# Digitisation is transforming financial inclusion – here’s how
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-04-06
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Redefining Financial Inclusion: Serving the Unbanked and
Meta Description: Learn how new technology is bridging the gap for unbanked and underbanked individuals, offering simpler, more convenient access to essential financial services.
URL: https://financedigest.com/digitisation-is-transforming-financial-inclusion-heres-howhtml

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_By_ **_David Ritter_** _, Financial Services Strategist at digital consultancy_ [_CI&T_](https://ciandt.com/us/en-us/) _._

One customer segment that has been historically neglected by the financial services sector is the so-called “unbanked” and “underbanked”. The unbanked are people who don’t use any banking services, including debit cards, current accounts, and savings accounts. Meanwhile, underbanked consumers use some type of bank account, but don’t have regular access to services like credit cards or mortgages. They often turn to alternatives, such as payday loans and cheque-cashing shops, to get by.

The majority of banks and [financial firms](https://www.financedigest.com/turning-a-blind-eye-wont-work-for-financial-firms-as-the-fca-tightens-its-grip.html "TURNING A BLIND EYE WON’T WORK FOR FINANCIAL FIRMS AS THE FCA TIGHTENS ITS GRIP") have done relatively little to address the issue, since serving such customers has typically been less profitable than other segments. However, new technology can improve [profit margins](https://www.financedigest.com/inflation-boosts-jeronimo-martins-q4-profit-but-dents-margins.html "Inflation boosts Jeronimo Martins’ Q4 profit but dents margins") and there is great market need: the global unbanked population now stands at a staggering 1.7 billion, including 40 million citizens in the European Union alone. And as our daily lives become increasingly cashless, dependence on [digital finance](https://www.financedigest.com/5-key-takeaways-from-the-finance-sectors-digital-transformation-revolution.html "5 Key Takeaways From the Finance Sector’s Digital Transformation Revolution") has grown, creating an even larger gap between those with access to banking services, and those without. Thankfully, the situation is primed for change.

Advances in technology, driven primarily by Fintechs that provide debit cards, financial apps, and other payments services, have gone some [way to democratising access to digital financial](https://www.financedigest.com/10-ways-to-make-your-financial-model-easier-to-understand.html "10 Ways to Make Your Financial Model Easier to Understand") services. Meanwhile, Open Finance can unlock customer data to inform risk-based decision making, potentially making [credit products available to individuals who might not have been able to take out a loan](https://www.financedigest.com/credit-union-loans-in-high-demand.html "Credit Union Loans in High Demand") previously. Let’s delve a little deeper into how these changes could reshape the [finances of millions](https://www.financedigest.com/700000-employees-across-the-uk-have-access-to-fair-finance-will-reach-one-million-employees-in-2017.html "700,000 Employees Across The UK Have Access to Fair Finance, Will Reach One Million Employees in 2017") worldwide.

**Understanding the underbanked**

There is a range of factors that make individuals underbanked or unbanked. Homelessness has been a huge challenge for people trying to [open a bank](https://www.financedigest.com/barclays-private-bank-opens-new-office-in-verbier-switzerland-for-2022-23-ski-season.html "Barclays Private Bank opens new office in Verbier, Switzerland for 2022/23 Ski Season") account, as such accounts typically require a permanent address.

Equally, migrants travelling to a new country may lack the [financial records or other documentation required to access financial services](https://www.financedigest.com/4-ways-high-performance-analytics-powers-financial-services.html "4 ways high-performance analytics powers financial services"). A lack of international standardisation, for example in credit bureau reporting, can make it difficult for [banks to source the information they need](https://www.financedigest.com/what-banks-need-to-do-right-now-to-improve-their-digital-services-without-sacrificing-security.html "What Banks Need to Do Right Now to Improve Their Digital Services Without Sacrificing Security ") from conventional sources.

Individuals who are new to [credit or have negative events in their history also struggle to be approved for borrowing](https://www.financedigest.com/uk-credit-card-borrowing-rises-by-most-since-2005-boe.html "UK credit card borrowing rises by most since 2005 – BoE"). Perhaps most surprisingly, 20% of unbanked Europeans simply [say they “don’t want a bank](https://www.financedigest.com/swiss-national-bank-says-inflation-battle-not-yet-won.html "Swiss National Bank says inflation battle not yet won") account”, with 10% claiming that they “don’t trust banks with their money”. So, how can [technology change](https://www.financedigest.com/how-to-take-the-pain-out-of-technology-change.html "How to take the pain out of technology change") these conditions?

**Making money simple**

As we’ve seen with the popularity of [digital security features](https://www.financedigest.com/youtube-expands-shopping-features-to-combat-digital-ad-slowdown.html "YouTube expands shopping features to combat digital ad slowdown") such as the iPhone’s FaceID, simplicity breeds trust. By simplifying access, offering extra clarity, and saving customers effort, [financial firms](https://www.financedigest.com/top-north-east-financial-adviser-firm-talks-corporation-tax.html "Top North East financial adviser firm talks corporation tax") can service unbanked customers and win over  sceptics. Fast-growing Fintechs are leading this charge with app and internet-based solutions: PayPal and other digital wallet providers make it easier for [anyone to receive money](https://www.financedigest.com/more-than-one-in-ten-brits-are-embarrassed-to-talk-to-anyone-about-their-money-issues.html "More than one in ten Brits are embarrassed to talk to anyone about their money issues"), make payments, and monitor balances. They increasingly offer extra services too, such as the ability to [pay in installments and manage](https://www.financedigest.com/with-the-right-active-manager-you-really-do-get-what-you-pay-for.html "With the Right Active Manager, You Really Do Get What You Pay For") subscription payments on demand.

Financial firms are relaxing their rules and making it [simpler to access basic](https://www.financedigest.com/investors-go-back-to-basics-with-simpler-self-driving-vehicles.html "Investors go back to basics with simpler self-driving vehicles") services. Banks such as HSBC have introduced “no fixed address” accounts, which provide homeless people with a safe place to keep and [spend money](https://www.financedigest.com/student-finances-exposed-how-do-they-really-spend-their-money.html "Student finances exposed: How do they really spend their money?"), in partnership with charities. Meanwhile, Monzo allows individuals without standard identification documents to [apply for a basic bank](https://www.financedigest.com/dutch-online-bank-bunq-applies-for-u-s-banking-licence.html "Dutch online bank Bunq applies for U.S. banking licence") account, accepting alternatives like their biometric residence permit or a benefits letter as identification. Credit presents a greater challenge, however.

**New ways to** [assess credit](https://www.financedigest.com/modernising-credit-assessment-for-mortgages-finding-real-insights-to-create-real-opportunity.html "Modernising Credit Assessment For Mortgages – Finding Real Insights To Create Real Opportunity")

Lenders must continue to make responsible decisions when [offering credit](https://www.financedigest.com/credit-suisse-offers-higher-deposit-rates-in-asia-to-woo-the-wealthy-sources.html "Credit Suisse offers higher deposit rates in Asia to woo the wealthy – sources") products, whether that’s Klarna’s “buy now, pay later” service, a credit card, or a mortgage. But while credit history, bills, and other regular [payments will always be key](https://www.financedigest.com/leading-payment-platform-appoints-new-key-positions-to-help-with-growth.html "Leading Payment Platform Appoints New Key Positions to Help With Growth") considerations, they don’t provide the full picture. A bank statement or [credit score](https://www.financedigest.com/how-to-raise-my-credit-score-40-points-fast.html "How to raise my credit score 40 points fast") is a snapshot of a specific moment in time, not a moving image reflecting an individual’s life with money.

The increasing digitalisation of [financial services and introduction of Open Finance](https://www.financedigest.com/g7-finance-leaders-pledge-financial-stability-supply-chain-diversity.html "G7 finance leaders pledge financial stability, supply chain diversity") regulations such as PSD2 broaden the number of touchpoints available for lenders to assess potential customers. Tools such as Experian Boost leverage this potential: customers can connect Experian to their non-financial accounts, such as video-streaming services, to demonstrate on-time payments behaviour that would result in a boost to their [credit score](https://www.financedigest.com/12-things-that-dont-hurt-your-credit-score.html "12 Things That Don’t Hurt Your Credit Score"). A connected view of underbanked consumers’ [financial lives](https://www.financedigest.com/3-ways-financial-institutionscan-leverage-live-engagement-on-social-media.html "3 ways financial institutions can leverage Live Engagement on social media") can be the difference between rejection and getting their foot on the credit ladder.

**A** [financial journey](https://www.financedigest.com/effectively-efficiently-build-financial-trust-customer-journey.html "Effectively and efficiently build financial trust on the customer journey")

Ultimately, developments in technology, practices, and regulations may not [transform the financial](https://www.financedigest.com/devops-the-secret-tool-thats-transforming-financial-services.html "DevOps: The Secret Tool that’s Transforming Financial Services") circumstances of the underbanked overnight, but they are opening doors that were previously closed. Accessible technology and digitised finance can now [give people the tools they need to improve their lives with money](https://www.financedigest.com/nearly-half-of-parents-still-give-pocket-money-to-their-adult-children.html "Nearly half of parents still give pocket money to their adult children"), bit by bit, and that’s a cause we can all get behind.


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