The history of banking can be traced as far back as 2000 BC in Assyria and Babylonia. But the modern iteration that most are familiar with was born in the 1800s and was a luxury afforded to nobles and extremely rich merchants. It wasn’t until governments began using state money to secure savings deposits that the ordinary man on the street was included in the banking revolution. What governments knew then was that through financial inclusion, it would encourage people to save, reducing the risk of poverty en masse within society and provide a safe way for citizens to protect their cash.
Sadly, the revolution that occurred across Europe is yet to reach certain parts of the world, with more than two billion people left unbanked. More than half of these unbanked individuals reside in South Asia, East Asia and the Pacific, according to data collected by the World Bank in their Global Findex Database report. Alarmingly, South Asia – Afghanistan, Bangladesh, Bhutan, India, Maldives, Pakistan and Sri Lanka – has roughly 625 million people living without a bank account, which means just 46 percent of the population do have one (see Fig. 1). In addition, East Asia and the Pacific region are home to more than 490 million unbanked individuals.
It wasn’t until governments began using state money to secure savings deposits that the ordinary man on the street was included in the banking revolution
Such statistics might appear to be alarmingly high, but it is important to remember that China, India and Indonesia are key countries in the two regions and are the three most populous countries on the planet. In fact, the three countries account for roughly 28 percent of the world’s unbanked, according to the World Bank report.
More worryingly, however, is the disproportionate percentage of the world’s unbanked, with 1.1 billion women (55 percent of total) not in possession of an account. Once all these figures are digested the next logical thing to ask, is why exactly do slightly less than half of the inhabitants around the globe remain without a bank account?
Bank account barriers
The World Bank went on a mission to figure out the answer to that question and the answers they received are both simple and complicated. For example, one of the major factors determining whether or not someone is able to open a bank account comes down to the simple fact of not having enough money, with around two-thirds of those surveyed by the international bank giving that as the primary reason for their unbanked status.
Running a close second on the list of reasons was that many unbanked individuals just didn’t see the need to have their own account. Many of these people admitted that, because a close family member had their own account they simply did not see the necessity in opening one of their own. “This suggests that once other barriers to account ownership are reduced – such as the cost of opening and maintaining an account or the distance to financial institutions’ outlets – these respondents might be interested in having an account”, according to Asli Demirguc-Kunt, Leora Klapper, Dorothe Singer and Peter Van Oudheusden, the authors of the report.
Some of the other reasons those surveyed gave were that bank accounts were simply too expensive to open and maintain, the banks themselves were situated in hard to reach places, and individuals were lacking the necessary paperwork to open an account. There were even those that opted out of a meeting with their bank manager because of a lack of trust for financial institutions, while others were not permitted to open an account as a result of their religious beliefs.
“Lack of enough money is the most commonly reported barrier to account ownership not only globally but also in almost all developing regions”, the authors of the report maintain. “The one exception is Europe and Central Asia, where the most commonly cited reason is no need for an account; this was reported by 55 percent of those without an account at a financial institution, though only 10 percent reported it as their only reason for not having one.”
Arguably the most intriguing, and definitely the most positive sign, from those surveyed about why they did not have a bank account of their own, has to be the fact that practically no one said that the reason they lacked an account was because they did not have access to one. Therefore, if access is not the key issue, then it suggests that other factors are to blame and act as bigger barriers to account ownership.
Affordable banking
Probably the biggest barrier, considering that many of the world’s unbanked are limited by the amount of cash they have in their possession, has to be the affordability of opening an account – or the lack thereof. Things such as fixed transactions costs and annual fees burn a whole in many people’s pockets, but for the unbanked they put even the smallest of transactions out of their reach.
“These high costs often reflect a lack of competition and underdeveloped infrastructure, both physical and institutional”, claims the World Bank report. “New technologies and innovative business models such as mobile banking and agent banking can help increase the affordability of financial services.
“Documentation requirements are another important barrier to account ownership, cited by around 18 percent of adults without an account across all regions. These requirements may especially affect people living in rural areas or employed in the informal sector, who are less likely to have formal proof of domicile or wage slips.”
But there are those that are attempting to provide answers to the unbanked problem, and innovative ones at that. Austin Okere, Chief Executive of the Nigerian-based Computer Warehouse Group, had some interesting thoughts on the matter that he delivered as part of a talk he gave at World Economic Forum on Africa 2015 (WEF-Africa) called African Internet Evolution: How will Africa realise its e-commerce potential. In the discussion Okere explained how in order to get Africans set up with their own account they needed to use mobile technologies to help bring the banks to those who live in inaccessible areas.
“These people are survivors… they live day-to-day and banks like people with full-time jobs”, said Okere. “The way to make the informal formal is through mobile technology. In many of these areas there aren’t any utility bills to use in opening bank accounts. Short codes can be used.”
Positive signs
It may not be a message that Africa has received loud and clear, with much work still to be done in order to provide more Africans with banking services. But there have been extremely positive signs in other countries around the globe, most notably in China and India. Both countries have seen the number of people with bank accounts surge in recent years, with China increasing the total percentage of its citizens with an account of their own from 64 percent to 79 percent, while India has seen a rise from 35 percent to 53 percent, according to data from the World Bank.
“Translated into absolute numbers, this growth means that 180 million adults in China and 175 million in India became account holders – with the two countries together accounting for about half the 700 million new account holders globally”, say the report’s authors. “A closer look at who the newly banked are in these two countries reveals differences in how that growth was distributed across groups of individuals. In China, while account penetration increased by 15 percentage points on average, the growth varied substantially across different groups.
“For example, account penetration grew by 26 percentage points among adults in the poorest 40 percent of households but by only eight percentage points among those in the richest 60 percent. It grew faster among those in the poorest 40 percent of households in part because there was more room for growth in that group; by 2011, 76 percent of adults in the richest 60 percent already reported having an account.”
There is still much work to be done in order to ensure that more of the world’s populace can have access to financial services. But in order for that dream to be made a reality, it appears that the biggest hurdle is poverty, not access. Therefore, in order to get more people participating in the banking system, it will take a consorted effort from not just those within the financial services industry, but governments around the world, who need to foster economic growth, not just through aid, but by the creation of market based solutions. Only in this way can people in the developing world hope to possess enough of a surplus of cash that they were deemed it not only affordable, but necessary to have set up a bank account in their own name.
