We tend to think about banking as a pretty commonplace practice. Despite that impression, though, data from the World Bank finds that nearly 2 billion people globally lack access to conventional financial services.

This is a deliberate choice in some cases; there are plenty of people who simply don’t believe they need a bank account. Many may go unbanked, though, because there is limited or no access to banking services available.

The lack of access to banking services often overlaps with poverty. Many unbanked individuals live in countries or regions with developing economies and in which poverty is a common problem. As the World Bank data cited above notes, though, the problem isn’t exclusive to developing economies; here in the U.S., for instance, roughly one in eight people lived below the poverty line in 2018. The problem’s no better in the EU, where more than one-fifth of the population is considered at-risk of poverty.

Widespread lack of access to financial services carries serious and far-reaching consequences for the global economy.

The Benefits Of Financial inclusivity

Between surcharges for cash or third-party payment options, short-term loans, lost productivity and transportation costs, not having a bank account can be very expensive over time. In fact, the Inclusion Foundation found in 2020 that maintaining unbanked status ultimately costs the average U.K. citizen up to £500 every year.

In contrast, financial inclusivity can open doors for individuals, regardless of location or background. Even basic benefits that many of us take for granted, like using a debit or credit card, can be life-changing. Access to banking can allow individuals to save time and money while also becoming more active participants in the economy.

Banking can help people establish and build credit, for instance. Without access to credit, it can be near-impossible to buy a house, start a business or take many other steps traditionally associated with financial well-being. Having a credit history established by access to banking, though, can lead to opportunities for economic advancement in the marketplace.

Having a place in the global banking structure empowers people to make smart financial decisions and investments. This can lead these people to build a better life for themselves and their families. Over time, this could result in less polarization of wealth and create structural benefits for the global economy at large.

Financial inclusivity means greater economic independence for consumers and a larger base of consumers for businesses. If it’s the win-win it appears to be, though, why is progress so slow to come?

Three Primary Obstacles To Financial Inclusion

There are a few big obstacles we need to address before we can build a more inclusive global financial market. First, there’s the problem of identification; in many nations, a sizable chunk of the population has no formal, state-validated identification.

This situation calls for collaboration between financial institutions and governments. There has to be more of an effort to get easier access to official documents for people currently slipping through the cracks.

Second, we need a broad and comprehensive initiative aimed at promoting financial literacy. Many people likely aren’t participating in the banking system simply because they don’t understand how banking can improve their financial well-being.

We need to educate individuals about these benefits while also working to instill faith in financial services. After all, it’s understandable why so many people would be skeptical of banking; if they don’t know the basics of financial literacy, why would they trust a bank with their money? Depending on the locality, this may also require government action. Legislation to ensure consumer protection is one way to help give people more faith in financial institutions.

Third, there’s the problem of access. Considering that the World Bank found that much of the unbanked population is low-income, conventional financial institutions may not see it as a worthwhile investment to try and reach out to these individuals. This results in “banking deserts,” or neighborhoods in which there is no access to banking services within a reasonable distance.

Fortunately, fintech services present the opportunity to fill the gap. We’re seeing innovations like mobile banking, as well as the introduction of third-party payment providers enabled under the revised Payments Services Directive (PSD2) in Europe. These can help fill the need for financial services in areas that otherwise might go underserved.

Banks Have A Big Part To Play

Financial inclusion offers wide-ranging benefits for consumers and institutions. We need institutions to recognize that opportunity and choose to move on it, though; they have the initiative, so little can happen if they don’t take the first steps.

Read the rest of Monica Eaton-Cardone’s article here at Forbes