Inclusive Digital Transformation in India

Improving Digital Financial Services for the Poor Through Human-centered Design

This paper was completed as a Harvard Kennedy School Policy Analysis Exercise, a yearlong project for second-year Master in Public Policy candidates to work with real-world clients in crafting and presenting timely policy recommendations.

Executive Summary

Access to formal financial services has been a major issue in India for some time. In a country where over half the population lives on less than $3.20 (200 Indian Rupees) a day, financial services can help households manage income shocks and access finance. They can contribute to women’s empowerment, and improve health, nutrition and education outcomes. The Indian government—in concert with technology and telecoms companies—is pushing a “digital revolution”. This transformation affords significant opportunities for improving financial health for the poor: services can be delivered more cheaply and quickly at scale, opening up new business models and reducing the need to travel to a bank branch. But people who are unable to access these services—disproportionately the poor and vulnerable—risk further marginalization.

The goal of this report, prepared for IDEO.org, is therefore to answer the following question:

How can IDEO.org use its expertise in human-centered design (HCD) to improve digital financial services for the poor in India, thus helping to make India’s digital transformation more inclusive?

This is broken down into the following sub-questions:

• How many adults are excluded, by demographic and by stage of the user journey?
• What can we learn from India and other countries about which levers best improve financial health? And which products tend to have the greatest welfare impacts?
• What are the major barriers for poor people in accessing digital financial services?
• What are the top opportunity areas for improving digital financial services for the poor?
• Which options should IDEO.org prioritize? How should these be developed? Beyond this project, how can IDEO.org maximize its impact on financial health for the poor in India?

This report recommends IDEO.org prioritize two opportunity areas: “Unblock Women” and “Activate Youth”. Section 8 includes implementation considerations. This report also suggests four complementary opportunities for IDEO.org to amplify its impact in India in the long term: (1) advocate for better consumer protection at a policy level, (2) build capacity in HCD within India’s digital financial inclusion ecosystem, (3) design for India’s agents (also known as banking correspondents), and (4) design for the most excluded, hard-to-reach populations.

Main findings in support

In India, 38 percent of adults do not have a bank account. More than one-third of those who have an account do not actively use it. This means that overall, only 34 percent of women and 47 percent of men have a bank account they use regularly.

Field research, expert interviews and a literature review established eight main barriers to improving the use of digital financial services among the poor. In order of importance these are:

Demand-side barriers:

• Restrictive gender norms
• Not having enough money to make an account or a transaction worthwhile
• Low tech literacy, confidence and access to tech
• Low financial literacy and low awareness of options
• Supply-side barriers:

Inadequate service point infrastructure

• Unintuitive user experience (UX)
• Inconsistent technical infrastructure
• Unsuitable products for the poor

Field research also uncovered insights about how poor people in Mumbai and Bihar manage their money, which serves as a starting point for identifying opportunity areas to address each of the demand-side barriers. The design sprint resulted in four main options or opportunity areas:

• Unblock Women—Introduce women to digital financial tools by building on their existing savings behaviors.
• Equip Entrepreneurs—Provide business owners with the knowledge they need to be financially successful.
• Activate Youth—Ready the next generation of savers by teaching them healthy financial habits.
• Connect Farmers—Leverage the untapped potential of feature phones to reach rural markets.

The primary recommendation—to prioritize options A and C—is based on six criteria aligned to the three human-centered design dimensions of desirability, viability and feasibility.

Context for this report

In early 2018, IDEO.org conducted a design sprint to identify opportunity areas for improving digital financial services for the poor in India. This was done in collaboration with the financial inclusion consultancy MicroSave. This initial research (known as a “phase 0” project) was funded by the Gates Foundation’s Financial Services for the Poor program.

This report was prepared alongside that design sprint and is intended to be a complement to its outputs, which are available at www.pathtodigitalindia.com. Sections 3 and 4 of this report provided some of the secondary research for that site.