Access to a bank account remains out of reach for 40 million Europeans. Increasingly, this means they’re unable to participate in the mainstream economy. Could enabling them to pay online using cash help close the gap?
Dark side of the e-commerce boom
Poundworld. House of Fraser. Bench. These are just three high-profile retail brands in the UK that have gone into administration in 2018.
It’s no secret that brick-and-mortar stores are battling an unfavourable climate. Meanwhile, eCommerce seems to be thriving at their expense. Forrester reckons online sales growth in Europe is outstripping brick-and-mortar retail 10 to 1 and will account for €378 billion sales a year by 2021.
What’s bad news for brick-and-mortar retailers is often touted as a win for consumers. Indeed, it’s consumers themselves who are driving eCommerce growth. Buying online is often cheaper, quicker and more convenient. So it’s no surprise that, when we interviewed 5056 people across the US, Canada, UK, Germany and Austria, 58% told us they prefer to shop online.
But while e-commerce is undoubtedly empowering consumers, it’s also having an unexpected downside.
Whether your preferred online payment method is a credit card, debit card or mobile wallet, this often presupposes access to a bank account. And where does this leave the 40 million Europeans who don’t have one?
Financial inclusion in Europe: a state of the union
For many of the unbanked, lack of access to a bank account is often a vicious cycle.
To open a bank account, you need money, proof of ID and proof of address. But while this may seem straightforward, complying with one, two or even all three requirements can be unexpectedly challenging, especially for migrants and underserved communities.
In the UK, for instance, with no ID card system in place, most banks require a recent utility bill, Council Tax bill or bank or credit card statement as proof of address. It’s unlikely most newcomers to the country would have any of these documents. And, seeing as it may be difficult to obtain them without a bank account in the first place, this can place them in an insurmountable chicken-and-egg situation.
Even where bank account penetration is high, access isn’t a given. Case in point, Denmark, which topped the World Bank’s list in terms of accounts per citizen in 2017, only ranked 18th in terms of access on BBVA’s multidimensional index of financial inclusion. The reason? A dearth of physical bank branches in easy-to-reach locations. So whilst account ownership is currently healthy, it is not difficult to envisage a future where this isn’t the case.
The rise of the gig economy and its impact on financial inclusion
Lack of access to physical bank branches may not seem like a deal-breaker in the age of mobile banking. In fact, as more and more consumers are taking to their smartphones to manage their financial lives, banks are choosing to shrink their brick-and-mortar footprint, with 6,000 branches closing down across the EU in 2017 alone.
But the unintended — and often overlooked — consequence of this digital progress is that a growing chunk of the population is being shut out of the financial system. Lack of access is no longer an issue only for those with no bank account. It’s also affecting the exploding community of ‘gig economy’ workers.
Leaving aside irregular and unpredictable income, which can preclude access to financial products such as credit cards, many gig economy workers are predominantly paid in cash. In the UK alone, the Taylor Report, an independent study commissioned by the government, estimates that up to £6 billion worth of wages are paid in cash each year.
Bank accounts: only one piece of the puzzle
Over the past decade, the EU has made a huge push towards financial inclusion, including putting rules in place that give its citizens the right to a basic bank account.
Measures such as these are undoubtedly important, especially in an age where we’re shopping online not just for luxuries, but also for essential everyday items, including groceries. Otherwise, the gap between the digital economy and those who can participate in it risks turning into a chasm.
But are more bank accounts the only answer? According to a report by the UK Financial Inclusion Commission, probably not.
The Commission’s findings paint a stark picture. 50% of the unbanked don’t want a bank account. And at least 15% of the newly banked close or abandon their account because they lose more in fees and charges than they gain by having it. These findings are echoed by the ATM Industry Association, which notes that the cost of maintaining a bank account can make having one financially unviable.
More importantly, though, it’s not just about having a bank account. Access is just as important. With the number of physical bank branches continually dwindling — making it more difficult to convert cash into a digital format — it’s simply not practical for many to participate in the online economy unless they can somehow use their cash online.
Moving forward: the role of cash in promoting financial inclusion
In the payments space, the death of cash is often considered a foregone conclusion. An event that’ll happen sooner, rather than later.
But the truth is that cash is far from dead. In the UK alone, 2.7 million people rely almost entirely on cash. And, across the EU as a whole, 68% of transactions are still paid for using notes and coins.
With this in mind, and given that the global e-commerce market set to grow by US$4878 billion by 2021, cash has a crucial role to play in promoting financial inclusion. By providing a simple, safe and flexible way to pay with cash online, we can bridge the gap between unbanked and underbanked consumers and the online marketplace that’s an increasingly essential part of the mainstream economy.