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By Heather KrauseGiving more people access to financial services&nbsp;<a href="https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1436&amp;context=intl" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">is making inroads</a>&nbsp;in the fight against poverty and&nbsp;<a href="http://bruegel.org/wp-content/uploads/2018/01/WP_Financial-Inclusion-Income-Inequality4.pdf" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">inequality</a>. Yet, access is just the first step in financial inclusion. To ensure that financial access leads to better financial health and contributes to overall economic growth, countries must turn their attention to boosting actual use of those accounts.As we covered in a&nbsp;<a href="https://www.mastercardcenter.org/insights/reducing-gender-gap-financial-inclusion" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">previous post</a>, the&nbsp;<a href="https://globalfindex.worldbank.org/" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">World Bank Findex</a>&nbsp;data released in April shows that the proportion of people with formal financial accounts is increasing globally. What isn’t talked about as much is the proportion of people who actually use those accounts.&nbsp;Globally, about 20 percent of all people who had an account in 2017 did not use it at all.&nbsp;That’s one in five adults with “inactive accounts”—accounts not used for even one deposit or withdrawal. This represents a 5 percent increase from 2014.&nbsp;

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Rates of inactive accounts increased in South and East AsiaBetween 2014 and 2017, only two global regions, South Asia and East Asia, had growing rates of people who do not use their accounts.In South Asia, we found an increase in account ownership of about 6 percent, but that was accompanied by a 3 percent increase in unused accounts. East Asia saw a 1 percent increase in the number of people who have an account, but a 2 percent increase in the number of people who do not use their accounts.South Asia had the highest percentage of inactive accounts in 2017, largely driven by India, where 80 percent of adults have accounts, but almost half of them were not used at all.&nbsp;<a href="https://www.microsoft.com/en-us/research/wp-content/uploads/2010/12/The-Bank-Account-is-not-Enough-Examining-Strategies-for-Financial-Inclusion-in-India.pdf" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">India</a>&nbsp;is a bit of an outlier, probably due to the government’s push for universal financial access. India did increase the share of people who have accounts by 26 percent from 2014 to 2017, but almost two-thirds of those accounts were thought to be inactive.Access and usage on the rise in Sub-Saharan Africa and Eastern Europe/Central AsiaIn Sub-Saharan Africa and Eastern Europe/Central Asia the rate of new accounts increased by 8 and 10 percent, respectively, and the rate of people actively using their accounts increased by 3 and 16 percent, respectively, meaning that these two regions were the most successful in increasing both account ownership and account usage. Belarus, for example, saw a 10 percent increase in accounts and a 20 percent increase in account usage.&nbsp;

Account usage can be linked to more equitable income distributionOur analysis shows that places with a greater proportion of active accounts have become more equitable in terms of income distribution. Increasing rates of active accounts are more strongly correlated to increases in income equality than to increases in account ownership. Between 2014 and 2017, a 10 percent increase in a country’s rate of account ownership was related to a 1 percent increase in income equality in that country, as measured by the&nbsp;<a href="http://hdr.undp.org/en/composite/IHDI" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Atkinson inequality index</a>&nbsp;used by the United Nations. A 10 percent improvement in the proportion of account owners who actually use their account was related to an increase in income equality of almost 5 percent. When that change happened among the poorest 40 percent of account holders, the increase in income equality was almost a full 10 percent.Although no research exists that can prove a causal link between account usage and more equal income distribution, we do find a significant correlation between positive changes in both indicators, which points to a likely virtuous cycle between changes in both account usage and more equitable income distribution.Higher literacy rates are evident in many countries with higher account usageUnsurprisingly, poor, rural, less educated and female account owners were the least likely to have active accounts. Interestingly though, Latin America/the Caribbean and Eastern Europe/Central Asia appear to be making progress in the rate of active account usage among lower-income account holders. These regions have higher literacy rates than in South Asia.&nbsp;<a href="https://www.sciencedirect.com/science/article/pii/S2210656113000615?via%3Dihub" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Literacy</a>&nbsp;could be a key factor in whether the ownership of a&nbsp;<a href="https://link.springer.com/chapter/10.1007/978-3-319-07635-5_47" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">bank account</a>&nbsp;can be an&nbsp;<a href="http://www.careevaluations.org/wp-content/uploads/evaluations/linkup-final-report-march-2017-vf.pdf" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">effective</a>&nbsp;financial inclusion tool for the beneficiary.Government transfers and other digital transactions are linked to more regular usage by account ownersOne of the most effective ways to drive usage is for governments to directly transfer their payments into people’s bank accounts. Countries that have the highest rates of using direct government transfers into accounts saw some of the largest increases in active account usage among their most vulnerable people. These countries include Turkey, Kuwait, Belarus and France. Overall, countries with 1 percent higher rates of government direct deposits to vulnerable account holders saw an 8 percent improvement in rates of active account usage. In addition to increasing active accounts, these transfers have the added benefit of being&nbsp;<a href="https://www.nber.org/papers/w23252" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">linked</a>&nbsp;to increases in household savings.A second potential solution involves moving to digital transactions. In developing economies, where the rates of active accounts are lowest globally, 24 percent of people with an inactive account had a mobile phone, including 66 percent in India. In our next blog, we’ll focus on how mobile phone penetration, digital payments and emerging markets can work together to increase financial inclusion and resilience in vulnerable populations.Author Bio:&nbsp;Heather Krause, PStat, is a data scientist specializing in analyses for the social sector. She uses modern tools and technology to find data stories that move people. Her work has been part of FiveThirtyEight, the Bill and Melinda Gates Foundation, Orb Media, The Guardian, the BBC, and many other global social sector organizations.

A new analysis of Findex data shows where account usage is on the rise and where it’s lagging — and how increasing account usage is linked to less income inequality.


Findex Snapshot: Where Bank Account Access is Leading to Use