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The rise of digital banking services in the past decade has given financial institutions the opportunity and prospect of serving the otherwise financially excluded and underserved worldwide. The revolution has impacted millions, but mostly those who operate in the ‘informal economy’.

By this, we mean the micro business owners who can't access loans to purchase equipment and hire employees to grow their businesses, or the remote villagers who have no way of receiving remittances sent by their families working abroad.

We explore how digital banking and financial literacy will ultimately lead to greater financial inclusion.

Global snapshot of the unbanked

Research from the World Bank has found that around 31% of adults globally are unbanked. This equates to around 1.7 billion people being underserved with no access to financial services.

The unbanked are usually low-income individuals who often end up paying a premium for everyday essentials like bills and mobile phones due to only having access to cash.

Using cash has its benefits but, in a modern world, it also limits opportunity. A bank account isn’t a necessity for everyday life, but a gateway to other financial services and benefits. Not having a bank account excludes them from credit, government benefit schemes, and long-term this can affect their life as they grow older and are unable to work.

Digital banking improving access to basic banking services

Digital banking has been able to provide mobile banking apps, online banking platforms and POS payment services to consumers. These products have enabled further financial inclusion for those who found traditional ways of banking didn’t meet their needs, and were inaccessible for them.

With these digital banking products, the finances of previously unbanked people are securely protected from fraud and theft. They benefit from cheaper transactions, and can receive personalised financial services. This also allows them to save money and plan for their financial future.

This is especially true for people who operate in the ‘informal economy’. For example, a remote informal trader who has no access to borrowing in order to expand his/her operation in neighboring villages. Thanks to cloud technology, banks like Carbon Finance and not-for-profits like ESASCCO are progressively easing access to banking services and products for millions of the unbanked.

It’s fair to say that digital banking has paved the way for financial inclusion and has gradually made its way into the mainstream in many places across the world.

Financial literacy plays an important role

Financial literacy and financial freedom go hand in hand. The goal of financial literacy is to have confidence when managing your funds, and having a level of understanding when it comes to savings, spending and debt. Without this knowledge, consumers find themselves on the back foot when it comes to their financial well-being.

From the everyday tasks of allocating income to outgoing bills, or navigating a national cost of living crisis, our financial lives are full of ups and downs and it’s important that we all learn how to handle them. Without this understanding, having access to financial services doesn’t solve the dilemma of the unbanked and their finances.

We need to ensure we are giving them the ‘know how’ to be able to manage their own financial lives in a way that works for them. Ultimately, this comes from increasing confidence with online funds and providing accessible products, not just physically but for all levels of understanding. This is best summarised by Peter Komolafe founder of Conversations with money in the episode ‘Financial literacy is best served fresh’ from the Mambu Architects for change podcast series. “Being able to have healthy financial literacy in terms of knowing how to spend your money, where to allocate it, how to manage it, that doesn’t necessarily equate directly to financial freedom, but it is a key tool in the arsenal that you need in order to create financial freedom.”

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