As part of my Interledger Research Ambassadorship, I am working on a project titled ‘Pinging Paradise’ that focuses on the lived digital experiences of people belonging to my native region of district Lahaul-Spiti in Himachal Pradesh, India. Although my study concentrates on a specific region and its unique characteristics, it felt useful to start the process by understanding the broader context of digital and financial inclusion in India. With this in mind, I had organised a one day Workshop on Digital and Financial Inclusion in New Delhi in May.
In this post, I summarise the key reflections from the workshop. Part 2 of the Progress Report, which will follow in a few days, will discuss some of the other activities undertaken as a part of my project.
The workshop was attended by twenty six individuals from different research organisations, civil society groups, industry associations, think tanks, and behavioural labs. This included organisations such as Ashoka University, Busara Center, Carnegie India, Cashless Consumer, Good Business Lab, Gram Vaani, ICRIER, Internet Freedom Foundation, NASSCOM, NIPFP, Trustbridge Rule of Law Foundation, and XKDR Forum. I was able to draw upon the expertise of this group to brainstorm about my research plan and to introduce them to Interledger’s work -- this part of the conversation was led by Vineel Reddy Pindi from the ILF team.
In this process, we saw a vibrant debate on a range of topics, a summary of which is presented here under the heads of a) defining and measuring financial inclusion, b) open payments and financial inclusion, and c) notes from the field of behavioural studies.
Defining and measuring financial inclusion
The discussions in this segment began with an articulation of the multiple ways in which we can understand the concept of ‘financial inclusion’. An instrument wise definition would, for instance, treat a person as being included if they have access to specific instruments like a bank account or credit facilities. A demographic group centric definition may focus on specific groups like the poor, women and other marginalised groups. Further, it was suggested that the gaze of financial inclusion should not just look at individuals and households but also capture the needs of small and medium sized businesses.
The participants acknowledged that the agenda of inclusion needs to go beyond the initial step of facilitating access to an account to assessing how effectively the financial products are being utilised and what are the results. One of the speakers explained this as the ‘input, output and outcome’ approach of measuring financial inclusion. The focus of their work was on understanding the actual financial participation of households and its impact on their wellbeing. Another speaker brought out the ‘form’ versus ‘function’ distinction in understanding the state of financial inclusion. They illustrated with the example of having a bank account, which deals with the ‘form’ aspect, whereas the purposes for which the account is deployed relates to its ‘function’.
As per this viewpoint, the functional focus of India’s financial inclusion story has primarily been on the use of bank accounts for the payment of government subsidies and welfare benefits. This emphasis on the function of direct benefit transfers may have come about at the cost of holistic financial inclusion. The speaker reasoned that this has contributed to the situation where we see high figures on the number of people with bank accounts but the account usage statistics remain low.
The discussion then moved on to the policy issues surrounding financial inclusion. This included topics like the focus on ID based verification for financial accounts, use of regulatory sandboxes, data collection and consumer protection practices. We also saw a debate on the central place that digital public infrastructure (DPI) has come to acquire in India’s digital payments strategy. In the context of the Unified Payments Interface (UPI), India’s DPI for digital payments, the group acknowledged the importance of this system in terms of growth trends, scale, and volume of transactions. However, many also felt the need for more granular data reporting about the system. We also touched upon questions about the depth of UPI adoption in rural areas, extent of its openness (given that standard setting is controlled by one entity and not through an open process), data governance practices, and impact on the market’s competitive dynamics.
Open payments and financial inclusion
The next session engaged with the challenges and opportunities of pursuing open payments at the global level, with a focus on the role that the Interledger Protocol (ILP) can play in this space. Vineel introduced the group to the work of the Interledger Foundation, its vision of promoting open and interoperable payments, and some of the projects that are underway. This was followed by a conversation on the importance of open payment systems that prioritise user agency and privacy, while ensuring fairness and equity in the digital payments space. One of the speakers pointed that the need to enable fair competition should also be considered alongside the goals of inclusion, efficiency and innovation.
While acknowledging the revolutionary potential of ILP for cross-border open payments, the participants recognised the difficulties that could arise in cross country standardisation due to the highly regulated nature of the sector and differences in market dynamics. For instance, a speaker illustrated that the United States is a cards-first market whereas India is prioritising bank to bank fast payments through its UPI system. The integration of these systems can therefore be harder, at the policy and operational levels, compared to the cross-border integration among real time payment systems like UPI and Singapore’s PayNow. This led to the interesting question of what role can ILP play in the interconnection between domestic payment DPIs and what needs to be done at the international standard setting level for ILP to acquire such a role?
A participant suggested that digital payments systems should be seen as consisting of a 'technology' layer, a 'settlement system' layer and a 'store of value' layer and it might be useful to identify the innovation and regulatory roadblocks that emerge at each of these layers. Another participant suggested that it would be desirable to be able to de-link payments transactions from the necessity of having a bank account and asked if ILP can help with that. For instance, instead of having a bank account as a store of value, could open payments allow the individual to hold different asset classes digitally (mutual funds, gold, etc) and dynamically liquidate a portion of their selected assets every time they want to make a payments transaction?
Lastly, one of the speakers observed that since the ILP seeks to do what the TCP/IP did for the internet, it implies that future adopters of the protocol will play a role in shaping its underlying values, use cases, and outcomes. While this opens the field for tremendous innovation, it could also include use cases that may be considered undesirable by certain regulatory authorities.
Notes from the field of behavioural studies
In the last segment, we shifted gears from the policy, measurement, and innovation related issues to focus on the behavioural aspects of financial inclusion. The speakers in this segment came from different behavioural study groups and shared their experiences about the types of interventions being deployed in the field and their role in understanding the financial well being of users.
For instance, one of the speakers described a ‘flexi salary advance’ product that allowed factory workers to draw an advance on their next month’s salary from their employer. The introduction of this product had led to a reduction in informal borrowing, which is often offered at very high interest rates, helping workers in managing their financial stress. We then discussed the use of ‘financial diaries’ as a method to maintain a systematic record of all financial transactions by a user over a period of time. This can help draw a comprehensive picture of their financial lives and aid in making more informed decisions. Some of the participants observed that this methodology could give rise to privacy concerns leading to a discussion on informed consent and data governance practices.
We heard about other interesting methodologies like the use of the ‘photo voice’ method where participants use photographs as a tool to express their perspective, especially on sensitive subjects. Other examples included the deployment of various gamification tools, ‘mock ATMs’, and communication channels like Whatsapp groups to facilitate peer learning effects. Another interesting theme that came up was the role of ‘digital confidence’, distinguished from digital literacy or financial literacy, in the financial inclusion agenda. One of the speakers emphasised the importance of good UI/UX design for building digital confidence.
In addition to these points, intra-household decision-making dynamics, particularly from the perspective of women, and the barriers of information, skills, and trust faced by marginalised groups were a recurring theme across the sessions. We concluded the workshop with an overview of Interledger’s engagement strategies and grant opportunities.
Following the event, I put together this list of resources containing links to some of the suggested readings and resources that came up during the workshop. I plan to keep on building this list with other useful readings. Please feel free to reach out with any suggestions on that or thoughts on any of points discussed here.
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