The new unbanked

Dr Ira Sobel, Carli Wolpert & Ilana Segal

Photo by Jonathan Cooper on Unsplash

Currently, 1.7 billion people around the world do not have access to a bank account. Among these people, there are many individuals who live day-to-day by using the previous day’s earnings to buy their food and other necessities. This leaves them with no opportunities to improve their wellbeing, generate financial growth on their earnings, or access any form of basic education.

The Global Findex database has shown evidence that the phenomenon of the unbanked is decreasing over time. Globally, the number of people who have a bank account has increased from 51% in 2011 to almost 70% in 2017. This translates to 515 million adults who have gained access to financial services between the years 2014 and 2017. This mega change is driven by four major trends: the democratization of the internet, technological advancements and ownership of a mobile phone, and in specific areas, also a digital identity. By eliminating many barriers altogether, e-KYCs and e-wallet accounts have led to a massive increase, globally, in the accessibility of many unbanked to basic financial services.

The difference between developing and high-income economies is significant. In contrast to as low as 63% of adults in developing economies, in high-income economies, as many as 94% of adults have a bank account. Therefore, the problem of the unbanked has been always perceived to be the problem of developing countries and not of the more affluent parts of the world. Nevertheless, many of the 94% of adults in high-income economies do own a bank account, a mobile phone, a proven identity and an internet network, however, they often experience difficulties in accessing their own financial data.

This is not their fault. In the past couple of years, many older people have lost their “bricks and mortar” branch in favor of an app or a website. Unfortunately, the creators of these mobile and digital tools have continuously overlooked older users’ abilities, needs and wants. Older adults are capable of learning new things, however, application designers and service providers are losing a lot by overlooking this segment.

While in developing countries, technology has led to financial inclusion, the digital transformation in high-income economies might cause a new mode of financial exclusion.

Significantly, technological advancement and its democratization around the world has often marginalized older adults from their daily financial routines. In contrast to the previously called unbanked who didn’t have access to a bank account due to poverty, low education, lack of formal identity or credit history, the “new unbanked” of the digital age are telling a different story. The “new unbanked” in high-income economies usually don’t have a problem with passing a KYC nor do they lack a credit history. Also, many of them are more likely to afford the cost of financial services and hold the minimum amount of money required to open a bank account.

Nevertheless, as a result of the unadjusted digital tools, many among the older population are still struggling to access their financial data.

Defining financial inclusion

Muhamad Yunus has associated Financial Inclusion with poverty and lack of control over one’s own capital. He claimed that: “If you go out into the real world, you cannot miss seeing that the poor are poor not because they are untrained or illiterate but because they cannot retain the returns of their labor. They have no control over capital, and it is the ability to control capital that gives people the power to rise out of poverty.” (Source: here).

What can we learn from Muhamad Yunus about financial inclusion in high-income economies? Probably not much. As shown previously, The Global Findex database demonstrates that in high-income economies, 94% have a bank account while only 63% of adults in developing economies have a bank account. In contrast to Yunus, the World Bank defines financial inclusion as “Businesses and individuals having access to useful and affordable financial products and services that meet their needs — transactions, payments, savings, credit and insurance — delivered in a responsible and sustainable way.”

In contrast to Yunus, The World Bank focuses not only on the financial services per se but also on the distribution of these services. By identifying financial inclusion with responsibility and sustainability, the latter definition opens the door to wider groups of the population. As financial technology (Fintech) is becoming the success of the 21st Century, the new unbanked might be those that are not easily participating in this fest.

It may sound counterintuitive, but older people may lead the Fintech revolution, with the pre-requisite that digital applications will be adjusted to their capabilities.

Financial Inclusion, Fintech and the digital age

Theoretically, Fintech is not only a key to promoting financial inclusion but in fact, it might be its biggest driver. As financial regulators around the world aim to increase the accessibility of financial services to all citizens in their countries, Fintech might quickly become their most powerful tool. Specifically, biometric identification and the mobile phone create opportunities to increase financial inclusion.

As shown previously, the definition of the World Bank for financial inclusion is focusing on the sustainability and responsibility inherent in the distribution channels of financial services. Driven by the latter definition, we have to ask how the old population adheres to these changing trends.

Another question that should be asked is what can be the alternative ways to return older people back to their traditional financial routines. For example, as I wrote in a previous article co-authored with Dr Michal Halperin Ben Zvi, the use of mobile banking can help older adults improve their own sense of control and ownership over their finances and improve their well-being. Therefore, new strategies for digital accessibility are needed for more inclusive products and services in the aging world.

How to bridge between Fintech and older adults

Age is a significant barrier to financial inclusion. Most older adults in high-income countries own a mobile phone, have some type of identification, and have a bank account. However, financial exclusion still exists largely due to the effects of the digital transformation on financial markets. Not only is this an issue today, but it will also become a growing challenge as the population of older adults is expected to increase dramatically over the next 50 years. One of the major barriers older people face is a lack of confidence in the use of technology. Application improvements and even minor support could be beneficial here in order to increase the usage of applications by the aging population.

Given the potential usage of Fintech by older adults by adjusting the apps and older adults’ ability to take an active part in economic life, here is a list of questions that should be addressed when investigating to what extent fintech is a driver of financial inclusion in a specific context:

1. What is the rate of financial & digital literacy among older adults in light of the digital transformation?

2. What are the characteristics of the usability of online banking, mobile payments and other Fintechs by older adults?

3. What are the existing Fintechs and accessibility adjustments that might meet the specific needs of older users?

4. What are the options for overcoming the language barrier in digital activities (often, older adults might speak different languages than the mainstream)?

5. What are the business opportunities and existing sources of funding for promoting the development of financial innovation for aging and older adults?

In conclusion, financial inclusion is possible and Fintech can be a key factor in reaching global financial inclusion also for older adults. While high-income and developing countries face different challenges, it is important to continue efforts to increase financial inclusion for older adults globally, as it benefits both the individual and society as a whole to have access to affordable, user-friendly financial services. Financial inclusion through Fintech helps unlock not only the potential of the older population but also helps unlock the potential of growing economies.

About the authors:

Dr Ira Sobel is the founder and CEO of Fintech For Longevity.

Carli Wolpert is studying Economics at Tulane University and was an intern @Fintech For Longevity during the Summer of 2021.

Ilana Segal is studying Economics and Public Health at Tulane University and was an intern @Fintech For Longevity during the Summer of 2021.

For more information, you are invited to visit our website at: www.fintech4longevity.com or contact us at sara@fintech4longevity.com.

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