Financial exclusion today goes beyond missing credit history. Hidden barriers like high-friction onboarding, weak digital infrastructure, and lender risk aversion keep millions unbanked, even in advanced economies. By redefining trust through consensually shared digital footprints and alternative data, banks and fintechs can improve credit visibility and expand responsible access.
A global problem hiding in plain sight
The reality of financial exclusion is governed by two equally true but seemingly contradictory aspects. The first is that a key obstacle for millions of unbanked and underbanked people is a lack of access to credit, which means they can’t build the kind of credit history that banks assess first when lending. The second is that a lack of credit history, while still incredibly important, is no longer the dominant barrier in perpetuating this exclusion.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
The chief factors currently propping up the global exclusion problem are a sneaky combination of problems that go well beyond credit scores. These include cumbersome onboarding processes, the limited availability of reliable digital infrastructure, and institutional risk aversion. To truly foster worldwide financial inclusion, the industry must abandon long-held assumptions about what exactly constitutes “trust.” It also needs to better understand how technology can be leveraged to bridge the gap for people without formal credit histories.
Although financial exclusion discussions tend to focus on developing countries and smaller economies, it is in fact a serious issue for people living in the most advanced economies in the world. The FDIC in the United States estimates that there are roughly 5.6 million unbanked Americans — a number roughly equivalent to the entire population of Norway or Ireland. A 2021 report found that 13 million people were unbanked in the EU, along with an additional 1.1 million people in the UK. Unbanked populations are everywhere. Only the percentage of the population varies.
Credit visibility is the new credit history
Particularly in developing markets, financial exclusion stems from a lack of visibility. Countries with large portions of their populations working in an informal economy tend to be largely underbanked. These people’s livelihoods are dictated by being paid and paying with cash, receiving remittances from family members overseas, and informal businesses, such as a hairstylist or a tailor serving her immediate neighbourhood and working out of her home.
This kind of informal economy participation is predicated on buying, selling, borrowing, and lending that is not typically reflected in credit scoring models. While credit history is the cornerstone of traditional lending in developed markets, it is a poor fit for the reality of many people in the global south, where cash transactions and unregistered businesses dominate.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataThis is where the question of visibility comes into play. These are individuals who are very much involved in economic development and activity. In other words, their financial invisibility is not an indication of inactivity. Many of them are not only economically involved but digitally savvy and own smartphones. Their financial lives continue online: paying bills, transferring money across borders via apps like Nequi, Pix, M-Pesa, Yape, Mercado Pago, Alipay, Revolut, and using messaging to coordinate with other workers.
This gives them a robust digital footprint—one that is insufficiently leveraged by traditional lending models. Digital activity offers a unique opportunity to provide credit to individuals who are new to formal finance. The challenge is how to convince financial institutions of the trustworthiness of this digital footprint and, by extension, these individuals.
How widening gaps extend exclusion
While digital activity presents opportunities, it also creates barriers. Traditional onboarding processes, essential for verifying a customer’s identity and financial status, often rely on a stable 4G internet connection and digitally verifiable forms of identification. One of the biggest hurdles to financial inclusion is the gap between the technology many consumers already possess (typically smartphones) versus the lack of infrastructure required to use digital financial services effectively. This is all the more pressing for populations in rural areas or lower-income urban neighbourhoods.
While legacy financial institutions have historically relied on onboarding processes predicated on assumptions like high-speed, reliable connections and extensive documentation, the reality in many developing markets has been radically transformed by mobile-first fintech. New digital financial services have largely skipped these complicated, high-friction legacy systems, instead designing incredibly easy, rapid onboarding journeys. This approach prioritizes inclusion by leveraging alternative verification methods such as transaction history from mobile wallets or social identity data, creating a watershed moment that is effectively closing the gap for consumers of varying financial and digital literacy.
On the other side, financial institutions face barriers around risk and trust. Traditional lending models are built on historical data, which is unavailable for many consumers in developing markets. Extending credit to individuals without a formal credit history is a risky proposition for most banks. The result is a reluctance to invest in these underserved markets despite the serious demand for credit. Viewed from above, the risk outweighs the possible benefits.
This creates a vicious cycle. Preemptive risk aversion from formal lenders quashes any incentive to create financial products that can be tailored to the needs of these consumers. Traditional credit scoring models stay in place. Alternative forms of trust go unexplored.
Creditworthiness sees the light
Creditworthiness can be determined by more than just credit history. Data derived from a consumer’s mobile phone activity, transaction behaviour, and even social media presence could serve as proxies. While this approach may not be as established as traditional credit scoring, it offers a way to evaluate risk without relying solely on outdated models. It can also be used as a complement to conventional credit scoring methods, where those are available.
Collaboration between financial institutions and tech companies could help bridge the trust gap. Hybrid systems developed by banks and fintechs that pool expertise and resources, thus allowing consumers to build trust through consensually-shared digital activity. This would not only improve visibility into an individual’s financial behaviour but also offer a path for lenders to offer credit responsibly, based on a broader, more dynamic set of indicators than credit history alone.
Consumers need access to simpler, more accessible onboarding processes that account for the limitations of infrastructure and identity verification. Lenders, in turn, must be willing to adopt more flexible models of trust, leveraging digital footprints and alternative data sources to make informed lending decisions. By rethinking what constitutes “creditworthiness,” we can create an inclusive financial ecosystem that supports both consumers and financial institutions. Breaking the cycle that keeps banks risk-averse and innovation at bay is the only way forward. Virtually every economy around the world—advanced or developing—stands to benefit.
Michele Tucci is the Chief Strategy Officer and co-founder at Credolab
