The power of financial inclusion

Can you tell us a little more about your work with Marqeta, and explain how it contributes to financial security and inclusion, and greater accessibility to essential services?

Marqeta is a global modern card issuing platform, which enables many different use cases in embedded finance, including on-demand delivery, expense management, retail, digital banking, and more, including global credit and debit card programmes. Since its inception, Marqeta has been at the forefront of digital payments, allowing organisations to build customisable, secure payment card and embedded finance solutions on its open API platform. These cards can be instantly issued and provisioned into digital wallets, with full digital banking capabilities.

Enabling a wide variety of organisations to offer payment products often leads to more innovation and improved, personalised offerings that create lasting customer loyalty. For example, Marqeta partnered with Western Union, global leader in cross-border, cross-currency money movement and payments, to launch a real time, multi currency digital wallet and digital banking platform in Europe.

This was specifically designed for those who had moved countries in search of opportunities to support themselves and their families, and the platform offered features that supported these individuals’ livelihood, lifestyle and specific multinational requirements. This allows users to manage their money in multiple currencies, and ensure that they have a card that works in 180 countries. This offering provided accessible financial services and removed some of the hardships customers face as they move around the world in a way that may not have been possible with a static, cumbersome payment programme.

How does financial inclusion and accessibility to financial services make a positive impact in people’s lives, and what kinds of challenges prevent inclusion?

The importance of financial inclusion cannot be overstated. People being able to access, store, move and manage money is crucial for the global economy, firstly at a businesses level, to ensure innovation, competition and growth, but also to enable consumers to manage their daily lives, and drive economic growth through buying goods and services.

The Financial Conduct Authority estimated that 1.1 million adults in the UK are without a bank account, highlighting the widespread nature of the challenges that surround gaining access to financial services. Being unbanked is the ultimate example of financial exclusion, as individuals can’t store money or send/receive payments.

As well as those who are unbanked, there’s also a large portion of people in the UK that are underbanked. While they might have access to a bank account, they aren’t being properly served, often resorting to alternative financial services, such as money orders and high-interest payday loans to make ends meet. This is a result of the many barriers people face when trying to access financial services, including credit score, income, and credit history requirements, etc. This issue has been compounded by the ongoing cost of living crisis. Despite consumers needing to rely on credit and borrowing more to help cover rising costs, Marqeta research found that 46% of UK respondents who applied for a credit card in the past year had their applications denied.

A positive outcome of the mounting pressure on consumers, however, is organisations offering and consumers engaging with alternative credit options. For example, Marqeta’s report found that 38% of UK consumers surveyed used Buy Now, Pay Later (BNPL) to make ends meet during the last year. Fifteen percent of those surveyed were using BNPL because they had no other access to credit, but savvy consumers were also utilising microcredit options due to the lack of interest charged, and to help with budgeting and flexibility.

This is not to suggest that innovative credit options are the sole answer to increasing financial inclusion. The solution to this will be multifaceted, global and involve systematic changes. However, consumer pressure for revisions to financial structures will likely lead to innovative solutions that can enable people to access financial products in a more equal manner.

Challenges in areas like this are so often multifaceted; how does lack of financial inclusion or poor financial literacy impact how people live?

Being able to access funds in a secure, reliable manner is an essential tool to survive in the modern world. In fact, without access to financial products and services, people risk not having their basic needs met (e.g. water, housing and food) and losing access to vital resources (internet, education). Essentially exclusion from financial services, bleeds into exclusion in almost all other areas, meaning individuals can’t access the products and services they rely on to survive.

How important are things like digital finance innovation and new technology for giving equal rights to economic resources and access to basic services?

The best example of how digital solutions can transform access to financial services is to look at the impact of COVID-19 in developing countries. When safety regulations led to greater digital adoption of services, new economic opportunities were created, the gender gap in account ownership was narrowed, and households were more resilient and better equipped to handle financial ups and downs.

According to the Global Fintech Database, about 40% of adults in developing economies (excluding China) who made a digital payment from their account did so for the very first time since the start of the pandemic. This is a vital step for developing economies, as digital banking allows individuals to receive wages or government money more safely and easily. People can then send remittances home to family members, pay for goods and services, make productive investments (e.g education, healthcare) and safely and securely store money for everyday needs or sudden emergencies. For women specifically, access to their own bank account and digital services can enable financial independence and strengthen economic empowerment.

Financial services such as payments, savings accounts, and credit are a cornerstone of development, and the more people in a community who use digital payments, the quicker, cheaper and easier it is to build digital payments systems, and for all businesses to pay their workers electronically.

Can you give some examples of how payment innovation has changed the landscape with regards to access to financial services, payment options, and wage access?

An excellent example is the rise in Accelerated Wage Access (AWA) solutions that allow employees to be paid as soon as a shift of job is completed. While society has continued to modernise how we pay for our goods and services, the way workers receive pay hasn’t necessarily advanced at the same rapid pace. AWA addresses this imbalance by enabling employees to get paid earlier in the monthly pay cycle, helping to ensure better management of finances in a secure and cost-effective manner.

Many of those who have been struggling to pay bills have historically turned to payday loan providers which are often characterised by high interest rates with challenging repayment conditions. In response to this, fintech innovation in areas such as AWA can provide an alternative which gives employees fast and secure access to their earned money and reduces the need for credit while improving financial well- being and self-sufficiency.

Implemented correctly with individual workers in mind, it offers a financial management solution to times of economic hardship by helping people working shifts, or in the gig economy, to better manage their finances. As a result, AWA can improve financial inclusion and wellbeing for many in the workforce, empowering some of society’s most vulnerable workers by helping them avoid advances to their paychecks that often come with steep fees.

Can you tell me about the link between financial literacy and financial wellbeing, and how great the need is for better financial literacy worldwide?

Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. A strong foundation of financial literacy can help support various life goals, such as saving for education or retirement or running a business, and ensures individuals are less vulnerable to market disruptions or financial fraud.

In 2015, only 35% of men and 30% of women worldwide were classed as financially literate, according to the S&P Global Finlit Survey. While rates are likely to have risen since the data was collected, this demonstrates that investments are needed to ensure that individuals globally have the required financial literacy skills to make economic decisions that are in their best interests. The more individuals engage with financial products, the more incentive for providers to deliver high-quality services, highlighting that increased financial literacy levels benefit the individual, while also contributing to long- term economic stability.

To ensure individuals and communities globally are capable, and confident dealing with financial products and services, financial literacy courses need to be designed for the communities they are trying to serve, and that populations specific needs (languages, schooling, inequalities, access to internet and bank branches, etc). The payment products on offer also need to be consumer centric, incorporating personalised safeguards and features, and ultimately, helping to build public trust in the financial system.

What are the key developments, policies and initiatives for making positive change when it comes to financial inclusion and how can tech innovation contribute?

Ensuring financial inclusion for communities globally will require a multifaceted approach from individuals, governments, educators, providers, politicians, employers, and essentially a worldwide push to roll out financial products and improve financial literacy. Fortunately, technology innovation is available to support this process in a variety of ways:

Moving away from a one size fits all solution: Technology can provide innovators with the specific tools they need to create financially inclusive payment products, with personalised features to encourage financial inclusion and a more positive consumer experience for traditionally underserved communities.
Increased Inclusivity: New payment platforms and providers can rewrite the current rules in the formal financial system, ensuring that products are more inclusive and that people can access the products they need when they need them.
Safe, secure products: Due to technological innovation, payments products can continually be improved and upgraded, ensuring they have the latest security features and that users can be provided with up to date tools, advice and support. In the future, this is likely to be done through an expert AI chatbot, essentially available to provide financial advice 24/7, helping to improve financial literacy and inclusion.
Digitalisation at scale: Due to the rise in the use of digital services during COVID-19, it became clear how quickly the world could adapt to digital banking practices when necessary. The rise in digitalisation resulted in more widespread economic opportunities, and ongoing innovation can help enable greater financial opportunities for communities everywhere.

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