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FinTech and digitization: tools for greater financial inclusion

Neobanks 100% online, democratization of mobile phones, mobile payment, financial services apps... In recent years, fintech has multiplied technological advances in banking services. A question then arises: do fintech and digitization promote financial inclusion?


To answer this question, we must already define what is meant by financial inclusion. According to the World Bank: “Financial inclusion defines the possibility for individuals and businesses to access at lower cost a whole range of useful financial products and services adapted to their needs (transactions, payments, savings, credit and insurance) offered by providers reliable and responsible.” In other words, a person is financially included when having a bank account, the ability to take out savings, take out a loan, and the ability to use banking services such as obtaining a credit card or the use of a mobile for its payments. Formal financial services must be available, accessible and affordable.

Lack of access to basic financial services can create crippling financial problems for people. They may have no way to receive certain payments, have to pay higher amounts for basic services such as electricity, and are prevented from making purchases due to having no easy means of submitting payments. Having access to financial services is important to both individuals and companies, as it provides a means of storing money, managing payments and cash flows, accumulating savings, accessing credit, and making investments. Such access is also key to acquiring assets and building financial security. Providing greater financial inclusion to small businesses is important because it can help to create more jobs and improve the standard of living in a community. Access to financial products and services households and businesses anticipate the financing of long-term goals or deal with unforeseen events. An individual with a current account will be more inclined to use other financial services, such as credit or insurance, to start a business or develop his activity, to invest in education or health, to manage risks and overcome financial shocks.

Access to banking services in the world: some figures

Before answering the question – is digital an opportunity or a threat for financial inclusion? – further, it is necessary to give some figures on access to banking services in the world. According to the World Bank, 69% of adults worldwide, or 3.8 billion people, had an account with a bank or mobile money service in 2017. They were barely 51% in 2011. The increase in cell phone use has helped to increase the proportion of account holders sending or receiving digital payments from 67% in 2014 to 76% in 2017 globally. In developing countries, this rate has increased from 57% to 70%. However, in 2020, 1.7 billion adults still do not have bank account, although two-thirds of them have a cell phone.

Account ownership is nearly universal in high-income economies, where 94% of adults have an account. In developing economies—those classified by the World Bank as low or middle income—the share is 63%, with big differences between countries. In 2017, among the 69% of adults around the world who are account owners, the vast majority have an account at a financial institution: 64% of all adults reported having a financial institution account only; 3% having a financial institution account as well as a mobile money account; and 1% a mobile money account only, according to the World Bank Global Findex.

It should be noted that the World Bank had set itself a few years ago the ambitious objective of universal access to financial services by… 2020. Access to financial services is also considered a factor of progress for seven of the 17 Sustainable Development Goals of United Nations. Since 2010, more than 55 countries have made commitments in favor of financial inclusion and more than 30 have launched a national strategy for this purpose.

The rise of mobile phones as a factor of financial inclusion

Financial technologies and in particular the trivialization of mobile telephony around the world, have facilitated the expansion of access to financial services for hard-to-reach populations and businesses, at a lower cost and for one minimal risk: with digital identifiers, it has never been easier to open an account; thanks to electronic payments, the number of people with a checking account is growing; mobile telephony offers practical solutions for accessing financial services, even in isolated areas. Collecting customer information enables providers to design dematerialized financial products better suited to unbanked people.

The mobile phone, which has become a wallet, has thus enabled the unbanked to access a first level of financial inclusion. In addition to economic development, these new services have enabled significant social development, leading to a demand for more complex services. Through partnerships with microfinance institutes, mobile telephone providers have thus been able to offer micro-credit, micro-savings or micro-insurance offers. These services being close to the conventional banking services offered by banks, we can speak of banking services, leading to significant economic, social and cultural development.

Cell phones are therefore an excellent means of providing financial services to the poorest in developing countries. As the unbanked populations are often in rural areas, it is very difficult for a bank to serve them for cost reasons. The creation of agencies, the employment of bankers but also the transport of money would not be possible and above all not profitable for the bank given the target population.

If we take sub-Saharan Africa as an example, 12% of adults had a "mobile" bank account in 2019, according to Talent2Africa, a proportion four times the global average.

Let us take the concrete example of OKO, active in particular in Mali and Uganda in the crop assurance sector. OKO, which offers, among other things, a microfinance institution service,  provides effective, affordable insurance to farmers in emerging markets and deliver instant claim settlement. “By leveraging the increasing influence of mobile technology, we aim to help overcome income distribution insufficiencies for those who feed the world”, proclaims its website.

Farmers have irregular incomes, which often disqualifies them from financing solutions. A huge potential can be unlocked if you reduce your exposure to risk, and address a market that is in demand of investment solutions. OKO's crop insurance products are designed to come at a very low price, and protect the main risk the farmers are exposed to. By coupling crop insurance with an adequate loan offering, OKO contributes to the growth of rural communities and generates new revenues.

Opportunities for expanding financial through digital technology

Despite all the advances cited above, 1.7 billion adults remained unbanked in 2017 but among them about 1.1 billion (about two-thirds) have a mobile phone. The World Bank's Global Findex outlines some opportunities to increase account ownership among the unbanked that we could sum up in one word: digitization.

First, having internet access is obviously a prerequisite. Global Findex data suggest that mobile phones and the internet could go a long way toward helping to overcome some of the barriers that unbanked adults say prevent them from accessing financial services. For example, digital financial services might shrink the distance between financial institutions and their customers. And by lowering the cost of providing financial services, digital technology might be helpful for those citing high costs as a reason for not having an account at a financial institution.

Millions of unbanked adults around the world still receive regular payments in cash—for wages, from the government, for the sale of agricultural products. Digitizing such payments is a proven way to increase account ownership. Globally, 9% of adults—or 13% of account owners—opened their first account specifically to receive private sector wages, government payments, or payments for the sale of agricultural products.

So, digitizing government payments to people could reduce the number of unbanked people. In the same order of ideas, businesses could boost account ownership by paying their unbanked employees through accounts rather than in cash. Another opportunity to increase account ownership is in digitizing payments for the sale of agricultural products. Moreover, the common practice of sending money to friends or relatives in another part of the country also offers opportunities for increasing account ownership. In developing economies 260 million unbanked adults send or receive domestic remittances in cash or using an over-the-counter (OTC) service such as Western Union. Moving domestic remittances into accounts could be an especially effective way to increase account ownership. Finally, methods of saving can also be a lever. In fact, unbanked adults use varied methods of saving. Among those who save semiformally, some entrust their money to a person outside the family. Using an account might be an attractive option if financial institutions offered free or low-cost interest-bearing savings products requiring little or no minimum balance. And moving semiformal saving into accounts represents an important opportunity to increase financial inclusion.

Closing the gender gap, contributing to women's autonomy

Financial inclusion can also be a tool for economic and social inclusion for women. Women have less access to financial services than men. According to the 2017 World Bank Global Findex, 72% of men have access to an account while only 65% of women have an account; this gender gap unchanged between 2011 and 2017. In terms of use, research based on 18 countries state that, at a global level, men represent 65% of customers, they handle 80% of loan volume and 75% of deposits (Global Banking Alliance for Women, 2018).

A well-developed body of literature shows that closing the gender gap in financial inclusion could have positive effects in smoothing consumption, lowering financial risks and costs, providing security, increasing saving and investment rates, and facilitating new business opportunities. Women can contribute to growth not only by building businesses but also by better managing their financial resources. Having access to and use of a range of financial services enhances not only the contribution of women and women-led business to growth, but also contributes to women’s autonomy, allows for better use of their personal and household resources, and reduces the vulnerability of their households and businesses.  In short, closing the gender gap in financial inclusion can act as an enabler of countries’ development, economic growth, inequality reduction, business evolution, and social inclusion.

Extreme poverty, the main barrier to financial inclusion

The first and main barrier to financial inclusion is extreme poverty, as benefiting from financial services is not a need neither a priority. In addition to widespread extreme poverty, which still exists in many areas of the world, other significant barriers often make it difficult for poor and low-income people to access basic financial services.

Financial institutions, such as brokerage firms and banks, often impose strict and detailed documentation requirements for opening an account or making money transfers. People who lack the required documentation are then effectively shut out from accessing financial services.

Also, the lack of nearby financial institution offices and high minimum balance or opening account balance requirements provide further barriers to financial inclusion. Finally, many poor and low-income individuals lack the knowledge of how to avail themselves of, or use, financial services.

Digitization and mobile phone seem to be adequate responses to these problems, on the condition of obviously having the means to acquire a mobile phone and to have access to the Internet.

[“FinTech to favour financial inclusion: is digital an opportunity or a threat for financial inclusion?” will be a topic discussed during the FinTech Summit held in Luxembourg on September 14 & 15. Fintech Summit is part of the renowned tech summit ICT Spring Europe.

More info HERE