(MENAFN-Caribbean News Global)
By Asli Demirgüç-Kunt, Leora Klapper, Dorothe Singer and Saniya Ansar
The latest edition of the Global Findex shows that account ownership has increased worldwide and that three out of four adults worldwide now have a financial account. Yet 1.4 billion adults are still unbanked. How can policies and products help attract more unbanked adults into the financial system?
Information from the Global Findex 2021 database on how account holders use their account for payments, saving and borrowing – and how these financial services interact as part of a larger financial ecosystem wide – reveal a key opportunity to expand financial inclusion. Namely, by leveraging payments, one of the financial transactions unbanked adults are already making.
People who receive payments into an account are more likely than non-recipients to use their accounts to store money for cash management, make payments, and formally save and borrow.
Global Findex 2021 data shows that in developing economies, 20% of adults have received a salary payment – from the private sector or government – into an account (Figure 1). Almost all (91%) of these recipients also made a digital payment from their account. At the same time, about 70% of those who received payment in their account also used their account to store money for cash management, about half used their account to save money, and about half to borrow money.
The relationship between receiving digital payment and using other financial services suggests that once money is received in an account, it becomes easier for account holders to hold the money until later. necessary, and then make a payment from the account. Similarly, we know from behavioral studies that once money is in an account, it is relatively easy to keep it as savings. Receiving payment on an account can also facilitate formal credit approval if the payment can be used to document a steady stream of income.
Millions of unbanked adults still receive regular cash payments from employers and the government. Global data from Findex suggests that moving some of these payments to an account could expand financial inclusion among the 1.4 billion unbanked adults and potentially lead to wider use of financial services. Digitizing these payments is a proven way to increase account ownership. In developing economies, 39% of adults, or 57% of those with an account at a financial institution, opened their first account at a financial institution specifically to receive a salary or receive money from the government. The researchers also show that digitizing wage payments can encourage workers to save and improve their financial resilience and financial savvy.
Global Findex 2021 data reveals that 165 million unbanked adults received cash-only private sector wage payments (Map 1). The transfer of wage payments and other types of payments (such as payments for the sale of agricultural products) from cash to accounts can serve as an entry point to the formal financial system.
But data from Global Findex also reveals that one in five adults in developing economies who receive a salary payment in an account at a financial institution, such as a bank or similar institution, have paid unexpected fees on the transaction. The challenge for businesses and governments is to ensure that digital payments are safer, more affordable and more transparent than cash alternatives, so that workers can use their accounts to improve their financial well-being.
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