Banking institutions are being encouraged to achieve digital maturity to increase the financial inclusion of vulnerable groups while opening up new business opportunities, according to a digital transformation study.

The study, carried out by IDB Invest and NTT Data, primarily focused on banking institutions in Latin America and the Caribbean.

More than 50 executives from 35 financial entities such as banks, neo-banks, cooperatives and institutions of microfinance belonging to 16 countries were surveyed.

Although the study highlights that 92 per cent of entities have digital channels, such as mobile applications and websites where clients can consult their financial information and make bank transfers, 30 per cent assure that digital clients’ participation is still less than 10 per cent, and only 28 per cent implement options to acquire new products, such as savings or financing accounts.

In the last decade, countries such as Argentina, Bolivia, Brazil, Paraguay and Peru have experienced a significant growth in financial inclusion of more than 28 per cent, as a result of the specific context of each country.

The focus of the entities that offer these services to promote financial inclusion is on the adoption of digital solutions based on online learning and hybrid self-management platforms.

These offer flexibility, autonomy and greater proximity for clients to financial services.

For vulnerable populations, the report highlights that it is key to develop credit or loan simulations that offer an easy way to calculate and personalize products.

It also recommends credit solutions based on prescriptive analysis that allow not only to identify potential customer behaviors and needs, but also to maximize the probability of success of an action, for example, climate stations that consider the particularities of the daily life of indigenous people living in rural areas.

Countries noteworthy for their growth in the digitalization of payments include Argentina, Brazil, Chile, Peru and Venezuela, among others.

These countries have seen a significant increase in the use of digital wallets, mobile applications and online payments, both in commercial transactions and in person-to-person (P2P) payments.

For ethnic groups residing in urban or remote areas, the report highlights that the design of financial products aimed at creating communities, and realizing benefits resulting from savings or investment is key.

These may include voice authentication functionalities and educational resources in the form of videos to overcome illiteracy barriers as part of the solution.

For migrants who have difficulties transferring remittances to their countries of origin, do not have identity documents or credit history, the report proposes addressing the different stages of migration with a focus on remittance products enabled by digital and cross-border channels, including customizing functionalities.

The study highlights the role regulators play in facilitating a regulatory environment that encourages innovation while protecting the rights of vulnerable populations.

Likewise, financial institutions must consider adopting a digital culture and talent management, investing in innovation, delving into analytical data, expanding the reach and availability of products and remaining a digitally relational bank to achieve digital maturity, and thus expand financial inclusion in the region.

This is the third in the series of studies that IDB Invest has carried out to improve digital transformation processes.

The first was in the manufacturing area, followed by agriculture. The third for financial institutions seeks to support them so that they are more competitive and sustainable. An online course on digital transformation perspectives for financial institutions is also included and can be accessed here.

The study was promoted in the context of the launch of FINLAC this month, a new IDB Group initiative to promote financial inclusion by ensuring that the most vulnerable people in Latin America and the Caribbean can access the financial services they need.