Full financial inclusion is essential for the wellbeing of individuals and the economy, but difficult to achieve. Now, Covid-19 has made banks become more digital, posing issues for those who lack access to online services. Can fintech and digital identities provide a much-needed boost to financial inclusion?
What is financial inclusion?
Financial inclusion means being able to build financial resilience through access to the right financial services. These include:
- the lowest-cost and most convenient financial transaction and payment services
- savings or insurance that can cover unexpected outgoings
- manageable, affordable credit.
Why does financial inclusion matter?
But financial inclusion is complex. The many reasons why people may be excluded from mainstream finance include:
- low income
- lack of financial literacy
- lack of financial capability.
If customers can’t afford to borrow, or require significant support from bank staff, that impacts the business case for giving them a current account.
That’s why, since September 2016, the nine largest banks in the UK have been required to offer fee-free, basic bank accounts.
How digital identities could support financial inclusion
But even basic bank accounts are inaccessible to some. The World Bank estimates that around 1bn people lack the ‘foundational’ ID needed to open a current account.
India’s Aadhaar system has found a technological way round this problem – registering 1.3bn people using biometrics to prove identity.
McKinsey estimates that the use of digital identities in India could “unlock economic value equivalent to 6% of GDP by 2030”, bringing benefits such as:
- streamlining services
- formalised land ownership, and
- financial inclusion.
The UK is currently looking into how to build digital identities. The technologies suggested include distributed ledgers, biometrics and digital wallets.
But if inclusion isn’t central to the architecture of digital identities, the vulnerable could be left out.
In the Nordics, for example, digital identities grew out of federated bank IDs. That was possible there as almost everyone already had a bank account. But it wouldn’t work everywhere.
Another issue is privacy and trust. Some people struggle to afford online services and many have concerns around privacy.
How technology and bank staff can support financial inclusion
Covid-19 has forced many customers online for the first time – and pushed banks to upgrade online services quickly.
Maurice Lisi is Head of Digital Channels at Intesa Sanpaolo in Italy. Speaking at the recent RBR Conference, he described how during lockdown, worried customers started to overload the bank’s call centres.
So Intesa Sanpaolo upgraded its artificial intelligence (AI) bots to answer 75% of questions in six languages. “The big shift was to allow relationship managers to serve customers in a virtual space.”
That may provide an answer. Technology cuts costs and automates routine transactions – making them available to all. It also frees up bank staff to offer expert help and build customer trust.
Scotiabank in Canada is one of many banks that expect technology to provide financial inclusion for everyone.
Pamela Hilborn is their Global Head of Design for Digital Banking. Speaking at the RBR conference she described how they have a “focus on accessibility and inclusion”.
“Our goal is to leave no one behind.”
Find out about or Centre for Digital Banking and Finance