The world bank estimates that 1.7 billion adults worldwide still lack access to a basic bank account. Recently, companies started to recognize this community over unbanked individuals and began creating revolutionary financial technology for financial inclusion.
To understand what inclusive payments mean, you must understand financial inclusion and how and why adults are underbanked. Follow along below for an in-depth breakdown.
What is Financial Inclusion
Inclusion in finance refers to making financial products and services affordable and accessible to all individuals and businesses, regardless of their personal net worth or company size. The goal of financial inclusion is to remove barriers that prevent people from participating in the financial sector and utilizing these services to improve their lives.
Financial inclusiveness is a strategy that seeks to increase access to financial services for all people at reasonable rates. Every day, financial inclusion becomes easier with the rapid advancement of fintech, such as digital transactions.
Unbanked vs. Underbanked
When focussing on unrepresented adults there are two main groups: unbanked and underbanked. To break it down, we will define both groups.
An unbanked adult is someone who does not use or has no access to traditional financial services. This includes savings accounts, credit cards, and personal checks. Adults who are unbanked in the United States are likely because of a lack of money, trust, and privacy concerns. Many of these adults are also out of the workforce or don’t have the resources to create a bank account.
Underbanked individuals and families use alternative financial services such as money orders, check-cashing services, and payday loans rather than traditional loans or credit cards to manage their finances. According to the federal reserve, 13% of US adults are underbanked. On average, underbanked individuals lack access to convenient, affordable banking services because they prefer to use alternatives.
Most people do not have access to a bank account because of a lack of money, according to Global Findex. 30% of respondents answered that they did not feel that they needed a bank account. Some other reasons found were distance, documentation requirements, distrust in financial services, and religious concerns.
The Solution: Technology
“Providing financial services to the 1.7 billion people who are unbanked could boost economic growth and opportunity for the world’s impoverished. Harnessing the power of financial services can really help people to pay for schooling, save for a home, or start a small business that can provide jobs for others,” said Robert B. Zoellick, President of The World Bank Group.
Despite these innovative services, an increasing number of people remain unbanked or underbanked nationwide, including in the United States. Some examples of fintech developments that have aided the cause of inclusion in recent years include the growing use of cashless digital transactions. Some online payment plans have even started accepting cash as a payment method.
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