The key to tackling financial exclusion? Data

Establishing a deeper understanding of the impact financial services have on people’s lives is vital. Yet metrics that demonstrate improvements in financial health remain in their infancy, write Matthew Blake and Drew Propson of the World Economic Forum.

Around the world, an estimated 2 billion people lack adequate access to financial services. The poor, women, and people in rural areas are hardest hit. The financially excluded have little to no tools to send payments, save, insure and borrow. This makes it hard to prepare for life’s most basic events, let alone unforeseen challenges.

But thanks to new technology, the unprecedented advent of transactional and behavioural big data and greater collaboration between stakeholders, there is a now realistic opportunity to reach the financially excluded.

A key element of achieving this ambitious goal will be an improved system for measuring the progress of financial inclusion, and the benefits that accompany this progress. Developing a more nuanced understanding of the customer is required for a wider adoption and use of digital finance in emerging economies, which could free up an estimated $3700bn in gross domestic product by 2025.

Due largely to where data has been historically easier to find, financial inclusion metrics have tended to focus on supply-side insights. Examples include the number of bank accounts as a percentage of the overall population, debit card and ATM penetration in a specific geography, the quantity of loans issued by location, and so on. Although valuable, these metrics tell only part of the story.

Information overload

While a lack of data presented a challenge in the past, a world awash in mobile phones and zettabytes foretells an entirely different future. Around the world there are more than 5 billion mobile phone subscriptions, 2 billion smartphones are in circulation, and an estimated 1.6 billion more will come online in emerging markets by 2020, according to mobile network operators.

To use mobile data to achieve financial inclusion goals, more co-operation between the private sector, regulators and standards bodies is required to support greater data collection.

Furthermore, to truly offer a customer-centric value proposition, the public and private sectors must develop and adopt demand-side metrics that focus on customer attitudes, behaviours, aspirations and challenges in a uniform, granular and objective manner. This would help guide policy-makers and regulators to where to experiment, via sandboxes, and invest, as well as spot situations requiring enhanced supervision. Businesses would enjoy dividends in the form of better product design and delivery, enhanced trust from the end user, and a clearer perspective on the reliability of products and services.

Collectively, these steps allow for evidence-based policies through the alignment of national strategies with financial inclusion metrics. Focused actions such as these, coupled with more enhanced financial education and digital skills training, are important strides toward advancing financial inclusion, and thereby sustainable economic growth and development.

Economic empowerment

Helping people balance income and expenses, manage a sustainable debt load and prepare for old age are at the core of a financially healthy society. Improved metrics that help the public and private sectors focus on priorities such as these will go a long way toward alleviating stresses afflicting the underserved.

A recent World Economic Forum white paper, ‘Advancing Financial Inclusion Metrics: Shifting from Access to Economic Empowerment’, written in collaboration with a diverse set of stakeholders including Tata Consulting, BBVA and the World Bank, proposes a set of new metrics that build on existing ways to measure financial access and uptake. It also highlights a number of conceptual frameworks for evaluating financial health.

With the right tools and a collaborative attitude, the public and private sectors and international organisations can leverage a wealth of data and breathe new life in the world’s financial inclusion efforts.

Matthew Blake heads the Financial and Monetary System Initiative at the World Economic Forum. Drew Propson leads the Promoting Global Financial Inclusion Initiative at the WEF.