The Unbanked: Why Some Adults Lack Bank Accounts
Part 1 of the Speak Out Series: Exploring the Reasons Behind Global Unbanked Population
As discussed earlier, I’ll be publishing opinion pieces as part of my Speak Out series. For the first part of my series, I will be discussing how the unbanked are ignored by traditional financial service providers (FSPs) globally and the importance of financial inclusion for all. Traditionally, the big FSPs usually leave behind the unbanked from the poorest quintiles as they are not deemed profitable. And let’s face it, FSPs are not philanthropists. They won’t cater to the “underprivileged” if that segment isn’t profitable. The reason I put the underprivileged in quotes is that most of the time this segment is treated as if it’s their fault that they are in this position. We need to look at the bigger picture to understand why the system is designed to leave them behind while advocating for building back better.
One of them is the failure to help them get out of poverty by giving them the chance to build. Why is it that the system labels the poor ineligible to apply for a loan to start a business but it's easier for multimillionaires to evade taxes, get subsidies and apply for loans? And then we blame the poor for being lazy. I’ll be discussing how unbanked people can be a profitable market segment if they are offered consumer-centric products and services.
Financial inclusion is critical for poverty reduction and economic growth. It has been identified as an enabler for 7 of the 17 Sustainable Development Goals [1]. Financial inclusion is based on making financial services and financial health more accessible to everyone, including the world’s unbanked population.
Barriers to opening a bank account
As per Global Findex’s 2017 report, many unbanked adults do not have an account as they do not have enough left to save in a bank account. Others don’t have it because of the high cost of opening an account or because there isn’t a physical branch nearby. The barriers to opening a bank account in the USA have been discussed in detail in a very informative paper proposing multiple solutions. The possibilities are endless only if traditional FSPs are willing to broaden their network.
These possibilities are identified by many fintech startups and neo banks who have turned their focus on offering services to the underbanked and the unbanked. Adults who are unbanked require not just a safe place to keep their money, but also the means to send and receive it. Providing digital, accessible ways to manage money to the underbanked — those who only use banks or credit unions for a few basic services — could be an opportunity for traditional institutions to make progress toward gaining profitable consumers.
Yaya Fanusie, a senior fellow at the Center for a New American Security, says in a Forbes article [8] that enabling wealth is key. “People mainly lack financial services because they lack income and not the other way around. So, to effectively bank the unbanked, the key problem to solve is how to help people generate more income. This prime factor is ignored by many technologists because when it comes to helping people gain wealth, there is no singular app for that” [9].
In the next part of the series, I will post a data visualization I have been working on to analyze the number of unbanked adults and see how they are distributed among the developed and developing economies. I have also considered analyzing the data of unbaked adults who own a mobile phone. I have visualized it considering other important variables like population, GDP, income groups, and geographical regions. The aim is to give an overview of how unbanked adults are distributed globally and how owning a mobile phone can make them a potential market segment for fintech companies and mobile money service providers.
You can read about this here:
The World’s Unbanked: Visualizing the Data (Part 2 of the Speak Out series)
