Thresholds in Online Financial Services: The Role of Digital Skills

Summary 3
01 Introduction 5
02 What are digital skills? 6
Different types of digital skills 6
Functional and critical skills 7
Digital skills in financial services 7
Digital skills and digital accessibility 9
Conclusion 9
03 The importance of digital skills in our society 10 Government attention for digital skills 10 Financial sector attention for digital skills 10 04 Digital skills in the Netherlands: the figures 12 Access to the internet 12 Basic digital skills 12 Safe use of the internet 13 Digital skills in the future 14 Conclusion 14 05 Characteristics of people with limited digital skills 15 Type of education 15 Age 15 Origin 16 Low literacy 16 Labor market 16 Conclusion 16 06 Digital skills and access to the financial sector 17 Use of internet banking 17 Online payments 17 Experiences of people with limited digital skills in financial services 17 Experiences of people with limited digital skills in payments 18 Conducting inclusive research 19 Conclusion 20 07 Experiences of financial enterprises 21 Visibility of people with limited digital skills 21 Login issues cause most problems 21 Possible solutions 22 Insights from the Digital Coexistence Alliance 22 08 Conclusion 23 Insights 23 Recommendations 23

Summary 3

Our society is digitalizing increasingly. To participate in this, people need certain skills that enable them to use the internet to their advantage and to limit the risks of internet use – and to continue doing so in the future. Not everyone possesses these skills (sufficiently), or is able to acquire them. In this exploration, the AFM, based on existing research and conversations with experts, has attempted to answer the question of to what extent limited digital skills hinder access to financial services.

Research by the Rathenau Institute¹ and Kantar Public² concludes that respectively 79% and 88% of Dutch people are digitally skilled. These figures sound promising, but some caveats are in order. First, this means that 1 in 10 to 2 in 10 persons do not possess the basic skills needed to keep up in our society. Moreover, the percentages are based on self-reporting, where people tend to rate themselves as more skilled than they actually are. Additionally, it is likely that people with low digital skills are less inclined to fill out online questionnaires, making the sample unrepresentative; this also leads to an overestimation of digital skills. Finally, there is an increasing occurrence of splinter skills – the ability to handle only certain parts of digitalization. For example, people who say they can internet bank may be able to check their balance online, but they do not always succeed in opening a bank account online.³

Finally, we see that the extent to which people use the internet in a safe manner is likely much lower than the percentages for basic skills. People may, for example, be able to formulate search terms and type them into a search engine, but then find it difficult to assess whether the information they find comes from an objective source.

Although the CBS states that 86% of Dutch people used internet banking or mobile banking in the three months preceding the research⁴, this does not mean we need not worry about access to financial services for people with limited digital skills. That someone can internet bank does not mean that person does so safely. Furthermore, internet banking consists of various elements, such as checking the balance, transferring money, setting up a monthly transfer, and increasing the daily limit. From the research conducted so far, we cannot determine which elements a person exactly masters.

Additionally, payment and thus internet banking is one of the most essential and ingrained financial products. It is unclear how accessible more complex financial products are for people with low digital skills. The four phases of access to financial services – the orientation phase, the closing phase, the management phase, and the termination phase – require a broad range of skills. Someone who is able to use the app in the management phase is not necessarily able to search for and compare information in the orientation phase. We also do not know to what extent safety is secured there and whether this will still be possible in the future. Finally, there is a group that does not use the internet at all. They are dependent on physical offices and accept giro payments, while many offices are closing and accept giro payments are being abolished. They often seek help from others in their vicinity. This may seem like a nice solution, but it does not have to be: for the surrounding environment, this can mean a heavy burden. Moreover, most people have a deep-seated need to manage their finances independently.

4 CBS Statline figures on internet access and internet activities, 2022

Summary 4

constantly higher demands are placed on digital security, and a large group of customers has increasingly higher expectations of digital services. This creates a tension field. Nevertheless, we see that improvement is possible. It is therefore important for banks, insurers, and pension providers to (continue) working on improving services for people who cannot or can only partially participate digitally. This by acknowledging that this group exists, engaging in dialogue with them, and as a financial sector exchanging knowledge about efforts in research and effective solutions regarding this topic. We encourage research into aligning with existing infrastructures. Think, for example, of the broader use of DigiD, which is currently only allowed to be used by government organizations or organizations with a public task. Experience teaches that familiarity and routine increase ease of use, resulting in fewer people experiencing problems with logging in. To the extent that financial service providers fulfill a utility function, the expansion of the use of DigiD may be very promising. Here lies a role for the government, which regulates the use of DigiD. Additionally, we see possibilities to explore alignment with existing physical information and service points.

Elderly people, those with practical education, and low-literate individuals have a greater chance of having limited digital skills. The AFM also concluded in 2021 that for a part of the Dutch population with a migration background, digitalization hinders access to financial services.⁵ The expectation of the Digital Coexistence Alliance⁶ is that the number of people with limited digital skills will increase in the future. Many and rapid changes are taking place in the digital field. As a result, the skills people need are becoming increasingly sophisticated. Also, limiting the risks of internet use is becoming more difficult for people, because fraudsters are becoming more cunning, and security measures are consequently becoming more complex. Moreover, both elderly people and Dutch people with a migration background are making up an increasingly larger part of the population.

From the conversations the AFM has had with financial enterprises, it appears that it is difficult for them to gain visibility into the number of customers who experience thresholds due to limited digital skills, and what the potential consequences are. However, they are familiar with (part of) the problems that digitalization brings with it, with login difficulties being one of the most important. We conclude that it is difficult to capture problems regarding digital skills in figures. The methods currently used to gain visibility into these problems and possible solutions are often not suitable for people lacking or having limited digital skills, because they are difficult to reach. The problem is therefore likely underestimated. To bring these people and the thresholds they experience into view, it is important to actively look for them and talk to them about how problems with digitalization play a role in their daily lives. This offers financial enterprises insights into possibilities to make their services more accessible. The government can also play a role here. We acknowledge that applying these insights in the area of accessible services poses challenges for the financial sector. Because besides the fact that there is a group that experiences digitalization as a problem, there are

2.5 - 4 million people
experience problems in daily digital life

01 Introduction 5

This situation raises the question for the AFM to what extent financial services are accessible for people who are not or only partially digitally skilled. To answer this question, we started an exploration in the form of a literature study, conversations with experts from science and practice, and meetings with experts from the insurance, banking, and pension sectors. We also spoke with the Digital Coexistence Alliance, a foundation that strives to realize digital inclusion in our society. This report is the result of this exploration. In this report, we answer the following questions:

What are digital skills?
How many Dutch people have little to no digital skills?
What are the characteristics of people with little to no digital skills?
Where do people with little to no digital skills encounter obstacles when managing financial matters?
What are the experiences of financial enterprises regarding digital skills?

In the conclusion of this report, we discuss the insights this exploration has yielded and formulate some recommendations.

01 Introduction

Our society is digitalizing at a rapid pace. This also applies to the financial sector: we increasingly pay via QR codes, claim our damages online, and receive information about our pensions digitally. For a group of people, this makes their lives easier. But for many Dutch people, this is not the case. Although precise figures are lacking, it is estimated that 2.5 to 4 million people⁷ experience problems in daily digital life. These problems are growing because non-digital alternatives are becoming scarcer, because this group is disappearing further from view, and because the skills needed to keep up are becoming more sophisticated. Also, certain groups where these problems occur are increasing in size, such as the elderly and Dutch people with a migration background.

7 Dedding & Goedhart – Lost from view: digital inequality as a societal task, 2020

02 What are digital skills? 6

02 What are digital skills?

The importance of digital skills in our current and future society is a topical subject, which is being illuminated from various angles in recent research. Although the increasing attention for this subject is commendable, we see that different research studies use different definitions of relevant terms. This makes comparing them difficult. Some research translates digital skills into several concrete actions, while other research uses a much more comprehensive definition.

For example, Kantar Public considers people digitally skilled⁸ if they can independently send emails, use a search engine, make an online purchase, and internet bank, while the Rathenau Institute states that technological citizenship means that 'Dutch people have the skills to understand the possibilities of digitalization, have the knowledge and resilience to deal with the risks of digital technology, and can participate in the democratic debate and political decision-making regarding new digital technology' (p. 2).⁹ Researchers from the University of Amsterdam use the term 'digital competencies': '[By this] we mean how well someone can deal with the internet and the devices with which you can access the internet (digital skills) and what someone knows about this (digital knowledge)' (p.6).¹⁰

Finally, some research does not use a clear definition.¹¹

Based on the research insights and results we encountered during this exploration, we see the most added value in the definition by Van Deursen and Helsper, which they use in the publication Digital Skills: A Research and Policy Agenda from 2020¹², written on behalf of the Ministry of the Interior:

'At the highest level, digital skill is the extent to which someone is able to achieve (qualitatively high-quality) benefits with internet(technology) and to limit its risks, now and in the future.'

In other words: digital skills help people to use the internet to their advantage and to protect themselves against the risks that internet use may bring. This definition is therefore well applicable to digital skills in the context of financial services, where people can use these skills to make informed decisions about financial products and services and to protect themselves sufficiently against risks such as fraud.

Different types of digital skills

An important distinction that Van Deursen and Helsper make within digital skills is that between different types of skills. They distinguish:

Operational skills. These are skills that help with operating, setting up, and programming internet(technology). Examples include connecting to the internet, using a browser, disabling pop-up messages and advertisements, and managing location settings.
Information skills. These are skills that describe the extent to which people can find, select, process, and evaluate digital information sources. Examples include using the search bar, defining search terms, selecting information, and adjusting search options.
Communication skills. These skills help people use internet(technology) to develop positive relationships, exchange meaning, and bundle knowledge. Examples include using communication apps, managing contacts, adjusting privacy settings, and setting with whom messages are shared.
Content creation skills. These are skills with which people can create high-quality content with technology and publish and share it via the internet. Examples include filling out and uploading forms, creating content with an app or website, and using different techniques to create content (filters, editing).

To what extent these types of digital skills apply to consumers in the financial context, we describe further on in this chapter.

Functional and critical skills

A second distinction that Van Deursen and Helsper make within the concept of digital skills is that between functional skills on the one hand (using the internet to one's advantage) and critical skills on the other hand (preventing negative consequences of internet use; digital awareness). Functional skills include, for example, installing apps, connecting to the internet, defining search terms, exchanging online messages, creating online profiles, and filling out and uploading forms. Critical skills include, among other things: evaluating the reliability and truthfulness of information, using emojis appropriately, making ethical considerations when sharing photos, and understanding how promotions and advertisements work. Functional skills are generally better mastered than critical skills (Van Deursen & Helsper, 2020). In the research we analyzed, primarily the functional skills and the degree of 'safe internetting' were investigated.¹³ To what extent people are able to prevent negative consequences of internet use, we only find back in the research of Van Deursen and Helsper.¹⁴

The distinction between types of digital skills on the one hand, and between functional and critical skills on the other, leads to a framework of eight different 'blocks'. Operational and information skills form the basis for exercising communication and content creation skills. Van Deursen and Helsper state that someone must possess both functional and critical skills to obtain favorable outcomes with the internet and avoid negative outcomes.¹⁵ The authors see the mastery of functional skills as a minimal requirement, because they are necessary for performing online activities. Critical skills are needed for constructive participation in society. Without critical skills, someone can only use the internet passively. Of course, what someone exactly must be able to do and at what level depends on the goal.

Digital skills in financial services

We illustrate the role digital skills play in online financial services using an example. First, we distinguish different phases in managing financial matters:

Orientation phase. This is the period preceding the purchase of a product or service. Consumers consider their options in this phase, make comparisons if necessary, and look for information that can help them make a choice.
Closing phase. This is the moment when consumers close the product or service with the provider. In many cases, this means they must perform several actions, such as entering data and providing documents.
Management phase. In this phase, consumers use the product or service. Think of transferring money or claiming damages. Skills such as installing and using an app and logging into a website come in handy here.

14 Van Deursen & Helsper – Digital Skills: A Research and Policy Agenda, 2020 15 Van Deursen & Helsper – Digital Skills: A Research and Policy Agenda, 2020

Termination phase. This phase describes the moment of terminating the product or service. Consumers must be able to look up the conditions for cancellation and arrange the cancellation, which is often done via a form on the website.

Each of these phases requires specific functional and critical skills, as the table below shows.

Phase	Specification	Operational Skills	Information Skills	Communication Skills	Content Creation Skills
Orientation Phase	Functional	Connect to internet; Use internet browser; Disable pop-up messages; Navigate websites; Use search bar; Define search terms; Select information; Look up phone number; Ask question to customer service via email or chat; Enter data on comparison website
Orientation Phase	Critical	Conceptual understanding of a comparison website	Evaluate to what extent found information is objective and reliable	Understand that there is no human behind the chatbot – communicate appropriately	Understand that you enter sensitive information when using comparison websites
Closing Phase	Functional	Connect to internet; Use internet browser; Disable pop-up messages; Navigate website; Use search bar; Define search terms; Select information; Ask question to customer service via email or chat; Fill out form; Upload documents
Closing Phase	Critical	none	Evaluate if the website is reliable	Assess if sharing data is wise; Understand that there is no human behind the chatbot – communicate appropriately; Understand that you enter sensitive information
Management Phase	Functional	Install and use app	Look up online product terms; Contact provider via email or chat	Create and remember login credentials; Manage graph
Management Phase	Critical	none	Select the correct app in the app store	Understand that there is no human behind the chatbot – communicate appropriately	Create secure login credentials; Store login credentials securely
Termination Phase	Functional	Connect to internet; Use internet browser; Disable pop-up messages; Look up cancellation period; Look up product terms; Contact provider via email or chat	Fill out cancellation form
Termination Phase	Critical	none	none	Understand that there is no human behind the chatbot – communicate appropriately; Understand that you enter sensitive information

02 What are digital skills? 9

Digital skills and digital accessibility

A final caveat we want to make is the distinction between digital skills and digital accessibility. Digital accessibility means that websites and apps are built in such a way that they are accessible to everyone, including visitors with a disability.¹⁶ This is about improving the user experience of the digital channel for (all) people who use it. At digital

1 Rathenau Institute – Digital skills for technological citizenship, 2022 2 Kantar Public – Digital inclusion: research into digital skills and need for support, 2019 3 Kantar Public – Digital inclusion: research into digital skills and need for support, 2019 4 CBS Statline figures on internet access and internet activities, 2022 5 AFM – Financial vulnerability of Dutch people with migration background explored, 2021 6 In the Digital Coexistence Alliance, the government, societal organizations, companies, and experienced experts bundle their efforts to realize digital inclusion, see https://digitaalsamenleven.nl/ 7 Dedding & Goedhart – Lost from view: digital inequality as a societal task, 2020 8 Kantar Public – Digital inclusion: research into digital skills and need for support, 2019 9 Rathenau Institute – Digital skills for technological citizenship, 2022 10 De Vries, Piotrowski & De Vreese – How digitally skilled are we Dutch people?, 2022 11 Motivaction – Reachability of bank and payment services, 2018, NVB – Trust Monitor Banks 2019 12 Van Deursen & Helsper – Digital Skills: A Research and Policy Agenda, 2020 13 Kantar Public – digital inclusion: research into digital skills and need for support, 2019, Rathenau Institute – digital skills for technological citizenship, 2022, Motivaction, 2018 14 Van Deursen & Helsper – Digital Skills: A Research and Policy Agenda, 2020 15 Van Deursen & Helsper – Digital Skills: A Research and Policy Agenda, 2020 16 Van Deursen & Helsper – Digital Skills: A Research and Policy Agenda, 2020