To many of us, access to a bank account is not something we question. Gowing up in Australia, my whole grade had a bank account opened when we were in primary school. From this early age, it gave me a place to save money, make payments and earn interest. As I’ve grown up, it’s made my life easier - from buying groceries at a store, to dealing with a medical issue, or saving to buy a house and get a mortgage - I can do all of these things because I have access to those products and services that fall within the formal financial system.
Unfortunately, not everyone in the world has access to financial products that meet their needs. According to the Federal Deposit Insurance Corporation, 7% or 9 million Americans are underbanked. That is, they don’t have access to savings, payments and credit. And globally, the numbers are staggering. According to the World Bank 42% or 2 billion adults globally are outside of the formal financial system.
Why are people falling outside the formal financial system?
It’s a complex problem and there are myriad reasons why this occurs, which can include the fees and costs associated with maintaining bank accounts, minimum balance requirements, access to banking infrastructure, and the provision of products by banks that meet their needs. A wide-reaching lack of trust in financial institutions, especially in the U.S. since the 2008 crash, is also a factor.
What are the real world implications?
Being outside the formal economic banking system can be a huge burden. People without traditional financial access often pay excessive amounts in fees and transaction costs to do the most basic transactions like making payments or cashing checks. On top of this, it limits access to credit and in many cases people must resort to alternative credit outlets like “payday loans” and money orders which can charge high fees.
Why is financial inclusion important?
Providing financial products that meet people’s needs, improves their quality of life. It’s a means of reducing poverty and increasing prosperity. Simply having a bank account opens up opportunities to access secure and fairly priced credit, insurance, save, build a business deal with emergency situations, and pay for education.
What is being done to facilitate financial access?
There are a group of FinTechs seeking to drive both economic innovation and create social change - they’re using technology to make a difference. Here at Empire Startups we’ve been lucky to have had many of these game-changing founders speak to our community. Here’s a quick look at few of them:
- Using mobile technology as an entry point
- Juvo analyzes mobile phone behavior of customers to generate an identity score which can then be used to get credit to other financial products and services.
- Harnessing alternative data points to provide access to credit.
- Tala has created an app that uses alternative data to deliver instant credit drawing on thousands of mobile data points including network diversity, social connectedness, geographic patterns, and financial transactions without a need for formal credit history.
- Understanding consumer behavior
- Bee is an alternative to a checking or savings account and lets consumers who don’t have easy access to traditional banks manage their money and bank entirely from their smartphones. The company uses pop-up kiosks and street teams to sign up customers in-person in the neighborhoods where they live and work.