Banking Becomes More Inclusive

Banks have trended toward serving more people and serving them better, and we may expect this trend to continue in the coming years.

Having access to banking services is almost a basic necessity in today’s society. There is a small percentage of people in developed countries who don’t have access to banking, and may be able to get by without it, for instance getting paid in cash and spending that cash, but there is less and less opportunity to do this even if one wishes.

Banking Becomes More InclusiveEventually more and more businesses will move toward non cash payroll systems, whether that be paying by check or direct deposit. Direct deposit has really taken off over the past few years and we’re even seeing some governments starting to mandate this.

While one may still be able to cash a check without a bank account at a few merchants, by having a previous relationship with them and spending a certain percentage of their check there, this is no longer very typical at all. Third party check cashing services can also be used, but they are expensive and far more so than just opening a bank account somewhere.

There are some issues that particularly apply to checks though, and many employers don’t realize the inconvenience and even hardship they cause their people by using this rather antiquated payment method.

The problem is that unless the employee has established a credit relationship with the check casher, since it takes several days for checks to clear, for the check casher to receive payment for it, most or all of the funds deposited will be on hold unless the bank is willing to loan them the money essentially in the interim.

With direct deposit, a bank account is absolutely required to get paid as the money must be deposited in one. Electronic payments also have the benefit of clearing immediately upon receipt. Your employer submits the payment to their bank on the prior day and your account is credited the next day, so people have full access to their funds on payday, not up to a week later in some cases.

So direct deposit has certainly improved people’s access to their money, the funds submitted to them by payment issuers, whether that be an employer, a government agency, or other income provider, and this transcends the issues that payment by checks involve, and one does not have to have good credit or a sufficient relationship with a check casher, or pay exorbitant fees to one, to benefit fully from this.

In this sense, banks, through the direct deposit mechanism, have made getting paid immediately much more inclusive than in the past, and having access to one’s money immediately is a big benefit for many.

Making Banks Accounts Themselves Accessible

On the other side of the ledger, some banks do charge fees for maintaining a bank account with them. This tends to vary by market, and in some countries free banking is widely available, although in others some banks may charge fees for basic banking and some may not. For the most part though, in many countries, one should be able to obtain a free bank account or at least find an account with very modest fees.

Bank accounts do cost banks money to service, and the idea behind free or reduced cost banking is to use that as an entry point to build relationships with clients and offer them other banking services that do turn out to be profitable for the bank. This may involve things like making deposits with them or borrowing money with them, both of which play a role in generating profits for the bank, where processing transactions with current accounts do not.

Banks will prefer more valuable clients over less valuable ones of course, and left on their own, banks might be picky as far as who they accept as clients. This does conflict though with the necessity of virtually everyone to be able to open a bank account if they wish, so sometimes the government needs to step in and come up with regulations concerning who may be turned down for one.

Canada’s Access to Basic Banking regulations are an example of this. Prior to these regulations, one could be declined by a bank for a basic bank account based upon things like lack of employment or poor credit history. While there are still some conditions that permit declines, such as lack of proper identification or a history or prior fraudulent activity at the bank, just about everyone can get a bank account in Canada nowadays.

Elsewhere, people’s access to banking has also received attention, and banks themselves have come to better realize that while these clients may not be profitable now, they do have value from a potential referral standpoint, and may improve their situation over time to become profitable clients.

So if you make these low value clients happy, they may refer more valuable clients as well as perhaps becoming more valuable themselves at some point in the future. This may particularly be the case if someone has gone through credit problems, as these things do resolve over time, and banks may even be able to help this along with sound advice.

Developing Underserved Markets

There are many countries where the banking industry underserves the market, due to things like the country as a whole being relatively underdeveloped. Not that long ago, China was very much underserved by the banking industry, and while there is still improvement for growth there, the four largest banks in the world these days by total assets are all Chinese.

There are many countries who’s economy is in earlier stages of development that we’re seeing the banking sector grow more in, and many of the things that we take for granted in developed countries, like access to banking, is not all that widespread yet in some countries, but this is changing.

Banking plays such a huge role in the economy that we can even say that the maturity and development of the banking sector in a region and the economic prosperity of that region go hand in hand, and in some ways, the relative lack of development of banking exists as a real impediment to the growth of economies as a whole.

Most of this impact is on the lending side, and if a region does not have much penetration here, that’s going to really restrict the money supply, because people aren’t borrowing what they could if things were more organized, not spending as much in turn, and business itself isn’t going to even approach its true potential under these circumstances.

So while we may look at what percentage of the population in a country uses banking, while this is an interesting statistic, it’s not access to basic banking that drives the economy, it’s access to a bank’s other services that really matters.

There is some real potential here in many areas to expand this, more than has been done already, and this goes well beyond just lending money to countries, it requires that people and businesses become more involved more as well.

Inclusion By Technological Innovation

Technology has changed banking enormously over the last while, more and more each year actually. While developed countries achieved widespread market saturation with banking long ago, there is still quite a ways to go before we can say that the new technologies have achieved such widespread penetration.

As the years have passed, more and more people have had access to online banking, and we ended up reaching a point where this was the case with most people. Mobile banking still has a ways to go though, and even though a lot of people have access to mobile devices these days, not all of them take advantage of the improved convenience of it.

Change does take time though, and old habits die hard, which is why just about all banks still have human teller service. Banks do strive to be inclusive though, and this is testimony to that, and if this is what people want, they can still get this type of service, even though it’s become quite outdated for the majority of everyday transactions anyway.

Technological innovations offer more than just added convenience though, although they certainly do add a lot of that. For every instance where one could not access banking information or banking services otherwise, remote access offers additional access, where this would not have happened otherwise.

This ends up including those who would not be able to access traditional banking services, such as those with mobility issues or other physical impairments. It used to be that one had to rely on others to do their banking for them if this was the case, perhaps even requiring powers of attorney to be given, but now there is at least the possibility of these people doing their own banking should they have the means.

Beyond the basics, technology has also increased access to a number of other banking services, including people directing their own investments, people who may not otherwise have done so in the past, for various reasons. This benefits both the banks and the clients, and perhaps even the economy in general.

The new frontier for banking technology is in the area of lending, and banks are looking to leverage technology to make borrowing both more accessible and more efficient. Lending has been the last major area to respond to new technology, at least in terms of taking advantage of potential improvements, but nowadays many banks are committing a lot of resources to significantly improving the lending process on all fronts.

As each year passes, more and more people are being included in more and more things related to banking, everything from just having a bank account somewhere on up. Banking already plays a big role in most people’s lives, an even bigger one than they usually realize, given that so many things in their lives are so heavily influenced by it.

This is all set to continue to keep growing. It’s said that money makes the world go round, and to some extent that’s true, and if it has to do with money, you can bet that banks are playing a big role in it, and also want more and more people to be included more and more.

John Miller


John’s sensible advice on all matters related to personal finance will have you examining your own life and tweaking it to achieve your financial goals better.

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