The Unbanked- How can financial institutions benefit by targeting this lucrative market?
According to an article by McKinsey & Company, 2.5 million of the world’s adults don’t use banks or microfinance institutions to save or borrow money. Additionally, 2.2 billion of this population are situated in Africa, Asia, Latin America and the Middle East.
Accenture Consulting have predicted that bringing unbanked adults and businesses into the formal banking sector could generate about $380 billion in new revenues for banks.
This article will briefly explain the main demographics that lead to individuals remaining unbanked and the main reasons why and how you should serve this remunerative market.
Why are so many adults unbanked?
It has been reported that of the 1.2 billion adults in Africa, Asia and the Middle East, 800 million live on less than $5 a day and are therefore hesitant to trust their earnings with financial institutions. Additionally, many of the countries in this region have low literacy rates (e.g., Burkina Faso’s literacy rate is 21.8%) and a high unemployment rates (e.g. South Africa’s unemployment rate is 25.5%). A lack of literacy will make some unbanked consumers reluctant to join a bank due to their lack of understanding of the benefits of maintaining an account. Also, the language barrier between retail banks and the unbanked consumers may cause confusion and doubt between both parties, as some retail banks are not equipped with multi-lingual staff. Moreover, job loss and unemployment can drive consumers away from opening an account because they feel that it would not benefit them.
Why should banks act now?
Increasing the right financial education and offering the support to make good choices to low-income consumers will greatly benefit both the underbanked and financial institutions. According to Accenture Consulting, income rates are rising therefore financial inclusion should be on the agenda for both public and private banks. However, all financial institutions need to carefully strategize how they are going to meet the needs of this market. For example, they need to make sure their services and products are easily accessible and available at the right price and design to attract more potential consumers.
To find out more about how you can strategize to reach the unbanked market, attend Retail Banker International Asia Trailblazer Summit.
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