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Financial technology has evolved at a fast pace over the last decade. But its benefits have reached mostly those who have the technological know-how needed for it. Those who lack experience with technology face risks of exploitation by intermediaries, and also have less faith in online banking.

But an experiment from Bangladesh, conducted by Emily Breza of Harvard University and others, shows that giving digital wage payments to workers improves their spending behaviour and encourages them to learn banking by themselves. This effect is much lesser if workers are given bank accounts but are still paid wages in cash, since it makes the use of online banking optional.

The study is based on a survey of over 3,100 low-wage earners, of whom 23% got payments in cash and 56% got bank or mobile wage transfers. The rest also got the facility of bank accounts, but they were still paid in cash.

The workers were from Bangladesh’s manufacturing industry, had little or no education, and had low trust in formal banking. But over time, those receiving wages in banks became more likely to transact and save money. The authors note that these workers were 58% more likely to transact without needing external assistance than those who were provided with the facilities as an option.

The study finds that workers’ trust in formal banking grew sharply as they began engaging in banking transactions.

The study finds strong prevalence of learning-by-doing among inexperienced customers, and says that training and education on this front can benefit uneducated individuals the most. The authors also conclude that sending wages digitally has more benefits than just opening accounts.

The study makes a strong case for financial literacy and offers valuable insights to the banking industry for expansion in low-income countries where wages are usually paid in cash.

Also read: Learning to Navigate a New Financial Technology: Evidence from Payroll Accounts

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