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In recent years, so much progress has been made making banking and financial services accessible to more. Thank digital for that. Image Credit: Shutterstock

According to the World Bank, 1.4 billion people in the world do not have access to a bank account or, subsequently, financial services such as credit or insurance. These individuals exclusively use cash, are more likely to be women rather than men, and they are incredibly hard to track.

The same report describes financial inclusion as the “cornerstone of development,” and warns that “much more is needed” if we want to bring the unbanked and underbanked with us into the future. And why has traditional banking failed at financial inclusion, at least so far?

Well, The American Bankers Association estimates that banks run into costs of between $250 to $400 for each person they open and maintain a single bank account for to open and maintain a bank account for a person. This includes ‘printing, staff, legal and compliance, processing, fraud prevention, and other overhead costs’, and when delving more deeply, studies by StrategyCorps tell the shocking story of how common unprofitable customers are for financial institutions, with total annual revenue contribution for all unprofitable accounts totalling around $92.

Tech can compensate

But regardless of profitability, financial inclusion should be prioritized at all costs, and this is where digitization comes in. Technology is spurring transformations we could not have imagined a decade or two ago, and it’s overhauling the way we think about everything in our lives, from how we use our money to how we interact and connect with the world around us.

Digital and technological progress over the last decade accounts for a 29 per cent rise in people in developing countries with a bank account, from 42 per cent in 2012 to 71 per cent in 2022, and from 51 per cent of all adults across the world to 76 per cent in 2022.

In addressing the new growth model of how people ‘use cards, mobile phones and the internet to make payments and manage money’, the World Economic Forum reports that ‘technology is delivering better access to financial services’ and ‘dramatically expanding the ways in which people transact beyond traditional banking’.

Speeding up access to banking

The Global Findex database shows that 1.2 billion people have opened their first bank account between 2011-18, but what’s surprising is that 515 million people –almost half the total original figure – did so between 2015-18. According to McKinsey, digital payments grew by 9 per cent every year in the MENA region between 2014-19, a trend expected to remain strong with an estimated compound annual growth rate of 15.39 per cent from 2022-26.

According to a Mastercard report, 95 per cent of consumers in the MENA region are considering emerging payments such as wearables, biometrics, digital wallets and currencies, and QR code, in addition to contactless payment solutions, especially following the pandemic, which significantly and positively impacted changes in attitude towards online spending and digital payments.

UAE’s all-in digital push

Looking at the UAE, where non-cash payments accounted for 39 per cent of all transactions in 2018, they have since grown to a staggering 73 per cent and are still climbing steadily across all payment types (B2B, B2C, B2G, etc).

More broadly, with digital finance estimated to lead ‘to the creation of up to 95 million jobs across all sectors’ as well as a boost of annual GDP of all emerging economies by $3.7 trillion by 2025, we can safely say that financial inclusion is key to growth across the board..

So, if we’re looking to include as many unbanked and underbanked individuals in our collective financial future as we can, we have a few ways to broaden our reach and increase our chances of reaching the goal of global financial freedom. A McKinsey report addresses the challenges still ahead as follows: ‘Widespread mobile and digital infrastructure, a dynamic business environment for financial services, and digital finance products that meet the needs of individuals and small businesses’.

What those products and infrastructures will look like, and how they will impact widespread adoption, largely depends on the technology available and the innovations that are still to come. Fintech trends to watch out for in coming years include Web3 keywords like blockchain, cryptocurrencies, AI, biometric authentication, the Internet of Things and so on, but also robotic process automations, voice payments, virtual cards, and cloud computing.

All that’s left to do is invest in these technologies, and use them to the best of our ability to ensure the number of unbanked people in the world keeps shrinking, and shrinking, until we can eradicate the issue altogether.