Finding solutions for unbanked consumers

More than two billion people worldwide are considered “unbanked” because they lack access to simple financial tools such as bank accounts, according to the World Bank. Traditional banking services can be complex, including the safekeeping and transferring of money, payments processing, and access to credit.

The unbanked population faces troublesome barriers. These include:

• Lack of local banking infrastructures in remote areas.

• Minimum deposits required to maintain a bank account.

• Inability to provide the necessary personal identification documents to open an account.

Barriers to financial inclusion might seem insurmountable. However, technology can play a critical role in helping banks solve these issues, enabling them to support financial equality. Widespread implementation of banking technology and availability of mobile phones are eroding the barriers both in the United States and internationally.

No documentation? No problem.

The lack of proper identification documents prevents many from opening bank accounts. In fact, approximately one billion people in India do not “exist” in terms of documentation. [Read “Identity Crisis: Who the heck are you?”] 

Humaniq, a London-based fintech startup, is a next-generation bank offering solutions to this problem for the world’s unbanked population. Powered by digital transformation tools, the bank works to ensure its mobile platform supports practical and affordable banking solutions.

Humaniq’s mobile app uses biometric identification tools, such as facial recognition, to simplify the user experience and verify user identity. The bank also uses elements of blockchain technology, such as its own cryptocurrency, the HMQ.

Mobile leapfrogs branches

Another struggle facing the unbanked population is access to physical bank branches. To overcome the obstacle of in-person visits to complete transactions, companies like U Microfinance Bank Limited (UBank) are leading with mobile solutions.

In Pakistan, 63% of the population has a mobile phone but only 10% has a bank account. UBank saw this as an opportunity to provide financial access by launching its first mobile banking initiative, Upaisa, with the SAP Mobile Inclusive Banking solution.

Upaisa has enabled customers across 210 cities in Pakistan, through a network of more than 15,000 agents, to conveniently access banking services on-the-go via mobile devices. Now, customers can use the mobile platform to develop savings plans, pay for goods and services, and establish credit.

In parallel, Adarsh Credit Co-Operative Society Ltd. has a mission to provide banking services to remote and unbanked areas. The company has decreased its dependence on a physical branch infrastructure and has reduced operational costs by 30%. With this cost savings, Adarsh now has the resources to serve more customers who would otherwise lack access to basic financial services.

U.S. banks helping unbanked

While progress is being made in other regions, banking the unbanked remains an issue in the U.S. as well.

Nine million U.S. households are unbanked due to a multitude of factors, according to FDIC. For instance, unemployed or low-income individuals often find it difficult to maintain required minimum balances. This puts a burden on those who need to avoid paying high penalty fees. In addition, immigrants often lack the proper documentation required to open an account in the U.S.

Similar to the initiatives mentioned earlier, U.S. banks and financial services companies offer programs to help the unbanked and underbanked populations find their financial footing.

• TCF Bank offers a product line called “ZEO” which consists of savings accounts with no minimum balance or monthly fees. The bank also offers prepaid debit cards that allow customers to use mobile payment services or any ATM to load money or set up direct deposit. Western Union customers can pick up transferred funds at any TCF bank at no cost.

• U.S. Bank, the nation’s fifth-largest bank, offers its Safe Debit Account, which only requires a $25 deposit. This comes with a debit card that will never generate overdraft fees. The account also allows customers to access online and mobile banking tools.

• Fifth Third Bank created the “Express Banking” account to service unbanked and underbanked customers by providing a debit card, check-cashing, and no minimum balance requirement or overdraft fees. It also provides customers with free access to financial literacy information. Within 18 months of the Ohio-based bank launching Express Banking over 125,000 new customers signed up.

The ability for U.S. and global banks to serve the unbanked population through purpose-driven models will only continue to grow with the help of innovative technologies.

Major U.S.-based technology companies like PayPal are also working to rectify the problem by offering solutions to the unbanked. The PayPal My Cash Card allows users to add funds to their online PayPal account directly from cash sitting in their wallet. This brings peace of mind to those who do not have access to a bank account or credit card, but wish to purchase items online. 

Progress continues

The World Bank reported that the number of adults worldwide who have a bank account grew by 1.2 billion between 2011 and 2017. There are millions of unbanked individuals globally who need access to financial services, and technological advancements in areas such as artificial intelligence and blockchain will further resolve the unbanked situation. When the banking and technology industries unite and share a common, purpose-driven goal, the quality of life can be improved locally and globally. 

About the author

Rob Hetherington is Global General Manager, SAP Financial Services Industries.