Merchant aversion, consumer fear identified as barriers to financial inclusion
A NEW demand side study on financial inclusion published by the Bank of Jamaica (BOJ) indicates that some retail merchants (small and micro-sized) did not offer digital payment options to consumers.
The BOJ has responsibility for coordinating the implementation of the National Financial Inclusion Strategy (NFIS). It is hoping to advance or increase access to financial services, particularly banking services and digital payments.
The NFIS also focuses on improving the financial data infrastructure to measure the impact of implementation of the NFIS for increased use of digital payments and banking services.
Released in the last week of January 2024, the new paper is entitled ‘National Financial Inclusion – Demand Side Study Final Report’. It was concluded in November 2023 and indicates that there are significant numbers of ‘banked’ persons who transact business in a merchant ecosystem where there is limited digital payment infrastructure, for example, merchants not offering services such as multi-link.
The report noted that the consumer’s ability to use digital payment methods is limited by the penetration of digital payment method acceptance. Such methods were accepted by less than half (45.7 per cent) of all outlets surveyed. Acceptance varied significantly between small and micro entities.
Specifically, small enterprises were significantly more likely than entities in the micro segment to accept digital payment methods and to accept varying procedures. While two-thirds (66.4 per cent) of micro enterprises surveyed did not accept any digital payment method, it was 10 per cent of small enterprises that accepted no digital payment method.
Overall, more than half (56.7 per cent) of small merchants accepted two or more methods of digital payment, while a third (33.3 per cent) facilitated only one method of digital payment.
In relation to ecommerce, it was found that among micro-businesses surveyed, the relevance of ecommerce was met with uncertainty. Less than four in 10 (37 per cent) micro enterprises endorsed ecommerce as being suitable to their products and services, and almost a similar number (38 per cent) agreed it offered advantages to their businesses.
Similar to small businesses, however, there was uncertainty as to both the financial and time cost of setup. Less than a quarter (23 per cent) of micro enterprises endorsed ecommerce as “not being expensive to implement”, and 27 per cent endorsed it as “not being time consuming to set-up”.
More than a third (39 per cent) of small businesses and micro-enterprises (27 per cent) surveyed thought ecommerce safe and secure.
Cash is a dominant means of transacting business (in terms of number of transactions). However, the report said that there was no clear evidence that there was an overall consumer attitudinal barrier to the current available digital transaction platforms.
Debit card and online banking were readily acceptable and used among many consumers. Notwithstanding, there were quality issues such as security and fraud considerations related to some forms of digital platforms, which have direct impact on national financial inclusion, while the study also indicates that individuals without a bank account were more likely to be from the lower socio-economic group and reside in rural areas. They tend to use cash for all their transactions.
While cash is a preferred payment option to most consumers, the study finds that financial inclusion, as defined in the study, was at 77.2 per cent.
This meant that in Jamaica, 22.8 per cent of adults did not have an account at any formal financial institution in the year 2023.
The report concludes that strategies focused on improving awareness, perceptions, and attitudes of consumers towards banking products and services would be more likely to deliver higher rates of consumer engagement.
The BOJ aims to increase usage of bank services and digital payment solutions by 50 per cent of Jamaican households and firms; and increase the percentage of the Programme of Advancement Through Health and Education welfare beneficiaries who receive their payments through (specialised) bank accounts and digital payments to 50 per cent of all welfare benefits.
While Internet access and smartphone penetration is considered high among the adult population – which are critical technologies for access and use of many digital financial platforms – the report noted that there is a significant barrier among most consumers to adopt these technologies to do banking and payment transactions due to perceived threats to privacy, security, and the potential for fraud to occur.
The paper states that awareness of the existence of some digital services is known but, “There appears to be limited understanding and knowledge about these products and services. Currently, high awareness has not translated to similarly high usage of these same services.”
A key finding of the study is that increasing access to owning bank accounts, as a strategy on its own, does not guarantee increasing financial inclusion.
It was recommended that new strategies are needed to increase engagement of banking products and services as increasing access does not automatically convert to usage.