Addressing financial exclusion via digital services

Roughly 1.7 billion adults globally are unbanked, according to Findex, a financial inclusion database run by the World Bank. This means they do not have access to or do not use banks or banking institutions, either through a basic financial institution or through a mobile money provider.

Among the unbanked and underbanked demographic, people of color are overrepresented. This reflects socioeconomic realities of marginalized groups, and it highlights how certain groups have historically been excluded from wealth generation. Financial inequalities will be further compounded as COVID-19 impacts global economies and increases the financial insecurity of those already disadvantaged.

The path to onboarding and supporting the unbanked will not happen overnight, but technology can accelerate the process.

Financial inclusion is now more achievable than ever with the rise of digital banking. The use of digital technologies and the transformational pace of open banking adoption has demonstrated a clear competence in the democratization of financial services.

Fintech tools are an invaluable resource for financial institutions to help better serve their customers and address the needs of the unbanked and underbanked. These digital features can help customers navigate financial difficulties and engender loyalty among an institution’s customer base. To accomplish this, financial institutions must tackle key pain points that may prevent customers from opening accounts.

There are many ways in which banks can use financial technology to promote financial inclusion. For example, customers can now open a bank account entirely digitally through digital document upload and ‘selfie’ account opening. These tools help remove the barriers preventing customers from accessing financial services.

Leveraging fintech is not only important for the structurally underbanked, but also migrants, refugees and foreign nationals who face major barriers when attempting to open a bank account upon arriving in a new country. This can be shown through the popularity of cross-border banks – examples include Starling and Revolut – that have simplified opening an account as an immigrant. For instance, Monzo allows customers to use an alternative address, such as a friend’s address or homeless shelter, to open an account. This removes a key barrier for recent immigrants and those lacking a stable environment.

Along with removing key pain points in accessing financial services and opening bank accounts, fintech tools can help financial services providers develop loyalty and ‘stickiness’ within their customer base. Digital education is among the keys to any effort to promote financial inclusion. Those who have limited access to and experience with digital technologies will need to learn how to use price comparison sites, how to pay bills using direct debit and other information to help them make informed decisions.

Help and support tools are also becoming more sophisticated. Increasingly, brands are introducing chatbots and live-chat features to relieve pressure from call centers but also to educate customers on their spending behaviors, as well as budgeting. These tools in particular can be leveraged to provide support and guidance to the underbanked in an instantaneous way.

Chatbots are far more accessible and more likely to be used for basic digital and financial questions than a customer phoning the bank. In addition, many customers are, at a minimum, familiar with text-based communication, making the process familiar and less intimidating.

Globally, fintech is being used to address the issue of financial inequality in several ways. Across India, for example, the chat app WhatsApp – used by a huge segment of the population – is being leveraged by banks to provide simple transactional capabilities, account opening and support tools. And across sub-Saharan Africa, mobile transfer services have been transforming access to financial funds.

Digital tools available today to tackle financial exclusion include messenger apps that provide banking services anywhere and chatbots that grant instant access to money transfer services. Innovations in help and support, including smart financial insights and chatbots, have the potential to educate customers in a familiar and user-friendly way.

There are many reasons why a person may be unbanked or underbanked. Financial institutions can remove some of the more common barriers affecting a range of people by enhancing digital services from onboarding to account management.

Providing comprehensive, innovative digital services is quickly becoming essential for any financial provider to offer. These tools not only improve the overall experience with the bank and engender loyalty, but they can also begin to bridge the divide for the financially excluded.

Anne O’Leary is a research analyst at Informa Financial Intelligence.

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