Insights from the World Bank's 2017 Global Findex database

CANBERRA — The Global Findex Database has been published every three years since 2011 to provide information about the use and reach of financial services — both formal and informal. Based on more than 150,000 interviews around the world, the 2017 edition was released by the World Bank on April 19 and provides strong evidence of an increasingly inclusive financial world that is transitioning to a digital economy.

But the database also highlights barriers that continue to exist for vulnerable populations, including women and the world's poorest populations.

Here are key insights from the report.

The major trends

In the past three years, since the previous report was published, 515 million more adults have opened some sort of financial services account. According to the new data, 3.8 billion people — or 69 percent of adults — now have access to a bank account or an account through a mobile money provider.

“In the past few years, we have seen great strides around the world in connecting people to formal financial services,” World Bank President Jim Yong Kim told media. “Financial inclusion allows people to save for family needs, borrow to support a business, or build a cushion against an emergency. Having access to financial services is a critical step towards reducing both poverty and inequality, and new data on mobile phone ownership and internet access show unprecedented opportunities to use technology to achieve universal financial inclusion.”

Between 2014 and 2017, this has contributed to a rise in the share of account owners sending or receiving payments digitally. Over those three years, that figure has grown from 67 percent to 76 percent globally, and in the developing world from 57 percent to 70 percent.

The acceleration in mobile phone and internet access has been critical to the growth, and has led to a significant increase in the use of mobile phones and the internet to conduct financial transactions.

Government payments, payments for work, and domestic remittances dominate the payments made and received globally — and the need for access to banking services. While in high-income economies, digital payments dominate how people make and receive payments, 56 percent of payments in developing economies were not digital. Despite this, the numbers are on the rise increasing from 32 percent in 2014 to 44 percent in 2017.

But having access to banking or mobile money accounts does also not automatically translate to financial inclusion; 20 percent of account owners surveyed did not make or receive any payments.

Unbanked populations

While more than two-thirds of the adult population has access to banking and mobile money accounts, 1.7 billion adults remain unbanked.

In high-income economies, almost all adults own an account — meaning the unbanked population can overwhelmingly be found in the developing world. Nearly half can be found in seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan. By demographics, more than half of those unbanked are women and come from the poorest 40 percent of households within their country. They are more likely to have a low educational attainment or be out of the labor force.

But with two-thirds of this unbanked population having access to a mobile phone, the door is opening to mobile banking services — as long as mobile access can be combined with well-developed payments system, infrastructure, regulations, and consumer protection safeguards. Tailoring services to counter barriers for specific populations, including those with low literacy and numeracy skills, is likely to improve access further.

Tilman Ehrbeck, a partner with Omidyar Network, said it would be wrong to think of this unbanked population as people with no financial savviness.

“This is an important background piece of understanding,” he said. “For the people that are not part of the formal financial service, it does not mean that they don’t use financial services. They just use the age-old financial services — the money lender, the pawnbroker, the informal money spending network. But they can be unreliable and they can be very expensive.

“For the people in the informal economy, they are very savvy and they have to be; they live more active financial lives because our incomes and payments are closely aligned,” Ehrbeck explained. “For those 1.7 billion unbanked, they live very active informal financial lives; they have to. And they are very smart about that,”

He added: “The moment a service is available to them that truly is helpful, they will use it. And that has been our experience all along.”

A focus on gender equality

While technology was an important factor in improving access to accounts, there are still social barriers preventing access — primarily in regions where women are not equally represented in the digital economy.

According to the report, growth in account ownership has not benefited all groups equally since 2011, with women in particular less likely to have an account than men. Globally, the report says, a gender gap of approximately 7 percentage points exists; 72 percent of men own an account compared to 65 percent of women. The global gap is similar to that in developing economies.

But in some countries, the gap is much higher. In Bangladesh, Pakistan, and Turkey, the gender gap nears 30 percentage points, while Morocco, Mozambique, Peru, Rwanda, and Zambia also have gender gaps exceeding 10 percentage points.

Rodger Voorhies, head of the Global Growth and Opportunity Division at the Bill & Melinda Gates Foundation, told Devex that overall the numbers are good news, and that “nominally women are better off.” Yet in some countries, he said, there is concern that the gender gap is increasing.

Voorhies also pointed out that the new report highlights what has worked in reducing the gender gap. According to Voorhies, countries with full or close to full gender parity in financial inclusion often have used public sector engagement, existing cash transfer programs, and government-to-person payments, and have transitioned from family or general accounts to gender-disaggregated accounts. Mongolia and Sri Lanka are examples of countries that had achieved this.

“All [of these countries] used public sector engagement to close the gender gap,” he said. “That is one strategy we should look at.”

The Gates Foundation will be pursuing public sector engagement in gender inclusion strategies in some of the countries with the largest gender gaps. Voorhies said this means focusing on the policy space, “particularly in countries where women need a man’s permission to borrow or engage in a contract.”

The future trends for financial inclusion

Ehrbeck explained to Devex that access is the first step and a means to an end for financial inclusion. With the majority of the adult population having mobile phone and internet access, the work needs to move forward on “leveraging and continuing to leverage technology.”

“The technology or the digital infrastructure is coming together,” he said. “And the reason technology is so important is because it allows us to provide new and better services at far lower costs than traditionally possible in the brick and mortar world.”

As an example, Ehrbeck cited the investment Omidyar Network had made in an African crop insurance company in Africa called Pula.

“What they can do now is they can adjudicate claims for crop failure in real time based on satellite imagery,” he said. “And they can pay out the crop insurance so quickly based on that information, that they farmers can still catch the same planting and harvesting cycle and replant rather than missing out an entire season because they had a bad crop.”

Previously, crop insurance was considered unreliable and would only pay out after a huge delay. Ehrback believes that if technical solutions are developed that are better than the traditional alternatives, people will likely open those new alternative accounts.

“The onus is on financial systems and innovators to leverage these opportunities that are truly helpful to people and make their lives helpful,” he said. “And then policymakers and regulators need to help creating the enabling environment — including a public system investment as needed.”

Tidhar Wald, head of government relations and public policy at Better Than Cash Alliance, agrees.

“Making sure that the solutions being developed match people’s needs, capabilities, and capacity is very important,” he told Devex. “One of the things we are doing with many of our members is to come up with principles for responsible digital payment. A lot of them have been written based on things that have not worked very well — where clients didn’t have transparency on fees or recourse on payments. If clients’ needs and capacities, needs and capability are not addressed, then solutions will fail.”

But Wald said when systems work, word of mouth leads to rapid adoption. For solution providers, addressing cultural nuances helps with uptake and adoption.

“In China during New Year festivities, people have traditionally sent small red envelopes with cash,” he said. “They are now doing this digitally, making it one of the busiest times for digital payments. And in Kenya data shows a spike in digital payment between four and seven on a Friday evening when everyone goes out for a beer.”

Despite the work required to reduce the remaining barriers to financial access and inclusion, Wald considers this to be an exciting space he is operating in with bright future and great potential for communities in the developing world.

Devex Associate Editor Adva Saldinger contributed reporting and research to this story.