Introduction
Financial inclusion, the accessibility and affordability of financial services for all individuals and businesses, is a critical global challenge. Millions of people, especially those in underserved communities, remain excluded from the traditional banking system. Open banking, a system that allows third-party financial service providers to access financial data of customers through apis (application programming interfaces), has emerged as a powerful tool to address this issue. In this article, we will explore the role of open banking in enhancing financial inclusion, supported by relevant statistics and data from authoritative sources.
The challenge of financial exclusion
1. Global unbanked population:
According to the world bank’s global findex database, approximately 1.7 billion adults worldwide do not have access to a bank account or any financial institution.
– this represents roughly 31% of the global adult population.
2. Underserved communities:
Vulnerable and underserved populations, including low-income individuals, rural communities, and minority groups, are disproportionately affected by financial exclusion.
– in the united states, the federal deposit insurance corporation (fdic) reported that 5.4% of households (approximately 7.1 million households) were unbanked in 2019.
– in the european union, the european banking authority (eba) found that 58 million adults (7.7% of the adult population) did not have a bank account in 2019.
The role of open banking in enhancing financial inclusion
1. Access to financial services:
Open banking allows individuals to share their financial data securely with third-party providers, enabling them to access a wide range of financial services, such as payment services, lending, and budgeting tools.
– a report by accenture estimates that open banking could add $700 billion to $1.2 trillion in annual global banking revenue by 2020, primarily driven by increased customer engagement and new revenue streams.
2. Credit access for underserved communities:
Open banking facilitates alternative credit scoring models, allowing individuals with limited or no traditional credit histories to access loans based on their financial behavior and data.
– the financial conduct authority (fca) in the uk reported that open banking has the potential to make it easier for consumers to access credit and lending services.
3. Reducing transaction costs:
Open banking can significantly reduce transaction costs, making financial services more affordable for individuals in underserved communities.
– a study by the world bank group found that digital financial services, including those enabled by open banking, can reduce the cost of sending remittances by up to 90%.
4. Enhancing financial literacy:
Open banking platforms often include financial management and budgeting tools that help individuals, including those with limited financial literacy, better manage their finances.
– a survey by pwc found that 35% of banking customers in the united states are more likely to use financial wellness tools offered by their bank, which are often part of open banking platforms.
5. Fostering innovation:
Open banking fosters innovation in the financial industry, leading to the development of new products and services tailored to the needs of underserved communities.
– a report by the world economic forum states that open banking can promote competition and innovation, potentially leading to greater financial inclusion.
Conclusion
Open banking has the potential to be a game-changer in enhancing financial inclusion, particularly for underserved communities worldwide. By providing access to financial services, facilitating credit access, reducing transaction costs, enhancing financial literacy, and fostering innovation, open banking addresses many of the barriers that have historically excluded individuals from the traditional banking system. As the global adoption of open banking continues to grow, it is imperative for regulators, financial institutions, and fintech companies to work together to ensure that the benefits of open banking are accessible to all, ultimately helping to bridge the gap in financial inclusion and improve the economic well-being of underserved communities.