5 ways to improve economic inclusion with digital financial skills

As the digital economy continues to grow, people’s opportunities to earn, save, invest, borrow, receive emergency support, and insure against shocks will hinge on access to digital financial technologies, products, and services.

But while the COVID-19 pandemic accelerated the adoption of digital financial services for many people, low-income, underserved populations and those who are not digitally and financially literate could face further exclusion without targeted intervention.

A new report by Devex and Visa Bridging the Divide: Skills for Digital Financial Equity and Inclusion examines the link between participation in the digital economy, financial inclusion and skills, and explores how the development community can best work with governments, private-sector service providers, and other stakeholders to ensure vulnerable communities have the tools and capabilities they need to thrive in the digital economy.

Based on a survey of more than 1,000 international development professionals and enriched by in-depth discussions with experts in relevant development fields, the report aims to stimulate practical discussion on how such efforts can be accelerated and brought to scale.

Here are five key findings.

1. Opportunity for more people to benefit

More people are tapping the digital economy to build livelihoods, but there is an opportunity to expand the benefits they derive and extend them to additional people.

Two-thirds of survey respondents reported that more people in their beneficiary communities are creating or enhancing their livelihoods through the digital economy than five years ago. However, 45% described the degree to which they are doing as merely “moderate,” while only 14% reported a big increase in income for their target communities via the digital economy.

The opportunity for further progress is therefore huge. Almost all respondents — 95% — believe that digital finance has the potential to accelerate moves toward socioeconomic inclusion and equity.

2. Digital financial skills are critically important

Survey respondents, interviewees, and workshop participants recognized telecommunications infrastructure and access to technology as vital enablers for digital financial inclusion. The biggest barrier, however, to effectively creating or enhancing livelihoods through the digital economy is a lack of digital financial skills.

Seven out of 10 survey respondents — and an even higher proportion for those working with rural communities — agreed digital financial skills are very important for improving livelihoods and well-being. And as 63% also believe proficiency is limited in their focus community, delivering skills represents a clear impact opportunity.

Not surprisingly, then, only one-third of survey respondents observe their focus communities to be using basic personal money management skills. Reported use of skills around digital privacy, safeguards and redress procedures, and of skills related to advanced money management, was much lower.

The biggest hurdles for upgrading communities’ overall digital financial skills are insufficient basic literacy and numeracy skills, according to 62% of respondents. Therefore, topical experts recommended using audio-visual materials and tools — such as smartphones — to deliver curriculums.

3. Digital financial skills and trust in digital financial services are intertwined

Trust in digital financial services is a major enabler for participation in the digital economy.

Digital skills initiatives are increasingly recognized as the answer. The Philippine government, for example, believes improving financial and digital literacy will reassure the 39% of the country’s adults who cite lack of trust as a reason for not transacting online.

Survey respondents mostly agree, with over half believing gaining digital financial skills to be the most effective way to build trust in digital financial services. The percentage was even higher — 60% — for those working with women.

Regulators can support trust-building by creating a safer environment, while the private sector can develop more responsible product offerings. Survey respondents’ top five recommendations for building trust in digital financial services included easier-to-understand product information and more straightforward consumer rights and redress mechanisms.

“Trust is the apex of the mountain — that’s where we’re trying to get to,” noted Michael Spencer, the CEO at SmartMoney. “But skills are necessary to get to that apex.”

4. Leverage community networks

Channeling skills initiatives through communities also helps establish trust, with more than half of survey respondents witnessing that informal or self-help networks comprising neighbors, community influencers, and peers are the most trusted sources of information on digital financial technologies. This view is even more prevalent among respondents working in humanitarian assistance and health.

Peer groups and community or business networks additionally offer the most effective channel for building digital and financial skills, according to nearly two-thirds of respondents. Over seven in 10 of those working in gender or with focus communities in Africa have witnessed this. Respondents who work with young people are also more likely, at 68%, than most to value peer learning.

Education that customizes learning to the needs of communities is associated with greater uptake and impact. “Services need to be relevant and viable for communities in order to really stick and scale,” noted Fernando Maldonado, team leader and senior adviser on digital financial services at the U.S. Agency for International Development. Survey respondents concurred, with 52% citing a failure to adapt training to cultural contexts as the main barrier to implementing digital financial literacy initiatives.

Overcoming this should start with comprehensive research into community needs — something a third of respondents viewed as a top enabler for scaling skills initiatives.

5. Maximize impact through partnerships

Successful partnerships are key to the sustainability of digital financial skills initiatives, with two-thirds of survey respondents believing collaboration to be the most impactful step toward scaling up programs.

By plugging gaps in stakeholders’ capabilities, insights and resources, partnerships reduce the risk that efforts be replicated or fragmented. And by fostering demand for services — such as when NGOs feed insights to digital financial service providers that help them design more relevant and user-friendly products for underserved communities — they also make digital financial skills initiatives more sustainable.

“Solutions have to be designed so they’re both profitable for businesses and have social impact,” said Beth Hurvitz, senior vice president, global social impact, at Visa. Visa partners with community-focused networks and nonprofits in every region it operates to support a combined offering of financial education and entry-level payment solutions.

The right partnerships can also facilitate a “glocal” approach, in which digital financial products and skills initiatives are created for a global market but then adapted to local cultures and needs.

To get more insights on the skills needed to realize digital financial inclusion, read the full report here.