Financial literacy - the level of understanding that customers have when it comes to services - is significant. Danielle Hopkins is with Microfinance Opportunities, a Washington-based group that focuses on financial literacy and other issues facing microfinance. Here are her thoughts.

Financial inclusion was a central theme of the Next Generation Access to Finance Conference held earlier this year at the World Bank Headquarters in Washington, DC.  One issue that was mentioned repeatedly was the importance of financial education in electronic banking.The potential for ICT-based financial services to achieve scale will depend largely on adoption and usage rates of the various technologies.  Thus far, these rates have been lower than desired and many hurdles remain.  Some of the problems lie in the hardware and infrastructure; others pertain to people’s knowledge, skills, and behaviors. 

Microfinance Opportunities recently conducted market research with bank staff and their clients in the Philippines and the Dominican Republic (DR) to explore the usage of m-banking and electronic cards and the role for financial education in raising adoption rates.

Mechanics is one issue associated with both m-banking and bank cards.  In the Philippines, many of the clients interviewed do not know how to use G-cash, an m-banking service provided by the telecom Globe.  Clients are confused by the different syntax or key words for different services.  According to staff of First Valley Bank, trust is the biggest obstacle to adoption because clients are skeptical of electronic money they cannot touch or see.  In the DR, ADOPEM clients do not understand the difference between a debit card and a credit card and are thus wary about using electronic cards in general.  In addition, many clients fear they will spend too much money when using an electronic card that provides easy access to their account, as opposed to having a set amount of cash in their wallet.  In general, clients are unaware of the full range of benefits and financial services associated with using either of the technologies. 

Despite these knowledge gaps, many clients readily acknowledge the advantages of being able to access money quickly and securely via a cell phone or electronic card.  For clients in the DR, the debit card is a status symbol that gives the bearer a sense of security and power.  Withdrawing money is the number one use of cards, followed by depositing money, checking balances, buying goods in a store, and receiving cash back.  Among m-banking clients in the Philippines, remittances are the most popular service.  Payments are the second most popular feature, although not all providers offer a payment platform.  Retail outlets provide cash in/out services that allow clients to make deposits and withdrawals, two widely used services. 

Financial education can play an important role in expanding the access frontier and increasing uptake of ICT-based financial services by helping low income clients to understand the technology as well as the financial services behind the transactions.  Currently in the institutions visited, clients receive minimal, if any, training on how to use the technology.  Financial education on savings can teach clients how to exercise self-control in their spending habits when using an electronic card or cell phone.  Consumer protection is also pertinent to both m-banking and electronic cards as clients need to be informed of how to protect their pin number and what to do in the event that their phone or card is lost or stolen.

The tremendous growth of electronic banking requires that financial education be disseminated on a large scale to all economic strata of the population.  TV, video and radio are three delivery channels with the potential to achieve massification.  In Uganda alone, radio has been used to deliver financial education to over 6.4 million people.  

By teaching clients how to use technology to better manage their money, financial education can build trust in ICT-based financial services and ultimately increase the adoption and usage of new banking technologies.  As Elizabeth Littlefield pointed out at the opening session of the Next Generation Access to Finance Conference, clients’ lack of understanding of technology-based financial services is a challenge to adoption.  Financial education is a viable way to overcome this challenge.

For more information on Microfinance Opportunities Global Financial Education Program, visit our website at www.globalfinancialeducation.org or contact us at info@mfopps.org.