Financial Education: Necessity, Compulsion, or Fad?

Paytm customer from Mumbai loses ₹1.7 lakh in KYC fraud case, kingpin from Jamtara.

Man duped of Rs 4 lakh by fake customer care of a food delivery app…

These are not just news headlines; these reflect the knowledge-gap amongst users regarding financial services, especially the users of digital/electronic technology to conduct financial transactions. The rapid pace at which fintech is evolving and the almost stagnant financial literacy among users is only going to increase this knowledge gap unless steps are taken to address the issue.

A survey conducted by an agency in 2018 shows that one in four customers has directly experienced fraud while transacting online. Reserve Bank of India (RBI) has registered a total of 1,191; 1,372; and 2,059 cases of fraud in 2015-16; 2016-17; and 2017-18 respectively, involving ATM/debit cards, credit cards and Internet banking, wherein the amount involved was Rs.100,000  and above.

Unfortunately, financial education is not among the top priorities of either the service providers, or the government. Sporadic efforts are made by both to check the box; but no concerted, consistent, large-scale effort is visible. Week long campaign of “financial literacy week” held once a year doesn’t scratch the surface to address such a huge challenge. One doubts the efficacy of such short-term campaigns looking at the locations, media, and the language used. Are these campaigns really reaching the target population? Have the impact of such campaigns ever been measured? Other measures include publishing financial literacy material for farmers, small entrepreneurs, and others on websites that can be downloaded. Does this not sound ironical?

Recently, the Reserve Bank of India issued a circular on ‘enhancing security of card transactions’, suggesting that except for ATM and POS transactions all other transactions such as online payment and international transactions be disabled for cards that are issued after March 15, 2020. Customers can enable these services through specific instruction/request. For existing cards, banks must decide for each customer based on the bank’s risk perception based on the transaction history and other information available. This step by RBI is aimed to enhance security of card holders; however, it is equally likely to prove a hassle for customers who are used to availing these services as (default) enabled on their card. This also proves to a certain extent that since banks and RBI have not been able to educate customers about the proper use and safety of transactions with cards, and therefore RBI has to intervene to safeguard customer interest. It is worth noting that cards are issued only to literate, middle and high-income customers. For illiterate and low-income customers, a card is issued only if a specific request is made. Therefore, this step reinforces the point that financial literacy is lacking among the masses including the more aware and sophisticated customers not only the low-income and/or illiterate customers.

A mass movement to educate all customer segments, all genders, all age groups about the benefits and risks of digital financial services is needed. It will not be quickly achieved, and it will not be easy, and certainly it will not be cheap. This feat can be achieved only if all the stakeholders (government, RBI, banks) come together and work with each other. They will have to lead the way taking along other financial service providers, intermediaries, law enforcement agencies, and customers. A variety of media, messaging and learning methods for different age groups and socio-economic clusters will have to be used. The task is daunting but achievable.

Mukesh Sadana is Senior Advisor, Revamp.

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