Data and AI as the Key to Unlocking Financial Inclusion

Of the many things one might take for granted, access to banking and financial services may not immediately come to mind. But as a thought experiment, imagine trying to buy a home or a car without the ability to take out a loan. Try depending on cash payments from your employer, or relying on alternative banking solutions like short-term payday loans, check-cashing services, and prepaid debit cards.  

This may not seem like a reality to you personally, but as I noted in a previous blog, for the 1.7 billion adults worldwide who do not have access to formal financial services, it is very real and presents massive challenges to driving economic development and poverty reduction.

Lack of access to financial services and lack of education (inclusive of financial education) are two of the leading contributors to global poverty. Poverty affects us all, both socially and economically, not just the poor. According to the Center for American Progress, “The costs to the US associated with childhood poverty total about $500 billion per year, or the equivalent of nearly 4 percent of GDP.” 

They state the annual effects of childhood poverty:

  • Reduces productivity and economic output by about 1.3 percent of GDP
  • Raises the costs of crime by 1.3 percent of GDP
  • Raises health expenditures and reduces the value of health by 1.2 percent of GDP (source: CAP)

Providing affordable and accessible financial services to underserved or low-income individuals and communitiesand empowering them with the resources they need to improve their economic well-beingis a problem that institutions need to more aggressively solve and it can be solved with data, and the will to succeed. 

Data plays a pivotal role in the path to achieving financial inclusion. In this blog post, we’ll explore why financial inclusion makes good business sense and how data and AI are vital to transforming access to financial services.

Business reasons for financial inclusion

In addition to a compassionate desire to elevate people from all social and economic strata, institutions should pursue financial inclusion for several compelling business reasons. 

First, promoting financial inclusion can lead to regulatory and governmental incentives or grants, including tax benefits or favorable regulations. Collaborating with governments and international organizations on financial inclusion initiatives can enhance reputation and create new opportunities for growth and innovation. For instance, the UN’s 2030 Agenda for Sustainable Development has identified 17 goals for sustainabilityand this can’t be highlighted enoughof which financial inclusion is “positioned prominently as an enabler in eight of the 17.” Financial institutions that implement 

Second, by engaging previously untapped markets, financial institutions can expand their customer base, which can lead to increased revenue and profitability. 

Finally, it enhances customer loyalty and trust, as clients who feel supported in their financial journey are more likely to remain loyal to the institution.

Making data and AI work for the underserved

By leveraging data and emerging technologies that analyze it more comprehensively and efficiently, financial institutions can expand their reach to underserved populations, improving financial inclusion and empowering individuals with greater access to economic opportunities and financial stability.

Here are some real-world ways data and AI can serve the underserved.

Predictive analytics for targeted outreach: Understanding how individuals and communities conduct business and interact with financial services is key to making the greatest impact on the underserved. Data and AI can help financial institutions identify potential communities that are currently underserved by analyzing demographic, geographic, and behavioral data. They can target outreach efforts to reach these underserved populations with micro-branches as well as appropriate financial services and educational resources.

Learn how JP Morgan Chase is “combining business, data, policy, and philanthropic resources, to improve housing affordability and stability as well as homeownership opportunities for Black, Latino, and Hispanic households in the greater Washington, DC area.”

Credit scoring and risk assessment: Traditional credit scoring models rely on narrow and limited financial data, making it difficult for individuals without a well-established credit history to access loans or other financial products. AI algorithms can analyze a broader range of data sources, including non-traditional data like mobile phone usage, utility payments, and social media activity, to assess creditworthiness beyond credit history. This enables financial institutions to extend credit to a wider range of people, including those previously considered high-risk.

Read how Bank Rakyat Indonesia leveraged Cloudera to build an agile and reliable predictive augmented intelligent solution to enhance its credit scoring system.

Simplification of the application process: AI can play a significant role in helping underserved communities complete applications for financial services by guiding applicants through the application process and breaking it down into easy-to-understand steps while explaining complex financial terminology. AI-driven tools and apps can provide educational content to improve financial literacy, helping users better understand the implications of their financial decisions. They can also provide real-time translation services when one’s native language is not an option on the application. AI can assist in verifying and processing necessary documents by scanning, recognizing, and validating IDs, income documents, and other paperwork. AI algorithms can also analyze an applicant’s financial situation and offer personalized advice on which financial products or services suit their needs.

Cloudera Data Platform (CDP) has been instrumental in helping financial institutions take steps to address financial inclusion in underserved communities. CDP is a full data life cycle, hybrid data platform that enables banks to store, process, and analyze large volumes of data, including both structured and unstructured data, in a single, integrated platform. With CDP banks quickly and easily access the data they need to better understand the financial needs and behaviors of underserved communities, and design financial products and services that meet their unique needs.

Learn more about how Cloudera is helping the financial services industry here.

Joe Rodriguez
Sr. Managing Director, Financial Services
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