Report by LexisNexis Risk Solutions shows interest in financial inclusion

LexisNexis Risk Solutions and research and advisory firm Celent designed the Financial Transparency and Inclusion Survey. The online survey was conducted in late 2021 and received 297 completed responses globally from c-suite and other senior leaders with responsibility for compliance, retail, and commercial areas.

The survey of banks, insurers, and non-bank financial institutions in 13 countries and regions aims to better understand financial institutions’ commitment to financial transparency and financial inclusion and the challenges they face in achieving these goals.

Financial inclusion is a global issue. According to The World Bank, there are 1.4 billion unbanked individuals globally and the financial services industry faces challenges decreasing this number. Many factors affect financial inclusion; poverty, a thin credit file, living in a cash-based society, history of bad debt and/or a lack of financial education can all impede access to financial services.

There are clear opportunities to address some of these barriers. For example, global efforts to increase inclusive access to trusted identification systems and mobile phones could be leveraged to increase account ownership for hard-to-reach populations.

Banking the unbaked population

One way to convert the unbanked to a banked customer is to improve financial transparency. Financial institutions need the ability to identify consumers and understand their risk profiles, both to maintain regulatory compliance and support extending financial services to consumers. The more institutions understand about consumers, the easier it is to offer appropriate financial services. However, 69% of respondents agree that the unbanked or underbanked are harder to onboard than other types of customers and businesses due to lack of data.

Many financial institutions turn away significant numbers of potential customers due to current Know Your Customer (KYC) processes. The most challenging customer onboarding hurdles faced by institutions lay within difficulties collecting and verifying customer information. However, interest in data sharing to support KYC processes is growing. Nearly 80% of financial institutions express interest in a global Customer Due Diligence (CDD) utility, compared to just over 70% in 2019.

The report reveals that financial institutions can do more to achieve greater transparency, indicated by the 64% of respondents who say identity verification is a challenge when onboarding individuals.

Results of the COVID-19 pandemic

The pandemic posed a challenge to financial crime and compliance operations at financial institutions, with large numbers of applicants seeking government assistance loans and financial institutions unable to verify identities in person due to lockdowns. However, it also led to financial institutions embracing more digital practices, with 90% of institutions reporting that the pandemic has accelerated adoption of Artificial Intelligence (AI) and other next-generation technologies.

Countries expressing the strongest agreement that the pandemic accelerated the adoption of digital technologies included India, Indonesia, and Mexico. In Singapore, the US and the UK, where digital adoption is already high, fewer firms see the pandemic as the driver.

According to World Bank data, in 2021, 18% of adults from developing economies paid utility bills directly from an account. About one-third of these adults did so for the first time after the beginning of the COVID-19 pandemic. The share of adults making a digital merchant payment also increased after the outbreak of COVID-19.