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Great strides have been made towards universal financial inclusion in the past decade but almost one-third of adults around the world still have no access to even a basic bank account

Financial inclusion is a huge topic but, at heart, it aims to ensure individuals and businesses are not excluded from useful and affordable financial products and services – transactions, payments, savings, credit and insurance – that meet their needs and are delivered in a responsible and sustainable way.

The ability to access a bank or transaction account or similar is the first step towards broader financial inclusion since an account allows its holder to store money and send and receive payments. It therefore serves as a gateway to other financial services, which is why ensuring people worldwide can have access to a transaction account is so crucial and, indeed, is a key focus of the World Bank Group through its Universal Access 2020 initiative.

Financial access facilitates daily living, helping families and businesses plan for everything from long-term goals to unexpected emergencies. Research also suggests account holders are more likely to explore and use other financial services, such as credit and insurance; start and grow businesses; invest in education or health; manage financial risks; and better weather financial shocks – with an attendant improvement on the overall quality of their lives.

World Bank data indicates great strides have been made towards universal financial inclusion over the past decade, with some 1.2 billion adults worldwide opening an account in the seven years from 2011. Nevertheless, the bank noted in a 2018 report, Universal Financial Access by 2020, that still left an estimated 1.7 billion adults worldwide (31% of adults in total) without a basic transaction account.

GENDER GAP

Gender is a huge factor here, with about half of those without access to an account being women from poorer households in rural areas or who are out of the workforce. The gender gap in account ownership remains static at around nine percentage points in developing countries, hindering women from being able to control their financial lives effectively.

The World Bank has identified financial inclusion as an enabler for no fewer than seven of the United Nations’ 17 Sustainable Development Goals and has also determined that financial inclusion is a key enabler in reducing extreme poverty and boosting shared prosperity. The organisation has now set out an ambitious plan to deliver universal financial access.

At the same time, the G20 group of the world’s richest nations has committed its members to advancing financial inclusion worldwide and reaffirmed its commitment to implement the G20 High-Level Principles for Digital Financial Inclusion.

In fact, since 2010, more than 50 countries have made firm commitments to financial inclusion, while more than 60 have either launched or are developing a national strategy in this regard. It has been observed that, when countries involve their financial regulators, competition authorities and education ministries in developing national financial inclusion strategies, the pace and success of these strategies is heightened.

DIGITAL ADOPTION

Mobile telecoms and digital adoption are helping significantly – a good example being India, which is now delivering its financial inclusion policies at scale, increasing coverage to more than 1.2 billion of its near-1.4 billion residents. One initiative has seen the government making support payments in conjunction with the opening of a first financial account, thereby ensuring both access to an account and the government benefit.Countries in Sub-Saharan Africa using this same process have seen mobile money accounts nearly double from 12% to 21% in recent years.

Closer to home, a joint Treasury and Department for Work and Pensions report echoes much of what is being said on a global basis – in essence, that access to a bank account is a key determinant of being financially included in the UK. So-called ‘basic bank accounts’ enable consumers to access mainstream banking and act as a starter product for many customers, who later move on to use more standard banking services. This basic banking demographic remains large with around 7.6m basic bank accounts open in the UK.

Digital adoption in the UK is significant, with almost three-quarters (72%) of adults now using some form of digital banking and so benefiting from the convenience and speed of digital payments. Data from UK Finance suggests the usage of mobile banking is also high, with around half of adults accessing banking services via their mobile devices.

Early indications are that the Covid-19 pandemic has accelerated this trend but it does still leave a large section of society who are not using digital banking in any form and who value access to the kind of over-the-counter services that are now being dramatically impacted by bank and post office branch closures.

KING CASH

For many who are financially excluded or just have access to basic banking, cash remains very important in their day-to-day lives. In the March 2020 Budget, chancellor Rishi Sunak announced the government would bring forward legislation to protect access to cash and ensure the UK’s cash infrastructure remained sustainable.

The Treasury has since launched a call for evidence on consumer access to cash, which is allowing a wide range of stakeholders and participants, including consumer groups, to make their views known. The group will deliver intelligence based on their experiences to assist in ensuring any policy approach gives the best outcomes for consumers.

Beyond basic banking, consumers also need access to a range of financial products to help them manage their day-to-day budgets and any unexpected costs or financial shocks. This has, in turn, led the government to announce a feasibility study for no-interest loans as well as a prize-linked savings scheme, the pilot for which has been dubbed the ‘Credit Union PrizeSaver’.

Further measures include commitments to bring forward legislation to allow credit unions to offer a wider range of products and services to their members, as these unions are seen as crucial by the government in supporting financial inclusion.

The government also continues to work closely with Fair4All Finance, an organisation set up specifically to support financial inclusion using funds from dormant assets. As a result of the pandemic, the government accelerated the release of the next tranche of dormant assets funding, including making £65m immediately available to Fair4All Finance to support its work.

INSURANCE AS AN ENABLER

Insurance is a key enabler for consumers to deal with financial shock and there are many and varied schemes for access and education being brought forward by government, once more in partnership with key stakeholders and providers. One notable example here is the policy statement from the Financial Conduct Authority, requiring providers to signpost consumers with medical conditions to specialist insurers in certain circumstances. The regulator has also produced a very detailed paper, entitled Mind the Gap, exploring experiences of financial exclusion across the UK.

The roll-out of open banking provides consumers with a secure way to share bank account data and gain access to a wider range of products. The government is firmly of the belief innovation from UK fintech providers will play a key role in financial inclusion. To that end, it has launched a Strategic Fintech Review to consider how the UK can continue to promote the integration of new technologies across financial services to the benefit of all consumers, rather than just the mainstream.

The wider UK financial services sector beyond banks and credit unions is now rising to the challenge. Insurance companies are becoming very involved – a good example being the Aviva Foundation, which seeks to close the protection and income-in-retirement gap by increasing access to effective information and education and making good use of orphan assets for, among other purposes, financial inclusion.

In the asset management space, meanwhile, Goldman Sachs has been very active with an ‘inclusive growth’ initiative seeking better accessibility through microfinance solutions aimed at enabling the growth of smaller businesses and nascent entrepreneurs, the financing of affordable housing solutions and building better credit scores. It would be encouraging to see more asset management groups become more active in this way.

No discussion of financial inclusion would be complete without recognising those who interact with the public. Open Money is doing fantastic work across debt, planning, credit scores, savings and house purchases, while the financial planning sector – often seen as only being involved with the wealthy – continues to seek solutions to assist with universal access to advice and financial planning. There are too many to name-check individually here but they are actively seeking to support financial inclusion by way of pro bono advice, flat-fee services and education.