The World Bank with funding from the Bill & Melinda Gates Foundation, launched the Global Findex database in 2011, the world’s most comprehensive data set on how adults save, borrow, make payments, and manage risk. The data has been collected using nationally representative surveys of more than 150,000 adults age 15+ which covers more than 140 economies around the world. The initial survey round was followed by a second one in 2014 and by a third in 2017. The latest one has additional data on the use of financial technology (or FinTech), including the use of mobile phones and the internet to conduct financial transactions.
The latest findings reveal that the share of adults globally owning an account has increased to 69% (up by 7% and 18% cumulatively from 2014 and 2011 respectively). These numbers translate into 515 million adults who have gained access to financial tools reflecting the continued evolution of financial inclusion. Its main drivers have been digital payments, government policies, and a new generation of financial services accessed through mobile phones and the internet.
However, about 1.7 billion adults still remain unbanked — without an account at a financial institution or through a mobile money provider. Because account ownership is ubiquitous in high-income economies, virtually all these unbanked adults live in the developing world; nearly half live in just seven developing economies: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan.
The India Story
Compared to an average of 58% in lower middle income countries and 70% in South Asia, India boasts of a 80% account ownership among adults. A strong government push to increase account ownership through biometric identification cards helped the country register a 26.8% growth in mere 3 years. It has further helped narrow both, the gap between rich and poor adults and the gender gap which stands at 6% as per the latest survey.
However not all people who have an account actively use it. Globally, about one in five account owners reported making no deposit and no withdrawal — in digital form or otherwise — in the past 12 months and therefore have what can be considered an idle or inactive account. In India the number is a staggering 48% — the highest in the world and about twice the developing economies’ average of 25%. A part of the explanation can be attributed to the implementation of India’s Jan Dhan Yojana scheme, a nation wide scheme developed by the government to increase account ownership. Launched in August 2014 and used widely in the aftermath of the demonetization drive in 2017, the program has brought an additional 310 million Indians into the formal banking system, many of whom might not yet have had an opportunity to use their new account.
Mobile money (transacting through an account with the network provider) isn’t predominant as only 2% of the country’s population use it. Though online shopping has witnessed a huge uptick in the recent years, paying for it through the same medium hasn’t; the data reveals that just a 4% of the population use net-payment channels, indicating a clear preference for cash on delivery (COD) option. A huge growth opportunity for digitization lies in channeling private sector wages and government payments as they currently account for just 5.4% and 8.1% respectively. For governments, switching from cash to digital payments can reduce corruption and improve efficiency as demonstrated by the pension payments example. The leakage of funds witnessed a drop of 47% (2.8 percentage points) when the payments were made through biometric smart cards rather than being handed out in cash (Muralidharan Niehaus Sukhtankar – Building State Capacity (10 February 2016).
Some advances have been made in helping women gain access to financial services. In India three years ago, men were 20% more likely than women to have an account. Today, India’s gender gap has shrunk to an astounding 6%. However, like most other developing economies (5%), in India too there exists a gap between the female and male account owners with respect to inactive accounts and it is about twice as large – while 54% of women with an account reported having made no deposit or withdrawal in the past year, only 43% of men with an account did so.
Need for Digitization
Companies pay wages in cash to about 230 million unbanked adults worldwide; switching to electronic payrolls could help these workers join the formal financial system. Mobile phones and the internet also offer strong openings for progress: globally, one billion financially excluded adults already own a mobile phone and about 480 million have internet access. In India, more than 50% of the unbanked and 66% of the inactive account holders have a mobile phone. This represents an opportunity for expanding the use of accounts through digital technology. Unbanked farmers could benefit from the security and convenience of digital payments for agricultural sales. Digitizing agribusiness supply chains could also build payment histories which could be leveraged by existing banks and an exponentially growing number of FinTech companies in the country to expand access to credit and insurance for small farmers, aiding to reduce the agrarian distress gripping the economy.
Technology – the way forward
The data reveal opportunities to expand access to financial services among people who do not have an account—the unbanked—as well as to promote greater use of digital financial services among those who do have an account. The power of financial technology to expand access to and use of accounts is demonstrated most persuasively in Sub-Saharan Africa, where 21 percent of adults now have a mobile money account—nearly twice the share in 2014 and easily the highest in any region in the world. While mobile money has been centered in East Africa, the 2017 update reveals that it has spread to West Africa and beyond.
Digital technology is also transforming the payments landscape. Globally, 52 percent of adults have sent or received digital payments in the past year, up from 42 percent in 2014. Technology giants have moved into the financial sphere, leveraging deep customer knowledge to provide a broad range of financial services. Payments made through their technology platforms are facilitating higher account use in major emerging economies such as China, where 57 percent of account owners are using mobile phones or the internet to make purchases or pay bills—roughly twice the share in 2014.
Of course, digital technology alone is not enough to increase financial inclusion. To ensure that people benefit from digital financial services requires a well- developed payments system, good physical infrastructure, appropriate regulations, and vigorous consumer protection safeguards. And whether digital or analogue, financial services need to be tailored to the needs of disadvantaged groups such as women, poor people, and first-time users of financial services, who may have low literacy and numeracy skills.