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Banking the Next Billion: Digital Financial Inclusion in Action

February 13, 2020
Ronit Ghose, Head, Global Banks Research
Bob Annibale, Citi Pride Affinity Co-lead

More people have joined the formal financial sector in the last decade than any other period in the history of banking. As recently as 2011, half of the world's population was unbanked. The last official data from the World Bank (2017) shows just under one third of the world's adults (or 1.7 billion people) remained "unbanked" or outside the formal financial system.

Even in countries that have relatively high numbers of banked individuals, far too many are "underbanked" and turn to alternative financial services. In the United States, data from the Federal Deposit Insurance Corporation shows that while 6 percent of U.S. households (8.4 million) were unbanked in 2017, 18.7 percent of U.S. households (24.2 million) were underbanked.

In a new study, Banking the Next Billion, Citi estimates that an additional 700-800 million adults will be banked for the first time by the end of 2022, compared to 2017. This staggering change will reduce the total unbanked population to just 15 percent.

What is driving this unprecedented growth in financial inclusion? Innovative models and technology.

When asked, people give a whole range of reasons as to why they don't use financial services — many respond that "they don't trust banks," it's too far to travel to one, it's too difficult to open an account, or they don't have the proper documentation. However, more than 50 percent of the time, the reason they chose to avoid banking was that they did not have enough money to meet the minimum balance requirements or they could not afford the fees and charges that were associated with traditional accounts not designed to address their needs.

In many countries, regulators are creating new vehicles and licensing processes that have helped improve feasibility for progressive models and accelerate the pace of financial inclusion. These shifts enable new operators, often in partnership with banks, to enter the space. From Bangladesh to Kenya, and Nigeria to Mexico, financial sector business models are using digital solutions to fulfill client needs and transform financial inclusion.

We believe there are four key approaches on the forefront of this inclusive growth:

  1. Unique identity models are changing the way people bank. New national identity programs have facilitated biometric information to tackle regulatory issues that have historically been roadblocks to reaching new clients.
  2. Mobile money is a technology that allows people to retrieve, store and spend money using a mobile device. Thanks to a combination of simplicity, convenience and safety, mobile money is becoming an alternative to bank accounts and payments in several emerging and frontier markets. Mobile money has grown at a rapid pace, and mobile money operators and conveniently located agents are replacing traditional bank branches.
  3. BigTech firms today have a larger customer base and broader geographic reach than leading financial institutions, and with their robust customer behavior data, could increasingly support customer-centric products and experiences, and even become financial service providers themselves.
  4. Microfinance continues to evolve and expand, accompanied by new products such as credit, savings, insurance and payments, often enabled by mobile technology. By designing financial products and methodologies based on an understanding of their client needs and capacity, microfinance institutions have demonstrated that historically excluded segments can be served sustainably, overcoming some of the biggest obstacles to provide access to credit or savings products.

These models are essential to catalysing global inclusive growth. Read the full report to learn more about digital financial inclusion in action.

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