Its easy to assume that with the world’s digital financial services advancements that everyone today has a bank account. But this is far from the truth. According to the World Bank’s latest report nearly 1.7 billion people are unbanked globally. That’s close to to one forth of the global population. But what does this mean? Being underbanked means is that this sect of adult population does not use banks or banking institutions in any capacity.
A recent study by the British research platform Merchant Machine revealed that Morocco, Vietnam, Egypt, Philippines and Mexico top the list of the most unbanked countries in the world with more than 60% of their population unbanked. A global comparison by Global Finance (2021) saw that in the Middle East and Africa 50% of the population is financially excluded, with South and Central America nearing 38%, Eastern Europe at 33% and Asia Pacific at 24%. While these are significantly large portions of the population that are financially excluded, the world’s most developed regions are still not perfect role models – the proportion of financially excluded reaches about 21% in North America.
However, there is no doubt there is a widening disparity between the world’s developed and developing countries. According to the United Nation’s Financing for Sustainable Development Report 2021, developed countries have 94% of adults with a bank account, while in developing countries that figure plumments to 63%. The accentunating divide between men and women is also still predominant in the financial inclusion realm. We see that 72 per cent of adult men globally have a bank account, only 65 per cent of women do.
These eye-opening statistics are a reality check. A reminder that the world is still far from being financially inclusive as scores of people around the globe still don’t have a basic checking, savings or mobile money provider accounts. They are excluded from access to financial products like insurance, loans or mortgages, and have no protection for their money from unforseen calamities like theft or loss!
While the pandemic allowed those who had access to digital banking to make a seamless switch, the unbanked struggled to make ends meet without easy access to funds. Much needed stimulus relief or tax refund cheques took longer to arrive for those without a direct deposit who were ones that actually needed it the most. But why are the unbanked still deprived of abasic necessity like a bank account?
Why Are Countries Globally Still Facing A Largely Unbanked Population?
It comes down to the lack of funds according to some researchers around the globe. In the Philippines, a country with a high proportion of unbanked individuals, when questioned about their reason for their unbanked status, the majority (60%) cited ‘not having enough money’ as a key reason, as stated in a 2017 study of the Phillippines’ Central Bank. The remaining 21% stated they did not need a bank account, while 18% said the lacked proper documentation.
While it would be ecpected that most of the unbanked population resides in the developing world and their income level would the main reason chaining down their ability to be banked, this is not the full picture. Of the unbanked population only half come from the 40% of the poorest households in their economy according to Fintech Futures (2020). Other major factors to consider in the equation include the cost of accounts and the distance to the nearest bank. People today also don’t fully trust banks with their money, with 36% of unbanked consumers in the FDIC’s latest research stating lack of trust in banks. These reasons bring more clarity to the ‘why’ behind the world’s unbanked, but tackling the ‘how’ is just as important.
How Can We Bank The Unbanked?
Yes, we have come a long way in providing accessible digital banking to consumers making big strides towards a more inclusive financial system, but much of traditional banking process are still manual, relying on traditional data from credit bureaus when performing identity verification checks. This doesn’t just alienate the modern consumer but makes it hard for a considerable portion of the population to access the services they require.
Fintechs are picking up the slack of traditional banks, with companies like PayPal, Chime, Cash App and Venmo offering bank-like services without the costs and concerns that one may sign on with an actual bank. Till date, some of the major benefits provided by Fintechs include the reduction of costs in payments and an increased access to credit.
While the private sector is pushing to irradicate the inequality in finacial services, they cannot do it alone. Countries need to forge forward together with inclusion at the top of their agenda. Countries worldwide have made national commitments to financial inclusion strategies and are continuing to work towards them. Countries like India have implemented initiatives for universal digital ID as scale, like Aadhaar and JDY accounts – that helped cover more than 1.2 billion residents. In other regions like Sub-Saharan Africa, allowing mobile financial services to thrive helped mobile money account ownership rose from 12% to 21% according to a 2018 WEF Financial Inclusion article. Solutions to combat financial exclusion are all around us. What matters now is we step up, shift gears and charge forward in the right direction, with the right strategy and collaborators to make an impact at scale.