoption. Read the blog to learn more.

Digital financial services (DFS) have been hailed as a game-changer that transforms developing nations, especially the lives of low- and moderate-income individuals. However, disappointingly, these services have performed below expectation, as several technical and behavioral factors hinder their adoption.

In a previous blog on Griffith Asia Insights, we delved into people’s experiences with DFS in Bangladesh and Indonesia and revealed their significant challenges. Despite technological advancements, people still prefer cash transactions to digital methods. This preference stems from a lack of trust, confidence, and perceived value in DFS, especially in cash-heavy economies.

The blog also highlighted several important issues, such as the impact of the digital divide on individuals at the bottom of the economic pyramid (BoEP) and support mechanisms to promote the adoption and effective use of financial technology among economically disadvantaged people.

The specific circumstances of individuals and their communities play a significant role in the DFS adoption process. For instance, take Hina, a small business owner in Munshiganj, Bangladesh. Although Hina has access to a mobile payment app and understands the benefits of DFS, she chooses to conduct her transactions at her local bank. These transactions consume valuable time and energy that she could use for family or business purposes. Although she actively engages in other activities on her smartphone, such as social media and gaming, she hesitates to use DFS independently. This reluctance underscores broader issues of limited financial literacy, perceived complexity, and distrust.

In 2023, a survey by Griffith Asia Institute and MSC  examined 2,000 respondents from low-income households in Bangladesh and Indonesia. It revealed the growing popularity of digital payment platforms, such as bKash, Rocket, Nagad, GoPay, OVO, and ShopeePay. These platforms offer savings, loans, bill payments, and money transfers. These services cater to those who lack access to traditional banking. The survey showed that while 55% of households use digital banking in Indonesia, it is not as prevalent in Bangladesh, where only 17% use it.

The survey reveals noticeable differences in trust, confidence, and willingness to use digital payment methods, with a higher perception of risks in Bangladesh. More than 33% of the survey participants in Bangladesh expressed concerns about fraud and financial losses with digital banking services, compared to just 12% in Indonesia. A significant majority—86% of respondents in Bangladesh preferred cash payments when shopping, and 73% preferred to send money to their families in cash. They cited convenience as the primary factor behind their choice. Conversely, these percentages were lower in Indonesia, at 49% and 46% respectively.

Research by Dipu and Sultana 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 more than 90% of respondents in Bangladesh use social media apps and YouTube frequently. However, only 14.5% of men and 15.3% of women use mobile banking apps, and merely 11% of men and 6% of women use mobile payment apps frequently. These low numbers signal the need to design DFS in a way that is as user-friendly as social media apps to increase adoption.

The situation is slightly different in Indonesia. Social media and YouTube usage is significantly higher, with 79% of men and 80% of women actively engaged. Additionally, the country has strongly embraced mobile banking and e-commerce apps. About 55% of Indonesians use digital banking services, which indicates a higher level of trust and confidence in digital financial transactions. This increased adoption is due to superior customer facilitation, support mechanisms, and 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 likelihood of individuals to download and use DFS apps, and the results are statistically significant (p<0.01). Agents offer crucial handholding and personalized guidance, which is especially important for users with limited technological proficiency. This discovery emphasizes the significance of agents’ deployment in rural areas to promote DFS adoption.

Given these insights, Bangladesh is ideal for our randomized control trial (RCT) and intervention. The lower baseline of digital payment adoption, coupled with lower confidence and trust in DFS, offers fertile ground to study the impact of targeted interventions.

We must identify best practices for DFS adoption and address the factors that hinder its acceptance among non-users and low-frequency users. In response, the Griffith Asia Institute has been conducting an RCT in Bangladesh’s Munshiganj district with 230 participants from two upazilas. This trial came into being in partnership with the Asian Development Bank Institute (ADBI) and MSC and with funding support from the Citi Foundation.

The experimental design has established treatment and control groups with similar observable characteristics, which enabled reliable evaluation of the program’s impact through a comparison of outcomes between these groups. An endline survey and periodic technology acceptance model (TAM) surveys will collect data on the factors that affect individuals’ decisions to adopt and use DFS. Additionally, we will use a diary-based data collection tool to capture data on changes in participants’ financial behaviors, decision-making processes, and challenges over one year of the survey.

The interventions for the treatment group seek to increase their adoption and usage of DFS relative to the control group. The interventions have two main components:

1. Personalized discussion and handholding: This consists of hands-on learning experiences from trustworthy sources to establish credibility;
2. Establishment of trust in digital financial services and their capability: This consists of the provision of practical guidance from credible experts to enhance users’ confidence and knowledge levels, which will thereby increase the adoption and learning rates of DFS.

The current research intends to rigorously test interventions for digital financial services (DFS) designed to accelerate adoption. It seeks to determine the optimal level of individual engagement to receive technical support, identify the most effective facilitation, and establish the best methods to increase DFS adoption.

We intend to provide in-depth information to develop effective policies as part of this research. The insights from the research study will be designed to be used by policymakers and other stakeholders to encourage and strengthen DFS adoption. Our ultimate goal is to improve financial inclusion and empower individuals so that more people have access to and can benefit from financial services.

The article was first published on the Griffith University website on 25th July 2024.

References:

• Barquin, S., de Gantès, G., Vinayak, H. V., & Shrikhande, D. (2019). Digital banking in Indonesia: Building loyalty and generating growth.McKinsey & Company, February 6.
• Chatterjee, R., & Hunter, S. (2023, November 6). Bridging the digital divide by enhancing effective digital finance usage among the poor| Part 1. GAI blog https://blogs.griffith.edu.au/asiainsights/bridging-the-digital-divide-by-enhancing-effective-digital-finance-usage-among-the-poor-part-1/
• Davis, F. D., Bagozzi, R. P., & Warshaw, P. R. (1989). Technology acceptance model.J Manag Sci, 35(8), 982-1003.
• Dipu, S. M. A., & Sultana, T. (2021). Smart GOALA: An Alternative Marketing Channel for Connecting the Peri-urban Marginal Dairy Farmers with the Urban Consumers in Bangladesh. InDigital Transformation and Human Behavior: Innovation for People and Organisations (pp. 353-367). Springer International Publishing.
• Kaka, N., Madgavkar, A., Kshirsagar, A., Gupta, R., Manyika, J., Bahl, K., & Gupta, S. (2019). Digital India: technology to transform a connected nation. McKinsey Global Institute.Ministry of Housing and Urban Affairs.
• Lee, J. N., Morduch, J., Ravindran, S., Shonchoy, A., & Zaman, H. (2021). Poverty and migration in the digital age: Experimental evidence on mobile banking in Bangladesh.American Economic Journal: Applied Economics, 13(1), 38-71.