Facilitating Access to Finance in Underserved Communities Through Digital Banking

According to the World Bank, the number of adults without access to financial services has dropped from 2.5 billion in 2011 to 1.4 billion in 2021. While this is a great success, there is still a lot that can be done to further make official financial services more accessible, especially in developing economies. Therefore, this July, we explore how the fintech industry can further increase financial inclusion in developing markets, identify regional trends and remove barriers to digital services.

Having explored some of the biggest financial inclusion hurdles in digital banking, we now turn our attention to why it is so important that these challenges are overcome. Digital banking can be a great way to facilitate access to finance for those who would otherwise be unbanked. To get a better understanding of this, we reached out to the industry.

Winning on various levels

For Jaime Dominguez, principal marketing manager at Q2 Holdings, the digital banking, digital lending, and banking-as-a-service solutions provider, there is no singular reason why digital banking is so helpful in underserved communities. He explains: ” “Digital banking expands the reach of financial institutions (FIs) by allowing them to serve rural areas, small towns, and urban neighbourhoods where physical branches are scarce or have closed.

“This means that individuals in these underserved communities can now access essential banking, savings, and payment tools directly from their mobile phones and computers.

“Furthermore, digital banking plays a crucial role in lowering the cost of financial services. Reducing operational overhead for FIs, it enables them to offer no-fee or low-fee accounts, reduce minimum balance requirements, and, in some cases, provide more affordable loan options. This increased affordability makes financial services more accessible to low-income families who have often been excluded from traditional financial products.

“For small businesses and entrepreneurs, digital banking is equally critical. It simplifies the process of supporting micro-entrepreneurs and small businesses in underserved communities, particularly those without traditional banking relationships. These businesses can gain access to vital resources such as payment tools, microloans, and business accounts.

“Finally, digital banking contributes to financial education. Many digital banking applications now incorporate features like budgeting tools, savings automation, and financial education resources. These tools are instrumental in helping underserved individuals and communities build financial confidence and improve their money management skills.”

Affordable and accessible

Two traditional issues associated with banking are location and costs. Historically, rural areas would not have many bank branches and therefore be excluded from the banking system. However, as noted by Roman Eloshvili, founder and CEO of XData Group, a B2B software development company focusing on the European banking sector, with digital banking services this is no longer a problem as everything is online, making it not only more accessible, but cheaper too.

“The very first thing to point out here is that in many underserved communities, traditional banking services are scarce. Physical offices either don’t exist or they are too far away for people to use easily. So when digital banking moves services into the online realm, people in such regions gain the ability to open bank accounts, make money transfers, and access any number of financial services without ever needing to go looking for a physical office.

“Another big positive is that digital banking services often come with lower costs and simpler processes. When there’s no need to maintain physical branches, neobanks can afford to lower their fees, making it cheaper for users.

“At the same time, many digital-first players choose to streamline their services in a way that makes it easier to open accounts with limited documentation. For people who have been excluded from traditional banking systems for years, that’s a big deal.

“One other thing of note is that many fintech companies partner with local agents and mobile network operators to help people access banking services through their phones, even in areas with spotty internet. That way, even in areas with poor technical infrastructure, communities still get a certain level of support.”

“Effective, relevant, and impactful”

Nicole Valentine, fintech director at the Milken Institute, an independent economic think tank, explores fintechs’ role in accelerating digital banking and facilitating financial inclusion.

“We are experiencing a generation of technology advancement where digital dominates, and digital banking is no exception. Access is the main character in the story of digital transformation. Access is what opens the door to valuable financial services and products. Although digital banking has been a catalyst for improving the number of the unbanked, we still have a long way to go to ensure access for all. When it comes to focusing on underserved communities, digital banking should be effective, relevant, and impactful.

“Digital banking is our generation’s on-ramp to financial services. Fintech companies are making a major contribution to the evolution of digital banking. Personalised banking, simplified loan applications, and digital wallets are just a few of the experiences that make access to finance come alive. Fintechs are re-architecting how we acquire and analyse alternative data.

“Fintechs are building banking layers focused on consumer experience and are innovating to meet the demands for 24/7 access to financial services, including lending, investing, and cross-border payments. As we continue to innovate, reaching communities in banking deserts across rural and urban centres is a necessary priority in the story of financial inclusion for all.”

Accessibility is at the heart of inclusion

Nick Botha, global payments lead at AutoRek, the financial and operational reconciliation software platform, explains that digital banking can solve the traditional banking market’s accessibility problem.

“Financial inclusion is essentially the core offering of digital banking. Traditional brick-and-mortar banking has existed for hundreds of years, yet large portions of the global population remain underserved or completely excluded from financial services. This isn’t due to lack of demand. Anyone participating in an economy needs financial services, no matter how simple.

“True disruption rarely comes from within an established industry. Just as the first car manufacturers came from outside the existing transportation sector, fintech innovation is reinventing how banking services are delivered.

“Global internet access has exploded from less than one per cent in 1995 to around 68 per cent today, largely thanks to affordable smartphones. This technological shift allows digital banking providers to reach underserved communities through entirely new go-to-market strategies and user experiences that were previously impossible.

“The fundamental proposition is simple but powerful: if a customer can access your app, they can access your banking service. This removes traditional barriers like geographic location, branch proximity, and minimum balance requirements that have historically excluded millions from the financial system.”

Faster, more personalised services

Breaking down the benefits of one digital banking’s offerings, Luke Ryder, director of standards, strategic policy, and public affairs at Open Banking Limited, the entity responsible for implementing and overseeing the open banking standard in the UK, focuses on how open banking is impacting and fostering greater financial inclusion.

“Open banking is playing a transformative role in improving financial inclusion across the UK; helping many people build financial resilience, access finance they otherwise wouldn’t have been eligible for, and preventing the escalation of debt.

“For financially vulnerable people, and the approximately six million credit-invisible people in the UK, open banking is powering near real-time transaction data for affordability checks that allow social lenders such as Salad to extend £164million in loans to 112,000 customers since 2019.

“For savers, open banking-powered money management apps like Emma, Snoop, and Moneyhub are helping people build healthier financial habits through smart budgeting tools, personalised insights, and automated savings prompts – crucial support given that 14 million people in the UK have less than £100 in savings.

“Meanwhile, for the eight million individuals in the UK who need debt advice, organisations like Citizens Advice are leveraging open banking data to streamline financial assessments – cutting down processing times from weeks to minutes and enabling faster, more effective support.

“Digital banking, and open banking as one of its subsets, is driving greater financial inclusion. The passing of the Data (Use and Access) Act reinforces this by advancing a smart data economy to support even more digitally excluded households.”

Connecting systems across borders

The benefits of digital banking don’t need to be constrained to national borders, says Andrew Stewart, chief revenue officer at Thunes, the cross-border payments infrastructure provider. Exploring this further, he comments: “Mobile wallets are a key factor transforming financial access in developing markets, offering a practical alternative for the billions of people who currently remain unbanked or underbanked.

“Yet, despite projections showing that wallet users will grow from 4.3 billion in 2024 to 5.8 billion by 2029, there is still a critical issue regarding interoperability, with many mobile wallets still not being fully connected to banks, global networks or each other. So, while local access is expanding, users still face costly, slow, and complex barriers when trying to send money internationally or access global loans and investment opportunities.