The disruption forced by Covid-19 provides a rich opportunity for digital banking platforms, but also demonstrates how unequal access can deepen socio-economic and demographic divides. Effective and immediate crisis response relies on financial and digital inclusion.
Access to banking services can drastically change an affected individual’s ability to cope with a lockdown. For those working remotely, online and mobile money platforms enable continued payment and receipt of wages. For frontline and essential workers, contactless transactions can help minimise exposure to the virus.
For those whose livelihoods have been compromised, financial access and literacy may be necessary to receive and use government relief. Individuals excluded from financial systems and digital platforms are at greater risk of catching the virus or facing poverty while under lockdown.
In the US, almost 30m people have filed for unemployment insurance. In most states, payments are disbursed through prepaid debit cards which claimants can apply for online. Individuals already familiar with card-based transactions will find this straightforward. Those used to receiving wages in cash or cheque are more likely to struggle, and may need customer support at a time when banks are already having to scale down operations.
Residents of rural areas that have fewer bank branches and ATMs may face difficulty in accessing and using their insurance payments; even more so if they are unable to utilise online platforms. A November 2019 report by the Federal Reserve Board found that more than 40% of rural counties in the US lost bank branches between 2012-17. During this period, 1,533 bank branches closed, representing 14% of total branches in rural counties, which often are home to poorer communities and people who have received fewer years of education.
The disproportionate vulnerability of the elderly to Covid-19 reinforces the importance of financial and digital inclusion across demographics. Based on World Bank data, just over 40% of adults aged 60-69 in high-income countries have made payments through mobile phones or the internet. Only 16% of adults over 80 have done the same. In low- and middle-income economies, the figures are even lower. Fewer than 5% of elderly individuals have made digital payments.
With the heightened stress and uncertainty created by current conditions, elderly and other vulnerable individuals – including the unbanked and underbanked – will find it difficult to start using digital tools. Banks and other financial services providers should consider this lesson. Digital platforms have proven their value in this crisis of disconnection. Now more than ever, banks and other financial service providers need to ensure that nobody gets left behind, especially those who are most at risk.
Kat Usita is Deputy Head of Research at OMFIF. OMFIF is launching a Digital Monetary Institute to create a high-level community to meet the policy, technology and regulatory challenges posed by digital finance in the 2020s, with a particular focus on payments. More information here.