*1.1. History and Definition of Digital Financial Inclusion*

Financial inclusion refers to the number of adults having access to banking or financial services. The Global Findex Survey reported that in the 15+ age group, 79.9% of the population had accounts with financial institutions in the year 2017 (Demirguc-Kunt et al. 2017). This meant a strong growth compared to 53.1% reported in the previous edition of the survey in 2014, and 35.2% in 2011. Nearly half of the world's adult population (or 3.5 billion people) are unbanked and underbanked (with limited or non-transactional access to finance). Of these 1.7 billion adults in the world without an account, China, India, Pakistan and Indonesia account for the largest unbanked persons.

The first step towards financial inclusion is having an account (Sarma 2015). Increasingly, digital payments are being used for financial transactions (Muneeza et al. 2018). Digital financial

inclusion is explained by the World bank as the deployment of cost-saving digital means to reach the financially excluded and the generally underserved population groups with formal financial services that are tailor-made to satisfy their needs (Alameda 2020). Wang and He (Wang and He 2020) also described digital financial inclusion as broad access to and use of formal financial services by the excluded or underserved individual. Digital financial inclusion began to attract the attention of many people as a result of the success of M-PESA, one of the payment innovations introduced in Kenya (Beck et al. 2018). With M-PESA, mobile money is used for digital payments (Dubus and Van Hove 2017; Van Hove and Dubus 2019). According to Wang and He (Wang and He 2020), digital financial inclusion in China represents more than a payment instrument as it includes three basic business formats which include digital payments, digital investment and digital financing.

Digital financial inclusion put more emphasis on the importance of information communication technology (ICT) in expanding the scale as well as the use of financial services by the previously disadvantaged individuals (Lauer and Lyman 2015; Wang and He 2020). The journey started with microcredit, microfinance and financial inclusion, then the journey is now striving for digital financial inclusion (Lauer and Lyman 2015). The word microcredit was first used to refer to institutions like the Grameen Bank of Bangladesh which was created to provide small loans to the poor (Chatterjee and Sarangi 2006; Wang and He 2020). In the early 1990s, the word microcredit was dominating before it was replaced by the word microfinance which was described as the supply of a variety of financial services which include savings, insurance, loans (Karlan and Morduch 2010; Wang and He 2020).

The field-based operation which was used by banks like Grameen where microcredit, microfinance and financial inclusion was developed, weakened the efficiency of these banks in serving the poor (Visser and Prahalad 2013). The existence of ICT and AI made it possible for financial inclusion to change to digital financial inclusion which is the fourth stage which will change the lives of those individuals at the bottom of the pyramid (Visser and Prahalad 2013). Wang and He (Wang and He 2020) indicated that to do business with people at the bottom of the pyramid requires unique business models and radical innovations such as AI. Wang and He (Wang and He 2020) noted that digital financial inclusion is different from traditional financial inclusion because digital financial services reduce transaction costs in rural areas due to lower marginal costs. When relying on ICT digital financial services require no physical outlets. However, coming up with new technologies face higher start-up costs to have them established, but their marginal costs normally move towards zero when business volume increases (Liao et al. 2020).

The use of AI and various ICT tools helps to overcome the major problem of traditional financial inclusion which is information asymmetry (Gomber et al. 2017). Online services and products offer a lot of information to customers which could not be accessible without the use of digital services. The availability of this information helps to reduce information asymmetry between the financial institutions and individuals (Gomber et al. 2017).

The important components of digital financial inclusion include but are not limited to digital transaction platforms, which allow customers to make payments and to store electronic value (Peric 2015; GPFI 2017). The other important aspect provided by digital finance is devices which are used by customers which can either be digital devices like mobile phones that can transmit information or instruments like payment cards that can be used to connect with digital devices like point of sale terminals (Alameda 2020; Bill & Melinda Gates Foundation 2019). Moreover, digital financial inclusion is characterized by retail agents with digital devices connected to communication infrastructure that will transmit and receive transaction details. This activity allows customers to convert cash into electronically stored value also referred to as cash in or to convert back the stored values back into cash which can also be referred to as cash-out (Peric 2015). With digital financial inclusion, additional financial services like credit, insurance and even savings can be offered by banks and non-banks to the financially excluded and those underserved individuals through digital tools like AI.

As articulated by Peric (2015) the benefits of digital financial inclusion include access to formal financial services by the financially excluded individuals, and the fact that digital financial services and products are offered at a lower cost to the customer and the provider. This allows customers to transact in irregular tiny amounts to assist them to manage their uneven incomes (Koh et al. 2018). Additionally, with digital financial inclusion, it is possible to have additional financial services tailor-made for customers' needs and financial circumstances which are made possible by the value storage services embedded in it and the data generated within it (Bourreau and Valletti 2015). Digital financial services also help to reduce risks of loss, theft, and other financial crimes posed by cash-based transactions, as well as the reduced costs associated with transacting in cash and using informal providers (Muneeza et al. 2018). Again, it can also promote economic empowerment by enabling asset accumulation for women, in particular, increasing their economic participation (David-West 2015; Peric 2015).
