The impact of global financial inclusion and exclusion:

A data-driven exploration of access to financial services

CHAPTER 01

An introduction to financial services accessibility

Having access to financial services is something all too easily taken for granted. But for millions of people around the world, access to services like banking, insurance, and investing isn’t straightforward, or even possible. 

Being in a position to use financial services makes a big difference in someone's life. For example, if you have a bank account, you can save money and plan for their future. If you have insurance, you can protect yourself and your family in case of an accident or illness. And if you invest, you can grow their wealth over time. 

Unfortunately, not everyone has equal access to financial services. In many parts of the world, banks or similar services are scarce and expensive, making them out of reach for lots of people. But with greater access to financial services – along with improved financial literacy – people can have the opportunity to build a better financial future for themselves and their families.

What is financial exclusion and why is it a problem?

When people are cut off from mainstream financial services, such as banks or credit unions, they are financially excluded. Someone could be described as financially excluded if they’re completely unable to access common financial services or if they have difficulty or reluctance accessing them. This can happen for a variety of reasons, including:

• Being unable to meet the minimum requirements for an account – for example, not meeting identity requirements (individuals without a driving licence, passport or permanent address)

• Having a low credit score or a low income 

• Having limited understanding of the information provided

• Difficulty accessing branches – for example, living in an area that is cut off from traditional providers

• Lack of access to IT 

• Lack of financial products to suit the needs of all customers 

• Self-exclusion because of a variety of a reasons, such as lack of trust in providers or an inability to access products via the preferred channel

Financial exclusion can have a significant impact on someone’s life, making it difficult to manage bills, save money, or access credit. This means they’re unlikely to be able to improve their financial status over time and, without intervention, being unable to access financial services can contribute to social exclusion, poverty and inequality. That’s because a lack of financial resource means individuals tend to face difficulties progressing towards a healthier, more sustainable and better life. 

Without access to useful affordable financial products and services that meet peoples’ requirements, it can prevent people from:

• Meeting their basic needs, such as nutritious food, clean water, housing, and healthcare

• Building financial security for the future 

• Protecting themselves in times of crisis 

• Managing irregular cash flow 

• Accessing the resources 

• Paying for higher education

• Investing in opportunities

There’s also something called the poverty premium, which is the additional costs people may experience carrying out transactions which people who have full access to financial services don’t incur. For example, the following can often be more expensive pay-as-you-go mobile phone contracts, utility payments, high cost credit and insurance. Estimates reveal that the premium could amount to approximately £1,300 a year per person.

While the growth of internet banking and digital services has made certain financial services more convenient and accessible to some, others have faced problems because of bank closures and/or isolation from digital platforms.  

The impact of access to financial services   

Financial inclusion, on the other hand, promotes economic growth and development. It’s about ensuring everyone has equal access to at least the basic financial services they need to live a stable and secure life. Financial inclusion, according to the UK Government, is when individuals and businesses have the ability to: 

• Manage day-to-day financial transactions

• Meet expenses (both predictable and unpredictable)

• Manage a loss of earned income

• Avoid or reduce problem debt

The World Bank Group considers financial inclusion a key enabler to reduce poverty and boost shared prosperity.After all, access to financial and social assets is a key contributing factor to help individuals make their own economic decisions.

Not only does financial access support day-to-day living, it helps individuals and businesses plan for long-term goals, and prepare for unexpected emergencies. According to The World Bank Group, whose mission is to to end extreme poverty and promote shared prosperity in a sustainable way, the first step towards broader financial inclusion is access to a transaction account. This allows people to store money, send and receive payments, and “serves as a gateway to other financial services.” 

Account holders are more likely to use other financial services, to access credit and insurance, as well as partake in other activities which rely on financial access. For example, start or expand businesses or invest in education. All of this can improve someone’s overall quality of life. It also means they’re more likely to manage risks and weather any financial storms.

CHAPTER 02

A global picture of financial access

In order to gain perspective over global financial inclusion, in their Global Findex Database reports, The World Bank Group look at:

• Account ownership

• Use of accounts 

• Financial resilience

The 2021 edition reveals findings from surveys of over 125,000 adults in 123 economies. 

Account ownership is used as the fundamental measure of financial inclusion because once individuals have access to an account, they can store, send, and receive money – all of which facilitate development opportunities. The account could be with a bank or other regulated institution such as:

• A credit union

• Microfinance institution

• Mobile money service provider

While account holders benefit from being able to receive funds from family and friends in emergency situations (when unbanked individuals may have to rely on less safe and reliable, as well as more expensive, methods), greater financial inclusion comes when people can use their account for payments, savings and credit – which is why the World Bank Group also look at use of accounts. And, in fact, the increases here outpace growth in account ownership.

The share of adults making or receiving digital payments in developing economies grew from 35% in 2014 to 57% in 2021. 

What the stats reveal

While there are plenty more exciting developments in financial inclusion, it’s important to establish how much of a problem exclusion still is. According to the Global Findex 2021 survey:

Globally, 1.4 billion adults (24%) are unbanked or excluded from the formal financial system

• Lack of money, perceived cost of accounts, and distance to financial institutions are the top reasons people remain unbanked

• Other barriers to opening an account include lack of necessary documentation papers and lack of trust in financial services 

• The top barrier to having a mobile money account mirrors the top barrier to having a financial institution account (not enough money)

• Borrowing only from family and friends is as common in developing economies as borrowing formally

• More than half of the world’s unbanked adults live in seven economies:

• The majority of unbanked adults continue to be women even in economies that have successfully increased account ownership and have a small share of unbanked adults

• In developing economies, 64% of unbanked adults said they could not use an account at a financial institution without help

But there is plenty of good news too:

• Worldwide account ownership increased by 50% between 2011 and 2021, to reach 76% of the global adult population

• From 2017 to 2021, the average rate of account ownership in developing economies increased by 8 percentage points, from 63% to 71% 

• Mobile money is driving growth in account ownership, particularly in Sub-Saharan Africa, where 33% of adults have a mobile money account

• 64% of adults around the world (or 84% of account owners) made or received at least one digital payment

• 25% of adults in developing economies saved using an account

• 39% used an account to store money for cash management purposes.

• More than half of the people in developing economies who saved any money did so in a formal account in 2021—the first year that formal methods were the most common method of saving 

One of the most prevalent issues of financial exclusion is that poorer adults have always been less likely than wealthier ones to have an account. According to the Global Findex 2021 survey, among adults in the richest 60% of households, 79% have an account. In general, high-income economies don’t have large income gaps in account ownership because account ownership is “nearly universal.” But only 72% of adults among the 40% of poorest households have an account. However, this income gap in account ownership worldwide has halved since 2011, narrowing by 6 percentage points since 2017. 

There are many developing economies where the income gap in account ownership is significant:

• Account ownership in Kenya is 79% but wealthier adults are about 20 percentage points more likely than poor adults to have an account.

• Similarly, in the Philippines and Turkey, account ownership has grown significantly but the income gap has remained stagnant at more than 20 percentage points.

• Mozambique, Myanmar, Nigeria, Uganda, and Zambia are other countries where the gap is more than 20 percentage points.

As well as a few developing economies without a significant – or any – gap:

• Mongolia and Thailand have achieved near-universal account ownership

• In 2021, account ownership in Brazil was at 85% among richer adults and 82% among poorer adults 

In summary, the statistics reveal that progress towards financial inclusion is happening, on average, worldwide – but the pace of change does vary from country to country. Throughout the next few chapters, we will look at other areas that impact access to financial services, including financial literacy, the role of technology and initiatives from financial institutions.

The role of technology in financial inclusion

To understand the role technology can play in greater financial inclusion, it helps to look at the impact of the coronavirus pandemic. According to The World Bank Group’s 2021 Global Findex survey, COVID-19 accelerated the digitalisation of payments in some developing economies:

• Excluding China, in 2021, 20% of adults in developing economies made a merchant payment using a card, mobile phone, or the internet – 40% of them for the first time after the start of the pandemic

• Of those adults in developing economies who paid a utility bill directly from an account, about one-third did so for the first time after the start of the COVID-19 

The pandemic played a role in accelerating digital adoption because of the difficulties faced paying by cash or cheque. But digital financial services (including those which use mobile phones) have always offered a way of reaching previously excluded and underserved customers. The benefits are numerous, including:

• Digital payments can be cheaper than receiving payments in cash. In Chapter 2, The World Bank Group uses Liberia as an example, where teachers saw the cost of collecting their money fall by 92% ($25 per paycheck to $2) by receiving their salaries as digital deposits.

• Digital payments can reduce fraud. When India transitioned its pension payments from cash to sending payments to biometric smart cards, internal fraud and leakage dropped by 47%. Savings in administrative costs added up to millions of dollars too. 

Delivering a range of formal financial services digitally has a lot of potential. However, digital inclusion needs to be considered too. This means individuals need:

• Access to infrastructure – devices and an internet connection

• The skills and confidence necessary to use digital technologies

• Accessible design, including assistive technology for those with any additional needs

Without digital inclusion, moving towards greater digital adoption within the financial services industry may risk more financial exclusion. After all, COVID-19 also revealed more than the potential of digital adoption. It reinforced the need for greater financial inclusion.

In the UK, there was “15% increase in people [who had] characteristics of [financial] vulnerability, as a result of COVID-19,” Nisha Arora, Director of Consumer and Retail Policy at the Financial Conduct Authority (FCA) said.

What’s more, the coronavirus crisis is expected to lead to long-term economic damage and increased unemployment, which has the potential to exacerbate financial exclusion among certain groups. So it's crucial to prioritise both those already experiencing financial exclusion, and those at risk too. 

Fortunately, technology is an enabler when inclusion is considered. Globally, 70% of adults have internet access, according to The World Bank Group’s 2021 Global Findex survey. This includes via a mobile photo or a computer, but varies across countries:

• 91% of adults have internet access in high-income economies

• 67% of adults in developing countries have access

Even where there’s no internet access, people may be able to use mobile money accounts without the need for data. This could be helpful in places throughout South Asia and Sub-Saharan Africa, where less than half of adults have internet access, but 70% (South Asia) and 81% (Sub-Saharan Africa) have a phone. 

CHAPTER 03

What can be done about financial exclusion?

Financial exclusion is complex. While some people may experience periods of exclusion throughout their lives, there are people who struggle with it in the long-term – even life-long. These people have a need for financial products and services which is unmet, leaving them with difficulties trying to manage their money day-to-day, make transactions and plan for long-term financial security. What’s more, financial exclusion is closely associated with poverty and social exclusion. It often means paying more to carry out basic things like making a payment. 

We’ve seen how some progress has been made worldwide, but as the number of excluded individuals falls, the problems they face can be felt more severely because the use of financial products is common amongst the majority. Sending money, saving funds, taking out an insurance policy – these are all things we take for granted. So what can be done to promote greater financial inclusion so everyone has the same access and opportunities? 

The importance of financial literacy

Having access to financial services is just one aspect of inclusion; individuals also need to feel confident using those services. That’s where financial literacy – knowledge, understanding, and use of key financial skills – comes in. 

To understand the current state of financial literacy, the OECD/INFE 2020 International Survey of Adult Financial Literacy surveyed twenty-six countries and economies across three continents (Asia, Europe and Latin America) to test basic financial skills, behaviours and attitudes. Financial literacy was low across all economies: 

• Participants could score a maximum of 21 which would mean they had a basic understanding of financial concepts   

• Across the entire sample, individuals, on average, scored 12.7 or just under 61% of the maximum financial literacy score

• The highest score was 14.8 (71%) from Hong Kong, China 

• The lowest score was 11.1 (53%) from Italy

• The majority of economies (15) scored between 12 and 14

Improved financial literacy needs to go hand-in-hand with any efforts to improve access to financial services. Ownership of an account alone is not enough to see the real benefits of financial inclusion. In fact, one study found that giving free access to basic bank accounts in Chile, Malawi, and Uganda, had no impact on savings or welfare. Expanding access needs to be offered alongside other policies and incentives – namely more education around financial topics. 

One such example is Experian’s United for Financial Health initiative, launched following the pandemic. Partnering with non-governmental organisations (NGOs), the programme aims to deliver targeted financial education, tools and resources. So far they have connected with over 87 million people, including:

• Microentrepreneurs in Brazil

• Young people in the UK and Ireland

• Marginalised communities in the USA

• Credit invisibles in Italy 

• Small businesses in South Africa

The idea is that financial education can empower diverse communities, and by providing education that’s tailored to their needs, the impact will be much greater. 

The potential impact of strengthened basic financial knowledge is huge, especially on the financial well-being of those receiving support. A self-assessed section on the International Survey of Adult Financial Literacy, the average financial well-being score of all the participants is below 50% of the maximum. The report says this means individuals are more inclined to agree that:

• Their financial situation adds to their stresses and worries, rather than positively contributing to their wellbeing 

• They feel more insecure over control of their finances

• They feel less confident about their ability to absorb financial shocks in the future

• They’re more inclined to agree that their finances restrict their life choices 

• They are lagging behind their long-term financial plans

Once again there is some variation from country to country, from the highs of 57% (Austria and the Czech Republic) and 55% (Hong Kong, China), to lows of 35% (Georgia) and 40% (North Macedonia). But overall the report reveals a large majority of individuals experience discomfort with their own financial situation, emphasising the importance of considering financial literacy or education in any efforts to improve inclusion.

Establishing greater economic opportunities

The statistics reveal that more needs to be done to ensure that everyone has access to the basic financial services they need to live a stable and secure life. There are a number of organisations homing in on how to foster a culture of financial inclusion around the world, and there are several government initiatives in place to help those who are excluded from mainstream financial services. They tend to focus around the following areas:

Overcoming barriers 

Certain barriers to entry are easier to overcome than others. For example, there’s the potential to expand financial inclusion through easier access to formal identification and mobile phones. According to the World Bank Group, more than 100 million unbanked adults in Sub-Saharan Africa have no ID. As a result, they struggle with the traditional requirements of opening an account. 

That’s where innovation can be a driver for change and inclusion. With Experian’s ProveID product, it’s reported 22 million Indian citizens without formal documentation have been able to use alternative data to help them access mainstream financial services.

“People need to be given the opportunity to prosper and flourish no matter what their background may be,” Abigail Lovell, Chief Sustainability Officer, Experian, told the Financial Times. 

Digitalising cash transactions

A high percentage of unbanked individuals receive and make payments in cash. This could be cash for their wages, support from the government, or even from the sale of goods. Shifting these payments so that they occur within formal financial institutions has huge potential to increase financial inclusion. According to the 2021 Global Findex survey, 39% of adults in developing economies opened their first account at a financial institution specifically to receive a wage payment or money from the government.

Promoting digital payments could expand the use of financial services – but all parties involved must ensure it’s more convenient and appealing to use than cash. In other words, digitising services must be offered in a context of reliable products and infrastructure, which includes digital inclusion, as discussed earlier. 

Considering suitable product design and delivery of services

Financial services need to be accessible, fair and affordable for all. A large proportion of unbanked individuals are excluded by a combination of marketing, pricing and inappropriate product design. Their needs are not considered in the planning of the financial product itself. For example, there might be conditions attached to products which make them unsuitable for use for certain people – for example, an account without a cashpoint card. 

But the consequences can be much worse than inconvenience. In the UK, a report by LexisNexis Risk Solutions revealed that because of the limitations in the credit scoring system, over 7m people in the UK risk being excluded from accessing affordable financial services. Instead, they face relying on more expensive or risky options, such as subprime lenders.

“It is increasingly clear that credit scoring methods relying on generic credit history trends are becoming ineffective in the face of an increasingly dynamic UK population in which people’s lives are nuanced and complex,” Steve Elliott, managing director at LexisNexis, told The Financial Times.   

“Traditional credit data is based on a narrow view of someone’s financial situation — using information like previous borrowing behaviour and address history — which can be up to 60 days out of date,” adds Freddy Kelly, chief executive and founder of Credit Kudos.

In considering suitable product design and delivery of services, a ‘one size fits all’ approach doesn’t enhance financial inclusion. Instead, products and services should be built around the capabilities and needs of people. The true potential lies in helping unbanked people reach more personalised, tailored services.

Encouraging good financial behaviours 

In the long-term pursuit of greater financial resilience and well-being, individuals need to be encouraged to engage in positive financial behaviours. Again, technology can play an important role. According to the OECD’s International Survey of Adult Financial Literacy, the following tools can help:

• Online calculators 

• Simulators 

• Reminders

• Commitment devices 

These tools can support customers in their financial prudence and help with their longer-term priorities. With the right incentives and messages, people are more likely to stay on the right path and avoid any short-lived changes to their financial wellbeing. The value of small and consistent savings can be promoted and, over time, financial literacy will improve and individuals will be better prepared to mitigate the negative consequences of any unforeseen expenses.

Focusing on at-risk groups

Unfortunately, financial exclusion disproportionately affects certain groups of people, or people who share similar characteristics. For example, factors that can inhibit use of financial services include unemployment, older age, or living in marginalised communities. These at-risk groups must be considered in order to improve financial inclusion. 

In a round-up of the discussions from Tech Nation’s Fintech Delivery Panel, Chris Pond, Financial Inclusion Commission Co-Chair of Finclusion 2021 explained the difficulties faced for those who don’t meet the formal requirements of traditional banking: “Direct debits and standing orders are fine if you have a predictable flow of income, but not if you’re on a zero-hours contract. Insurance can provide affordable protection if you live in some postcodes – not in others. As a single parent, you might be the most diligent payer of bills, but your credit score might not reflect that.”

In fact, people living in deprived areas can pay almost £300 more per year for their car insurance. And an additional £160 extra can be charged for paying monthly rather than annually. This means the poorest pay a premium of nearly £500 on top of their policy.

Access to basic financial resources can transform lives, strengthen communities and alleviate poverty. But the availability of any financial service shouldn’t come at a greater cost, so the needs of any at-risk groups need to be considered to maximise financial inclusion. 

This communication is intended for marketing purposes only and does not constitute or provide legal, tax, investment or financial planning related advice.

CHAPTER 04

Useful links

The World Bank Group discuss 8 key approaches to accelerate financial inclusion: https://blogs.worldbank.org/psd/8-key-approaches-accelerate-financial-inclusion 

A speech by Sheldon Mills, Executive Director, Consumers and Competition, delivered at Financial Inclusion Virtual Summit 2022: https://www.fca.org.uk/news/speeches/keeping-pace-rising-costs-improving-financial-inclusion-consumers 

A toolkit from the UK Government on promoting women’s financial inclusion: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/213907/promoting-womens-financial-inclusion-toolkit.pdf 

A report on ‘Financial Inclusion in a Digital Age’ from UK Finance: https://www.ukfinance.org.uk/system/files/UK-Finance-Financial-Inclusion-AW-web.pdf 

Mastercard UK and Ireland Divisional President, Kelly Devine, and Good Things Foundation Group CEO, Helen Milner write about how their coalition is tackling digital and financial exclusion to build back better: https://www.goodthingsfoundation.org/what-we-do/news/build-back-better-why-we-must-act-now-to-tackle-digital-and-financial-exclusion/

Deloitte discuss how growth can be achieved through financial inclusion: https://www2.deloitte.com/uk/en/pages/financial-services/articles/growth-through-financial-inclusion.html 

Save the date for Global Financial Inclusion week:  https://financialinclusionweek.org/ 

World Economic Forum presents four things to know about financial inclusion around the world right now: https://www.weforum.org/agenda/2022/07/global-digital-financial-inclusion-findex/