There’s a huge societal cost of underserving those that need it the most. And while the future of financial inclusion is nearer than we think–it is up to us to get us there.
Roughly two billion adults are excluded from formal financial systems worldwide; this includes 30 million Americans and women, making up 55% of the world’s total unbanked population.
As digital transformation sweeps the world, the gap between those with access to financial and information technology and those without continues to grow.
In reality, those with low incomes pay significantly more for financial services than those who can afford the costs. They are often charged higher account fees and are subject to higher interest rates on loans. They face barriers accessing the financial system because they don’t have proper identification or credit history. For example, a refugee who recently resettled in a new country may not be able to provide the identity verification required to simply open a bank account. There’s an entire population where everyday banking is a massive feat.
The cost of being disadvantaged in financial services is like being on a hamster wheel. Once you are on it, it becomes almost impossible to break free.
It’s expensive to be poor in the U.S., states Mastercard’s Mike Froman, and I tend to agree; I would also add that this is likely the case in many first-world countries.
We are at a turning point. The digital landscape is changing rapidly, and financial services are at the forefront. The advancement of financial technology opens the door for innovation. There’s the Open Banking movement gaining traction in North America, alongside the introduction of faster payment rails. Fintechs, banks, and governments are starting to work together as a cohesive team–opening services to everyone, regardless of location or income level.
With the ability to obtain funds faster and increased digital financial services, those living in emerging markets and those living in rural areas can finally have better access to payment and savings tools.
It’s an exciting time to be part of this industry; the foundational building blocks for digital banking have been laid. People are one step closer to easily pay, invest, or access a loan. No matter who they are, where they live or how little they have.
I can’t think of anything more vital to today’s economy than payments. The last few years ushered in dramatic changes overnight. We went cashless, and businesses moved to digital payment platforms overnight. And getting money into the hands of those that needed it immediately was critical. There was a strong push for governments to use digital payment platforms to pay out funds to low-income families. In contrast, digital payments facilitated remittance for migrants and seasonal workers to send cash back home. And consumers across the globe made their initial foray into the digital economy through electronic payments.
Although a cashless society might seem like a distant future state for some countries, many others have been redesigning their infrastructures to deliver a more efficient and secure electronic payment service over the past few decades. That being said, a digital and cashless economy risks financial exclusion if the interests of the unbanked or underbanked are not addressed. Financial technology must be used as an enabler for financial inclusion, or all is lost.
The ultimate goal of the financial industry as a whole is to ensure that individuals have control over their financial health, provide them with the tools for greater resilience, and allow them the ability to save for a rainy day to deal with life’s unexpected.
As inflation continues to rise and supply and demand models of the past go out the window, we can expect an economic recovery that will ebb and flow. We are in unchartered territory. We are experiencing changes in consumer behaviour unlike any other. Be it a small business, a worker or a consumer, people need access to money when they need it and in a way that works for them.
These needs make a strong case for faster payment rails and on-demand digital payments. Payments flowing through the system in real time are guaranteed to deliver an economic boost.
Financial inclusion is the cornerstone of a fair and equitable society. Ensuring everyone can participate fully in the financial system sets the stage for a robust economy to thrive.
If we move together in the right direction, we will see less income inequality, reduced poverty levels, and enhanced earning potential across the globe. And that is the future of our next economy.
Financial Inclusion Is Our Next Economy was written by VoPay CEO Hamed Arbabi and published on October 21st, 2022, in Fintech.ca.