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Digital technology game-changer for PNG : Bakani

The digital aspect of financial inclusion is a key area of our National Financial Inclusion Strategy and is part of the theme for this year’s Apec Summit. Governor of Bank of Papua New Guinea LOI BAKANI gave a comprehensive overview of this in the keynote speech at the opening of the Improving Digital Financial Literacy workshop yesterday in Port Moresby. MARK HAIUIE reports.

LOI Bakani has defined digital financial inclusion (DFI) as digital access to and use of formal financial services by excluded and underserved population.
“This phenomenon has emerged as a new wave in the hope that it will reach the last mile consumer in the most convenient and affordable manner,” said the Governor of Bank of Papua Nerw Guinea.
“Given low levels of adult financial literacy in Papua New Guinea, particularly among women, there is a need to strengthen consumer digital financial literacy and awareness in the country.
“With the high illiteracy rates and low technology innovation and penetration, financial literacy and consumer awareness must be improved to drive the usage of digital financial services and products”
He said financial sector policymakers around the world recognise the “game-changing” potential of digital financial inclusion and the possibilities to be harnessed from this.
“Institutions and financial regulators have the opportunity and indeed the responsibility to prepare consumers for both the risks and the rewards of the digitisation of financial services.”
“The existing bricks and mortar banking system does not work for poor people.
“This is partly because most of their transactions are conducted in cash.
“Handling cash transactions is costly for banks, utility companies and other institutions, which pass along the costs to their customers. This takes the services beyond the financial reach of consumers”
Bakani further noted that global technological progress and its use in the financial sector allowed for a more efficient and effective alternative to traditional financial transaction systems.
“The global revolution in mobile communications, along with rapid advances in digital payment systems, is creating opportunities to connect poor households to affordable and reliable financial tools through mobile phones, and other digital interfaces” he noted.
“Digital financial services should be suited to customers’ needs, and delivered responsibly, at a cost both affordable to customers and sustainable for providers. The three key components of any such digital financial services are: a digital transactional platform, retail agents, and the use by customers and agents of a device – most commonly a mobile phone – to transact via the platform.
“New digital transactional offers convenient and vastly less-expensive ways to make payments and transfer funds, more often, providing a safe place for our people to store value, especially for those who rely on the proverbial mattress.
“These platforms accommodate the very small and unpredictable cash flows of the poor, allowing them to transact affordably in tiny amounts whenever they wish, subject to the vagaries of sometimes unpredictable or unreliable connections and other risks.
“With the implementation of PNG’s second National Financial Inclusion Strategy, our first quarter statistics show that there has been an increase of 55 per cent of users with mobile financial services accounts and a 62.75 per cent increase of women with mobile financial service accounts.
“Digital transactional platforms yield further benefits for financial inclusion by providing both a means to access additional financial services, such as interest-bearing savings, credit, insurance and even investment products.
“They also generate data that financial providers and regulators can use to design financial products tailored to the repayment capacity and financial needs of the specific poor and low-income customer segments.”
Bakani noted that digital financial literacy had multiple positive impacts on related issues involved in modern-day transactions along with having more people included in the formal financial system.
“In a digital world, safety and security are the top priorities for everyone. Remaining safe is
an individual’s own responsi-
bility which has to be taken seriously.
“Payment providers can put in the most foolproof systems in the world but the human element of payments, and hence actions resulting in fraud, cannot be
emphasised enough,” Bakani said.
“Whether it is reducing risk, improving uptake and usage, enhancing consumer protection or avoiding over-indebtedness, digital financial literacy is the marriage of all three paradigms: digital, finances and literacy.
“Simply, digital financial literacy is having the knowledge, acquired skills and necessary habits to effectively use digital devices for financial transactions.
“This intersects with an individual’s basic literacy levels and their ability to use digital devices or technology.”
The two main challenges for digital financial services were low literacy and a distrust in technology, Bakani said.
“Although digital technology is opening new vistas, challenges persist. Sparse populations, inconsistent network coverage, insufficient capital for building new business models, lack of trust and low technical literacy of consumers can stand in the way of success, particularly in connecting remote or underserved communities,” he said
“For us here in PNG, an early and quick transition may not seem plausible because of the magnitude of the geographical and cultural divide.
“People’s aversion 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. It is 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 and restrictions on travel or social interaction.”
Bakani commented on the impact of financial education programmes while noting how a more experience-based approach showed promise as opposed to a focus on theory.
“It has been found that financial education programmes that focus only on imparting knowledge rarely deliver impact unless they are backed by a suitable product and its usage support.
“A recent UNDP survey on financial literacy programmes in India revealed that in areas where a service provider was involved in the programmes, the participants had a better understanding of products and used them regularly.
“Some banks use a decision tree to help customers open saving accounts that match their needs. Going through the decision tree in itself leads to an understanding of improved product features. Similarly, in one model, a bank undertook a project to deliver financial education training to young women in rural communities through a cascade training model where core trainers trained peer educators, who in turn trained community members.
“These examples show that there is a need to approach financial education using a model that involves experiential learning and use of products, rather than theoretical approaches.”
Bakani said that in order to use financial services to their full potential, the low-income people need products well suited to their needs.
“They also need appropriate training and education for adapting to these financial services. All this requires attention to human and institutional issues such as quality of access, affordability of products, familiarity and comfort in use, sustainability for the provider of these services, and outreach to the most excluded populations,” he said.
He said policy makers and stakeholders would have to develop strategies to mitigate a range of risks that came up from migrating users onto the digital financial system.
“Digital financial inclusion introduces new market participants and allocates roles and risks, both new and well-known, in different ways compared to traditional approaches to retail financial service delivery,” Bakani said. “The new parties and arrangements involved in the digital transactional platform, and specifically in the management and storage of account data and the holding of customer funds; the technology used by the device and the digital transactional platform; and the use of agents as the principal customer interface triggers, as well as the typical profile of the financially excluded or underserved customers in question, introduce operational risks, consumer-related risks, and financial crime risks, among others.
“Understanding and mitigating these risks will be key to achieving the game-changing potential rewards of digital financial inclusion in PNG.”

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