The Unbanked Problem And Fintech Solutions

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Unbanked Statistics

There are currently 1.7 billion people in the world who form part of the unbanked population. This means that 22% of the world’s population has no access to banks and other financial services. In most cases this is a result of a complex combination of factors, from lack of education and lack of money to a lack of trust towards financial institutions.

As of now, almost 56% of the unbanked population is comprised of women, which shows that there is an obvious socio-cultural underpinning to being unbanked. Unsurprisingly, lack of access to banking facilities also has a lot to do with education and income levels, with 62% of the unbanked population having a primary education or less and as high as 47% not being part of the workforce.

Countries With The Highest Unbanked Populations

Emerging and underdeveloped economies are naturally much more affected by the lack of access to banks. While the United States had an unbanked population of only 15% or 3.7 million people in 2016, powerful but emerging economies like China and India fared much worse.

In fact China (225 million), India (190 million), Pakistan (100 million), and Indonesia (95 million), along with with other developing countries like Mexico, Nigeria, and Bangladesh account for more than half of the world’s unbanked population. A major reason for staying outside the purview of the banking system is the fact that banks are located very far from remote rural areas. A majority of the unbanked population stays in remote rural regions rather than in crowded cities, where a bank is always close at hand.

How Can Fintech Help The Unbanked Population?

People without access to conventional financial institutions face many barriers. These start from basic things like access to deposits, lending and borrowing to gain access to business and investment opportunities, and the online consumer space. Many of these traditional problems are now being solved for the unbanked population by innovative fintech companies.

For example, TNG in China and PayTM in India aim to become digital banks for the unbanked. Another Indian startup, Kyash, is connecting e-commerce companies to the unbanked population by facilitating collection of cash payments for e-commerce transactions across 3,000+ cities and 30,000+ payment points.

Many fintech companies like PCT in the UK are catering to the unbanked population in developed countries. However, it is a lot easier for fintech startups in developed countries to cater to the unbanked population, as the unbanked population in these countries have a higher level of education and technology awareness. For instance, 60% of the unbanked population in the United States have smartphones. This makes adoption of fintech solutions much faster and more comprehensive.

In emerging economies like India and China, other measures have to be taken to improve access to financial institutions, as the education and income levels of the population often prohibit fintech solutions from being as effective as they could be. But, they are still underway. In India, for instance, the Government launched a massive program called the Pradhan Mantri Jan Dhan Yojana (PMJDY) that helped open over 300 million bank accounts, many of which were for Hitherto unbanked people. It should be noted, however, that the unbanked population should not be used as guinea pigs, putting their money into volatile cryptocurrencies like Bitcoin, where they could lose their money.

Ida Rademacher, director of the Aspen Institute’s Financial Security Program, believes that fintech is definitely the way forward when it comes to addressing the needs of people who are underserved by the conventional financial system.

“People in financially vulnerable communities need the same access to safe, affordable financial services as everyone else,” Rademacher said. “It’s important to talk about ways to incent FinTech providers to design products tailored to their needs, so they can navigate their financial lives and come out ahead.”” ~ Quote taken from bostonfed.org.

While fintech cannot be the only solution when it comes to the unbanked problem, it is nevertheless a powerful tool for disrupting the status quo, and for providing access to finance. Check out this infographic for more detailed insights:

 

 

This infographic was created by Cyberius.

Resources:

https://globalfindex.worldbank.org/

http://pib.nic.in/newsite/PrintRelease.aspx?relid=174575

https://www.bostonfed.org/news-and-events/news/2018/fintech-and-financial-inclusion.aspx

https://www.cyberius.com/

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