Financial Inclusion For All

The Challenge

"We want our money safer than our selfies" - PayPal

Money. We all need it, we all want more, and we all want to keep what we have and make it grow. But for millions of unbanked people worldwide, fear of loss, financial insecurity, distance and negative banking history keep them out of the financial system. Unable to borrow money, earn interest on savings, transfer funds or participate in the global economy, unbanked people live on the financial fringes of society, often paying exorbitant fees for things that people with bank accounts take for granted.

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Financial Inclusion for Everyone

How Many People are Unbanked Today?

In 2015, 7.0 percent of U.S. households were “unbanked,” meaning that no one in the house had a checking or savings account, according to the 2015 FDIC National Survey of Unbanked and Underbanked Households. In the U.S., people without bank accounts often resort to expensive measures like payday loans and check cashing services, and they are unable to take advantage of the many things in our economy that require a credit card or debit card. Sharing economy services like Airbnb and Uber and even simple things like using auto-pay for monthly bills are out of reach for these Americans.

Worldwide, 2.5 billion people do not have a bank account or access to a financial institution via a mobile phone or any other device, according to the World Bank. These people receive their income through cash and pay bills with cash but are unable to participate in many aspects of the global economy. More than half (55%) of women worldwide are unbanked. The vast majority of unbanked individuals are clustered in developing countries. India, for example, holds 21% of the world's unbanked population, and China is home to about 12%.

Opening New Opportunities for the Unbanked

2015 working paper by the World Bank said governments and private companies have a "pivotal role" to play in reducing the number of people who are unbanked, to empower women and encourage their economic participation. This is being done today through digitizing payments, with new developments happening every day.

The Bill and Melinda Gates Foundation has several initiatives underway to extend financial inclusion worldwide. In 2018 they announced a new software called Mojaloop that can be used by digital financial services companies worldwide, with the hopes of increasing interoperability between digital finance systems. This is an effort to solve one major issue with digital wallets and financial service providers, which is that they don’t often communicate with each other or work across borders. Cross-border solutions bring additional legal, cultural, operational, and regulatory complexities. The Gates Foundation seeks to break down these barriers and create genuine opportunity for unbanked people in developing countries.

In Latin America 400 million people do not have bank accounts, creating a massive opportunity for financial technology innovators. Developed economies like London and Singapore have a majority of their citizens holding bank accounts, whereas over 50% of the population in Latin American countries are unbanked. Much of the financial technology innovation is happening in Latin America, and it mostly revolves around smartphones.

Mobile phones hold the key to financial inclusion for many people in developing countries. Financial technology companies are tapping into this opportunity since the number of mobile phone users in Latin America is expected to rise to around 415 million by the end of 2017. Smartphones users are also expected to grow by 12% per year through to 2019. A variety of mobile apps have been created that allow people to access many banking services like direct deposit and money transfers, and more are in the works.

Obstacles Still Remain

People living in developing nations want to borrow and save, make payments and manage risk. Nontraditional methods of managing finance like using check cashers and payday lenders, borrowing from relatives or usurious moneylenders, saving in informally organized social circles, or hiding cash under a mattress still are a part of life for the poor in developed and developing economies alike. The problem with these methods is that they are unsafe, expensive, and don’t allow for the growth of capital.

While many apps and digital systems are being created to enable financial transactions in developed countries, these systems don’t communicate with each other as banks do. This means that workers in Uganda can’t do business with companies in Argentina, or even nearby in Kenya. This fractionalized patchwork of systems is helping people make payments more efficiently, but it lacks organization and uniformity.

Lacking formal banking opportunities, poor people conduct their business in cash. Banks shy from cash transactions because they are costly, so they pass the costs of storing, transporting, and processing cash to their customers. As more and more countries transition to cashless economies, the cash banking lifestyle of poor people will become impossible. Solutions must be found and communicated now to prepare unbanked people for this new world of finance. Essential elements for their participation in the digital banking economy include digital identification, which can be provided through blockchain solutions, physical equipment such as smartphones to handle banking, and knowledge of available solutions.

Look to a Future where all have Financial Access

It may come as a shock to people in the modern, connected world that one in every four people in the world, almost 2 billion adults, do not have a bank account or any access to formal financial services. Social mobility without financial literacy is hard; since the inability to access banking or credit hinders growth. Unbanked people who are unable to obtain financial assistance or take advantage of savings accounts need to be reached by the financial technology revolution.

With today’s strides in financial technology, we finally have the chance to improve the well-being of underbanked Americans even without their ever stepping inside a bank. Today, a smartphone is all it really takes to be connected to global economic opportunity. Justin Leow of Coins says there are both financial and social benefits to serving the unbanked: “It’s a very exciting opportunity and we can also make a huge impact on the lives of lots of people.”  Be a part of empowering financial inclusion for the unbanked worldwide by offering your solutions here at Domino One!

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