A surge in digital payments amid an expansion of formal financial services during the Covid-19 pandemic has been documented in the latest World Bank ‘Global Findex’.
Data on how people in 123 countries used financial services during 2021 is captured by the new edition of the Findex, which is produced by the Washington DC-headquartered financial institution every three years in collaboration with Gallup.
The findings, published in a mammoth 225-page report – ‘The Global Findex Database 2021: Financial Inclusion, Digital Payments and Resilience in the Age of Covid-19’ – released this week, include that two-thirds of adults worldwide have now made or received a digital payment, with the share in developing economies growing to 57 per cent from 35 per cent in 2014.
In further headline findings, 76 per cent of adults globally now have an account at a bank, other financial institution or with a mobile money provider – an increase from 68 per cent in 2017 and 51 per cent in 2011. In developing economies, 71 per cent have an account at a bank, other financial institution or with a mobile money provider, up from 63 per cent in 2017 and 42 per cent in 2011.
While previous Findex surveys have shown account ownership growth to be concentrated in the world’s two most populous countries, India and China, the new data reveals that the percentage of account ownership increased by double digits in 34 countries since 2017. Mobile money accounts have driven a ‘huge’ increase in financial inclusion in Sub-Saharan Africa in particular, the report’s authors note.
The gender gap in account ownership has narrowed globally from seven percentage points in 2017 to four percentage points, and from nine to six percentage points in low- and middle-income countries, the Findex also reveals.
‘Mitigating the reversals in development from crises’
Digital payments’ growth and trends such as improved rates of financial inclusion, need to be set, however, in the context of the pandemic’s direct impact on economic development.
During a recent Global Government Fintech webinar (‘Keeping track of fintech: how should governments measure fintech’s growing importance?’), the World Bank’s financial inclusion, infrastructure and access to finance practice manager Mahesh Uttamchandani pointed out that despite the number of people living in extreme poverty having fallen by about one billion since 1999, the Covid-19 pandemic has been “incredibly regressive and very punishing for the poor, particularly for poor women”, with about 150 million people “falling back into extreme poverty”.
This is reflected in commentary released accompanying the Findex data, with World Bank Group president David Malpass saying that “creating an enabling policy environment, promoting the digitalisation of payments, and further broadening access to formal accounts and financial services among women and the poor are some of the policy priorities to mitigate the reversals in development from the ongoing overlapping crises.”
With this in mind, governments’ own use of digital payment solutions, as well as government investment in enabling infrastructure for digital payments, are both deemed important, particularly in the context of financial inclusion, with the report pointing out that the receipt of payments such as wages and government support directly into an account can help achieve development goals.
Studies have found that workers who received their wages through direct deposit had higher savings than workers who were paid in cash, and receiving payments into an account is a catalyst for using other financial services, such as relying on an account to save, borrow and store money for cash management, the report points out.
In addition, digitalising government payments can reduce administrative costs and leakage (payments that do not reach the intended beneficiaries).
‘Governments can build on the progress’: Bill Gates
According to the latest Findex data, 39 per cent of adults in developing economies (or 57 per cent of those with a financial institution account) opened their first account at a financial institution specifically to receive a wage payment or money from the government, according to the data.
About 36 per cent of adults in developing economies now receive a wage or government payment, a payment for the sale of agricultural products or a domestic remittance payment into an account.
‘The data suggests that receiving a payment into an account instead of cash can kickstart people’s use of the formal financial system – when people receive digital payments, 83 per cent used their accounts to also make digital payments. Almost two-thirds used their account for cash management, while about 40 per cent used it to save – further growing the financial ecosystem,’ according to the WB.
More than 80 million adults with no account continue to receive government payments in cash. Digitalising some of these payments could be cheaper and reduce corruption, the WB states, going on to say that boosting account ownership and usage will require trust in financial service providers, confidence to use financial products, tailored product design and a ‘strong and enforced’ consumer protection framework.
“By investing in digital public infrastructure and technologies for payment and ID systems and updating regulations to foster innovation and protect consumers, governments can build on the progress reported in the Findex and expand access to financial services for all who need them,” said Bill Gates, co-chair of the Bill & Melinda Gates Foundation, one of the Findex’s supporters, who also tweeted that the growth in people having bank accounts was ‘worth celebrating’:
In terms of enabling infrastructure, the report gives the example of Sub-Saharan Africa where the lack of an identity document is described as holding back mobile money account ownership for 30 per cent of adults with no account ‘suggesting an opportunity for investing in accessible and trusted identification systems’.
The Findex is based on ‘nationally representative’ surveys of more than 125,000 adults across the 123 economies. Its presentation includes regional data breakdowns, with findings including that Latin America and the Caribbean saw an 18 per cent increase in account ownership since 2017, the largest of any developing world region, resulting in 73 per cent of adults having an account.
WATCH ‘World Bank Global Findex 2021’: a conversation between the WB’s David Malpass and Bill Gates, highlights from the report and a panel discussion can be viewed here (1hr 13min 26sec) =>
Credit: World Bank YouTube page
GLOBAL GOVERNMENT FINTECH WEBINAR: REGISTER NOW
Global Government Fintech is organising a webinar on Tuesday 5 July 2022 at 14:30 BST: How can fintech help women’s financial inclusion in the developing world?. REGISTER NOW to hear from: Mercedes D’Alessandro, former director of economy, equality and gender in Argentina’s Ministry of Economy; Hillary Miller-Wise, deputy director – financial services for the poor, Bill & Melinda Gates Foundation; Rui Xu, economist – Asia Pacific Department, International Monetary Fund (IMF); and Maria Perdomo, regional co-ordinator for Asia, United Nations Capital Development Fund (UNCDF).