There is a prominent gap in financial equality in developing countries due to sparse financial infrastructure and economic pitfalls. Behavioral attitudes around particular groups can also create barriers for some to reach financial independence. For instance, it is a social norm among some cultures for women to not make financial choices and instead that duty is passed to household male figures such as fathers, brothers or husbands. That is why achieving true financial inclusion across the board has been a continued challenge, but also an opportunity globally.
The disconnect for financially underserved communities was made more evident during the COVID-19 pandemic. For instance, without the ability to travel and visit friends and family or vacation, economies around the world including Latin America suffered. While brick and mortar locations and traditional banks closed their physical doors, many people turned to digital solutions to manage and remit money overseas. In fact, The World Bank projected remittance flows to shrink 14% due to the impact of the pandemic. However, it was clear during the second half of the year that remittances responded positively to COVID-19.
The growing popularity of digital wallets
Traditional banking services are continuously becoming less commonplace. Specifically, between February and June 2020, banking at branches declined by 12%, while mobile banking grew by 34%. Instead, whether by choice or need, people are utilizing digital options because of convenience and accessibility. For instance, due to the revolving uncertainties during the height of the pandemic, our world experienced a greater push towards all things digital — including money management options such as digital wallets.
Securing a physical debit or credit card is not always an option in developing countries, but with greater access to the internet and smart devices, consumers are shifting toward digital money options. Digital wallets are opening the door to greater financial equality for populations in developing countries while offering secure, speedy and convenient money management opportunities for the global consumer. The time is now for companies and consumers alike to embrace digital wallets for the future of global economies.
The impact of digital wallets for unbanked populations
Developing countries in Latin America are made up of a largely unbanked population. In fact, the World Bank found that only 55% of Latin American adults on average have an account at a financial institution, leaving nearly half of the population unbanked. To combat this, an estimated 73% of the population will likely subscribe to mobile services by the end of 2025. What’s more, consumers in Latin America using mobile wallets unconnected to traditional bank accounts or credit and debit cards contributed to 30% of e-commerce payments in the region.
Digital wallets continuously help the unbanked population in Latin America by providing an accessible alternative to traditional financial systems — making them a growing necessity in helping achieve greater financial inclusion globally. Global remittance also plays a role in the economic development of Latin America. And in addition to having a digital wallet, consumers need a way to utilize money and make off-line purchases through a physical payment method like a debit or credit card. Therefore, fintech companies are increasingly adopting the ability to issue physical or digital cards to customers to increase financial opportunities and promote economic growth across regions.
Opportunities available for the financial services industry
The growth of consumerism has significantly increased across industries including in the financial sector. Because of this, global fintech companies are doing what they can to keep up with demand among a more digital-savvy generation that prefers to manage their finances online.
While growing the concept of financial inclusion has been top of mind for many within the fintech space, the pandemic has effectively shed light on gaps within the industry for companies to provide more convenience and better solutions. With this, and the uptick of e-commerce within Latin America, consumers are adopting digital wallets and mobile-first technology solutions at higher rates than ever before. In fact, financial app installations increased by 80% from 2020 to 2021.
Even traditional institutions are getting involved in making financial equality more widespread. For instance, Wells Fargo partnered with Operation Hope to empower underserved communities to take control of their financial state by offering financial education courses.
While consumerism may have driven innovation in recent years, our industry is ripe for innovation to provide greater finance opportunities for all. Whether it’s helping the unbanked population better manage money digitally or giving this group an opportunity to spend or use their money off-line through card issuing, the financial services industry can make a true difference in achieving financial inclusion on a global scale.
