Volume 8, Issue 11, November – 2023 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Challenges and Opportunities of Digital Financial

Services for Low-Income Populations
1
Anushuya Ghosh (Post Graduate Management Student), 2Vishnu Suresh K (Post-Graduate Management Student)
3
Dr.Vinoth S (Professor), 4Dr. Gopalakrishnan. C (Associate Professor)
Faculty of Management, CMS Business School, Jain Deemed to be University, Bangalore

Abstract:- This research focuses on the challenges and balance between protecting consumers and promoting
opportunities associated with digital financial services innovation in the DFS sector. Despite these challenges,
for low-income populations. The study reveals that low- there are a number of opportunities for DFS to improve the
income individuals face several barriers to accessing and lives of low-income populations. DFS can help to reduce
utilizing digital financial services. These challenges poverty by providing access to credit, savings, and insurance
include limited awareness or knowledge about such products. It can also help to boost economic growth by
services, lack of trust, inadequate digital literacy and making it easier for businesses to access finance and by
skills, high costs, insufficient infrastructure, and poor improving financial inclusion.
mobile network coverage. Addressing these challenges is
crucial to enable greater adoption and usage of digital The future of DFS for low-income populations is
financial services among low-income populations. Digital bright. With the right policies and investments, DFS can
financial services offer opportunities for low-income help to lift millions of people out of poverty and create a
populations, such as increased access to financial more inclusive financial system. In addition to the
services, enhanced financial literacy and management, challenges and opportunities mentioned above, there are a
reduced transaction costs, improved transparency in number of other factors that need to be considered when
financial transactions, and facilitation of e-commerce developing DFS for low-income populations. These include:
activities. These opportunities have the potential to
empower low-income individuals, promote financial  The need for culturally appropriate products and services
inclusion, and improve their overall financial well-being.  The importance of building trust with customers
Users of digital financial services highly value the  The need to address gender inequality
convenience, improved financial management, faster  The need to mitigate the risks of financial exclusion
transactions, lower fees, increased access to services,
savings and investment options, and enhanced financial By taking all of these factors into account, it is possible
security provided by these services. to develop DFS that can truly benefit low-income
populations. In recent years, the proliferation of digital
Keywords:- Digital Financial Services, Opportunities, technologies has revolutionized various aspects of our lives,
Challenges, Benefits, Risks. including the way we conduct financial transactions. Digital
financial services (DFS) have emerged as a transformative
I. INTRODUCTION tool, offering individuals and businesses convenient,
affordable, and secure alternatives to traditional banking
Digital financial services (DFS) have the potential to services. With the ability to reach remote areas and
revolutionize the way low-income populations access and marginalized populations, DFS holds significant potential
manage their finances. However, there are a number of for promoting financial inclusion, particularly among low-
challenges that must be overcome in order to realize this income populations. Despite the potential benefits, low-
potential. One of the biggest challenges is the lack of digital income populations face unique challenges in accessing and
infrastructure in many low-income countries. This includes utilizing digital financial services. These challenges arise
things like reliable internet access, electricity, and mobile due to a multitude of factors, including limited digital
phone coverage. Without this infrastructure, it is difficult to literacy, inadequate infrastructure, lack of formal
deliver DFS to remote and underserved communities. identification, and a dearth of tailored financial products and
services. Therefore, it is crucial to examine and understand
Another challenge is the low levels of financial literacy the specific challenges and opportunities that DFS present
among low-income populations. This can make it difficult for low-income populations in order to develop effective
for them to understand and use DFS products and services. strategies for promoting financial inclusion and reducing
Financial literacy programs can help to address this inequality.
challenge, but they need to be tailored to the specific needs
of low-income populations. Finally, there are a number of
regulatory challenges that must be addressed in order to
promote the growth of DFS. These include things like
licensing requirements, data privacy regulations, and anti-
money laundering regulations. Governments need to strike a

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II. REVIEW OF LITERATURE population. E- Banking activity in rural India results in
increased usage of financial services and improved living
Kamini Rai and Punita Trivedi (2020), Digitalized conditions due to the technological involvement in financial
world is the part of developing country. Nowadays, inclusion. Financial inclusion, because of digital financial
Information acts as a fuel for upgrading knowledge and services, also promotes economic growth. The purpose of
brainpower. It encompasses the revolution of the value this research is to identify the factors that influence the
creation of the companies. Innovation has the key to work adoption of digital financial services, as well as people's
on effectiveness and efficiency. To sustain in the market, it intentions to use them. This study is exploratory in nature,
is important to have an idea about how important and most with an emphasis on utilizing secondary sources of data
preferred digitalized platform has become. Making a stand related to financial inclusion to better understand new
as the smart organization includes the need of virtual policy. banking technology and people's perceptions on adoption
Successful organizations are observed for their digital and usage of banking services.
services providing to their valuable customers. But
technology cannot be the only prospective; rather it included Stella & Durai, (2019) tries to understand the Impact
all the PESTL features. These are political, economic, of Digital Finance on Financial Inclusion. Financial
social, technological, and legal prospective. Knowledge of inclusion is defined as having access to financial goods and
how digital financial services are going to work is necessary services such as bank accounts, insurance, remittance and
for everyone to gain. We can get to know about how it is payment services and financial advisory services. It allows
worth for future. consumers to plan for future stability by providing a high
rate of bank deposit that provides a stable deposit base as
MG Van Niekerk and NH Phaladi (2020), Digital well as chances to save, invest, and get credit. Several banks
financial services (DFSs), being financial services accessed have implemented new banking technology to handle the
and delivered through digital channels, have grown rapidly "Digital Finance" scenario, which really is novel to banking
in South Africa as well as globally. The adoption of the customers. Thus, digital finance has restructured the
technology for DFSs has led to an increase in financial banking business.
inclusion, enabling more individuals and businesses to have
access to useful and affordable financial products and Bachas et al (2018) did a study on how digital
services, where payments, savings, credit, investment and financial services go a long way. As per the study, debit
insurance are included. The challenges that threaten the cards shorten the distance required to access bank accounts,
interests of customers should be addressed by stricter hence improving financial inclusion. In Mexico, recipients
information verification methods when transacting with of money transfers who had their funds stored into bank
clients online. Technological detectors and digital accounts and accepted debit cards reduced their distance
identification should be used more effectively to verify travelled to the account from 4.8 to 1.3 kilometres and
customers and to alert authorities to suspicious transactions. mentioned being less likely to give up essential tasks to
Financial institutions might consider authenticating online withdraw their transfer. They identified a significant
transactions by thumb-print or a voice recognition system. negative correlation between travel distance reduction and
financial behaviour using account-level data: users with the
Gladys Siwela and Tavonga Njaya (2021), the highest distance reduction increased both the frequency of
research confirms that mobile technology has brought withdrawals and the amount saved.
transformative power to the non–banked and under banked
population particularly females working in the informal  Research Objectives
sector in Zimbabwe. While mobile banking has become a The primary objective of this research is to explore the
major banking option to avert cash shortages, the major challenges and opportunities associated with digital
challenge that still needs to be addressed is that of financial services for low-income populations. By
affordability of mobile phones and the high cost of data. addressing this objective, we aim to gain a comprehensive
Affordability has emerged as a prohibitive factor in understanding of the factors that hinder or facilitate the
financial inclusion despite the extreme convenience, adoption and usage of DFS among low-income individuals
reliability and accessibility that mobile phones. The study and communities. Specifically, this research seeks to:
unveiled that opportunities brought by mobile banking to
financial inclusion as recommended by the United Nations  Examine the Factors influence your usage of digital
though the Sustainable developmental goals (SDG’s), have financial services.
brought relief to millions of previously excluded and  Understand the digital financial services opted and
underserved populations the world over. Mobile money adopted by the respondents.
service providers should also offer ancillary tools such as  Identify the key challenges faced by low-income
accounting and inventory management, in order to assist populations in accessing and utilizing digital financial
females in the informal sector to better manage digital services.
payments.  Investigate the opportunities provided by DFS in
promoting financial inclusion and socioeconomic
Deepika Saxena & Nihanshi Goyal (2022), Digital development among low-income populations.
financial inclusion refers to the internet access to use the  Analyse the various benefits experienced by the
formal financial services by excluded and underserved respondents.

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III. RESEARCH METHODOLOGY purposive sampling techniques may be employed to recruit
participants who meet the low- income criteria. Structured
The research design could be a direct approach, purely surveys or questionnaires could be developed to collect
the quantitative methods to gather a comprehensive quantitative data on the challenges and opportunities faced
understanding of the challenges and opportunities. This by low-income individuals in utilizing digital financial
approach allows for a more nuanced exploration of the services. The questionnaire could include demographic
topic. A thorough literature review would be conducted to information, financial behaviour, access to technology,
examine existing studies, reports, and scholarly articles on perceptions, and experiences with digital financial services.
digital financial services and their impact on low-income The quantitative data collected through
populations. This step helps in identifying gaps in surveys/questionnaires could be analysed using statistical
knowledge and informs the research framework. A suitable techniques such as descriptive statistics, cross tabulation,
sampling strategy would be implemented to ensure and ranking analysis. This analysis would help identify the
representation of low-income populations. This could key challenges and opportunities associated with digital
involve selecting specific geographic areas or communities financial services for low-income populations.
with a significant low-income population. Random or

IV. RESULTS AND ANALYSIS

Table 1 Demographic Profile of the Respondents:

Category Variables Count Percentage
18-24 85 77.27%
25-34 18 16.36%
Age 35-44 3 2.73%
45-54 4 3.64%
Grand Total 110 100.00%
Female 42 38.18%
Gender Male 68 61.82%
Grand Total 110 100.00%
Employed 28 25.45%
Self-employed 13 11.82%
Occupation Student 64 58.18%
Unemployed 5 4.55%
Grand Total 110 100.00%
Graduation 33 30.00%
Post-Graduation 66 60.00%
Education Primary education 1 0.91%
Professionals 7 6.36%
Secondary education 3 2.73%
Grand Total 110 100.00%

Fig 1 Demographic Profile of the Respondents

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The majority of the respondents (77.27%) fall within group is students, accounting for 58.18% of the sample. The
the age range of 18-24, indicating that the sample is skewed employed category represents 25.45% of the respondents,
towards younger individuals. A smaller percentage of while self-employed individuals make up 11.82%. A smaller
respondents (16.36%) belong to the age group of 25-34. The percentage of respondents (4.55%) are unemployed. The
age groups of 35-44 and 45-54 represent only a small majority of respondents have post-graduation education
portion of the sample, with percentages of 2.73% and 3.64% (60.00%), followed by graduation (30.00%). A small portion
respectively. The data shows that the majority of of respondents have secondary education (2.73%), while
respondents (61.82%) are male, while 38.18% are female. primary education represents only 0.91% of the sample. A
There is a higher representation of males compared to small percentage of respondents (6.36%) identify
females in the sample. Among the respondents, the largest themselves as professionals.

Table 2 Digital Financial Services Adoption

Digital financial services Daily Monthly Never Rarely Weekly Grand Total
Mobile Money, Online Banking, E-wallets, Internet Services 25 0 0 1 2 28
Online Banking 12 1 0 1 2 16
Mobile Money 15 0 0 0 0 15
Online Banking, E-wallets, Internet Services 9 0 0 3 1 13
Mobile Money, Online Banking, Internet Services 7 0 0 0 1 8
Mobile Money, Online Banking 4 0 1 0 2 7
Online Banking, Internet Services 4 0 0 1 0 5
Internet Services 3 1 0 0 0 4
Online Banking, E-wallets 4 0 0 0 0 4
E-wallets 1 1 0 0 1 3
Mobile Money, E-wallets 3 0 0 0 0 3
Mobile Money, Internet Services 3 0 0 0 0 3
Mobile Money, Online Banking, E-wallets 1 0 0 0 0 1
Grand Total 91 3 1 6 9 110

 Mobile Money: respondent uses it monthly, and one respondent rarely uses
Out of the total respondents, 91 individuals use Mobile it. There are no respondents who never use E-wallets or use
Money services daily, while 3 individuals use it monthly. it weekly. The grand total for E-wallets is 3. Internet
There are no respondents who never use Mobile Money, and Services: Three respondents use Internet Services daily,
rarely use it. Two respondents use Mobile Money services while one respondent uses it monthly. There are no
weekly. The grand total for Mobile Money is 28. Online respondents who never use Internet Services, rarely use it, or
Banking: Of the total respondents, 12 individuals use Online use it weekly. The grand total for Internet Services is 4.
Banking services daily, while 1 individual uses it monthly. From the given data, it appears that Mobile Money is the
There are no respondents who never use Online Banking, most commonly used digital financial service, followed by
and rarely use it. Two respondents use Online Banking Online Banking and E-wallets. Internet Services have the
services weekly. The grand total for Online Banking is 16. lowest usage among the respondents.
E-wallets: One respondent uses E- wallets daily, one

Table 3 Factors Influence Your Usage of Digital Financial Services

Factors 1 2 3 4 5 6 7 Rank Weight
Convenience 44 7 15 13 4 7 20 4.75
Affordability 31 15 20 12 11 12 9 4.74
Accessibility 33 10 16 15 9 11 16 4.51
Security 18 20 24 18 5 13 12 4.46
Trust 20 15 22 22 6 13 12 4.40
Lack of awareness or knowledge 20 10 21 20 6 15 18 4.10
Others 22 8 23 17 6 10 24 4.06

 Convenience:  Affordability:
This factor received the highest rank weight of 4.75, Affordability is the second most influential factor with
indicating that it is perceived as the most influential factor a rank weight of 4.74. It suggests that users consider the
affecting the usage of digital financial services. Users value cost-effectiveness and value for money when deciding to
the convenience provided by these services, such as ease of use digital financial services. Lower fees, competitive rates,
use, quick transactions, and anytime access. and attractive offers can encourage adoption.

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 Accessibility:  Lack of Awareness or Knowledge:
Accessibility ranks third with a weight of 4.51. This This factor ranks sixth with a weight of 4.10. It implies
implies that users place importance on the availability and that users may not fully adopt digital financial services due
ease of access to digital financial services. Factors like user- to a lack of awareness or understanding about their benefits
friendly interfaces, compatibility with different devices, and or features. Educating users about the advantages and
widespread availability contribute to their decision-making. functionality of these services could potentially increase
adoption.
 Security:
Security is ranked fourth, suggesting that users  Others:
prioritize the safety and protection of their financial The "Others" category encompasses factors not
information. A weight of 4.46 indicates that while it is specifically listed in the table. It ranks last with a weight of
significant, other factors may have slightly more influence. 4.06, indicating that these factors have the least influence on
Users value measures like encryption, multi-factor usage. The specific factors in this category are not provided,
authentication, and robust privacy policies. so it is difficult to draw further conclusions without
additional information.
 Trust:
Trust ranks fifth with a weight of 4.40. This suggests
that users consider the reputation and reliability of the digital
financial service provider. Trust can be built through
transparent practices, positive customer experiences, and
effective customer support.

Table 4 Potential Risk Associated with Digital Financial Services for Low-Income Populations
Risk factors Female Male Grand Total
Increased risk of fraud and cyberattacks 11 10 21
Increased risk of fraud and cyberattacks, Over-indebtedness and financial instability due to
easier access to credit, Lack of consumer protection and redress mechanisms, Dependence on
digital financial services, which can lead to financial exclusion if systems fail, Lack of privacy 6 14 20
and data protection in financial transactions, Increased risk of financial exclusion due to
exclusion from digital financial services
Increased risk of financial exclusion due to exclusion from digital financial services 1 4 5
Over-indebtedness and financial instability due to easier access to credit 1 4 5
Increased risk of fraud and cyberattacks, Over-indebtedness and financial instability due to 4 4
easier access to credit
Dependence on digital financial services, which can lead to financial exclusion if systems fail 3 3
Increased risk of fraud and cyberattacks, Dependence on digital financial services, which can
lead to financial exclusion if systems fail, Lack of privacy and data protection in financial 2 1 3
transactions
Increased risk of fraud and cyberattacks, Lack of consumer protection and redress 1 2 3
mechanisms
Increased risk of fraud and cyberattacks, Lack of consumer protection and redress 3 3
mechanisms, Lack of privacy and data protection in financial transactions
Over-indebtedness and financial instability due to easier access to credit, Dependence on 2 1 3
digital financial services, which can
lead to financial exclusion if systems fail, Lack of privacy and data protection in financial
transactions

The data presents potential risks associated with digital due to easier access to credit, lack of consumer protection
financial services for low-income populations, categorized and redress mechanisms, dependence on digital financial
by gender. The analysis reveals that the most commonly services leading to potential exclusion, and lack of privacy
identified risk is an increased risk of fraud and cyberattacks, and data protection in financial transactions. Other risks,
with a total of 21 respondents acknowledging this concern. such as financial exclusion due to exclusion from digital
The data also indicates that 20 respondents recognize a financial services and over-indebtedness, were identified to
combination of risks, including increased fraud and a lesser extent. Furthermore, the data highlights that males
cyberattack risks, over-indebtedness, financial instability tend to identify risks more frequently than females.

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Table 5 Challenges Faced in Accessing and using Digital Financial Services
Challenges faced in accessing and using digital financial Agree Disagree Strongly Strongly Undecided
services Agree Disagree
Lack of awareness or knowledge 45 4 42 1 18
Lack of trust in digital financial services 50 4 34 1 21
Lack of digital literacy and skills 53 5 34 1 17
High cost of digital financial services 30 25 10 5 40
Inadequate infrastructure for digital financial services 41 18 18 2 31
Poor mobile network coverage 43 9 24 6 28

The data indicates that a significant number of navigate and utilize these services. The data suggests that a
respondents (45) agree and strongly agree that lack of significant proportion of respondents (30) agree that the
awareness or knowledge is a challenge in accessing and high cost of digital financial services is a challenge. This
using digital financial services. This suggests that there is a indicates that affordability is a concern for individuals, and
need for educational initiatives and awareness campaigns to reducing costs or introducing more affordable options could
improve understanding and familiarity with these services. enhance accessibility. Considerable number of respondents
Similarly, a substantial number of respondents (50) agree (41) agree that inadequate infrastructure is a challenge. This
and strongly agree that lack of trust in digital financial implies that the availability of reliable and efficient
services is a challenge. This highlights the importance of infrastructure, such as internet connectivity and
building trust through transparent practices, strong security technological support, is crucial for the widespread adoption
measures, and effective customer support to encourage and use of digital financial services. A notable number of
adoption. Majority of respondents (53) agree and strongly respondents (43) agree that poor mobile network coverage
agree that lack of digital literacy and skills poses a challenge is a challenge. This suggests that network connectivity
in accessing and using digital financial services. This issues hinder individuals' ability to access and use digital
emphasizes the need for digital literacy programs and user- financial services, emphasizing the importance of improving
friendly interfaces to enable individuals to effectively network coverage in underserved areas.

Table 6 Opportunities do Digital Financial Services Provide for Low-Income Populations

Opportunities Variables Agree Disagree Strongly Agree Strongly Disagree Undecided
Increased access to financial services 48 3 44 2 13
Enhanced financial literacy and management 52 1 31 2 24
Reduced transaction costs 46 4 30 4 26
Increased transparency in financial transactions 50 5 35 1 19
Facilitation of e-commerce activities 45 2 43 1 19

The data indicates that a significant number of provide cost-effective alternatives to traditional banking
respondents (48) agree and strongly agree that digital methods, potentially lowering the financial burden on low-
financial services provide increased access to financial income individuals. Significant number of respondents (50)
services for low-income populations. This suggests that agree and strongly agree that digital financial services
these services have the potential to bridge the gap and contribute to increased transparency in financial
provide financial inclusion to individuals who may have transactions. This implies that the use of digital platforms
limited access to traditional banking services. Majority of provides individuals with greater visibility and clarity in
respondents (52) agree and strongly agree that digital their financial dealings, potentially reducing the risk of fraud
financial services can enhance financial literacy and or hidden fees. Out of 110, 45 respondents agree and
management among low-income populations. This implies strongly agree that digital financial services facilitate e-
that these services offer educational resources, tools, and commerce activities for low-income populations. This
features that enable individuals to better understand and suggests that these services enable individuals to participate
manage their finances. Considerable number of respondents in online transactions, expanding their economic
(46) agree that digital financial services offer reduced opportunities and potentially improving their financial
transaction costs. This indicates that these services may situations.

Table 7 Benefits from using Digital Financial Services

Benefits Experienced by the Respondents Rank Score
Convenience and ease of use 4.91
Improved financial management and budgeting 4.81
Faster and more efficient financial transactions 4.79
Lower transaction fees and charges 4.77
Improved access to financial services 4.74
Increased savings and investment options 4.68
Improved financial security and fraud prevention 4.51

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Fig 2 Benefits from using Digital Financial Services

Convenience and ease of use benefit has received the particularly post-graduation. The occupation and education
highest rank score of 4.91, indicating that users highly value profiles suggest that the research findings may be more
the convenience and ease of using digital financial services. representative of young, educated individuals, potentially
This suggests that the accessibility and user-friendly nature limiting generalization to other demographic groups. It is
of these services contribute to a positive user experience. important to consider these demographic characteristics
With a rank score of 4.81, this benefit is highly regarded by while interpreting and applying the research findings, as
individuals using digital financial services. It implies that they may impact the relevance and applicability of the
these services offer tools and features that assist users in results to the broader population. The most popular digital
effectively managing their finances and creating budgets, financial service is mobile money, followed by online
leading to improved financial control. Ranking third with a banking and e-wallets. The respondents' utilisation of
score of 4.79, this benefit highlights the speed and efficiency Internet services is the lowest.
provided by digital financial services. Users appreciate the
swift processing and reduced time required for financial Under factors influence on usage of digital financial
transactions compared to traditional methods. Lower services - convenience, affordability, accessibility, security,
transaction fees and charges benefit, ranked fourth with a trust, and awareness/knowledge are the primary factors, with
score of 4.77, indicates that individuals perceive cost savings convenience and affordability being the most influential.
through reduced transaction fees and charges when using The low-income populations recognize the risks of fraud
digital financial services. This implies that these services and cyberattacks as well as a combination of risks related to
offer more affordable options, potentially making financial over-indebtedness, financial instability, consumer
transactions more accessible to a broader population. protection, exclusion, and data privacy when using digital
Improved access to financial services was ranking fifth with financial services. These findings highlight the importance
a score of 4.745, this benefit suggests that digital financial of addressing these risks to ensure the safety and financial
services have expanded access to financial products and well-being of low-income individuals in the digital financial
services for users. This can include accessing banking landscape. The research reveals that challenges in accessing
services, loans, investment opportunities, and other financial and using digital financial services include lack of awareness
offerings. Increased savings and investment options - With a or knowledge, lack of trust, lack of digital literacy and skills,
rank score of 4.68, this benefit signifies that users appreciate high costs, inadequate infrastructure, and poor mobile
the availability of diverse savings and investment options network coverage. Addressing these challenges through
through digital financial services. It implies that these education, building trust, enhancing digital literacy,
services provide users with opportunities to grow their reducing costs, improving infrastructure, and expanding
savings and engage in investment activities. Improved network coverage can contribute to overcoming barriers and
financial security and fraud prevention received a rank score facilitating greater adoption of digital financial services.
of 4.51, indicating that individuals using digital financial Digital financial services offer several opportunities for low-
services perceive enhanced financial security and fraud income populations, including increased access to financial
prevention measures. This suggests that these services offer services, enhanced financial literacy and management,
robust security features and protection against fraudulent reduced transaction costs, increased transparency in
activities. financial transactions, and facilitation of e- commerce
activities. These opportunities have the potential to
V. FINDINGS AND DISCUSSIONS empower low-income individuals, promote financial
inclusion, and improve their overall financial well-being.
The research sample primarily consists of young The research has indicated that users of digital financial
individuals between the ages of 18-24, with a higher services highly value the convenience, improved financial
representation of males. The sample includes a significant management, faster transactions, lower fees, increased
proportion of students, indicating that the findings may access to services, savings and investment options, and
be more applicable to this group. The majority of enhanced financial security provided by these services.
respondents have attained higher levels of education,

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VI. CONCLUSION Papers and Proceedings (Vol. 108, pp. 444-48).
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