World’s Unbanked and Underbanked

Although most of us fall into the category of banked individuals, who have access to and operate several services and products offered by banks and financial institutions; however, all over the world, there is a large percentage of individuals who are unbanked or underbanked. In the USA alone, more than 24% of the market remains unbanked or underbanked, giving rise to many questions and opportunities.

Although most of us fall into the category of banked individuals, who have access to and operate several services and products offered by banks and financial institutions; however, all over the world, there is a large percentage of individuals who are unbanked or underbanked. In the USA alone, more than 24% of the market remains unbanked or underbanked, giving rise to many questions and opportunities.

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The Unbanked Sector

Unbanked people do not use traditional banking services and products; they only use alternative methods for carrying out transactions with zero percent reliance on banking services, including holding savings accounts or debit cards. Such practices majorly occur because of several reasons like not having access to banks, community beliefs that lead to mistrust in the banking sector, etc. 

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Reason for People Remaining Unbanked

There are around 1 billion people who remain unbanked to this day. There are multiple reasons for the sustained existence of this segment:

Lack of Trust and Low Incomes – People don’t have enough trust in banks owing to their need for privacy or some negative prior experiences, because of which they refrain from associating with banks altogether. Some people believe that their earnings or income is not substantial enough, to put anything in their bank accounts, making these the most common reasons for people remaining unbanked.

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Social Restrictions – When people grow up in setups where there is a lack of social normalcy, it makes it very difficult for them to follow social obligations and methods. With the absenteeism of proper role models, it becomes impossible for them to understand the relevance of social setups like banking systems.

Accessibility and Unmet Requirements – There are many regions, especially in developing countries, where people don’t have access to banks and their products/services. Such gaps in the banking system make way for the unbanked sector.

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The Underbanked Sector

The underbanked sector is a much larger segment of people, comprising more than 20% % of the world market, where people have partial access and operations in banks. People who use or have used alternative means of financing in the past are underbanked individuals. 

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Reasons for People Remaining Underbanked

There are several reasons for families and individuals remaining underbanked, such as:

High fees – Some people undergo negative banking experiences, which compel them to move away from them, like banks charging a high fee, people overdrawing and not paying back, etc.

Lack of savings and assets – People have a lack of savings for their retirement or emergencies, and they do not have direct deposits, or assets like homes, making them withdraw from the obligation of operating banks.

Although both these terms are used as synonyms, there is an evident difference in both these sectors, where one group is completely devoid of banking-related services, and the other group has partial access and operations.

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Facts & Figures

-         There are about 1 billion individuals who do not have a bank account.

-         More women than men remain unbanked or underbanked.

-         Countries like China, India, Pakistan, Indonesia, Brazil, Bangladesh, Nigeria, Kenya, and Mexico have the highest number of unbanked individuals.

-         Most of the unbanked individuals are adults above the age of 25.

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Benefits of Being Banked

Underbanked and unbanked people have often faced discrimination based on their financial status or beliefs, because of which, they naturally opt out of the social structure of the banking industry. There are numerous advantages of having bank accounts and managing finances through banks. The primary reasons to avail of banking services are:

Protection – The biggest reason for people opting for banking services is the high level of protection a consumer gets for their money and assets against theft and fraud.

Accessibility – Operating banks and associating with them gets people to stay within the social structure, where they can make deposits and withdrawals, improve their credit histories, and get loans.

Accumulation – With proper financial management, people can accumulate enough savings for emergencies and medical expenditures, which would otherwise cause a big dent in their future.

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The Opportunities for Fintech

With such a large population without any basic infrastructure and access to banks, the opportunities for fintech to bridge this digital and infrastructural divide are immense. Fintech can use this wide gap to offer remodeled setups that provide customized services. 

One of the most profitable ventures that could help lessen this gap is mobile banking. With mobile banking, customers can be assured of having increased access and control over their bank accounts and finances. There can be a better education system set up for the unbanked and underbanked sectors to understand their woes and advise on their future possibilities. With mobile banking, banks do not need to set up traditional brick-and-mortar branches, which could also help them reduce their fees substantially. Online and mobile banking can also help facilitate P2P transfers, which could help resolve any issues.