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How Are Digital Wallets Boosting Financial Inclusion?

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Financial inclusion has been the talk of the town in recent years. When the Covid-19 pandemic hit, financial inclusion became the top of mind for almost every fintech. It is evident that there is a prominent gap when it comes to financial equality that traditional financial institutions weren’t able to bridge. This gap rendered almost 2 billion people worldwide unbanked and excluded from all financial services. In Lebanon, for example, the financial crisis and the absence of traditional institutions rendered close to 80% of the population unbanked

Barriers preventing financial inclusion

According to the World Bank, “financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit, and insurance – delivered in a responsible and sustainable way.”

Being financially included and having access to financial services facilitates day-to-day life and helps in long-term planning. So why do many people remain unbanked?

Financial Barriers

Maintaining a bank account is relatively expensive, especially for the unemployed or people living below the poverty line. In Lebanon, almost one-third of the labor force is unemployed as of January 2022. This led the unemployed to terminate their access to banking services.

Another financial barrier is the lack of credit history. The current banking system doesn’t really incorporate the young labor force or the unbanked. While it is nearly impossible for them to establish a credit history outside the traditional banking system, they are left stuck in a system that doesn’t cater to their needs.

Social Barriers

Language and literacy problems are often a hurdle preventing the inclusion of the unbanked. Potential consumers who are incapable of understanding the language and are financially illiterate face many difficulties when accessing financial services. Lack of understanding of products and services offered and inability to compare costs will lead to a greater risk of making ill-informed decisions and falling for scams. Due to the lack of awareness and education, most unbanked people lack trust in the banking system and do not believe that banks will put their interests first.

Institutional Barriers 

Convenience is vital and is what traditional institutions lack. Banks are mostly open on weekdays and until early afternoon. Most people find banking hours inconvenient with their lifestyle, especially when attending to the bank in person to perform basic transactions. Although this has slightly changed in recent years since most banks have their own mobile apps, most people still believe that banks are still inconvenient.

Another institutional barrier is the need for products and services not provided by banks. Most unbanked people think they can manage their day-to-day finances without a bank account or resort to other financial institutions with product-specific solutions.

Digital wallets are here to turn the tables

A digital wallet or an e-wallet is a financial transaction application that stores payment information and passwords. It provides you with the convenience of storing one or more payment methods digitally, replacing your physical wallet. Throughout the years, digital wallets have evolved rapidly to go beyond digital payments. Nowadays, digital wallets also provide loans, buy-now-pay-later services, utility payments, and much more.

Over the past few years, people have been looking for convenience and speed above everything, which is why digital wallets are seeing unprecedented growth.

How digital wallets can boost financial inclusion?

Digital wallets are considered one of the most effective ways to promote financial inclusion worldwide and provide millions with access to financial services.

Finance

A distinct advantage of a digital wallet is that it allows sign-ups with minimal to no credit checks. This allows the unbanked stuck in the endless loop to become financially included. Moreover, digital wallets are relatively cheaper to maintain than traditional banking services. Also, nowadays, digital wallets are not only limited to transaction accounts but also provide loans, credit cards, and other services to improve the quality of life.

Safety 

Having access to your money on your mobile phone dismisses the need to hold bulks of cash or cards. Moreover, by adopting the latest technologies, a digital wallet reduces the risk of theft and fraud. Most digital wallets depend on biometric technology, OTPs (one-time passwords), and several layers of security to prevent anyone from getting into the account, even if the mobile was lost or stolen.

Lower fees and transparency

Digital wallets provide direct transactions between the sender and the receiver without the need for intermediaries. This means that users can send money with lower fees while having full control over the transaction and full transparency regarding the fees.

Convenience

As mentioned above, convenience is key, and a digital wallet makes everyday financials a breeze. Digital wallets are often easy to use and provide a more direct on-the-go experience than traditional financial services. Being able to manage, transact, and pay in a fast and efficient way is the main reason why users prefer digital wallets to any other traditional financial institution.

Moreover, digital wallets are turning more into lifestyle apps. Their use goes beyond financial transactions to cover other day-to-day activities like booking a taxi or ordering food. Covering such a wide range of services and benefits, digital wallets are sort of becoming an indispensable need.

Awareness

Several vital points are aiding the awareness of users regarding digital wallets. The wide penetration of mobile phones paves the way for digital wallets to be widely and quickly adopted. For example, in Lebanon, the number of mobile connections in January 2021 was equivalent to 67.3% of the population.

Moreover, fintechs are adopting consumer-centric marketing strategies. To spread awareness about digital wallets and their benefits, fintechs are resorting to social media, traditional media, and other resources. Lastly, more businesses and online shops are adopting digital wallets as a form of payment. This creates a loop where the more users adopt digital wallets; the more businesses adopt them as a payment method; the more businesses adopt them, the more users will be aware of them and become willing to own digital wallets. 

Purpl Digital Wallet

Digital wallets have been playing a significant role in boosting financial inclusion. In some countries like Lebanon, digital wallets are non-existent. In Lebanon, the financial crisis left most of the population unbanked. Alternative solutions like traditional money transfer services are monopolizing the market, leaving the Lebanese with no choice but to pay more for less. So, let’s democratize money transfers to Lebanon, and let’s revolutionize the way we send, receive and spend money!

Written by: Mayssa Abillama

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