As part of the World Bank’s Global Findex team, I’ve gotten to see firsthand how far we’ve come on financial inclusion in the past decade. In just a few years, there’s been real progress around the globe: more than 1 billion previously excluded people have opened an account, giving them in a foothold in the formal economy.
But we have so much more work to do. Around the world, 3 billion people are still left out of or poorly served by the formal economy. The adults who remain unbanked will be much harder to reach than those who we’ve recently included.
Reaching them won’t be easy, but after researching this problem for years and speaking with individual clients around the world, it’s clear that there are some immediate next steps we can take to extend financial services to more people and businesses:
- Prioritize smallholder farmers. Sustainable agribusiness supply chains hold massive potential for expanding account ownership. Globally, 235 million unbanked farmers receive agricultural payments in cash, including 115 million women. In Ethiopia alone, creating a digital agricultural payments system could cut the share of unbanked adults by up to 60 percent. By paying farmers via formal accounts, we create an ‘onramp’ to a wider array of financial services, including credit and insurance.
- Make payments more affordable. The development advocate in me yearns for cheaper ways to send remittances. Every year, migrants send home more money to emerging markets than what governments spend on development aid. That money provides vital support, but it would go even further if remittances weren’t as expensive as they are today. On average, international remittances cost just under 7 percent of the total amount being sent. And it’s banks that typically charge the most, with fees as high as ten percent. My colleagues at the World Bank estimate that, if we were to reduce the costs of sending remittances by 5 percentage points, workers would save up to $16 billion every year — that’s money that could go to children’s tuition, better food, or launching businesses. Moreover, by making payments more affordable, we incentivize more formal account usage.
- Emphasize financial health. We need to tailor financial products to customers’ financial health needs. Ultimately, we’d like everyone to access and use financial services to meet their life goals, like paying for school, purchasing a home, or starting a business. But financial services should help people in the moment and assist them in overcoming immediate, everyday problems. For instance, unexpected and unaffordable car repairs could prevent employees from getting to work, ultimately causing them to lose their job. The possibility of that expense keeps people up at night. Financial inclusion should lead to financial security and happier lives — and financial health is one of the ways that we can create and measure inclusive products and services. Financial health, like physical health, considers someone’s overall well-being. Where is their money going? Are they saving enough? Do they have the knowledge and skills to manage their expenses, endure shocks, and seize opportunities? Developers and financial service providers should ask and answer those questions as they design new products.
- Use behavioral economics. It’s not enough to have an account. To create a financially inclusive world and achieve our development goals, it’s important for people to use their accounts. In India, the data also show that half of all accounts have never been used for a single deposit or withdrawal. Our challenge is to design appropriate and affordable financial services to meet people’s needs, and for clients to use them over the long-run. Behavioral economics is one way to get there. Behavioral tools — reminders, nudges, auto-deposits from mobile wallets and bank accounts, and auto-enrollment in digital payroll tools — can be used to build products that help people meet their financial goals and encourage usage over the long term.