With all the talk about big deals, powerful partnerships, and other trending topics in the world of international banking, it was a change to see some emphasis at the SIBOS 2023 conference on inclusive financial services.
In a three-part forum, this ‘Spotlight’ session called ‘Empowerment for the financially excluded’ included presentations by executives from the accounting/advisory, management consulting, and fintech industries.
Courtney Davis, principal in Deloitte’s Risk and Financial Advisory practice, started the session sharing a bit of his background and framing the topic: “I grew up in Brooklyn, New York, in the States. raised by a single father who came to the US from Trinidad
in the 1970s […] with little more than a high school education. I recall many times growing up, having to stay with friends or family as my father worked multiple jobs to make ends meet. So, the concept of financial security, financial comfort was an elusive
one as a child. That being said, when my father passed away, many years ago, he wasn't able to amass any real financial assets. He didn't have an insurance policy, and he didn't leave his stock portfolio. So, this topic is one I find particularly meaningful
and important.”
Speaking further on the state of financial inclusion in the world, specifically in the USA, Davis asked the audience to “think about the why” the unbanked and underbanked continue to be underserved by traditional financial services firms.
“There's still a lot of work to be done. Many institutions have launched inclusive products or services […] geared at underrepresented communities with varying results. They struggle with where to start, how to prioritise, and how best to leverage assets
and capabilities. Current statistics, for the most part, still remain somewhat grim. In the US, a recent study indicated that over 20 million individuals and households can still be considered underbanked or unbanked.”
After discussing the regulatory environment and explaining some of the programs his own firm has instituted to promote financial inclusion, Davis emphasised that doing so the
right way is not that easy, and shared a cautionary scenario: “A large financial institution sets out to create a winning product, really with the hopes of reaching out to underrepresented groups in some of the key markets. But in doing so, they stand
up a product design team that isn't staffed by anyone that is representative of some of the communities that they're trying to target. Therefore, they miss out on some really crucial customer and user journey stories that would be applicable.”
Davis’s advice: “I suggest whether it's a payment provider, an insurance company, a bank an asset manager, the approach to financial inclusion cannot be insular. Organisations need to think about both an inside and an outside view to be able to get (and
give) the full advantage of all their assets and capabilities” to their inclusion efforts.
Silvia Mensdorff-Pouilly took the floor next, bringing a focus on financial education to the audience. FIS’s SVP and head of corporates and international banking for EMEA, started by sharing some anecdotes about money, savings, and how ‘typical’ families
handle spending and investing. Things most in the audience surely take for granted.
“But that’s not the case for everyone,” said the Dutch fintech executive. “When you think about financial inclusion, actually understanding how money works in financial education is critical. And I think we're completely getting it wrong when it comes to
that,” opining further on the lack of relevant education that focuses, for example, on simple or compound interest formulas than on more complex topics like mortgages and how to obtain and pay them over time.
Speaking of more traditional households and roles from the past, Mensdorff-Pouilly emphasised the need for modernising financial knowledge-sharing: “We should be not teaching women how to manage your budget. We should be teaching everybody how to run a budget
because if you're coming from a home where your parents don't understand money, and how to run a budget, how are you going to be taught - if your school doesn't teach you how to do that?”
Pointing out that even she (as a financial expert) was “scared” to have conversations about her own pension, the former banker said that “if I'm struggling, how much do other people struggle with that? And I think that has a completely detrimental effect
on us as the financial services industry.”
Sharing a slide with the audience, she noted: “What this survey that was conducted in 2020 tells you about financial literacy in 35 countries is that a lot of people don't even understand relatively simple concepts when it comes to money. When you don’t
understand something, it’s naturally scary. When something is scary, it turns aggressive quite quickly. So, it’s no wonder that often the financial services industry gets a bad reputation, because we're not understood.”
What can be done about the knowledge gap? “There are lots of regulations around how you should be explaining your products. But when you explain those products to people who don't understand quite simple concepts, even that is too complex”, she said.
“So, where should we start? Very simply, sit right down in school,” with financial education, focusing on very simple concepts of paying, getting paid, and limiting spending and why.
Even if parents are not financially literate, said Mensdorff-Pouilly, children can be educated in the ways of money, and they will invariably bring back and share this knowledge with their parents.
“I think we can talk about financial inclusion […] but that doesn’t make sense without financial education, because it’s like inviting people to play a game without telling them the rules.” Noting that financial professionals can play a role in teaching
people about money, Mensdorff-Pouilly said it was a great opportunity for the industry. “I would urge every single one of you, including the institutional side we belong to, to lobby governments to effectively include financial education in the curriculum.
We need to make it much more (socially) acceptable to talk about money […] to create a world where we can help each other and create a lot of wealth.”
Boston Consulting Group consultant Kedra Newsom Reeves was the final speaker of the session, addressing more of the actual causes and reasons for the financial and social predicaments many underbanked and unbanked face in the present environment.
“Earlier speakers talked about people who are excluded from financial empowerment today. I think a lot about the ‘why’, that we really believe that access to banking and credit enables day to day resilience and investment in one's future. There is a role
for everyone to play. In the latest World Bank study around financial services, one of the statements was that 50% of adults in developing countries cannot gain access to funds within 30 days for an emergency expense.”
A typical household, Reeves continued, might include credit such as a mortgage, education, or car. However there are also day to day credit needs to consider too. “I get paid next Friday, but I have a bill due today on Monday. How do I pay that bill when
I don't have access to those finances?”
“Small dollar credit is really an issue to think about and its why banking is so important. In most of our geographies and most of our markets, a bank’s ability to determine your credit worthiness really does depend on your banking relationships.”
But it’s not all bad news, said Reeves. Defining the unbanked as not having access to a bank account and underbanked as having no access to credit, she pointed out that the situation had improved. “These numbers look a lot better than they did 10 years ago,”
however, “75% of the global adult population is either unbanked or underbanked.”
What about in the US? “We've made significant progress in reducing the number of unbanked, although we still have a large underbanked population in the US that actually grew by about 30% from 2017 to 2020. This is a large portion of our population. I think
sometimes people hear the word underbanked and they think ‘Oh, this must be a subset of population’ or it's those that are on the fringes of our society or economies. This is
75% of the world's adults. This is a core population that we all (financial services businesses) feel like paying attention to. When you think about institutions, we think about whitespace and revenue opportunities. These are certainly markets that are
untapped. From a revenue opportunity perspective, and certainly from a service perspective.”
Reeves shared a common “myth” of what she called “the unknown underbanked,” being a young, low income, uneducated segment.
“When we looked at the data gaps, we saw something very, very different. We saw that 50% of the underbanked are 25 to 54. So, it’s not just young people 18 to 22, or seniors that somehow become disconnected from financial systems or never had accounts because
they're older and sort of poor population. About one third of the underbanked make over $50,000 annually. Now in the US that is not a high salary but that is not severely low income (either). These are folks that are employed and have income. About one third
of the unbanked and about half of the underbanked have completed some college. So again, these are folks that are connected to our financial system. Lastly, about half the unbanked previously had a bank account. These are not individuals who are not unfamiliar
with the financial system.”
More interesting statistics from the World Bank, study Reeves noted, include that one third of people don't have accounts because they believe they don't have enough money. Many didn’t have accounts because they believed account fees are too high. “We found
this very interesting because trust is really about perception and how do I as an institution influence perceptions, as so many attitudes and biases are built up over time, when actually, they aren’t true anymore,” said Reeves, adding that most banks no longer
charge fees to have accounts, or have no-fee options available to most customers.
But what about credit? That’s another key area of concern when trying to bring the underbanked the full benefit of the financial system, said Reeves. This means making them ‘credit visible’.
“Most of our countries are really built on banking relationships, which is why the banking piece is so important, but one of the questions we had was who would acquire the credit visible, really? Something really interesting is that 70% of people who are credit
visible are moderate or middle income, 15% are high income, and 13% are very low income or low income.”
But for those that are moderate-to-middle income and low income, when an emergency that occurs like a flooded home, and their FEMA flood insurance is not going to come for six months. They need access to credit fast, Reeves commented. “Part of the day-to-day
resilience that credit offers, which is critical, is not just about our low-income populations, it's about our full population. We have to think about how are we serving those full sets of needs.”