Digital Finance and Illiteracy: Four Critical Risks

For financial service providers trying to garner new clients in the developing world, illiteracy awareness is extremely important. Many countries around the developing world still have high rates of illiteracy, and most financial services are not designed well for illiterate users. This means that tens of millions of people around the world cannot be effectively reached with financial services. At the Helix Institute, we are working with financial service providers to help them earn new clients and increase profits. Part of this equation is understanding how products and services can better serve those who cannot read.

The Data
While countries like Indonesia and Kenya report high rates of literacy, in the other nine countries where The Helix Institute conducts its research, 27%-62% of adults are not literate. These are enormous groups of people that may not be able to effectively benefit from digital finance, and the gender break down in the table below further shows how this disproportionately affects women.

The Case of Uganda
For the Agent Network Accelerator (ANA) project, researchers conducted over 30 qualitative interviews with agents and customers in Uganda. We found four major risk areas for illiterate people and recommend investigating in other countries where illiteracy is prevalent:

1. Enrollment without Informed Consent
2. Public Secret PIN
3. The Dubious Office Fee
4. Inability to Conduct P2P Transfers

Enrollment without Informed Consent: The issues we observed start with the enrolment process, in which forms need to be filled out in English. The clients we spoke with noted they went to a local agent, who would verbally ask them questions and then fill the form in for them. The clients have no idea what is actually entered into the form, much less what is stipulated in the terms and conditions that are included in the small print on it, yet at the end, they diligently dip their thumbs in ink and stamp their agreement to the foreign characters on the page in front of them.

Beyond the legal question of informed consent, there are practical issues about the understanding these clients have about the contract. The content of these terms is actually important and seems to contain dubious provisions. For example, The Bank of Uganda Mobile Money Guidelines (2013) Article 3.b.i, hold a mobile money service provider liable for the actions of its agents. However, one major provider’s terms and conditions state:

“...no agency relationship exists between [the provider] and the Agents and we accordingly bear no responsibility or liability for any default or negligence on the part of the Agents in providing the MOBILE MONEY Services” and “You [the customer] are responsible for resolving any disputes arising with any other Customer or an Authorized Retailer.”

Further, Article 12.b of the BoU Guidelines stipulates that, “The agreement shall be explained by the agent clearly and in plain language”, which makes us wonder whether illiterate people would still sign up for the service if they were to read a statement that said, “While we brand the agents with our logos, any transaction you do with them is between you and them, and if for some reason something goes wrong, you are on your own”. It seems clear that this form-based enrollment process is not designed for illiterate people and exposes them to risks that they may be unaware of having taken.

Public Secret PIN: For some services, PIN creation is done at the time of registration, and for others it is done later once the registration has been processed and the account is activated. Either way, it is not designed for those that cannot read. Prompts, which must be followed, are given on the screen of the mobile phone. The clients we consulted reported that the agent had to do this for them as they could not understand the process. The agent asks them for a four digit code; the client selects a code, which the agent sets for them. The code is repeated verbally and might also be recorded on a piece of paper that is then given to the client so that they can remember it.

This practical solution does allow illiterate people to sign up for the service, but it completely disregards the necessary secrecy of the PIN. Customers reported having to hide this code in their house, so that even their family members could not find it. Another direct impact of this is that it ties the client to that specific agent, which creates a completely skewed power dynamic between the customer and the agent. Since the customer cannot read the prompts on the phone, they need an agent’s help to conduct their future transactions, and would therefore have to disclose their PIN to an additional agent if they decided to transact elsewhere. Some customers can memorize the PIN and the series of steps on the interface, however this does not seem like the norm as many people are afraid of sending money to the wrong number, or of their PIN being blocked.

The Dubious “Office Fee”: The clients also reported a disturbing process for withdrawing money at agents. The agent first asks them how much they want to withdraw from their mobile wallet, and then tells them how much it will cost. The customer hands over the handset to the agent who conducts the transaction for them including entering the PIN. The agent returns the handset, with the cash withdrawn, minus the verbally stated fee, and an additional “Office Fee”, which the agent levies by withdrawing an additional 1,000 USH (US$0.27). The clients reported that they knew this was not an official charge (it is also prohibited in The Bank of Uganda Mobile Money Guidelines (2013), but did not feel that they could do anything about it. The tariff rates are usually displayed on the agency wall, but they cannot be effectively cited by someone that cannot read them.

Inability to Conduct P2P Transfers: When an SMS is sent to the clients, they take the phone to a trusted relative who can read it. Since the USSD prompts combined with SMS confirmations of transactions are crucial to being able to conduct a P2P transaction, they feel that it is not within their ability to use this functionality. When given the scenario of having e-float but no cash and being with a friend in the village to whom they owed money, they reported they might be able to find someone to conduct the transaction for them, but might also have to make the 15 kilometer journey to town to withdraw money so they could pay their friend in cash.

What Next?
As an industry, we need a better understanding of the prevalence of these issues. We can safely say that the majority of mobile money systems are just not set up for people who can’t read, and their use of the system exposes them to heightened risk of fraud, usurious fees, and only limited use of their m-wallet’s functionality. These issues need to be addressed head on.

Techniques like regular mystery shopping by providers to identify agents levying extra charges; voice recorded readings of key points in terms and conditions in the local vernacular; and IVR or more streamlined interfaces would help to minimize the risks faced by illiterate people and increase their use of digital finance.

We look forward to more efforts from digital finance providers and policymakers to address these issues.