About 1.7 billion people worldwide are unbanked, meaning they are without an account at a financial institution or through a mobile money provider, in 2014 this number was 2 billion. If you’re reading this article right now, chances are you’re one of the world’s most privileged people: You’ve got access to technology – your computer or tablet and the internet – and you’re at the very least able to make use of it.
However, what about people on the other side of the world? Some of these people might not be so lucky as they don’t get much exposure to technology and all the convenience that the modern world can bring – and that includes banks with their various, up-to-date services. The unbanked population is made up of mostly women – with 56% of them being unbanked. And among all the adults under this category, 62% of them have only gone through primary education or even less.
The reasons vary as to why these people are unbanked: Two-thirds are saying that they don’t have enough money to open a bank account, and some seem to think that it’s not needed as long as one of their family members has already opened one. Of course, it may well be the case that modern finances are not necessary at all for some people. While it might seem that some of the unbanked themselves are arguably thinking they could be fine without having personal bank accounts, according to Nasdaq, being classified as unbanked can pose “several financial disadvantages”:
- The inability to receive direct deposits. Direct deposits become impossible to be received, particularly if someone works for an employer.
- The inability to build a credit history for any borrowing need. With bank accounts, one can build a credit history that can be used as a base towards any loan application he/she is submitting.1
- Less safe and practical ways of transferring and saving money. Remember the days of piggy banks and storing money under the pillow?
(Of course, all of these things are assuming that everyone needs or wants them, which is not always the case.) This can have an effect that goes in circles. As most of the unbanked population consists of people who do not receive high levels of education, it can often correlate with many other issues like unemployment, poverty, and inequality (of course, how many people live in poverty and/or are struggling financially [even with good jobs] because of mishandling credit – debt. And of course, banks are not without their downfalls either – see here and here). These three (unemployment, poverty, and inequality), along with 7 other issues, are considered as the world’s biggest problems by millennials who took the World Economic Forum’s Global Shapers Survey 2017.
Since the early 2000s, the world’s attention to the unbanked began to grow as big media outlets, like Time, published articles like this one “Profiting from the Unbanked.” Luckily, fintech companies are trying to get to the root of the problem, by providing access to financial means to the unbanked.
There are at least two different areas in which fintech can help the unbanked:
Basic mobile financial services While many of the unbanked in the USA might be more fortunate in terms of having access to computers with Internet access, those in developing countries (who make up the majority of the world’s unbanked population count) might not be so lucky. Fintech addresses this issue by playing in the mobile field. In Indonesia alone, it’s estimated that 184 million people have access to mobile phones and are actively using them. By developing and providing the unbanked that have mobile phones with mobile apps and wallets, fintech is reaching out to them.
Short-term loans This has been put into practice even by some of the more established financial institutions such as UOB, who found an “SME Funding Gap” of USD $133.6 million in Southeast Asia. To help with this, they have partnered with OurCrowd, an Israel-based equity crowdfunding platform, to give small businesses the edge they need, that otherwise, they would never get. It’s important to remember that many of the unbanked have never handled debt before, and education would be highly appropriate for fintech lending platforms to offer to or require of participants.
The good thing is that it seems UOB isn’t the only traditional institution that has decided to step their feet into the fintech world to help the unbanked. The Development Bank of Singapore, better known as DBS, is also extending its reach through partnerships with fintech companies. By focusing on new technology to target small and medium-sized enterprises (SMEs), they are making it possible for these enterprises to borrow capital of up to SGD $100,000 (around USD $73,400) without collateral.
As we go further into this modern era, I think it’s clear that fintech companies are realising that the topic of the unbanked is a legit issue, and they’re clearly playing their role to increase these people’s financial options. By partnering with traditional financial institutions like banks, they’re actively doing something real and reaching out to more people. Results show that 10 countries are reported to have had an increase of up to twice the number of bank account holders.
Many of these fintech unicorns have the time and capital to deploy to what is the largest growth market. This means that SMEs and the “forgotten population” all around the world will get more access to financial services as Fintech continues to proliferate and digital tools outstrip traditional channels and reduce cost, friction, and barriers to entry for new and innovative companies.