For middle-class people in high-income countries like Japan, Singapore, and the United States, banking seems like a right rather than a privelege. There’s no better way to hold onto large amounts of money both securely and flexibly, and thanks to debit cards and online banking services, it’s easier than ever to spend bank funds at a moment’s notice. The widespread use of banking systems in these economies gives consumers much greater flexibility in how they spend their money, as well as the ability to earn interest on their money without tying it up in investments.
Yet for a surprisingly large amount of the world’s population, banking services remain out of reach. As of 2016, 39 percent of people across the globe do not have a bank account. These individuals and families are heavily concentrated in undeveloped countries. Considering all the benefits of having a bank account, one of the greatest ways to boost economic growth and consumer welfare is to provide a bank account to those who don’t have one. But before we can do that, it’s important to understand why so many people don’t have a bank account, starting with:
1. Lack of Knowledge & Access
The countries with the lowest percentage of people using banking services tend to also have low rates of literacy, education, and Internet access. When people don’t know that they have the option of opening a bank account, or don’t know how to sign up for one, they are less likely to take the first steps toward doing so. Governments and nonprofits are making strides toward improving education and access to information, but it takes time for consumers to learn what to do with their new knowledge, especially for something as complicated as banking.
While there is no simple, catchall solution to this problem, digital banking services are making strides toward designing intuitive platforms that people can easily understand and use. By providing secure online banking that can be accessed with a smartphone, tablet, or desktop, these companies allow bank access to grow in tandem with Internet access. And by simplifying the process of signing up for and using these services, these platforms help ease people into the banking system.
2. Lack of Trust in National Currencies
Besides not knowing how to sign up for banking, many consumers are worried that it might not be worth their while, especially in countries with unstable economies and devalued currencies. When governments print money irresponsibly, consumers quickly lose confidence in that currency and ultimately stop using it. When no one wants to use the currency, it’s hard to get them to sign up for bank accounts that are specifically designed to support it.
Digital banking companies are hard at working designing banking services that appeal specifically to people living and working in unstable economies. One particularly promising effort is Fidelium’s endeavor to create cryptocurrency based debit cards that can be used anywhere. This allows people to store their wealth in digital currencies like Ethereum and Bitcoin and any other supported crypto currency, which are issued at fixed rates and thus less vulnerable to severe, sustained inflation. When these cards are used to make purchases, the Fidelium system identifies the currency that it needs to make payments in. It then sells the appropriate amount of digital currency for that money, using the US dollar as a base of value. As a result, people who live in countries with unstable currencies don’t have to store their wealth in those currencies, but can still make daily transactions without issue. This gives them a strong incentive to sign up for banking.
3. Concern Over Cybersecurity
People who have never used banking before tend to be those who have little experience with the Internet, making them prime targets for online financial theft. Consumers who weren’t raised with the Internet don’t know how to look out for scams, viruses, and phishing attacks, and thus cannot adequately protect their money when they first open online accounts. Many people in low-income countries are aware of this risk, and are thus hesitant to create bank accounts in the first place. Those who aren’t aware and end up losing their money are likely to be permanently turned off of banking.
To solve this problem, digital developers need to create secure channels for their customers to sign up for and use banking. Ideally, such security measures should not only be highly effective, but also easy to understand. The less trouble consumers have wrapping their heads around security systems, the easier it will be for them to take full advantage of those systems, and the more confident they will be about signing up for banking.
Fidelium is working on a money storage method that fuses security with simplicity, giving consumers the protection and confidence they need to open accounts. The platform places customers' money in two wallets: a highly secure or “cold” wallet and a flexible “hot” wallet. The cold wallet is stored offline, and can only be accessed through complex, multi-factor identification systems. The hot wallet is easier to get into, allowing it to be used more flexibly. The Fidelium platform stores the vast majority of users’ money in the cold wallet, and then transfers a small portion to the hot wallet as needed for daily transactions. This protects most of users’ wealth from theft without limiting the platform's ability to quickly get the funds needed for purchases.
While lack of bank access remains a serious problem, digital innovators are well on their way to solving it. The more you follow ongoing efforts to make banking accessible and secure, the easier it will be to understand the future of economic development.