How financial institutions can provide services to the unbanked

Despite moves in the right direction, there are still more than a billion people worldwide who don’t have access to a bank account. Furthermore, although many people see this as an issue for the developing world, there are still surprisingly large numbers of people who are cut off from the financial system in the West. Solving the problem is one of the top UN development goals, but it also represents an enormous opportunity for the banking sector. However, recognizing the scope of the problem is one thing – doing something about it is quite another.

According to the World Bank, 1.7 billion people or 31% of the adult population lack proper access to financial services. The most common reasons include the prohibitive cost of transactions, lack of digital access or distrust in the financial system. Whatever the reason, a significant number of people in the US are still excluded from the financial system. That’s a social problem but it’s also a business opportunity. Those people aren’t just statistics kicked around in discussions about global poverty – they are customers.

Technology has played a significant role in providing more accessible services to people which are shaped around their needs. 

Technology is transforming finance. A new breed of fintech start-ups are rewriting the rule book and giving people more options when it comes to banking. For example, in Brazil the Airfox App allows underbanked users access capital and loans through their smartphones. Facebook’s upcoming cryptocurrency Libra has, as one of its main goals, the aim of providing services to the underbanked population. Its digital wallet will give people a chance to store and spend Libra. Obviously, the big obstacle to this is creating the cryptocurrency and having it accepted.

One thing many of these solutions have in common is that they can be issued via smartphones. While many people who are underbanked may not have access to the internet at home, they often have smartphones. Mobile banking is a major driver for financial inclusion especially in parts of the developing world where mobile reach exists, but internet connectivity is still relatively rare.

Financial institutions can take note of these developments to upgrade their own services and make themselves more attractive to the unbanked customer.

The first way they can do this is by taking note of the reasons why people say they are unbanked. Reducing admin hurdles and minimum deposits are two ways to remove barriers which stop people from signing up. Equally, certain account fees, especially for slipping into overdrafts or missing payments, can put people off.

Speeding up access is also a critical feature. Those without bank accounts are often paid via cheque. Cashing that with some institutions can take days which can often be the difference between making your rent on time or  not. The only alternative is to endure the high fees which come from an unregulated provider, making the poor poorer. Technology does give financial institutions more of an opportunity to eliminate those barriers, such as providing faster access to cash and quicker transaction times.

Financial institutions can take advantage of this by providing services which are shaped around people, and the way they live. One of the most popular of these includes next generation ATMs or interactive Teller Machines (ITMs) which offer everything you expect from a branch.

This has the potential to address one of the biggest barriers standing in the way of financial inclusion: access. Digital technology has brought convenience and flexibility to the world of personal finance, but it also risks increasing the gap between the haves and have-nots. As banking goes digital, those with limited online access are at increasing risk of becoming excluded. They can find it much more difficult to access the kind of financial services most other people take for granted.

With ATMs and ITMs incorporating more services, financial institutions can extend their reach more easily and cost effectively into other areas. The Bank of Abyssinia, for example, has used ITMs enabled with features such as remote accounting opening loan applications and video conferencing to expand financial institution in Ethiopia. In the future, they will be able to receive cash sent through international money transfer agents.

Cash recycling ATMs located in the community enable cash to recirculate cheaply, quickly and securely within local markets facilitating financial inclusion and access to financial services for everyone, while expanding the reach of financial institutions.

Services can include anything from cash deposits, account opening, account services and even the ability to speak directly to a customer service advisor via video or audio link. They are, branches in a box, and enable financial institutions to provide a faster and more convenient way for customers to access all the services they might expect from a branch.

ITMs are also enabling financial institutions to take their services directly to customers and shape them around their daily routines offering greater convenience to the customer. For example, placing branded ITMs or micro branches in grocery stores gives people access to banking in their local community as part of their regular shop. From the old days in which people had to take time to go to the branch, we’re now in a world in which the branch comes to them.

Related: How cash use is changing across Europe

Reshaping banking products to cater to the unbanked and the underbanked also creates an opportunity to offer services to people who are financially excluded – especially through the provision of prepaid credit cards. Around 27% of unbanked people have turned to prepaid credit cards according to the FDIC. Just under half the people who use prepaid cards are either unbanked or underbanked.

However, although these have played a useful role in providing services to people who would otherwise have been cut off from the financial system, they can still provide limited options. Better prepaid credit cards shaped around the needs of members can go a long way to providing previously excluded people with access to services they want rather than substandard replacements for bank accounts.

New products can also go hand in hand with new technologies. Artificial intelligence (AI) is being used across the financial spectrum. Chat bots have become common as ways to help people answer simple questions, but this only scratches the surface of what AI can do. Perhaps the most important from a financial exclusion point of view is its ability to create a more inclusive approach to credit scores.

A big problem for the unbanked is that it’s difficult to build up the credit history which puts a huge range of financial products tantalisingly out of reach. Traditional methods for assessing credit have often been blunt and unfairly exclude people based either on a lack of past history or past issues on their credit files.

AI, though, is leading the way in generating more inclusive forms of credit scores which can assess a person’s actual risk profile. For example, if someone lacks past credit information because they have not had a bank account, AI can access other data on which to base its decisions. Some of these systems can assess more than 1,000 different indicators to tell them how likely a person is to pay a loan back. This enables the providers to offer a much more personalised range of financial products.

Technology and financial institutions, therefore, make perfect partners for the unbanked and underbanked. The ethos underpinning  financial institutions means they are in an outstanding position to develop personalised products for the unbanked. Next generation technologies give them more tools to do so.