This week the Bank of Canada published a paper exploring the financial inclusion issues a potential CBDC needs to address. It identified significant barriers affecting rural populations, indigenous communities, low income families and those with disabilities. In contrast, an earlier paper questioned the need for a Central Bank Digital Currency (CBDC), arguing that a CBDC was unlikely to improve unmet payment needs. While the two papers sound contradictory, the latest research emphasizes that there are still inclusion needs, not across the general population but within these specific groups.
As the use of cash has declined, from 53% of transactions in 2009 to 21% in 2021, the typical metrics used to assess financial and digital inclusion – access to a bank account and access to the internet – can obscure more nuanced circumstances impacting accessibility. For example, the population of unbanked adults in Canada is around 2%. However, this proportion is significantly higher amongst low income groups.
Research has shown that under-banked Canadians (those who have a bank account but still face barriers) are more likely to rely on fringe financial services, such as payday lenders and cheque cashiers. These services charge significantly higher fees to clients already likely to have lower incomes or be financially vulnerable, putting them at a further disadvantage.
This is often caused by limited financial literacy and a general lack of trust in traditional financial service providers. The latest staff paper found that low-income groups in Manitoba, especially those from indigenous backgrounds, are more likely to turn away from traditional financial services towards fringe banking because of past discrimination. It also found that only 24% of households in Indigenous communities have access to high-speed internet.
Internet use by people over the age of 65 is approximately 28% lower than the Canadian average. Another issue with digitalization is cognitive load. On the one hand, it can make life easier by removing the need to count change. But complex user interfaces can be challenging. And that’s not just for the elderly.
Many in the digitally excluded group will access online banking and shopping services via public libraries, making them extremely vulnerable to criminal activity.
The paper outlined three distinct categories of inclusion: financial inclusion, digital inclusion and accessibility. Many of these factors are obviously beyond the control of central bankers. However, as financial products and services become increasingly digitalized, modern financial inclusion will require both education and further digital inclusion.
The report concluded that a CBDC could help to address many of these issues. In order to do so, it must be developed and introduced strategically into the existing payments ecosystem to maximize inclusion and avoid replicating existing barriers.