The digital revolution has transformed how we manage money, offering unprecedented convenience and accessibility. It has played a crucial role in promoting financial inclusion. But as with any innovation, there are two sides to this digital coin as well. This writeup explores the double-edged sword of digital finance through three real-life stories that highlight both the triumphs and tribulations of financial inclusion in the digital age.
Story 1: The Entrepreneur's Journey
My close relative, a 70-year-old woman, turned her passion for making homemade snacks and packed food into a thriving business. After years of hesitation, she embraced digital payments, leading to significant business growth. The ease of digital transactions even encouraged her to explore online shopping. Unfortunately, one day she fell victim to online fraud, losing a significant amount of money. Although she has done all possible regulatory complaints and reporting, she knows that the possibilities of getting the money back are rare. Now, she no longer trusts digital transactions and has moved away from this digital finance world.
Story 2: The Hairdresser's Experience
A hairdresser I know migrated from a remote village to an urban area to start his business. Over the years, I became a regular customer. Three years ago, he began using QR codes and payment apps, which made transactions easier for both him and his customers. He often shared how digital payments helped him send money to family and pay school fees effortlessly. However, during my last visit, I noticed that the QR code was missing. He revealed he had been a victim of SIM cloning, which forced him to change his mobile number and stop using digital payment apps. Initially he believed that, since it’s all-digital, tracing, tracking and getting back money would be possible. But now his hopes have faded.
Story 3: The Yoga Trainer's Tale
Post COVID-19, there has been a substantial inclination towards individual health, with yoga becoming more popular. A homemaker and certified yoga trainer from a small town started taking yoga sessions and was advised to increase her reach by using online sessions too. The challenge of collecting fees was resolved using digital payment apps. She used a popular messaging app to provide session links and updates. Within a few months, she had participants across India, including my immediate family members.
One morning, a prompt was sent to the participants mentioning an urgent financial need from the trainer's mobile number. Many of her disciples trusted the message and transferred money within a short span of time. Later, the yoga trainer realized her identity had been stolen. By that time, significant financial damage had already been done. With this traumatic experience, the trainer decided to revert to the traditional offline sessions and fee collection methods and all distant participants ceased to get benefitted from her sessions.
Financial Inclusion and Digital Technology
The initial success of these stories exemplifies the positive impact of digital technology on financial inclusion. Digital technology has democratized financial services, offering low-cost and accessible options, especially for underserved and unbanked communities. This progress aligns with the United Nations Sustainable Development Goals (SDGs), particularly SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), and SDG 9 (Industry, Innovation, and Infrastructure). In India, The Reserve Bank of India's Financial Inclusion Index (FI-Index) improved from 56.4 in March 2022 to 60.1 in March 2023, reflecting growth in access, usage, and quality of financial services.
The Dark Side of Digital Financial Inclusion
Despite the benefits, the negative outcomes of these stories highlight the vulnerabilities in the digital financial ecosystem. Cybercriminals exploit the growing digital landscape, committing sophisticated crimes such as phishing, hacking, ransomware, and identity theft. As per the RBI Annual Report of FY 2022-23, there has been around 334 % increase in number of frauds related with cards and internet (6,699 in FY 2022-23; 29,082 in FY 2023-24). The amount involved has increased by 426 % (₹ 277 crores in FY 2022-23; ₹ 1,457 crores in FY 2023-24). The percentage share of cards and internet related fraud of the total frauds has increased from 49.4 % in FY 2022-23 to 80.6 % in FY 2023-24 with the value share rising from 1.1 % to 10.4 % during the period. The important point to note is that this data includes only those frauds of ₹1 lakh and above reported during the period. The above data reveals how digital financial crimes are parallelly flourishing and weeding the financial system.
Cybercrime Statistics
According to the National Crime Records Bureau's 2022 report, 65,893 cases of cybercrime were registered, marking a 24.4% increase from 2021. Of these, 64.8% were fraud related. The rise in cybercrime poses a serious threat to financial inclusion, emphasizing the need for effective, accountable, and transparent institutions as outlined in SDG 16 (Peace, Justice, and Strong Institutions).
Addressing the Digital Divide
The digital divide remains a significant barrier to financial inclusion. While many have embraced digital banking, a substantial portion of the population still lacks access to necessary technology or digital literacy skills. This divide can exacerbate existing inequalities, undermining efforts to achieve SDG 10 (Reduced Inequality). Efforts to promote digital financial inclusion must address these disparities to ensure universal benefits.
Conclusion
Financial Inclusion plays a critical role in multiple SDGs, namely, SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation, and Infrastructure), SDG 10 (Reduced Inequality), SDG 16 (Peace, Justice, and Strong Institutions). Its wide impact necessitates trust in digital systems through safety, security, and effective regulations. This is essential for the sustained success of financial inclusion initiatives. As users, one must be aware of potential risks and remain vigilant with digital technology. However, long term financial inclusion can be envisaged only when redressal speed of fraudulent transactions matches the speed at which one boards and transacts in the digital financial world.
References
- RBI Annual Report FY 2023
(https://rbi.org.in/Scripts/AnnualReportMainDisplay.aspx)
- Crime in India 2022 published by National Crime Records Bureau
https://ncrb.gov.in/crime-in-india-year-wise.html?year=2022&keyword=
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