Commerce for the uninformed is MORE profitable than commerce for the informed

In the book 'Poorly made in China', the author describes an episode where his Chinese interpreter could get brochures from the supplier's stalls, only because she pretended that the author was a 'stupid' foreigner willing to pay any amount. Indeed, suppliers dream of such customers. Couched in the financial context, such a person would be someone who banks with that institution only, does not shop around etc. For such customers, relationship managers can overprice and get away. The customer's wealth or poverty does not make a difference here, a savvy rich customer would probably be less profitable than the poor rustic. The former would demand free services, personalized treatment, lower rates etc, while the latter would be content with being served. C.K Prahlad's vision of 'Fortune at the Bottom of the Pyramid' probably did not intend ripping off the customer, but that is what happens in practice. Financially illiterate customers pay a heavy price by being sold(this is just the tip of the iceberg).

1. Insurance as investment(endowment insurance instead of term insurance+PPF)
2. ULIPs instead of index fund
3. Unnecessary addons/floaters with their existing products/policies 
4. Credit card personal loans instead of cheaper secured loans.

 When the nightsoil hits the fan, the customer(or counterparty as he;s treated) has little recourse. If he refuses to pay, the bank reports the default to CIBIl making it difficult for the person to get further credit facilities. And no one can compell the bank to hold back the negative CIBIL report even for disputed cases. Only if the person is politically well connected/forms group of affected people is justice possible, as happened in the recent cases of Standard Chartered & Citibank where HNIs who were missold certain products, pressured the banks to compensate them.  But only informed people do this. Most just grimace and bear it.

For most private banks, the notion of financial literacy means educating the customer enough to understand the benefits of purchasing their products. Banks like ICICI have now funded credit counseling centres like Disha, but on the general education front, the RBI is fighting a lone battle. And no wonder, why would a bank educate a customer that its most profitable products(endowment insurance, structured products, ULIPs etc) are probably not in his best interest.  The way forward seems to have a 'fit and proper' test for customer acceptance, but this is a Herculean task in any economy, let alone India.