Banking bias: why tech, business and legislators need to unite in making basic finance a human right

By Alessandro Hatami, managing partner of strategic consultancy Pacemakers.io

Alessandro Hatami, Managing Partner, Pacemakers.io

With more than eight million people fleeing Ukraine in the wake of the Russian invasion, many face the secondary problem of accessing basic financial services in the country they’ve sought refuge in.

Having escaped the traumas of war, families have been unable to convert the cash savings they’ve made by emptying their bank accounts. Card payments are equally likely to be refused by financial institutions wary of trading in a currency that could soon become worthless.

Finding the right proof of identity under stringent anti-money laundering rules is another problem. In April, the European Banking Authority called on banks and supervisors to adapt their anti-money laundering and terrorism protective measures, enabling Ukrainian refugees to more easily open accounts.

Some progress is being made. The German government, for example, is taking on exchange rate risk from commercial lenders, allowing an estimated half-million new arrivals from Ukraine to exchange hryvnia currency into euros for three months.

In the UK, banks, including Santander, Lloyds and HSBC, have processes to help refugees with the challenges of documentation. HSBC, for example, allows accounts to be opened with a passport alone rather than proof of address. It also provides free tablet devices to vulnerable customers as part of a scheme to improve digital access.

The price of financial exclusion

Yet these efforts, while laudable, are not enough. The situation we see unfolding now, with Ukrainian communities abroad, reflects the wider inequality at play with the world’s 1.7 billion unbanked adults.

Unsurprisingly, this division is more pronounced in emerging economies – 71% of Morocco’s population is unbanked, according to the research platform Merchant Machine, while 78% of people in Romania rely on cash transactions.

But the division continues even in developed regions. A 2019 report from the Federal Reserve found that 22% of American adults are unbanked or underbanked, in a gap that is augmented across low-income, low-education, and ethnic minority lines. In the UK, 1.3 million people don’t have access to a bank account, while 15% of the population in Greece also exists outside the realm of financial institutions.

The cost of this banking inequality is huge. People without bank accounts cannot claim benefits, receive a salary or securely pay their rent or mortgage. They are cut off from the ability to earn a living in a framework that delivers basic needs such as food, shelter or healthcare. They cannot protect themselves by “saving for a rainy day”, paying a pension, starting a savings account or even buying insurance.

In search of a cohesive solution

Moreover, with Covid accelerating the prevalence of a cashless society and digital infrastructure, those who operate in an analogue, cash-based sphere stand to be alienated further with every progression that we, as a society, celebrate. From São Paulo to Lithuania, the global fintech scene continues apace, even as millions of people go without a safe means of managing their own money.

To chip away at the problem, banks should first acknowledge and address the wider impact of exclusion. Lack of access to banking products and services doesn’t just hinder people’s daily livelihoods; it’s also perpetuating existing inequalities, including racial bias and gender discrimination (women account for 55% of the world’s unbanked population).

Like climate change, financial exclusion is such an entrenched – and growing – problem that it will take cooperation at multiple levels to help tackle it. Tech innovation is central to this. Individual banks can take action – Revolut recently relaxed documentation requirements to allow refugees fleeing Ukraine to access its banking app. More widely, biometric permits could be used to make applying for a bank account easier (and without the divisive custom of tethering a bank account to a registered address). In both cases, government legislation could make the application of tech innovation far more consistent and scalable.

Any resource designed to support financial inclusion should also be flexible enough to evolve continually in response to developing events. For example, the Mastercard Center for Inclusive Growth expanded its support to small businesses in the wake of the Covid-19 crisis, with the ambition of helping 25 million women entrepreneurs access the digital economy by the year 2025.

The road to financial equity

Access to borrowing is perhaps the greatest exclusion that the unbanked are exposed to. It is practically impossible to get a fair mortgage to buy a home, a loan to deal with an emergency, or seed capital to start a business without access to finance. The sources of credit available to an unbanked individual are often excessive, unfair and unregulated, making it very difficult or even dangerous to build a better life.

It’s time to think about finance differently. Businesses, legislators, regulators and tech firms need to come together to offer a simple set of global propositions. These include: a free and unalterable identification document available from birth, a free basic Banking Wallet for every individual, and a free basic savings account that can earn interest in line with local rates.

All individuals should be offered access to cheap domestic and cross-border payments (when funds are available in the sender’s wallet) and access to affordable credit that adequately reflects their circumstances. Individuals should also be given the right to own any financial data that pertains to them, with the ability to grant or remove access, along with free, coherent and non-partisan advice on money management and debt recovery.

Financial services are a conduit to people living their lives to their full potential, an advantage that allows adults to thrive or not. With these simple yet universal measures in place, we can ensure banking moves from a privilege for the favoured few to a human right for all.