In an ever-evolving and fast-paced world where open banking has already begun its transition to open finance, it seems hard to believe that there are still a large number of people who do not have access to online banking, and cannot make any orders or payments online, Or you don’t have a bank account.
While banks and customers in some parts of the world form long-term relationships that last even over generations, there are still plenty of people who fit the “unbanked”, “underbanked” and “unserved” qualifications.
Financial exclusion does not only affect developing countries. The unbanked or unbanked individuals are spread all over the world in both rich and underdeveloped countries. According to World Bank data, as of 2017 – the most recent year for which figures are available – 1.7 billion people were unbanked globally.
Younger people are also more likely to not have bank accounts or to be underserved by banks than older people. About 30% of people without bank accounts were between the ages of 15 and 24 in 2017.
So what is financial exclusion in the age of open finance?
Financial exclusion implies the difficulty of accessing and using all necessary financial services for the full development of individuals’ daily lives and their full participation in society.
Despite the impact of this phenomenon, little is known about the classes excluded from the financial market. They are usually classified as:
unbanked Individuals or organizations who do not have any access to the services of a bank or financial institution.
under the banks Individuals or organizations who have limited access to financial services and still depend on the use of cash for most operations, thus depriving themselves of important banking services, such as using credit cards or obtaining loans.
Uncertain – This term is used to describe the two categories mentioned above: unbanked and few banks.
Most often, disadvantaged societies consist of:
- low-income people from low- and middle-income countries;
- low-income or marginalized people in high-income countries;
- women and expatriates in many parts of the world;
- Small Business – Although MSMEs constitute a high percentage of the total number of businesses in the world, financial exclusion is the main obstacle preventing them from developing.
How can the disadvantaged be helped through open banking services?
The answer is simple: by creating alternative solutions that are easily accessible due to the technology used. And open banking could be the long-awaited solution to financial inclusion.
Open banking aims to generate new benefits and opportunities for economies and societies by efficiently ticking the following boxes:
- Provide access to charge credit. Properly designed open banking products, through the use of alternative financial data, can expand access to financial insights that help increase consumers’ chances of getting approved for loans and accurately assess what they can afford. This data can include mobile phone bill payments, rental payments, utility bill payments, etc.
- Encourage informed financial behaviors. Insights from PFM managers based on spending patterns provide a detailed view of the financial situation and areas that could be improved, such as paying too much for a service, along with more convenient alternatives.
- Enabling participation in the global economy. Open banking drives economic growth and financial inclusion by helping millions move from cash-based transactions to digital financial transactions in a secure environment.
- Supporting small and micro enterprises. Micro and small enterprises have access to affordable financial tools that meet their needs, including accounting and cash management. Under open banking, these processes become automated and technically easy to achieve. Also, businesses can now shop and find the right funding sources to achieve their business goals, with many investment applications powered by Open Banking.
- Manpower support for units. Self-employed people have been under-banked for a long time, and with all the opportunities based on open banking, that is changing. They can access affordable financial products and benefit from the so-called nano-loans and micro-insurance, which is exactly what they have been lacking until now.
Open banking is getting more and more mature day by day, region by region. One of the greatest things about it is that it keeps financial inclusion among his top priorities.
Further development with open APIs and strategic partnerships with fintech companies are making things go in the right direction, and it will be interesting to see where Open Banking will go next.