Financial inclusion is impossible without cash

The banking industry was at an inflection point at the beginning of 2020. Fintechs had spent the last 10 years revolutionizing the way people interacted with money. These challengers to established banking norms were instrumental in helping to bank many of the 1.7 billion adults without access to a bank account.

Part of this effort to bring financial solutions to a larger audience included the rise of cashless transactions, and when the COVID-19 pandemic arrived in early 2020, this trend became even more pronounced. With face-to-face interaction abruptly coming to a halt, many believed the pandemic laid the groundwork for the “death of cash.”

Financial inclusion, however, is not a one-size-fits-all proposition, and while there are benefits of cashless transactions, cash is still the critical form of currency for low-income families, the visually impaired, the elderly, migrant communities, victims of domestic abuse and others. Ensuring that these vulnerable communities can remain connected to the financial services ecosystem is critical to any financial inclusion road map. Studies find that providing the world’s unbanked population with a “financial identity,” the ability to provide necessary personal information to establish a formal credit history, could add $250 billion to global GDP.

However, in many parts of the world, small and midsize businesses (SMBs), particularly micro-SMBs and those that are female- or minority-owned, struggle to secure loans that could pull the owners out of poverty or enable them to expand. At Diebold Nixdorf, our proprietary research found that only 37% of small-business banking customers believe their bank appreciates their business, and just 13% feel that all of their branch needs are being met. While attitudes around loans and lending may need to be adjusted, it is equally important for banks to serve this customer segment’s unique needs, which typically require more frequent interactions and rely on more cash-heavy services.

Part of the fundamental complexity of financial inclusion stems from the fact that the issues one region faces may vary wildly from another. In developed parts of the world like the United States or United Kingdom, the growing trend involves a surge in local bank closings that are leaving previously banked communities without access to a local financial institution. In developing parts of the world, you can often find areas that have never had a branch to begin with and ultimately lack the infrastructure to support an accessible banking ecosystem.

What this means is that the kinds of projects financial institutions choose to fund can literally shape a region’s future. More than 90% of financing in developing countries, and over two-thirds globally, is provided by the banking sector. When financial institutions invest in microbusinesses and those created by women and minorities, they drive financial inclusion, making a positive, sustainable impact on an area and its population. In order to make that impact, both physical and digitally driven points of commerce are needed to keep the financial sandbox diverse.

Given the rapid changes to the global economic landscape, technology’s role as a driver for financial inclusion needs to be adaptable and holistic. Instead of investing in technologies that would serve to eliminate cash, we should find ways to bring the un- and underbanked into an ecosystem that makes sense for their lifestyle. As part of this effort, financial institutions need to consider how they can connect physical and digital channels in new ways to create a comfortable space for consumers of any age or regional background.

Banks must find ways to implement robust self-service solutions that act as a branch in rural areas where branches have been closed or were never located in the first place. A holistic view of the future of cash means investing in digital kiosks and innovative ATMs that bridge the digital and physical worlds through multifactor identification methods that don’t require a bank card or account.

Multifunction ATMs can provide not only cash services, but 90% of the transaction capabilities of a branch combined with personal connections and advisory services using video teller capabilities. And since the unbanked and underbanked population mainly conducts transactions in cash, the ATM remains an ideal solution to serve as their branch and the connection point with their brand.

In the U.K., the country’s post office network serves as a proxy bank, offering the ability to make cash withdrawals at its counters. In Germany, Frankfurter Volksbank and Taunus Sparkasse are operating in a cooperative model, splitting hours at local branches between the two brands to ensure that customers don’t lose access to their local branches. On the other hand, countries such as Zimbabwe and Colombia have achieved success by leapfrogging traditional financial channels, going straight from cash-based economies to using mobile technology for access to finances, highlighting the importance of omnichannel consumer journeys.

As leaders in the industry, we need to be flexible and ensure that all forms of payment are accepted to encourage greater financial inclusion. People have a right to bank and pay in the way that works best for them. As people progress to “actively banked,” they experience positive changes that affect not only the individual and their immediate family, but their villages, communities and society as a whole. Financial inclusion sends ripples far beyond its immediate beneficiaries.

Whether it’s digital, physical or a mix, providing secure, convenient and flexible choices is the best way to support people’s financial lives. From microbusinesses created by women and minorities to campaigns that promote financial literacy, when financial institutions invest in financial inclusion, they can leave a positive, sustainable impact on an area and its population.