How technology is driving financial inclusion around the world

The prevalence of internet banking and advances in fintech are allowing countries with large unbanked populations that have previously relied solely on cash to witness improved financial inclusion

Technological advances are helping banks reach more and more members of the world's large and diverse unbanked population
Technological advances are helping banks reach more and more members of the world's large and diverse unbanked population 

Financial inclusion has gained real ground over the past few years. More than half a billion people got access to financial services for the very first time between 2014 and 2017, according to the World Bank’s Global Findex Database 2017. In 2011, the global ‘unbanked’ population stood at about 2.5 billion, but just six years later that figure has dropped to 1.7 billion.

Cash transactions are more likely to be unsafe, expensive and inconvenient

Over the past decade, more than 55 countries have made commitments to financial inclusion, including Pakistan, which accounts for six percent of the global unbanked population alone (see Fig 1). Nevertheless, while countries like Pakistan are beginning to show exciting prospects for growth, unbanked citizens still cost the global economy $600bn a year.

Those who rely on the unregulated informal sector have difficulty saving money for the future, paying for education and investing in businesses. Cash transactions are more likely to be unsafe, expensive and inconvenient, according to the United Nations’ Better Than Cash Alliance. This “traps the vulnerable segments of society in a cycle of poverty”, Tidhar Wald, the group’s head of government relations and public policy, told World Finance.

The digital edge
The vast majority of unbanked adults live in developing economies. Compared with developed nations, banks in these regions tend to have far fewer branches. For instance, in Pakistan there were fewer than 11 commercial bank branches per 100,000 adults in 2017, compared with 31 in the US, according to the World Bank.

The significance of physical bank branches has begun to diminish, however, due to the rise of the internet and mobile phones. Today, two thirds of the global unbanked population owns a mobile phone. Between 2014 and 2017, growing mobile phone and internet usage boosted the total number of people sending or receiving payments digitally from 67 percent to 76 percent. In the developing world, this upswing was even more pronounced: digital payments made to and from account holders climbed from 57 to 70 percent.

Steve Smith, the CEO of US-based fintech company Finicity, explained to World Finance how technology was erasing traditional blockers to financial access. “As people get a mobile device, they can connect to a financial institution. They can set up a checking account. They can have access to mobile banking. They don’t have to go into a branch; they can get a direct deposit of their income to that checking account.”

This financial flexibility helps families meet unexpected economic setbacks and allows entrepreneurs to invest in their businesses and create jobs, Wald added. “Most importantly, digital financial inclusion allows economies to grow stronger and more inclusive.” For this reason, countries like Pakistan have come up with financial inclusion strategies in recent years. Pakistan’s government adopted a National Financial Inclusion Strategy (NFIS) in 2015 that aims for 50 percent of adults to have bank accounts by 2020 – including 25 percent of women.

Out of Pakistan’s population of around 210 million, only 21 percent of adults had bank accounts in 2017, according to the World Bank. But with high mobile penetration rates, this could soon change: research by Financial Inclusion Insights (Fii) found that 84 percent of men and 71 percent of women in the country have access to a mobile phone.


Cost of the unbanked to the global economy each year


Population of Pakistan


of adults in Pakistan had a bank account in 2017


of men in Pakistan had a bank account in 2017


of women in Pakistan had a bank account in 2017

Financing growth
Both Smith and Wald cited India as something of a success story for financial inclusion. Its cash-based economy quickly digitalised over recent years, and the rate of bank accounts opening has been “absolutely extraordinary”, Smith said.

In neighbouring Pakistan, however, many locals are still wary of financial institutions. In a 2015 survey by Gallup Pakistan, 65 percent of respondents said they would rather deal with someone they knew than a bank.

Rehan Akhtar is the chief digital officer of Karandaaz, a non-profit that promotes financial inclusion and access to finance for micro, small and medium-sized enterprises (SMEs) in Pakistan. He told World Finance that convincing Pakistanis to adopt digital financial services over cash would require new policies, including digitalising all government transactions and enabling an environment for e-commerce transactions.

NFIS has prompted a number of new initiatives, including mobile bank account schemes, biometric identity verification and the promotion of fintech services. These policies have already strengthened the country’s microfinance sector.
In Pakistan, Akhtar said SMEs account for over 90 percent of the country’s 3.2 million businesses and 30 percent of GDP. “As a consequence, growth of SMEs can have a direct impact on achieving the targets of poverty alleviation and sustainable growth for Pakistan’s economy.”

Finicity is also working to make the process of obtaining a loan easier for unbanked populations. Its new scoring methodology in the US generates credit scores for those who are unable to provide a standard credit history. Extending that concept to areas of the world where new bank accounts are opening quickly could provide more people with lower-cost access to money. “And when you do that, it just continues to accelerate economic expansion,” Smith said.

The gender divide
Although financial inclusion in Pakistan is improving, doubts remain that it will reach its 50 percent target by 2020. One reason is the continued exclusion of women from the financial system – today, men are about five times more likely than women to have a bank account.

What’s more, Pakistan’s gender gap in financial inclusion has actually widened in recent years. In 2017, 34 percent of men had bank accounts, up from 21 percent in 2014. Just seven percent of women had accounts in 2017, however, up from five percent three years earlier. India, comparatively, has made impressive strides in gender equality: the number of women with accounts rose from 43 percent in 2014 to 77 percent in 2017. Overall, total account ownership is now 80 percent.

Pakistan’s gender gap in financial inclusion has actually widened in recent years

Gender disparities exist in many aspects of life in Pakistan, including education, health and every economic sector. Furthermore, less than a quarter of the female population is involved in the workforce. Fii attributed poor financial inclusion to “the lack of women-owned physical capital, as well as cultural norms that limit women’s economic empowerment”.

Women’s economic empowerment is a key area that must be addressed by government policies if Pakistan’s financial inclusion goals are to be met. CGAP, a global partnership focusing on financial inclusion, said Pakistan was among the countries that should adopt policies addressing barriers to women’s economic inclusion.

Return on investment
Pakistan is home to several innovative fintech companies, including digital financial services firms Easypaisa and JazzCash. But Akhtar said market players must be encouraged to expand, and this will take a significant amount of investment. “[This is a] difficult task to achieve, and financial inclusion as a result lacks political ownership,” he observed.

Recent research by CGAP outlined how vital investment is for digital financial services companies building extensive new networks: “While achieving profitability can take several years, these investments set the foundation for a successful market by solving problems related to use cases, customer education and agent recruitment/training.”

Investors are increasingly realising the opportunity unbanked populations offer. For instance, Chinese payment provider Ant Financial bought a 45 percent stake in Pakistan’s Telenor Microfinance Bank (TMB) for $184.5m in 2018. Ant Financial aims to develop mobile payments and digital financial services at TMB, which owns Easypaisa.

Stephen Rasmussen, who leads CGAP’s work on sustainable digital financial-services ecosystems, argued in a blog post that Ant Financial’s interest in Pakistan could be a game-changer by “spurring other businesses to become more ambitious about increasing mobile wallet uptake and use” and “[establishing] an investment benchmark in the market that could encourage additional investment into other fintech businesses”.

Further investment in Pakistan could be what pushes the country towards greater financial inclusivity, which is intrinsically tied to economic growth and prosperity. “What we need is coherence at the policy level, and for the industry to come together to develop the market for financial services,” Akhtar told World Finance. “This requires a mindset of collaboration and investment in new technologies and business models, which, with the right nudges by the policymakers, will enable the much-needed financial inclusion.”

With technology continuing its swift transformation of the banking sector, it appears to only be a matter of time until the vast majority of the world’s population is included in the financial industry.