Technology transforms how people manage money. In developing countries, e-payments made with mobile phones and debit cards are making it safer and easier for people to send and receive funds. E- payments also help people segue into formal financial services. And unlike cash payments, each digital transaction leaves behind rich information on its users.
Historically, surveys and focus groups tracked the number of people benefiting from financial services. Yet this approach doesn’t truly show how consumers behave. Moving forward, transactions data generated by electronic payments may help financial institutions design better products, and governments quantify the efficiencies of moving away from cash.
Researchers at the Center for Effective Global Action (CEGA) at the University of California, Berkeley are eager to learn from these data. By combining digital transaction histories with survey data collected through experimental field trials, we hope to better understand financial inclusion globally.
The pitfalls of current measures
At CEGA, we believe that current measures of financial inclusion—which rely on potentially biased self-reports of financial behavior—fall short. Households with bank accounts are often considered “banked,” even if members use them sparingly. Regular and sustained use of financial products and services is necessary to fully realize the benefits of financial inclusion. This includes the ability to recover from surprise health expenses and income losses, to make investments to grow income, and to access preventive health care and education.
In a randomized evaluation in Peru, we found that people who were given free bank accounts through a conditional cash transfer program didn’t use them. Traveling to a faraway bank branch to withdraw funds wasn’t worth the high transportation cost. Evidence from the Consultive Group to Assist the Poor (CGAP) and others suggests that social subsidy recipients often cash out immediately, instead of using their accounts for savings and payments as intended.
Numerous barriers are likely to blame. Lack of cards and card readers, low financial literacy, lack of trust in the banking system, and poorly designed financial services all have the potential to leave households “under-banked.”
In 2011, the World Bank’s Global Financial Inclusion Index (Findex) filled a major information gap by asking people how they used financial services (including mobile money), rather than tracking account ownership alone. Yet these data, like other survey data, are subject to reporting bias, limited in scope, and updated tri-annually.
Enter big data
Now, financial inclusion is on the brink of a data revolution. Financial service providers like Visa are reaching more of the world’s “unbanked,” and generating more data on the number, type, volume, and location of transactions in the process. Following strict privacy and confidentiality protocols, these providers are forming new public-private partnerships by making data available to university researchers.
Transactions data can help us track financial inclusion more accurately by revealing the extent to which people use or don’t use their accounts. Similarly, high-resolution transactions data can shed light on what drives certain underserved groups—including women, youth, entrepreneurs, or farmers—to use or not use financial services. Ultimately, this sharpened knowledge of barriers, preferences and behavior should drive better policies, and better financial products and services for unbanked and under-banked households around the world.
This year, CEGA aims to create much-needed linkages between transactions data, government data, and household survey data. In close partnership with Visa, the World Bank, USAID, and other partners, we hope to answer three important questions:
- What does “financially included” mean? We can improve measures of global financial inclusion by incorporating high-resolution transactions data—including account activation, frequency and type of payments—into existing efforts like the World Bank’s Findex database.
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Who benefits from financial inclusion? Tools from computer science, including machine learning—which uses algorithms to learn from large datasets—will help us predict whether someone from a given area or with certain characteristics regularly uses financial services. Banks traditionally use these approaches to detect fraud, but applying these same methods can help researchers identify households in distress, or populations most likely to be unbanked or under-banked.
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What are the welfare benefits of financial inclusion? CEGA’s randomized field trials, with the help of governments and financial service providers, are measuring how well financial inclusion programs actually work. We can use the data from field trials to validate findings from data analytics. Real-world experiments can also show us whether financial products and services help drive economic growth.
Innovative new linkages are forming among different classes of data, and between public and private sector partners. We believe linking different classes of data with deeper research into financial inclusion will bolster the evidence policymakers use to make decisions in the global financial sector.
Carson Christiano is the director of Partnerships and Innovation at the Center for Effective Global Action (CEGA). Paul Gertler is the Li Ka Shing professor of economics at the Haas School of Business at the University of California, Berkeley and scientific director of CEGA. Temina Madon is the executive director of CEGA.
Content on this page is brought to you by Visa, sponsor of the Financial inclusion hub.
