By Silvia Mensdorff Pouilly, Head of Banking Solutions Europe at FIS
COVID-19 magnified and exposed the social imbalances in society, and underscored the importance of financial inclusion more than ever before.
The economic stress caused by the pandemic has made it clear that consumers require access to vital financial services to manage their everyday lives.
With cash payments dropping 10 per cent worldwide in 2020 during the pandemic, large numbers of consumers have been unable to access the traditional services of a financial institution they need, while getting funds to the underbanked, especially when the individual lacks access to a bank account, has proved extremely difficult.
However, financial inclusion is not just about getting financial services and money into the hands of low-income and vulnerable people. It also means guaranteeing that services are affordable and appropriate for everyone.
As society moves forward out of the pandemic, it is now imperative for financial institutions to invest in technology that will bridge the financial inequality gap. Where previously business had been focused on the Environmental and Governance themes of ESG, the pandemic has now raised the focus on the social aspect, and companies must now empower financial inclusivity to help all global citizens obtain financial services and products they need at affordable prices.
The needs of the underbanked
For the underbanked, it is easier to manage cash in physical form than electronic form as they do not have access to a bank or more specifically to a bank account. However, with cash usage falling during the pandemic, the underbanked have struggled, and the rapid change in payment trends has amplified the financial disconnect which was already in place.
The challenge to reach the underbanked is complex and a nuanced approach is required.. Consumers will require financial guidance to help with their lack of knowledge, while products need to be convenient and accessible, so no one feels left out.
While the unbanked are marginalised by traditional financial services, alternative financial services and new technologies are now emerging and enabling consumers to navigate the challenges they face.
The path towards inclusion
The path to building a financially inclusive world involves a concerted effort to address many historic and systemic issues. Conversations on ESG are changing. While environmental and Governance themes are still factors, the social impact of companies is now top of the agenda, with financial inclusion essentially is the ‘S’ in ESG.
Financial institutions now need products and services that empower financial inclusivity and they need re-assess their innovation strategies to ensure they are building new technologies that can empower all of society with access to vital financial services. For example, providing financial advice and education will extend a bank’s role as a trusted advisor while helping the underbanked improve their banking aptitude and proficiency.
Budgeting apps are now commonplace to help those consumers who require it keep track of their income and personal finances and these are another example of how banks can extend their role as a trusted advisors.
Funds will also need to be directed to Community Development Financial Institutions (CDFIs). There are currently around 60 CDFIs in the UK and these are financial institutions that strive to foster economic opportunity and revitalise neighbourhoods in low-income areas.
By expanding their role, banks can lead the way to foster greater financial inclusion for all, and the transformative power which can be harnessed when people gain access to quality, affordable financial services and credit will be felt by more and more of society.
Bridging the gap
As banking becomes more complex it is increasingly more difficult to understand, for everyone not just the underbanked. As such, there are now a number of companies producing products that aim to simplify banking processes.
For example, FIS has partnered with gohenry, a digital payment tool that helps parents raise financially healthy kids (ages 6-18) by teaching them to be financially savvy without having cash in hand. Every parent has been there, an unexpected bill appears after they’ve given their child a credit card to buy something on a game. The gohenry debit card can counter this by offering parental controls and it pairs with a smart money management app that includes financial education content and nudges and notifications designed to help kids and teens learn crucial money management skills in a safe environment. Products like this are helping build children’s financial confidence and knowledge and are paving the way to make every kid good with money.
Another example is embedded finance. This refers to the seamless joining of traditional financial services, such as payment processing, with another service, such as a retailer or ride-sharing company. These companies are then able to branch out into more traditional banking services, using the knowledge of their customers to offer responsible products and services. This includes saving as you go apps or savings accounts. Uber Finance, for example, allows Uber drivers to finance their vehicle, and every mile they drive pays back their obligation.
Banking in the digital age
The digitisation which has occurred over the past 12 months will have an effect on financial inclusivity. With mobile payments now more common, consumers have the ability to access technology in the palm of their hands. This is not only speedy but also increases the options they have to manage their financial products and understand their financial wellness.
Although the digital world could help the underbanked, it could also marginalise others, and it is critical that this does not happen. Some consumers will still not have access to mobiles and digital payments devices, and it is crucial they are not left out.
Financial institutions must continue to address both the transactional and emotional needs of the underbanked to help accommodate the distinct characteristics of these consumers, making sure they are not marginalised.
Bringing financial inclusion to all
Financial inclusion will help to improve the lives of families, communities and companies around the world.
Fintech is leading the way in empowering financial inclusion. New creative banking services are emerging with new means of providing financial services to the underbanked and it is vital that everyone is granted access to the latest developments in technology at an affordable price.
These innovations are enabling people to bank, pay and invest more effectively, and thereby making lives for people better. They are also going a long way to restoring consumer trust and confidence in banks. To increase financial inclusion for all, banks and financial institutions must continue to innovate and simplify access to their services, keeping technology at the forefront to give rise to a new age of digitalisation.