Could biometrics bridge the financial exclusion gap?
Exploring the scale of financial exclusion and the intrinsic issue of digital identities, Simon Binns, Chief Operating Officer at FinGo, considers the role of biometrics in helping to close this gap – and whether it could meet the needs of society’s most hard-to-reach individuals.
Try to open a bank account today and one of the first things you will be asked to provide is proof of ID and your address. It’s a simple request, and one that many of us take for granted.
Though seemingly basic, these requirements aren’t practical for many people. Some estimations suggest that approximately 1.7bn adults are currently considered ‘financially excluded’ – those without access to banking services, such as current accounts. Though it is particularly prevalent in emerging and developing countries, this is an issue that has implications worldwide. In the UK, figures from The Inclusion Foundation – a non-profit aiming to improve financial access – suggest one in four adults will be financially excluded in their lifetime.
Financial exclusion can have dire consequences on a person’s quality of life. It means limited access – or no access at all – to money. It makes it harder for people to save. It could prevent people from certain jobs, with no bank account to collect their wages. It might make people vulnerable to predatory lenders and unscrupulous loan plans. There are far-reaching emotional impacts too – leaving people with a sense of instability, a lack of control over their own lives.
The need for financial inclusion does not solely sit with individual circumstances. While there is a potential argument that improving access to financial services could of course increase revenue generation for providers, there are far-reaching societal benefits to reducing, if not solving, financial exclusion. As noted by UK Finance, better access to financial markets provides better access to other key services, and ‘is fundamental to effective competition and economic growth’.
To close the financial exclusion gap, we must understand that reasons for it are complex and varied, rarely boiling down to a single factor. It’s typically a perfect storm of limited tech access, low income, wider social exclusion – whether that’s unemployment or perhaps having no fixed address – and often includes geographical barriers. The final point is particularly true for those living in remote locations or non-traditional communities, where access to bank branches or ATMs can be extremely limited.
Steps have been taken to address the gap by government and providers, with financial institutions turning to technology to overcome some of the barriers that often lead to exclusion. From contactless payments to digital banking to better manage finances, to video banking to improve access to personalized services when access to physical bank branches may be limited, digital is a key that can unlock financial inclusion.
Within this, digital identities are often positioned as a solution. Norway and Sweden ushered in a bank-owned digital identity system – BankID – as a standard electronic identification tool for all financial services. In Norway, it was estimated that BankID would give 73 per cent of its population access to electronic financial services and it is now used in millions of transactions each year.
However, password or app-enabled digital IDs may not be the catch-all solution to the fundamental issues of financial exclusion and access to technology. Not everyone has access to the means to use these forms of ID, such as a smartphone, especially those in remote communities or older demographics. If we are to consider how technology could reduce financial exclusion, the methods must be inclusive for all. As we remove physical and societal barriers, we must be cautious not to replace them with digital barriers.
With this in mind, could biometrics play a role in bridging the financial exclusion gap? It certainly has its advantages, particularly for those without regular access to smartphones as a device would not be required for use. Biometric technology could also overcome the twin barriers of inaccessible payment methods and proof of identity, with a recent report from J.P. Morgan, Payments are eating the world, noting that biometrics would be a ‘logical end point’ from a customer perspective, underlying a universal system that seamlessly and securely connects identity verification to payments.
This is borne out in the increasing number of financial institutions, providers and governments looking to implement such schemes to solve the twin issue of financial exclusion and accessible tech; Mastercard recently announced a partnership with the fintech Paycode, to improve financial inclusion across Africa through biometric smart cards, which do not require official identity documentation to obtain.
Having initially introduced biometric technology into a number of retail, hospitality and leisure settings, the team at FinGo is now also focused on identity scheme projects to support financial and societal inclusion efforts, including banking schemes for remote communities in Australia. The vast expanse of the Outback does not lend itself to easy access to physical bank services or the basic needs to set up a bank account or receive a card and PIN. In fact, the Australian Banking Association has added ‘provision of services to remote communities’ to its code of conduct to for member banks. A biometric system – such as our vein-mapping technology – could overcome some of these challenges by providing a proven ID scheme that relies solely on a person’s internal biometric information – completely unique and secure to them. Once a user in these communities is enrolled no card or device would be needed to enable secure transactions for purchases and banking services.
Currently, the Egyptian government is exploring the use of our FinGo vein ID tech to ensure food rations can get to the 60 million means-tested citizens who really need it as reported in Mashable Middle East. Egypt’s current food subsidy scheme uses a plastic card, however the value of fraud from unauthorized card usage and fraud runs into $100m each year. Vein ID authentication is a simple and viable method to reduce these cases – fingerprint technology having failed due to poor reliability caused by wear and tear, age, and health related factors. However, FinGo vein ID has so far been proven to be effective and reliable at scale. It’s ensuring the people who may not have the financial means to access basic needs such as food, are not excluded – both at a societal level and a digital one.
Efforts to bridge the financial gap are progressing at a rate of knots, and biometrics are playing an important role within these. However, it’s vital we keep the needs of the vulnerable – those who suffer most through financial exclusion – at the heart of such efforts. Technology will ultimately be deployed to solve these huge problems, especially if it is no longer simply assumed that the same products are relevant for every need.
As we hurtle towards an increasingly digitally enabled future, we must ensure no person is left behind: at both a financial and technological level.
About the author
Simon Binns is the Chief Operating Officer at FinGo, a Sthaler company. Powered by Hitachi’s VeinID technology since 2015, FinGo uses unique vein patterns hidden inside a finger to instantly identify and authenticate individuals without the need for cards or devices to be present.
DISCLAIMER: This Biometric Update Industry Insights post is submitted content. The views expressed in this post are that of the author, and don’t necessarily reflect the views of Biometric Update.