For approximately two billion people worldwide, opening a bank account is nearly impossible.
This group, known as the “unbanked” often lack access to the traditional forms of identification necessary to open an account with a registered financial institution. In fact, one of the biggest challenges that banks face when trying to serve the unbanked is their inability to prove their identity. This makes it difficult for banks to execute their Know Your Customer (KYC) program, which requires the collection and documentation of things such as a customer’s name, date of birth and current address.
What Does it Mean to be “Unbanked”?
The term “unbanked” is often used to describe those with little or no affiliation to the traditional banking system. Put simply, it refers to people who don’t have access to their own bank accounts.
Another similar term – “underbanked” – (which is often mistakenly used synonymously with unbanked) refers to people who may have a bank account, but who do not have sufficient access to other mainstream financial services e.g. credit cards or loans.
Individuals who fit into these two groups may do so for many reasons. For example, as previously mentioned, they may not be in the possession of documentation, such as a driver’s license, a passport, or a utility bill, which can be used to verify their identity and address. Some may not have a credit history because they have recently relocated to another country, or because they have never taken out a loan or used a credit card.
Both these groups rely on alternative services – such as prepaid debit cards and cash – in order to service their financial needs.
Why is it a Problem?
While some may think this is not a problem in the Western world, they’re wrong. Even in digitally forward-thinking countries such as Britain and the United States, there are millions of people without access to basic financial services. In Britain, around 1.5 million people do not have access to a bank account and as at 2015, seven percent of U.S. households (which equates to approximately 23 million individuals), did not have any type of banking account at an insured institution.
Globally, the numbers are even more disheartening. World Bank data shows that around two billion adults are without access to a bank account, meaning they’re unable to do things that we take for granted – send, receive and borrow money – and they have no protection should their cash be lost or stolen.
Of these two billion, 1.5 billion are unbanked solely due to their ability to prove their identity through a valid birth certificate, passport or proof of residence.
However, as the digital world continues to exert its dominance, our mobile footprints offer a new dimension of verifiable identity thanks to new technologies and increased trust in the new mobile era.
Tech Giants and Banks to the Rescue
Globally, a number of things are being done to help facilitate a more inclusive financial environment.
Mastercard, for example, has started offering accounts to the unbanked, while PayPal is aiming its new range of services specifically at the unbanked.
In an effort to increase access and help break-down the walls of financial exclusion, PayPal is offering consumers branded debit cards – called the PayPal Cash Mastercard – which are connected to their PayPal accounts, as well as the option to deposit their paycheck directly into their account.
“For folks who don’t have bank accounts or credit and debit cards, we want to give them something so they’re not turning to prepaid cards, check cashiers and payday lenders,” Bill Ready, EVP and Chief Operating Officer at PayPal, told TechCrunch.
Amazon too has joined the party, launching its first ever debit card earlier this year in March.
But it’s not just your typical tech giants who are making headway. Late last year, The Bill & Melinda Gates Foundation in cooperation with fintech startups, developed an open source software designed to create payment platforms suitable for the unbanked. The code, dubbed Mojaloop, increased the interoperability between traditional financial institutions and mobile payment platforms.
Mobile is the Future
Many unbanked and underbanked individuals rely on payday lenders or thinly disguised loan sharks to cash their paychecks. It’s estimated that around 70 million Americans utilize these services, while also having to make purchases in cash or with prepaid debit cards. As a result, the unbanked pay as much as 15 times more than bank users to access their own money and often have trouble accessing the digital economy. After all, you can’t pay for online marketplace services, like Uber or Airbnb, with cash.
But, while the unbanked don’t have bank accounts, credit cards or loans – they do have smartphones. Globally, six billion people around the world have access to a mobile phone – which includes at least half of the world’s unbanked population.
This increased access is also driving the development of mobile money accounts. The mobile money market is making great headway in developing countries. While only 2 percent of adults worldwide are estimated to have a mobile money account, 12 percent of adults in Sub-Saharan Africa have a mobile money account – half of whom have no other account. Africa is leapfrogging other markets when it comes to mobile-driven financial inclusion, as are other underserved markets such as China, India, Indonesia, the Philippines, and Brazil.
As mentioned above, China is one nation leading the way when it comes to mobile payments. In 2016, Chinese mobile payment volume more than doubled to $5 trillion and is growing so rapidly that it can be difficult to operate without. In Mainland China, stores and services are increasingly centered around mobile apps such as WeChat Pay and AliPay.
Earlier this year, Trulioo released MobileID capabilities, enabling organizations to verify customers by leveraging some of the world’s largest mobile network operators (MNOs). This new and reliable identity verification source helps to reduce fraud and increase coverage in hard-to-reach markets. MobileID is a real game-changer, advancing our mission to break down identity verification boundaries so that organizations can service the underserved population.
Offered through GlobalGateway, our electronic identity verification (eIDV) platform, MNO data is used in conjunction with over 200 reliable and independent consumer data sources – from credit bureaus to government and banking data – to instantly verify individuals.
To learn more about Trulioo’s MobileID capabilities, click here.