COMMENT: Banking on the unbanked

By ignoring poor people’s needs, financial institutions are overlooking a massive potential market

COMMENT | REETA ROY | In a sea of gloomy news, one bright headline appears on the horizon. The World Bank’s latest figures on individuals’ bank accounts, to be released early next year, are expected to show that the number of people holding accounts at banks or other formal financial institutions has grown.

The last time the World Bank published its Global Findex report, in April 2015, an estimated 700 million adults, mainly in developing countries, had obtained access to financial services during the previous three years. That amounted to an increase of more than 21% in the global number of “banked” individuals. Because broader access to financial services helps to create a path out of poverty, any increase in this metric is a positive sign for human development.

But my organisation won’t be declaring victory when the new report comes out. No matter what the World Bank data show, universal financial inclusion for the world’s poorest remains a distant goal.

At the moment, some two billion adults remain excluded from formal financial services. Excessive documentation requirements, high account fees, limited access to bank branches, and the perception that financial institutions are “only for the rich” are among the most persistent obstacles to overcome.

At the Mastercard Foundation, we are committed to helping to remove these barriers for the world’s poorest. This November in Accra, Ghana, we convened the fifth annual Symposium on Financial Inclusion, bringing together hundreds of financial services providers, policymakers, academics, and development experts to examine how to broaden and deepen financial inclusion.

We have been hosting this global conference since 2013, and each year, a familiar concern emerges: financial institutions could do more to focus on the needs of their poorest clients. Because banks often do not consider the behaviors and aspirations of poor customers, they do not always offer the products and services the poor need. If the industry’s priorities changed, barriers to inclusion would fall.

Reversing this trend should be easier than it is. After all, when people prosper, so do banks. Poor people tend to save more money when they can access bank accounts or make mobile payments. With savings comes increased overall prosperity. Children do better in school when parents can easily pay fees. Women become more empowered to start businesses. Poor households can better cope with adverse shocks like crop failure, illness, or natural disaster.

The positive economic knock-on effects are obvious. With bank accounts, budding entrepreneurs can establish their creditworthiness and tap responsible, formal lenders. And with capital, small enterprises can grow into larger businesses, employing others, especially young people.

Technology has helped close the gap in recent years. The success of digital payment platforms, such as the M-Pesa mobile app in Kenya, demonstrates how quickly vulnerable clients will take up and use inexpensive products and services if they are designed with users’ needs in mind.

Moreover, financial technology firms in Africa and Asia are finding innovative ways to analyze data generated by poor people’s activities, and using that data to design and deliver better banking services. Non-traditional approaches are also emerging, such as reaching the unbanked poor via small, independent businesses that they already use and trust.

But much of the onus for inclusion will remain on financial institutions. One argument I often hear is that the financial services sector is risk-averse. Given banks’ fiduciary obligations to their customers, this is not an entirely bad trait. Yet banks and other financial institutions should realise that risk protection is perfectly compatible with service to poor customers.

By ignoring poor people’s needs, financial institutions are overlooking a massive potential market. To reach hundreds of millions of new clients, the world’s financial institutions need only walk a metaphorical mile in the shoes of a poor person, They would then see that no one should be excluded because of inaccurate, outdated, or unfair assumptions.

Today, more people than ever are benefiting from access to modern and responsible financial services. No doubt, next year’s World Bank data will indicate even greater gains. But to achieve a world where no one is excluded, the industry must place the needs of poor clients at the center of its business strategies. Only then will the good news about financial inclusion become great.

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Reeta Roy is President and CEO of the Mastercard Foundation.