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Strategic executives of global banks have raised three priorities to the top of their agendas. The first, expanding business and increasing revenue, is a constant. Recently, two more objectives have become critical.
One is rebuilding trust. In the wake of the latest fiscal crisis and several high-profile financial scandals, the need to restore public trust is greater than ever before. The next one — social responsibility — may initially appear at odds with traditional business goals. However, cultivating a strong identity of social responsibility is not only virtuous, it’s an important competitive differentiator.
How does this all connect?
Consumers today often make decisions about where they put their money based on an institution’s social position and actions. Sixty-one percent of consumers think it’s important to do business with socially responsible corporations
. There is one way banks can achieve all of these goals — through financial inclusion.
Thanks to the advent of financial technology, they now have the means to do so.
Investing in a financial inclusion strategy could be the answer for the banking industry
Jan Bellens, Global Emerging Markets Leader at EY, defines financial inclusion as:
“… Providing affordable and relevant financial products to individuals and businesses — including micro, small, and mid-sized enterprises — that lack access to these products.”
With greater financial inclusion, global banks can expand their customer base, unlock new economic benefits for emerging economies, and increase revenue. They will also take a leading role in fulfilling social needs by improving the financial health of communities and businesses, raising trust as a result.
Quantifying the potential of financial inclusion
Roughly 1.6 billion people out of the global population of 7.6 billion are unbanked, according to research by EY
. There are also more than 200 million micro, small and medium-sized enterprises that lack access to basic banking services.
Where are the financially excluded?
Financially excluded mid-sized enterprises are predominantly located in five markets, including China, Brazil, India, Columbia, and Thailand, according to EY.
Why aren’t these potential customers currently served by banks?
EY identified five main reasons for financial exclusion:
- Lack of education
- No valid ID
- Geographic barriers
- Unaffordable financial products and services
- Non-existent credit history
How can financial inclusion help?
Financial inclusion can boost GDP by as much as 14% in large developing economies (such as India), and up to 30% in frontier markets (like Kenya), according to EY. Banks that prioritize financial inclusion can increase revenues by $200 billion USD in 60 countries.
Fintech is the key to financial inclusion
The term “fintech
” refers to the adoption of innovative software and digital tools to support various financial functions, such as financial literacy and education, banking, investing, and crypto-currencies. Through greater adoption of fintech
, global banks can vastly expand their reach in emerging economies with high effectiveness and low costs. Here’s how.
1. Add more digital channels to reduce infrastructure and geographical barriers.
Total financial inclusion will likely require at least some physical presence, such as micro-branches or kiosks. However, fintech that enables standard banking products, digitalized payments, and automation will help banks expand adoption of digital services in underserved regions.
2. Deploy data analytics to generate “creative credit profiling.”
Many banks disqualify individuals and businesses from lending services due to lack of identification and no credit history. But with analytics of other digital channels, such as social media, customer feedback, and even biometrics, banks can gauge potential customers’ credibility, according to EY.
3. Provide tailored financial education and digital guidance.
Many of the unbanked are eager for access to lending, savings, and credit services. However, they will likely require assistance with complex banking documentation and digital tools. To address these challenges, banks must gain a deeper understanding of the unbanked customer segment, simplify onerous processes, and prioritize digital adoption. By adding a Digital Adoption Platform (DAP)
, banks empower first-time users to navigate mobile apps
and other digital tools with confidence and ease. As a result, new customers confidence using banking platforms faster, make fewer mistakes, and require less support.