ENHANCING FINANCIAL INCLUSION IN THE DIGITAL ERA: ADDRESSING BARRIERS TO DIGITAL PAYMENTS

Recently, the Ministry of Finance in Ghana, in partnership with industry players in the financial sector, hosted the maiden Financial Inclusion Conference under the theme, "Accelerating Financial Inclusion in a Digital Era." I was privileged to moderate a panel of distinguished industry players to discuss the opportunities for collaboration between traditional banking services and FinTechs. After the conference, I reflected on the strides made by various actors to deepen financial inclusion and from my days in banking where I had the opportunity to be part of innovating varied digital products. However, my reflections led me to consider the existing barriers that prevent these efforts from fully delivering access to finance for underserved or excluded populations in Africa.

Over the years, Africa has witnessed an increase in financial inclusion driven mainly by mobile payments, smartphone access, digital innovations, welcoming regulatory environments, and connectivity, among other factors.

According to the World Bank, financial inclusion means that individuals and businesses can access useful and affordable financial products and services that meet their needs—transactions, payments, savings, credit, and insurance—delivered responsibly and sustainably. Financial inclusion has been identified as an enabler for 7 of the 17?Sustainable Development Goals.

Digital technologies have been advancing innovative solutions in the financial services industry globally and remain the ultimate enabler of financial inclusion. Technology, in general, delivers access, convenience, affordability, and security excellently.

With emerging technologies such as data analytics, artificial intelligence, cybersecurity, and blockchain, financial products powered by digital technologies can become valuable resources for creating innovative solutions that address the needs of the financially underserved more sustainably. The most prominent of these innovative solutions in Africa are digital financial payment services offered by both traditional banks and FinTechs.

Digital Financial Payments

Digital financial payments refer to the transfer of money through electronic means rather than using physical cash or checks. These payments are facilitated by digital platforms, such as mobile banking apps, online banking services, e-wallets, and payment gateways. They allow individuals and businesses to send and receive money, pay for goods and services, and conduct other financial transactions over the Internet or through mobile networks. Examples of digital financial payments include mobile money, online banking, e-wallets, and payment gateways. Digital financial payments are a key component of financial inclusion, especially in areas where traditional banking services are limited. They make financial services more accessible, convenient, and secure, helping to drive economic growth and reduce poverty.

Barriers to the Adoption of Digital Financial Payments

1. Limited Access to Technology

Accessible and Affordable Devices: The high cost and limited availability of smartphones, tablets, and other necessary devices can prevent individuals, particularly in low-income areas, from accessing digital financial services.

Affordable Internet Access: Many people in Africa still struggle with the high cost of Internet access, which can be a significant barrier to using digital financial services. Without affordable and reliable internet, potential users may be unable to connect to digital platforms regularly or at all.

Digital Divide: In many regions, particularly in rural or underserved areas, access to reliable internet and the necessary infrastructure is limited, further hindering the use of digital financial services.

2. Low Literacy and Digital Literacy Rates

Literacy Rate: A low general literacy rate can limit individuals' ability to read and understand instructions, terms, and conditions related to digital financial services.

Digital Literacy: Even when individuals are literate, they may lack the technical skills required to use digital devices and navigate online platforms effectively.

Financial Literacy: Understanding financial concepts is crucial for using digital financial services. Without sufficient financial literacy, individuals may be unaware of how to manage digital transactions, leading to a lack of trust and reluctance to adopt these services.

3. Inadequate Product Knowledge

Awareness and Education: A lack of adequate product knowledge can prevent potential users from understanding the benefits and functionalities of digital financial services. Without proper education and awareness campaigns, these services may be underutilized.

Complex User Interfaces: If digital payment platforms are not user-friendly, especially for those with limited literacy or technical skills, users may struggle to navigate them, leading to low adoption rates.

4. Trust and Security Concerns

Security Concerns: Fears of fraud, hacking, and identity theft can deter people from using digital payment platforms.

Lack of Trust in Digital Platforms: Historical exclusion from the formal financial system may lead to a lack of trust in digital platforms, particularly in regions where financial institutions are not well established or regulated.

Overcoming Challenges Posed by Barriers to Adoption

The challenges discussed above can best be tackled through a concerted effort by governments, regulators, traditional banks, FinTechs, innovators, telecommunication companies, and bodies interested in increasing financial inclusion. Below are some suggestions on how these barriers can be addressed.

1. Limited Access to Technology

Accessible and Affordable Devices:

Subsidies: Governments and financial institutions can offer subsidies or financing options for low-cost smartphones and other digital devices, given the related economic growth capabilities inherent in financial inclusion and access to the digital world.

Buy Now Pay Later: Recently, some fintech, telcos, and banking partners have started offering smartphone access through Buy Now Pay Later or credit schemes using artificial intelligence-powered credit risk scoring to make phones available to eligible borrowers.

Affordable Internet Access:

Public Private Infrastructure Partnerships: Governments can collaborate with telecom providers to create affordable internet packages specifically designed for financial transactions and low data usage apps. Governments can also offer incentives or subsidies to reduce the cost of internet services in underserved areas and expand internet and mobile network coverage in rural and underserved regions.

WiFi Hotspots: Institutions interested in financial inclusion for rural dwellers can establish community WiFi hotspots in rural or underserved areas to provide free or low-cost internet access, enabling more people to connect to digital financial services.

2. Low Literacy and Digital Literacy Rates

Literacy Rate:

Literacy Programs: Invest in educational programs that target improving literacy rates, especially in rural and underserved communities. Integrating financial literacy into these programs can simultaneously address two barriers.

Use of Visual and Audio Content: Develop content that uses visual aids and audio instructions to help those with low literacy understand how to use digital financial services.

Digital Literacy:

Training Programs: Implement digital literacy training programs at the community level. These can be conducted through workshops, online tutorials, or in partnership with local NGOs and educational institutions.

User-Friendly Platforms: Design digital financial platforms with simple, intuitive interfaces that require minimal digital skills, including step-by-step guidance and help features in local languages.

Financial Literacy:

Educational Campaigns: Launch widespread financial literacy campaigns through radio, TV, and social media, targeting both urban and rural populations. These campaigns should explain basic financial concepts and the benefits of digital financial services.

Integrate Financial Education: Integrate financial literacy into school curriculums and community adult education programs to build a foundational understanding from an early age.

3. Inadequate Product Knowledge

Awareness and Education:

Community Outreach Programs: Conduct on-the-ground campaigns to educate communities about the benefits and functionalities of digital financial services. These can be facilitated by local leaders or community influencers.

Partnerships with Trusted Entities: Collaborate with trusted local institutions like churches, cooperatives, or NGOs to spread awareness and provide hands-on demonstrations of digital financial services.

Complex User Interfaces:

Simplify User Interfaces: Develop user-friendly interfaces that are easy to navigate, with clear instructions and minimal steps required to complete transactions. Incorporate feedback from user testing, particularly from those with limited literacy, to ensure accessibility.

Multilingual Support: Ensure that digital financial platforms support multiple languages, including local dialects, and offer audiovisual guides to assist users in navigating the platforms.

4. Trust and Security Concerns

Security Concerns:

Strengthen Security Measures and Education: Implement robust security protocols, including multifactor authentication, encryption, real-time fraud detection systems, and education, to protect users’ financial data and transactions.

Transparent Communication: Regularly communicate with users about the security measures in place and educate them on how to protect themselves from fraud, such as recognizing phishing scams and safeguarding their personal information.

Lack of Trust in Digital Platforms:

Build Trust through Transparency: Digital financial service providers should be transparent about their operations, fees, and security measures. Regular audits and public reporting can help build trust.

Leverage Trusted Local Networks: Partner with well-established local institutions, such as cooperatives, microfinance institutions, community organizations, and traditional authorities to promote digital financial services. Trust in these local entities can help build confidence in digital platforms.

Customer Support and Redress Mechanisms: Establish accessible customer support and dispute resolution mechanisms that are responsive to users’ needs, ensuring that they feel supported and secure when using digital financial services.

Conclusion

Collaborative efforts between governments, financial institutions, and local communities are essential for fully realizing the potential of digital financial inclusion in Africa, but the existing barriers must be addressed. By implementing solutions like affordable devices, better internet access, and enhanced security, digital payments can become more accessible and trusted. Overcoming these challenges will drive economic growth, create a more inclusive financial future for the continent, and enable digital payment solutions and platforms to play a pivotal role in the economic transformation we desire in Africa.