Financial inclusion – providing equitable access to financial services for disadvantaged groups – has been a persistent talking point across the banking industry in recent years. However, progress has been modest. According to the World Bank Group, an estimated

1.4 billion adults globally are unbanked, lacking even basic bank accounts.

This financial exclusion has a disproportionate impact on all marginalized demographics, restricting access to crucial financial tools for stability, growth, and prosperity. Now, with regulatory stress on ethical conduct and consumer pressure on issues of equality, financial inclusion has regained prominence, especially under the ESG umbrella.

Banks have both business incentives and social duty to enable participation for all demographics to drive meaningful financial inclusion amongst even hard-to-serve groups. The technology for rapid advancement is already here, yet the industry is still lacking decisive action. With proper infrastructure and willingness to serve marginalized groups, the banking industry can foster true financial inclusion in 2024.

Why financial inclusion is critical to ESG strategy

Financial inclusion is now firmly fixed on the ESG agenda for banks. Enabling fair and equitable access to financial services fosters broader economic and social inclusion of disadvantaged groups, directly aligning with goals around responsible business practices and equal opportunity principles.

Simultaneously, policymakers and financial regulators are increasing scrutiny and expectations around banks’ ethical conduct and fair access practices. New regulations are emerging that mandate banks to address financial exclusion issues, such as diversity disclosures – one example of this is the EC’s
Corporate Sustainability Reporting Directive (CSRD). These mandates will spotlight financial exclusion as a key social risk for banks to mitigate.

Failure to meet these expanding regulatory requirements, regarding the support of marginalized consumers, risks severe reputation damage, a loss of public trust, and even potential loss of operating licenses. 

Barriers banks need to address

As banks now look to serve excluded groups, targeted barriers need dismantling across all aspects of banking infrastructure. Whilst technology offers tools for greater reach, human-centred solutions are critical for ensuring that on-ground realities are also being recognised.

Geographic barriers

Individuals residing in remote towns, rural areas and villages often struggle to physically access bank branches, ATMs and agents to open accounts or access essential financial services. To address these infrastructure gaps that restrict the reach of physical banking, expanding digital channels such as mobile and internet banking will be key to overcoming accessibility issues.

Financial barriers

Account fees, minimum balance requirements and lack of low-value banking products exclude low-income communities and workers operating in informal economies without steady incomes. Those living paycheck-to-paycheck often struggle with income variability and cannot set aside the funds frequently required just to open a bank account, or keep it open.

Unpredictable finances can also limit credibility in qualifying for lending products. Banks are beginning to assess innovative low-cost account models, micro-credit tools, and flexible options tailored to the financially vulnerable and I expect this will become more populate over the coming year.

Digital barriers

As banks progressively digitize their banking services, vulnerable consumers and those grappling with financial and technological illiteracy are unable to smoothly use digital interfaces and are getting left behind as a result of this. These digital skills gaps skew along income, education, gender and age divides globally – and persist even in developed countries.

To promote digital financial inclusion, banks must pursue technological modernization of services yet ensure human-centered design by enabling alternate channels for consumers to access banking services. Options like banking agents, phone/SMS banking and biometric logins would allow different demographics to bank with assistance. Community digital literacy programmes will also prove paramount to boost education around digital banking services.

Progress on financial inclusion requires addressing barriers across multiple dimensions with both dedicated technology efforts and a human-centred approach. Banks cannot take a narrow view on inclusion and must pursue tailored strategies across demographics to enable access at scale. 

Technology and innovation as key enablers

Leading banks and fintech providers worldwide are already showcasing how strategic digitization initiatives, human-centric design and localized distribution models can dismantle persistent barriers to make banking inclusive.

Safaricom in Kenya built a world-leading mobile money platform M-Pesa, using basic mobile transfers for micro-savings and micro-insurance at a massive national scale. India’s Aadhaar card harnessed biometric digital IDs to enable presenceless, paperless account openings for millions. Innovative video banking platforms, like
Silver Banking TV, allow elderly customers to bank remotely via user-friendly digital tools tuned to their needs, bridging accessibility gaps for the aged. Meanwhile, digital tools to support financial planning can also support the financially illiterate. Solutions such as
Finbow, a financial life planner, aim to support economic well-being and enable users to have more complete oversight of their financial situation by simulating potential life events and changes in finances, through different contexts and situations.

Contextual digital innovation offers banks an opportunity to reshape ecosystems leaving none behind. From 2024 onward, strategic technology implementation with localization is now pivotal to progressing financial access. 

Making financial inclusion a priority

The momentum pushing financial inclusion forward is picking up pace. With clear societal duties and lucrative business drivers at play, the time has come to transform access to banking services and move financial inclusion away from being an industry buzzword to a concrete game-changing action.

Technological developments have provided the banking sector with renewed tools to drive genuine inclusion-centric disruption. As we move into 2024, pockets of innovation across forward-thinking banks worldwide are already illustrating what is attainable.

The onus now lies on the global banking community to step up. The message for action is clear – financial inclusion must shift from peripheral corporate interests to an integral imperative driving business and social impact in 2024. The digital tools to achieve this are already emerging. What remains to be seen is the collective ambition to enact it.

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• Source: https://www.finextra.com/blogposting/25664/2024-the-year-of-financial-inclusion?utm_medium=rssfinextra&utm_source=finextrablogs