Removing barriers to the unbanked and accelerating financial inclusion in Asean

In the past couple of years, the economies in the Asean region took a hit as the Covid-19 pandemic triggered declines following widespread lockdowns and travel bans. However, despite renewed outbreaks of Covid-19 variants that are disrupting the region’s recovery efforts, Asean is still poised to rebound in the new year.

The Asian Development Bank revised its 2022 forecast for the region upward to 5.1 per cent, as countries are expected to continue easing restrictions and resuming economic activities. And yet, despite the positive growth trajectory, many residents of Asean countries continue to live in marginalised regions with little to no access to formal banking services.

In the Asean bloc, there are an estimated 290 million unbanked adults. There is gradual progress in bringing down this number as governments focus on tackling financial inclusion by unlocking widespread public access to essential financial and banking services. The inaccessibility of many has also provided fertile ground for providers of digital services to supplement its services and bridge the gap. 

Barriers to financial inclusion

Financial inclusion means more businesses and individuals, from a wider spectrum of economic standing,get easy access to financial services. It is an essential enabler of poverty reduction that helps boost prosperity, particularly in emerging economies in ASEAN. Some common barriers to financial inclusion include:

• Wage payments in cash

Within Asean countries, only a third of workers receive their monthly wages into an account at a financial institution, with 71 per cent paid in cash. Cash payment of salaries is risky for both workers and employers. However, making salary payments directly into workers’ accounts at financial institutions is more secure, ensuring workers have a safe way to save their money and build up credit histories.

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While many digital transfer solutions exist, there is still a lack of adoption by many companies who prefer to continue paying wages in cash. Without bank accounts and records, many employees are without credit histories, hindering their ability to access financial services such as insurance products, education loans, mortgages, and consumer credit. 

• Low levels of account ownership

By recognising the value of financial inclusion for their countries’ economic development, Asean leaders need to make this one of their major priorities. Among the poor, the less educated, and people living in rural South-east Asia, the rate of financial exclusion is exceptionally high.

With mobile penetration increasing rapidly among the Southeast Asian population, it is critical for industry players to push Electronic Know your Client (eKYC) to make it easier for identity verification in this new era of “contactless” banking. However, the flip side is that eKYC has the potential to have bias against those that may not have the same level of digital literacy or digital presence. 

Online identity verification through eKYC makes digital onboarding of individuals easier, without the need to visit a physical branch, and gives banks and financial institutions a way to reduce risk and the confidence to offer services like personal loans and small business financing to new customers.

• Low Adoption of Electronic Payments

Digital payment solutions such as mobile money offer tremendous benefits to both end-users and financial solutions providers that help boost the overall economy. While this kind of technological advancement helps to improve the efficiency of transactions, it is possible that particular segments of the consumer market, especially those in the less-developed Asean regions, are left behind, causing a so-called ‘digital divide.’ There are several reasons for this, including the lack of a national “digital ID” linked to a mobile number and insufficient data protection, privacy, cybersecurity, and e-signature laws across the region.

The e-Conomy SEA report by Google, Temasek, Bain & Company, reflected the dominance of the physical currency in the region, as 59 per cent of the region’s Gross Transaction Value (GTV) was cash-based in 2020. The pandemic, however, has served as a catalyst in accelerating the decline of cash and the adoption of e-wallets, with the report expecting cash-based GTV to fall to 49 per cent by 2025.

Mobile money, in particular, allows previously unbanked populations to gain easy access to financial services securely and on time. Specifically, mobile banking lets individuals make secure and convenient payments for the goods and services they use every day, a core feature of any mobile banking application. With widespread smart phone usage, mobile-driven peer-to-peer payment solutions that enable users to manage their finances directly from their social media and messaging applications, are a lifeline for many.

Boosting financial inclusion

Although governments and their respective regulatory entities are making significant inroads to address Asean's financial inclusion gap, there is still much work to drive financial inclusion for many local communities.

However, there are only so many initiatives that they can take to encourage mass financial literacy and improve access to innovative fintech solutions, independently of each other. A tipping point must come whereby a certain level of regulation and standardisation across the region becomes necessary to protect the interests of consumers.

Government agencies should also strive to form collaborative partnerships with firms that develop scalable, high-potential solutions to help them expand their reach. Asean governments should also look toward private partners to help build learning modules.

Furthermore, there is a clear opportunity for financial institutions to prioritise both financial inclusion initiatives as well as enhanced customer acquisition strategies. Establishing a streamlined digital onboarding component can reduce reliance on physical presence, which will allow institutions to reduce operational expenditure while engaging customers from any location. 

Financial inclusion programmes are changing very rapidly with financial institutions now embracing digital onboarding with the support of the central banks, who understand that relaxing manual KYC processes, will pave the way for more digitalisation which leads to financial access and ultimately a stronger economy.

The writer is managing director APAC, at Codebase Technologies.