What is financial inclusion? Financial inclusion is about providing equal access and opportunities to financial services. Without essential financial services, 1.7 billion unbanked people face challenges in saving money, paying bills, overcoming cash flow problems and building up credit to fund more significant purchases.
Improving financial access for these people will have significant impacts on their, and their families, lives, and have the double benefit of uplifting their communities. There are also significant business opportunities. Angela Strange, a general partner at Andreessen Horowitz, calls it the greatest market opportunity in fintech. According to Diego Zuluaga at Cato Institute’s Center for Monetary & Financial Alternatives:
If we were to give the unbanked and underbanked in the developing world the same kind of access to credit and investments that we have in rich countries, you could easily create an additional $100 trillion in financial assets over the next 50 years.
While numerous organizations and people whole-heartedly believe in the goal, how can we actually attain financial inclusion? What practical principles and methods will we need to consider and implement to help us achieve such a vital goal?
To help us on the path, the World Economic Forum has published a white paper, Shared Principles for an Inclusive Financial System. The paper provides a list of seven principles meant “to encourage a system approach to financial inclusion that brings together all participants as co-creators of a financial system for all.” These are outlined in the sections below.
1. Inclusive by design
The first principle mentioned by the paper is inclusive by design, “the design of mainstream products and services that are accessible to and usable by as many people as reasonably possible.”
While product managers and designers might have access to the latest technology and fastest connections, billions of people don’t. There are also considerable discrepancies in digital literacy. Regulatory policy development and implementation procedures must keep these users in mind and design seamless and straightforward systems that are accessible by everybody.
2. Integrated systems
Building services that work together helps create an overall solution that works better for everyone.
Removing barriers between services by using open standards provides more opportunities for innovation, cost reduction and better data to inform decisions.
Safe and efficient digital payments and finance ecosystems are critical enablers for financial inclusion. Ensuring access to technology and communications helps control costs, scale adoption and provides the platform to democratize financial services.
But, as the paper notes, “One of the key foundational barriers to financial inclusion is the lack of identification.” While six billion people have an identity, the shift to digital channels will require everyone to have a digital identity.
All stakeholders must work together to ensure that foundational identity and digital identity become available to everyone regardless of income, gender, geography or level of digital access.
This principle is at the core of the Trulioo mission of trust, privacy and inclusion.
4. Economically sustainable
For any financial services operation, controlling costs is always a factor — and the costs of regulatory compliance, preventing fraud, ensuring security and data protection all add up quickly. For organizations delivering services to lower-margin customers, the costs often distinguish between initiating or rejecting a service altogether.
Fortunately, the principles listed above can help deliver significantly better economic outcomes. Effectively designed, integrated digital systems using digital ID help disperse costs, scale-up demand, and provide valuable solutions. Adding additional services and revenue streams becomes more simplified. While short-term profits might not be attainable, the growth potential is immense for those who commit and deliver.
5. Informed by data
Responsible use of data provides insights that help drive innovation, adoption and optimization of digital financial services. Uncovering needs and opportunities help create strategies and products that people need and avoid wasting time on less worthwhile projects.
Personally identifiable information (PII) must be secured and protected to build trust. Sharing and analyzing other data to promote collaboration and decrease information inequality helps people, organizations and the ecosystem, but requires careful consideration to ensure fairness, transparency and viability.
Regardless of how good a financial service is, its acceptance and adoption come down to a matter of trust; are people willing to trust a service with their hard-earned money?
The technology might be foreign to the person and often from a provider they have never even heard of. The social engineering aspect requires consumer protection initiatives, financial literacy and digital readiness programs, and having best practices established for transparency and security.
7. Effectively regulated
Fintech is creating incredible new financial opportunities. But it is also creating numerous new paths for fraud, money laundering and other financial crimes. Regtech is evolving to help protect people and organizations, but regulatory frameworks also need to adapt.
Considering how regulations affect organizations’ financial inclusion and risk profiles is fundamental to ensuring entities can offer select services in particular jurisdictions. Taking a risk-based approach, being flexible to new models and promoting competition are some ways that regulators can encourage financial inclusion while still protecting the integrity of global financial systems.
The road to financial inclusion
When humankind faces a direct, critical challenge, it seems we can muster our collective efforts and perform wonders. Consider the COVID-19 pandemic, where, as John Roberts, founder of AO, the online electricals retailer, remarked in May 2020, “The coronavirus crisis accelerated five years of online shopping behavior changes into just five weeks.”
The fundamental technology building blocks — including mobile, fintech and digital ID — currently exist to ensure financial inclusion for everyone. We have the guiding principles and organizations that want to make it happen. Now, it’s just a matter of doing the work.
Whatever your role is, we hope these principles help you build innovative services and seek partnerships and collaborations that will create value and help people, communities and the globe.