February 25, 2016
Financial inclusion is one of the greatest advantages brought by FinTech into the developing world. It may be hard to believe, but in 2016, when the financial services industry is as hot as it has ever been, 2 billion people don’t have access to formal financial services. FinTech is serving a noble goal of making the world a better place and creating opportunities for those excluded from the global community.
As we have been rolling out the chapter on financial inclusion, it became clear that our passion for FinTech is more than a professional interest – it is a way of looking at the world and its most prominent issues related to inequality and extreme poverty. Financial exclusion has been strongly facilitated by economic downfalls and the global banking industry. About 10 years ago, we would have a different perception of what is acceptable and accessible in financial services and the costs associated with them. With the rise of FinTech, our mindset has been drastically modified as FinTech democratizes financial services by its nature.
Previously, we looked at regions to compare financial opportunities. This time, we will explore the level of the financial gap between genders. The World Bank has recently shared a dramatic figure in its report titled Gender Equality, Poverty Reduction and Inclusive Growth.
According to the data gathered by the World Bank, about half of the women worldwide are locked out of the workforce and hence, financially excluded. For the first-world population, the number may be hard to digest – 50% of the women worldwide are locked out of the economies.
As the Consultative Group to Assist the Poor (CGAP) has shared, regardless of a positive trend towards greater financial inclusion, it is mostly a male-led trend. Eliminating gender discrimination in financial access is not easy. The Global Findex Database shows that since 2011, 700 million adults have signed up for a bank account, with women's account ownership rising in every region except the Middle East. Yet, there is a significant gap remaining between men and women: 65% of men and 58% of women have an account. The important part here is that a 7% gap in financial inclusion has been stable since the 2011 report.
One can be successful in a formal economy only with an access to simple financial services like accounts, payments, savings and credit. Deprived of the access to basic formal financial services, women experience hardships starting a business, investing, saving for the future and supporting families.
FinTech can be a solution for a massive pool of financially excluded women around the world. CGAP believes that one segment, in particular, can improve lives of millions of women locked out of the economies – digital payments.
FinTech companies operating in the payments (and lending) segment have been the hottest ones attracting significant funds and attention. CGAP has released five important points/recommendations regarding the ways digital payments are shifting the balance and facilitating financial inclusion for women.
Firstly, the ability to pay for labor and distribute benefits digitally is proven to include more women in the economy. The LAC region is proof to that along with Europe and Central Asia, where women are roughly twice as likely as men to collect government transfers digitally.
However, 80 million unbanked women around the world still receive public wages or government transfers in cash. The introduction of digital payments in those cases can assist with women's financial inclusion.
In addition to a higher efficiency, digital payments have a range of specific benefits for women, including privacy and control over their funds. As CGAP shares, National Bureau of Economic Research confirms the increasingly well-documented fact that targeted cash transfers of government social benefits "have a significant effect on female empowerment" as measured by women's household bargaining power.
Secondly, it is important to provide an opportunity to set the digital payments system for routine expenses like school fees and utility bills. Half a billion women globally pay for utilities in cash while a quarter of a billion women do the same for school fees. Significant time and resources could be saved for women with an opportunity to make a payment digitally. Working women in developing countries often have to miss work and pay transportation fees to pay their children's school fees, resulting in wage and income losses.
Thirdly, a crucial part of sustainability is the ability to save for the future. Although men and women in developing countries save money in roughly equal numbers, women disproportionately rely on less formal methods, such as rotating savings clubs, or simply stuffing cash under a mattress.
In fact, in Sub-Saharan Africa alone, 40 million unbanked women use non-formal savings, which not only fail to bear interest but also often charge fees and leave savings funds vulnerable to crime. Formal savings methods are safer and more effective. It is proven by data that women who save at a bank spend more on their businesses and have an easier time meeting unanticipated expenses.
Fourthly – and one of the most important points from the report – is related to regulations. Governments themselves need to support and encourage mobile payments adoption. The lack of integration between mobile payment clearinghouses and national banking systems results in higher fees for users. Mexico is an example of the government moving towards financial inclusion. Mexico's Central Bank reworked its regulations in 2013 to fully integrate mobile payment systems into its gross settlement system while slashing transfer fees.
Decisions like these have a positive effect on alternative payment systems and encourage providers to experiment. Positive encouragement for providers will result in cheaper and more convenient services that will allow women to make digital payments. CGAP believes that the financial sector can develop alternative credit-scoring models to address the reality that many women lack a history of formal financial transactions, and can design products and services to meet women’s needs and preferences.
Lastly, the governments should abolish the rules that create obstacles for women to get an account. Globally, there are 2.4 billion people without an official identification document, mostly women. Moreover, nearly a fifth of unbanked women don't have an account because of the lack of documentation along with other reasons. India’s government has demonstrated a way to deal with it – to create tiered documentation requirements to open small accounts and a digital financial identification system.