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Accounting for accounts

Digital tech is turning the unbanked into the banked

More people have accounts than ever. Here’s what we need to do next.


In the worst days of COVID-19, when people around the world were out of work and struggling to pay for food and housing, many national governments came to the same conclusion about the best way to offer immediate help: send people cash. More than 200 countries introduced emergency cash transfer programs or expanded existing ones; India, for example, transferred money to 300 million people, 200 million of whom were women, in the weeks after its first lockdown. Brazil reached 70 million people with emergency transfers.

Imagine the risk involved in making these payments with paper money during a pandemic. Government workers would have to physically deliver these payments, potentially exposing them and everyone they encountered to the virus. In addition, the whole process would be expensive and time-consuming at a time when people need help as quickly as possible.

Fortunately, most governments didn’t have to resort to in-person payment. They were able to deposit cash transfers directly into people’s accounts—allowing them to give crucial support without paper bills changing hands. And during the pandemic, even more users were brought into the digital fold. For example, after financial regulators in West Africa temporarily allowed people to open accounts by text or telephone, more than 8 million signed up for accounts while their countries were in lockdown.

Globally, transferring so much money without cash was possible thanks to more than a decade of painstaking work by governments, financial service providers, nonprofits, and other partners. Today, about three quarters of people worldwide have an account at a financial institution or through a mobile money provider. That’s a 50 percent increase in the past ten years, and the growth has not just been in higher-income countries. Developing countries have increased 71 percent in that time.

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This growth is great news because it means that more low-income people—and especially low-income women—are being empowered to use products that let them make and receive payments, save and borrow money, and get insurance. Both research and experience show that this financial inclusion helps people exit and stay out of poverty. And using digital technology to do it is a low-cost way to build economic resilience and reduce extreme poverty, which is why it’s an essential part of the Gates Foundation’s strategy. We have granted several hundred million dollars to partners who are helping low- and middle-income countries build digital financial systems.

Whenever I talk to friends about this work, they’re surprised to learn that roughly 1.4 billion adults can’t or don’t use any type of formal financial account, and most of those unbanked people live in low- and middle-income countries. One reason is that analog banking requires buildings, piles of paperwork, security guards, and tellers, making the cost per transaction so high that it’s not economical for a company to serve people with low balances and small transactions. As a result, people create ingenious informal banking methods—doing things like pooling cash with family and neighbors or creating community savings groups. As creative as these solutions are, they don’t allow people to build assets or move money instantly. And they are often risky—cash stashed under a mattress can be stolen, for example.

Today, the proliferation of mobile phones means that you no longer need so much expensive infrastructure to provide modern financial services. With digital technology, costs are low enough that it makes economic sense for companies to serve more of the people whom the old system has ignored.

An early example was M-PESA in Kenya, which let people living in cities send money to their relatives in rural areas efficiently and inexpensively. As it caught on, it was eventually used to make payments in shops. Likewise, India’s Universal Payment Interface allows users to make instant digital payments to each other at extremely low cost; it now includes 323 financial service providers throughout the country and handles nearly 6 billion transactions each month. During the pandemic, more than 80 million adults in India made their first digital payment to a merchant.

Yet even the exemplar countries aren’t reaching everyone who needs digital banking. That’s why the World Bank (with support from the foundation) runs the Global Findex database, a comprehensive survey of how adults borrow, save, and send money and manage risks. The Findex has been updated periodically since 2011, and the latest version was just published earlier today. Using data gathered from 128,000 adults in 123 economies, it highlights steps that will expand formal banking to everyone in the world who wants it.

I eagerly read an early copy of the Findex report as soon as I had the chance, and I’m glad I did. I recommend the report to anyone, especially policymakers, who wants more people to benefit from financial inclusion. When the world knows more about where inclusion is growing and where it isn’t, we’re better equipped to make sure we’re reaching the people who are still left out.  

One Findex finding that jumped out to me is the gender gap. Although the world has made progress in empowering women to use formal financial services as much as men do, there’s still work to do. In developing countries, the gap was 9 percent in 2017 and 6 percent in 2021. The world can do better. Leaders should focus even more directly on expanding account ownership and use among women.

Another section of the report looks at a crucial question: What prevents the people who are still unbanked from joining the formal system? Knowing the answer will make it easier to create services that will work for them.

To find out, the researchers behind the Findex did extensive surveys of the unbanked. Their top explanations: The accounts are still too expensive, a family member already has one, banks are too far away, or they don’t have enough money to use an account. So making the accounts even more affordable, accessible, and appealing needs to be a priority. Introducing digital payments via mobile phones is a great way to start: Between 2014 and 2021, the percentage of people in Ghana using formal banking services went up 28 points, and virtually all of the increase was driven by people signing up for mobile-enabled digital payments.

I’ve heard people argue that there’s a simple way to automatically expand financial inclusion: introduce digital currencies, and specifically cryptocurrencies. But that idea isn’t rooted in an understanding of what poor people require—the kind of understanding that the Findex provides.

In many areas where the unbanked live, many transactions are still done in cash, so even people with digital accounts need the ability to convert digital money into paper money quickly, and vice versa. But today, that’s extremely difficult to do with cryptocurrencies, particularly in rural areas. In addition, cryptocurrencies don’t solve the problem of identification; buyers and sellers would still need to be able to prove they are who they say they are.

When it comes to financial inclusion, the most important thing is to consider what poor people require. That means creating secure financial systems that identify who is making transactions, and that are interoperable, so that a person using one system can make transactions with someone on another system. It also means updating regulations so they protect consumers while encouraging innovation.

I’m excited about the great progress that’s documented in this year’s Findex. More people around the world, including more women and low-income people, have and use bank accounts than ever before. A lot of people are still excluded, but we have a roadmap that is feasible without billions of dollars of extra money to build systems that empower them. By following the roadmap, we can help them lift themselves out of poverty and make the world a fairer place.