Fintech For The Poor: Do Technological Failures Deter Financial Inclusion ?

By Padmanabhan Balasubramanian, S V Ravi Chandra, Aditya Murlidharan, Prasanna Tantri Apr 01, 2019

  

The utilization of technology in finance, particularly in high-end finance, is turning out to be ubiquitous. However, the effect of technology on the financial lives of the poor remains understudied. The conceivable impact of fintech on the formal financial dealings of the poor isn’t clear. A biometric confirmation prerequisite may lessen fraud. On the other hand, most destitute individuals live in developing nations, which don’t have vigorous infrastructure to help fintech exchanges, which prompts the probability of the failure of transactions. This may drive the poor away from formal finance .

The introduction of a biometric-enabled payment system in banking transactions of the poor and first-time bank account users in India has been used as an economic setting. The system, known as Aadhaar Enabled Payment System (AEPS), is based on a unique identifier provided to every citizen of India (Aadhaar authentication).

The paper analyses that the overall failure rate drops to 31.29%, biometric failure rate to 15.28%, technical failure rate to 3.47% and other non-technical failure rate to 12.55%. Therefore, it can be said that he failure rate is indeed high.

Univariate analysis reveals that the overall failure rate declines from 36% during the first age-quarter of the user to 19% during the tenth. Both biometric and non-technical failures decline with age. Therefore, it is evident that the failure rate decline with the user’s experience of using AEPS.

The paper also compares a user’s probability of engaging in a subsequent transaction, within a short time span, after a failed transaction and the same after a successful transaction, and the results remain almost unchanged. This points to the fact that transaction failure doesn’t deter the poor from using AEPS.

The revealed preference results show that the difficulties faced by the poor because of transaction failures in AEPS must be lower than the challenges faced while using alternative means such as visiting the bank branch or dealing with the informal banking economy prevalent in villages.

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