THE traditional financial economy was already evolving towards a digital financial economy, even before Covid. However, during Covid and lockdowns more people, even those who were never consumers of digital finance, began to move towards digital finance.

The movement of the traditional brick and mortar financial industry towards a digital financial industry has been greatly hastened by the pandemic.

While the younger generation have been more immersed in digital economy, through online purchasing and online financial services, it cannot be assumed that young people automatically have all the skills, knowledge and understanding they need to apply the technology. They may be fully immersed in digital economy but are not necessarily digitally literate.

Digital financial economy is certainly a greater challenge for vulnerable groups such as senior citizens, those unskilled in technology as well as groups with limited access to both knowledge and skills, and the means to use technology effectively and safely.

Financial technology (Fintech), that is using software, applications and digital platforms to deliver financial services to consumers and businesses through digital devices such as smartphones, is being increasingly used by Malaysians as well as throughout the world, especially during lockdowns due to the pandemic.

Populations, such as senior citizens, who probably have never used Fintech before are being forced to do their banking online. However, improved access to financial services through Fintech requires higher levels of digital financial literacy for effective use of them and to avoid mis-selling; frauds such as phishing, hacking attacks, unauthorised use of data and discriminatory treatment and behavioural issues such as excessive borrowing. Thus, digital finance promises to be a major convenience as well as an effective means of reaching the unbanked, but its use must be accompanied by consumer information and education.

Digital financial literacy is likely to become an increasingly important aspect of education for the digital age. Consumers will need to have a higher level of financial sophistication to make effective use of Fintech products and services, and to avoid fraud and costly mistakes.

These developments point to the need to develop digital financial education programmes to improve digital financial literacy, with a focus on skills likely to be critical for those participating in the digital economy.

Consumers today are expected to take greater responsibility for their financial well-being. For example, the savings in the Employees Provident Fund is insufficient for most EPF contributors, and thus they need to take additional steps to prepare for retirement. Furthermore, to face medical costs which are increasingly expensive, consumers need to plan for their medical needs through healthcare insurance.

The decentralised nature of Fintech implies that consumers will also need to have increasing financial sophistication to process financial information. This points to the need for nations to include digital financial education in their national financial education strategies.

Digital financial literacy implies the knowledge of financial products and services, the awareness of digital risks and the ability to mitigate those risks, and the awareness of consumer rights and redress mechanisms.

Firstly, consumers should be aware of financial products and services provided through digital means such as the internet and mobile phones. These services generally fall into three major categories: Payment systems such as electronic money, phone wallets and remittance services; asset management services such as internet banking, personal financial management and mobile investing; finally are other services such as internet based insurance services.

Secondly, in addition to being aware of digital financial services, people should be able to compare the pros and cons of each available service. Such knowledge would help them understand the basic functions of different types of digital financial services for personal purposes. Consumers should be aware of digital financial risks and how to mitigate these risks.

Individuals need to understand the additional risks they may incur when using digital financial services, which are more diverse but sometimes harder to spot than those associated with traditional financial products and services.

Users of digital financial services should be aware of the existence of online fraud and cyber security risks. They face a multitude of potential risks, such as phishing, (when a hacker pretends to be an institution in order to get the user to divulge personal data, like usernames or passwords, via emails or social networks), pharming (when a virus redirects the user to a false page, causing her to divulge personal information) and spyware (when malicious software inserts itself into the users’ personal computer or mobile phone and transmits personal data).

Digital financial service users should also be aware that their digital footprint, including information they provide to service providers, may also be a source of risk, even if it does not result directly in loss, including profiling whereby users may be excluded from access to certain services based on their online data and activities, and hacking whereby thieves may steal personal data from their online activities, such as on social networks.

Due to easy access to credit enabled by Fintech, consumers of digital financial services could also face potential problems of over-borrowing or excessively high-interest rates. Such risk can trigger unexpected and large losses when the service providers are not regulated or only weakly regulated. Over-borrowing may also harm their credit rating. Users should fully understand the terms and conditions stipulated in contracts they digitally sign with service providers. They should also be aware of (risky) implications of digital contracts.

They should understand that digital financial service providers may use their personal information for other purposes, such as calculating their credit demands, advertising and credit evaluation. In terms of financial risks, easy access to finance may lead to over-borrowing.

Consumers should not only be aware of the risks but measures on how to mitigate these risks, for example they should learn to use computer programmes and applications to avoid phishing and spamming. They should also know how to protect their personal identification number and other personal information when using financial services provided through digital means.

Finally, consumers should be aware of consumer rights and redress procedures, in cases where users fall victim to the above-mentioned risks. Users of digital financial services should understand their rights and know where they can go, and how to obtain redress if they fall victim to fraud or other loss.

In Malaysia, consumers need to understand the role of the Ombudsman of Financial Services, Consumer Forum of the Malaysian Communications and Multimedia Commission, Bank Negara Malaysia, Consumer Tribunal and police in addressing complaints related to online fraud and complaints on financial issues.

Currently, despite the increasing use of digital financing by all sectors of the economy by not only the younger generation but also the older and other vulnerable groups, there is little emphasis in Malaysia of empowering consumers in addressing the complexities in the digital economy.

The Federation of Malaysian Consumers Associations calls on policymakers to formulate and implement a National Programme for Digital Financial Literacy to empower all consumers to fully take advantage of the digital economy, understand the risks and take measures to mitigate these risks, and to better understand their rights as consumers and be aware of where to go to seek redress if they feel they have suffered losses due to the digital economy.


Paul Selva Raj is secretary-general of Federation of Malaysian Consumers Associations. Comments: letters@thesundaily.com