The State of Financial Inclusion in the US
According to the Federal Deposit Insurance Corporation (FDIC), in the year 2019, 94.6% of U.S. households were banked. However, conversely, this means that in the remaining 5.4% of the households, representing 7.1 million households, nobody had access to such services.
The unbanked proportion as a percentage of the population is greater in the US than in all other G7 countries. It is also far more densely packed at the lower end of the income distribution.
Despite concerted efforts from consumer advocates, providing universal access to financial services in the county has been a tedious task.
How can Digital Literacy aid Financial Inclusion?
Across industries, people have their eyes on the fintech ecosystem to cover the last mile of finclusion globally. But, digital literacy is a prerequisite to financial literacy, which in turn is a prerequisite to the adoption of fintech. To make use of fintech services effectively, and avoid falling prey to frauds and phishing attacks, digital and financial literacy is imperative.
Financial Literacy for Financial Inclusion
Digital literacy in general and financial literacy in particular, open doors to a basket of high utility services in the fintech ecosystem. While platforms try to make services more user-friendly and interactive, financial literacy renders the necessary aptitude to use such services. A lot of digitally empowered tools can come to expand the access, availability, and affordability of financial services:
- Environmental, Social, Governance (ESG) has been increasingly championed over the past year to improve people’s livelihood and reduce poverty and accelerate post-pandemic economic recovery.
- Use of blockchain technology can make KYC screening processes quicker and hassle-free.
- Mobile-based banking interfaces improve last-mile banking by offering overdraft facility, low balance requirements, and low maintenance fees
- Digital transformation with banks-fintech partnerships, regulatory bodies, financial institutions, and fintech ecosystem members can help find cost-effective ways of developing innovative products and financial services
- Use of digital sandbox technology, Generative AI and synthetic data for pilot studies in secure environments can help identify reasons why financial inclusion is still less than universal.
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Central banks across the globe are already experimenting with Central Bank Digital Currency (CBDC) to increase enrollment and education of the deprived sections and foster interoperability domestically and across borders.
Digital Literacy as the Key to Finclusion in the US
According to the World Bank, beyond mobile money, fintech has also shown promise in areas such as Government to Person payments and cross-border remittances. This was apparent during the COVID-19 crisis, when digital delivery channels helped governments to transfer cash quickly and securely to vulnerable sections, minimising any physical contact.
Moreover, fintech not only comes with a promise of finclusion, but also prevents possibilities of discriminatory treatments and behavioural apathy towards margnalised sections in the society, that could have somehow historically decelerated the pace of finclusion in the country.
However, to really rely on fintech to achieve finclusion, preparedness in the form of digital literacy remains the most crucial starting point.
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