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13 December 2021

Defining a policy agenda for digital financial literacy

By Adadzewa Otoo, Policy Specialist E-Money, AFI


The financial inclusion landscape has witnessed unprecedented deepening, driven by innovation in digital financial services (DFS). The COVID-19 pandemic has encapsulated the exceptional role of digital channels in facilitating the access to and usage of formal financial services within a short timeframe. Globally, it is estimated that mobile money accounts increased by 13 percent year-on-year to 1.2 billion in 2020, doubling some forecasts[1].

Undoubtingly, DFS is here to stay. While maturity levels vary from region to region, it has become the core – if not the sole driver – of financial inclusion across many jurisdictions, a push that has been further entrenched by growth in gig and platform economies. It compels consumers to be more responsible in their use of financial services, such as pensions, insurance, taxes and investments.

This means that consumers with lower levels of digital financial literacy (DFL), including vulnerable segments who dominate the unbanked and underbanked, are gaining exposure to more sophisticated financial products. This has implications for financial inclusion.

Limited consumer literacy in DFS heightens exposure to and incidents of risk, such as fraud, over-indebtedness and identity theft. This has the potential to create mistrust, discourage the uptake and usage of DFS and threaten a reversal of financial inclusion gains.

An AFI survey conducted in February 2020 found that fraud related to mobile money and online transactions, identity theft, non-transparent costs and over indebtedness were the most common DFS-related consumer protection risks reported by regulators over a three-year period. Poor perception of DFS due to mistrust was reported by 60 percent of regulators interviewed in the AFI network.

But perhaps the foundational challenge lies in sustaining the uptake of DFS to drive financial inclusion. Some 87 percent of regulators across the AFI network attribute poor uptake of DFS to financial illiteracy and limited awareness, while 53 percent attribute it to its perceived complexity.

Beyond financial inclusion, we are seeing more jurisdictions step up efforts towards digitizing their economies. This is hastening the transition of DFS from a choice to an obligation for all, particularly in accessing public and welfare services, such as pensions and stipends through government-to-person payments. Hence effective consumer literacy in DFS is not only needed to sustain uptake and usage by consumers but, with the increasing penetration and dominance of DFS, it is also central to safeguarding the security of the financial sector.

Policymakers must rethink the current approach to financial literacy beyond the traditional cash-based economy to one that entrenches a focus on DFS. Yet most regulators lack the needed capacity in regulatory preparedness, human and technological resource, effectively putting their policy responses in catch-up mode.

To help address this challenge, a joint subgroup of the Consumer Empowerment and Market Conduct Working Group with the Digital Financial Services Working Group recently launched a guideline note and a toolkit on digital financial literacy.

The guideline note presents key considerations for policymakers in the development of a DFL strategy from the regulatory, supply and demand-side perspectives. Meanwhile, the toolkit seeks to equip policymakers with practical guidance on the formulation, implementation, monitoring and evaluation of DFL policy interventions.

Both were informed by lessons and best practices from within the network. These ranged from members with defined policy frameworks on DFL, such as Bangko Sentral ng Pilipinas, to others with experience in undertaking DFL for specific population segments. The latter included Bangladesh Bank’s interventions on improving the knowledge of women in the use of DFS and Central Bank of Jordan’s interventions to enhance access to digital cross-border remittances and other DFS for refugees and internally displaced persons.[2]

AFI’s policy guidance articulates the importance of integrating DFL within existing relevant national strategies, specifically for financial inclusion or financial education. Beyond reforming existing financial inclusion policies to reflect DFS, they also position DFL interventions within policy frameworks for effective coordination among public and private sector stakeholders.

By advancing foundational policy guidance for DFL, AFI promotes advocacy and capacity development among policymakers for effective policy change. It also provides technical support to members and partners in the development of DFL policy and interventions. Notable among these is AFI’s technical support in the development of a policy note in cooperation with the Association of Southeast Asian Nations, which provides the foundation to spur policy change towards DFL across the region.

By adopting a holistic approach, AFI’s digital financial literacy workstream is set to catalyse a proactive approach in positioning financial education policy to safeguard the sustainability of DFS for financial inclusion.

[1]GSMA (2021) State of the Industry Report on Mobile Money

[2] AFI (2021), Guideline Note 45 Digital Financial Literacy.

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