Redefining Financial Inclusion

This is going to sound cold and heartless…but I’m tired of hearing about “financial inclusion.” As it pertains to the US, that is.

Two reasons for my insouciance: 1) perspective, and 2) definition.


According to McKinsey, 8% of adults in high-income OECD countries are financially “excluded,” meaning that they don’t use “formal or semi-formal” financial services.

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This 8% statistic is consistent with figures from the FDIC (which might be the source of McKinsey’s data), as well as being consistent with research I’ve done at Aite Group.

Now don’t get me wrong, in no way am I brushing off the legitimate financial needs concerns of the unbanked.

But, first of all, when the number of unbanked in the US is orders of magnitude lower than everywhere else in the world, we have some nerve to complain about the number.


Second of all, the 8% number (at least as it pertains to the US) is way overstated. Nearly half of the unbanked in the US use GPR prepaid debit cards.

This last point starts to get at my second reason for the disregard for financial inclusion: How we define it.

Defining inclusion as “a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients” as it’s defined by the Center for Financial Inclusion is an industry-centric way of looking at the situation.

My take: Financial inclusion shouldn’t be defined in terms of products or accounts. Instead, it should be defined in terms of behaviors — i.e., behaviors that involve the management of one’s financial life.


The half of the unbanked in the US who don’t have a checking account — but who use prepaid debit products to manage their financial life may be doing just as well, or even better, than consumers with a checking account.

In fact, an analysis done by Aite Group a few years ago found that a significant number of banked consumers would be better off closing out their checking account and using prepaid debit cards. (This analysis was done before the death of free checking, so it’s probable that the percentage identified back then is even higher today)


Financial inclusion was a major topic at the recent Next Bank LATAM in Bogota, Colombia, as well it should be considering the 65% “exclusion” level in South America.

The keynote speech from Scott Bales was top-notch (see the deck here). At one point, Scott noted that, for him, the litmus test for financial inclusion was how someone paid for lunch. That is, could someone pay for their lunch with some mechanism other than cash?

As a test of inclusion, I have to disagree.

This litmus test relates to the payment. But making a payment is the last step in a financial transaction.

In my view, it’s the earlier steps in the transaction — namely the choice of product and provider, and the “quality” of the decision — that determine if someone is financially “included.”

In other words, does the person paying for lunch (with whatever payment form) know how much they’ve spent on lunch (and on food, more broadly) so far this week or month? Is it a good decision to spend what ever amount lunch will cost given the future inflows and outflows of money over the rest of the week or month?

You don’t need a checking account — or any “formal or semi-formal” financial account in order to make smarter decisions about how to spend your money.

Conveniences like writing checks, paying with cards, or waving a mobile device at a scanner in order to make a payment are at the top of the financial needs pyramid. They don’t set the bar of inclusion.


Bottom line: The problem of financial exclusion isn’t about account or product ownership. It’s about the lack of proper financial management behaviors.

Until we define the problem properly, so-called solutions — which often involve politically-tainted attempts at forcing providers to offer products and services at below market fees or rates — won’t succeed at changing anything.

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