Gayatri Devi lives in Ghumka village in Chhattisgarh. She takes care of an extended family of eight. Her husband works in a cloth mill in Gujarat, and comes home once in 6 months. He sends money every month for household expenditures, some of which Gayatri deposits at the agent point in her village. Women are not allowed to go too far from their houses, so she has never seen a bank branch in her life. The nearest bank branch is 7 kilometres away from her village.
With great excitement, Gayatri opened her bank account at the agent five months ago, but she still has not received a passbook, despite repeated follow-up with the agent. She wants to repair her house and needs a loan to do so. She asked the agent about the process to access a loan, but he had no information about options for credit.
A month ago, the agent stopped working and his shop is now usually closed. Even when it opens, the agent says that there is some issue with the server. She has lost trust in the agent and is now back to saving money at home as the bank is too far away.
She feels that she is stuck in the system, as, unless the agent starts working again, she cannot even withdraw her money for the much-needed house repairs. Social norms prevent her from travelling and complaining at the bank branch, or even to the agent, as this would attract criticism from other male villagers and her family may have to face the brunt of it. The only thing she can do now is to wait for her husband to return and take up the issue.
MicroSave’s research (funded by the Omidyar Network) into customer protection, risk and financial capability in India shows that Gayatri’s experience is not uncommon across India.
India is a country committed to achieving full financial inclusion. The recent policy-push under the PMJDY programme and India’s commitment to Better Than Cash Alliance shows this intent. However, because of its sheer size and geographic and ethnic diversity, providing access to quality financial services, especially at the base of the pyramid, remains a challenge. MicroSave’s ANA India Survey report states that “India is a country with 1.2 billion people, 29 states, 100+ Agent Network Managers (ANMs), five major telecoms, 27 public sector banks, 23 private banks, and 100+ rural and cooperative banks participating in delivery of Digital Financial Services (DFS)”.
The Reserve Bank of India advised banks to open “no frills” account way back in 2005, and there have been a number of enabling (but sometimes conflicting) regulation and policy-pushes since then. However, the growth in active bank accounts has been slow and beset with a number of issues ― leading to account dormancy levels of 48%.
And the experience of DFS for both agents and the customers that they serve has been extremely mixed. There has been high churn amongst agents, who are often poorly trained, supported and remunerated; as a result, customers, who like the convenience of a local DFS outlet, are often unsure about its reliability. As with many deployments across the globe, it is basic hygiene factors, like system reliability and agent illiquidity that are primarily responsible for the lack of trust in DFS. These are seen to be both frequent and high-impact in nature … and ironically, at present, theft, robbery and fraud are viewed as both infrequent and low-impact. Our qualitative work suggests that these are low-impact because most customers have yet to experience them … this may well change over time as highlighted in Fraud in Mobile Financial Services.
MicroSave field research highlights two contradictory facts that further indicate the fragile nature of DFS in India. While 85% of the DFS customers said that they would recommend DFS to others, they mainly treat it as a back-up option. While customers appreciated the accessibility and ease of use of DFS, they did not really trust it enough to use it regularly – see bar chart highlighting the use of DFS services.
The Indian context reflects a number of conditions highlighted in the MicroSave paper on fraud. The paper notes that weak processes, poor compliance monitoring, and poor customer awareness are key enablers of fraud. Our research shows that all of these are present in India. At present, there are not many reported risks or loss of funds; however, based on current conditions, these are likely to emerge as the system matures and grows
Furthermore, customers’ high trust in, and dependence on, agents for knowledge and conducting assisted transactions, coupled with their limited understanding of, and opportunities for, recourse may lead to a number of agent perpetrated frauds like:
Unauthorised access to customer’s transaction PIN
Customers’ blind trust in agents facilitate fraud – as one of the leading agent network managers (ANMs) in India found out.
The ANM was facing some technical problems, as they were upgrading their system. This resulted in some of the transactions not being completed.
An agent of the ANM used this as an opportunity. He told his customers that the service was down and collected their deposits, promising that the amount would be credited in their accounts once the system was up and running.
He did this for five days, during which he collected nearly Rs. 500,000 ($7,353) and then fled with the money.
- Imposition of unauthorised customer charges
- Split withdrawals (thus increasing commissions earned)
- Agents encouraging customers to leave money with them and then absconding (see box).
It is time that providers focus on addressing these customer service and protection issues – see Solving Customer Service Issues in Digital Finance – Can Do, Must Do. Doing so is essential to build trust in DFS and thus stimulate uptake and regular usage … and to prevent widespread fraud and loss for customers.