5 Global Financial Inclusion Strategies

While everyday banking is an uneventful task that we take for granted, a disproportionate number of individuals in the US and worldwide need access to essential financial services.

According to the World Bank, nearly 1.5 billion people in emerging economies need access to formal savings and credit. They pay for everything in cash, relying on informal lenders and personal networks for credit. 

We are not living in a financially inclusive society. There’s a pressing need for robust initiatives to bridge the gap and create greater financial security for all.

Here are five financial inclusion strategies that bring more people into the financial system.

1. Mobile banking

What is it? Mobile banking applications are user-friendly and accessible 24/7, enabling individuals to conduct financial transactions conveniently from their smartphones without the need to visit physical bank branches. 

Decoding the impact:  

• The Federal Reserve’s 2022 Survey of Consumer Payment Choice reveals that 60% of Americans are at ease using mobile banking apps such as Venmo and Zelle, facilitating seamless money transactions. 
• A 2016 MIT study reveals that mobile money services helped lift about 2% of the population in Kenya out of poverty.

2. Digital payments

What is it? Also known as electronic payments, digital payments involve the transfer of value from one payment account to another without using physical cash. This transaction occurs digitally or online, utilizing mobile phones, computers, or cards like credit, debit, or prepaid cards.

Decoding the impact: 

• Data from the World Bank suggests that two-thirds of adults globally are engaged in making or receiving digital payments.
• Statista reveals that in 2021, over 40% of smartphone users in the USA have engaged in contactless payments at least once.
• PayPal is the most popular choice for online payments in the USA. Globally, it has allowed countless individuals to shop online, transfer money, and manage their finances on their phones. 
• During the COVID-19 pandemic, mobile wallet apps like Apple Pay and Google Pay became standard options for daily transactions. 

3. Community Development Financial Institutions (CDFIs)

What is it? CDFIs are local, mission-driven financial institutions that operate in remote areas. They use public and private capital to lend money directly to borrowers underserved by the traditional banking sector.

Decoding the impact: 

• Currently, CDFI holds more than $450 billion in assets, creating jobs, affordable housing, financial health, and opportunity for all, according to a recent New York Federal Reserve Bank report. 
• Nearly 1,500 certified CDFIs now support economically disadvantaged communities in the US. 
• CDFIs provided unparalleled support to small businesses during the COVID-19 pandemic.

4. Fintech innovations

What is it? Fintech refers to technology-enabled innovations that simplify financial transactions for consumers or businesses, making them more accessible and affordable.

Decoding the impact:  

• The fintech industry has changed the market and brought innovative solutions to the financial services sector.
• Platforms like Chime, Varo, and SoFi create access to no-fee banking, high-yield savings accounts, and easy access to credit. 
• According to a survey conducted by Ernst & Young in 2019, 64% of consumers have used two or more fintech services or platforms. 

5. Government initiatives

What is it? Government and non-government organizations have been doing their part by launching several initiatives encouraging financial inclusion. 

Decoding the impact: 

• The federal government’s Community Reinvestment Act (CRA), enacted in 1977, supports banks in meeting their communities’ credit and banking needs, including low- and moderate-income districts. 
• Economic Impact Payments, commonly known as stimulus checks, are payments made by the government to US citizens to provide financial relief during difficult times. 
• Bank On programs encourage banks and credit unions to offer safe, affordable financial services to unbanked and underbanked individuals across the US. 
• The FDIC’s Economic Inclusion Strategic Plan strives to provide access to affordable and sustainable financial products and services from insured depository institutions for unbanked and underbanked Americans.

The final word

Technology today can serve as the foundational building blocks for financial inclusion. People are one step closer to conveniently paying, investing, and accessing credit. However, continuous innovation and collaborative efforts are imperative to bridge the remaining gaps. 

Remember, we can only set the stage for a robust economy to thrive by ensuring everyone can participate fully in the financial system.

This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.