The challenges for India’s digital revolution

India is currently in the midst of a large effort to modernise its financial services and move individuals into electronic financial space. The year 2017 is an important milestone and will mark the epochal transition from a cash economy to a less cash and a digital economy.

However, there are several challenges peculiar to India that may constrain a full-scale digital transition. On the surface, this transition may not appear to be very profoundly deep. But as it pans and plays out, this tectonic shift will have much wider implications and the policy executioners will have to contend with a diversity of exponential societal changes. The race to go digital cannot be turned into a marathon sprint. India culturally believes in cash and a paradigm shift in thinking will need time and resources. It will actually involve a migration to new social and cultural patterns and habits. In a way it is more of a cultural-economic revolution.

There are marked class issues, which are built into India’s cashless transition. The tech class has poor exposure to critical social theory and will have to get a better grasp of the impact on the ground. The new revolution will have better chances of success if it is driven less by financial punditry and more by empathetic governance. People take to new technologies when they see clear benefits, have greater confidence in the markets and services, find it convenient and can afford it. The painful reality is that providers too often focus on short-term incentives at the expense of long-term consumer trust and loyalty.

The issue is lot more nuanced than what we are seeing today. Nuances change from culture to culture and consumer segment to consumer segment. The consumers will come into the digital platform and embrace the new opportunities believing that if they change their behaviour and exert the effort to get into the new world then certain specific pains will disappear. We have thus to address real pains, not just offer benefits.

The famous mobile network Safaricom developed M-Pesa (M for mobile; pesa is payment in Swahili), a transformative mobile phone-based platform for money transfer and financial services. M-Pesa is the driver of Kenya’s digital financial revolution. Launched in 2007, it quickly dominated the cash-transfer market, and grew at an astounding rate, capturing more than two-thirds of Kenya’s adult population as customers. It now stands as the most developed mobile payment system in the world, and has heralded a development revolution impacting millions of low-income Kenyan households.

However, a deeper slicing reveals some underlying issues. Few mobile money accounts are actively used. While money flows through these networks, most of the volume comes from users merely topping up prepaid mobile accounts in transactions averaging less than a dollar. And when people do make remittances, those receiving the money tend to cash it in, taking the money out of the system and limiting the potential for mobile money to become a medium of exchange — a mobile wallet for buying things or to provide banking services over mobile networks.

Similarly, a survey of accounts opened under Pradhan Mantri Jan Dhan Yojana, India’s flagship financial inclusion programme, found that only 33 per cent of all beneficiaries were ready to use their Rupay cards. The others were bewildered by the complicated PIN and activation procedures. Inconsistent electricity and sporadic Internet access further eroded customers’ trust in ATMs and POS machines, with one failed transaction enough to make an entire village swear off formal financial institutions.

Migrating from a cash economy to a digital economy will demand a recast of the entire mindset for consumers. In fact, the last mile of the digital highway is not infrastructure but user skill levels. Making gadgets available will not help unless we bring about a change in the overall outlook of people. Consumers will take up digital platforms and embrace new opportunities if they believe that changing their behaviour and exerting the effort necessary will make certain specific pains go away. We have thus to address real pains, not just offer generic benefits.

“You have to look really hard and ask, ‘What problems are being solved’?” says Nick Hughes, who shepherded the team that turned M-Pesa into a revolutionary financial tool in Kenya. “Unless problems are being solved, it becomes a bit of hype.”

India has to contend with a geographical and cultural divide of a great magnitude. The aversion of the other India to digital finance has more to do with their aversion to everything that has to do with technology. And this stems from their lack of trust in it and also partly on account of lack of comfort with technology and literacy needed to fully use these services. Women often face additional barriers: less access to mobile phone, lower literacy levels, less confidence in using technology, restrictions on travel or social interaction.

The right way to drive a revolution of this type is through empathy — not a form of empathy that comes from superiority, but one born from a profound humility. It is an offering of respect, a moment of listening to stand in the shoes of another. The most successful leaders were those who recognised it and invoked it in developmental interventions they shepherded.

Building inclusive digital economies requires the collective action of governments, industry, financiers and civil society. Before speeding ahead, we need to build the infrastructure, align the policies and create tools that will enable the poor to comfortably board the digital train.

When we design solutions that recognise all as equal partners, we have a real chance of making to goalpost. Each society is at different stages of digital financial inclusion and the necessary solutions and interventions must be appropriate for the cultural and economic context. By respecting the cultural outlook of the people and embracing their concerns we enlist their buy in, and that is what paves the way for lasting and sustainable success.

Moin Qazi is a well-known banker, author and Islamic researcher. He can be reached at moinqazi123@gmail.com