Technology can indeed close financial gaps in Colombia

I want to make my debut in this space of La Silla Vacía's Expert Network by sharing that this week, Banca de las Oportunidades (BDO), led by its director, Paola Arias, presented the latest data and progress on financial inclusion in Colombia for the year 2023.

BDO has become one of the main sources of information for understanding how Colombians use financial services and for projecting what still needs to be done in Colombia. Here are some comments on what these data mean for the country.

"The task of access is done," said Paola Arias during the presentation of the data. She was referring to an astonishing fact: 94.6% of the Colombian population is banked, meaning they have at least one financial product. The predominant product is the traditional savings account. However, low-value deposits, which include entities like Nequi, Daviplata, and Movii, now account for 27.5 million users.

What's most impressive about the low-value deposits data is that from 2022 to 2023, 4 million people obtained a new digital wallet. This is closely related to the fact that digital wallets have been adding more and more services, such as cards, smart pockets, loans, and more.

After the pandemic, the government of former president Iván Duque announced that the country had achieved 100% coverage, which is true but comes with complications. For instance, according to BDO's report, on average, Colombians have a banking correspondent within less than 1 km of their location.

Although the number of banking correspondents, card readers, and QR code payments has increased in Colombia, bringing more options to Colombians across the country, it's still concerning that there remains an almost immovable gap between financial services in rural areas and urban centers.

The positive side is that many entities are working precisely with that focus, to name a few: USAID, the United Nations Development Program (UNDP), Banco Agrario, Agrapp, BDO itself, and Bancolombia with its "Bancolombia a la Mano" account.

The future of financial inclusion lies in technology. I say this because, despite these advances and challenges, there is one piece of data that I believe is the most important and could lead to real 100% financial coverage.

In 2019, only 23% of transactions were made through electronic means, but in 2023, this figure rose to 63%. On top of that, most transactions in Colombia are made electronically, while physical channels are declining.

Moreover, it is essential that more and more people use their cards to make payments, not just to withdraw cash. The key to success in the digital financial sector is precisely that: creating a real incentive for people to keep their money in their accounts or use it digitally instead of withdrawing it. This way, it will be safer for users, and it will help discourage the use of cash, which is closely linked to informality and illegal economies.

However, the state and institutions will have to do their part. It must be ensured that individuals and businesses can transfer money between banks and digital wallets immediately and securely, and that users' information is at their service, not at the service of financial institutions.

The Central Bank will launch its immediate payment system in 2025, and it must be a channel that ensures everyone can be a part of it. It is crucial to eliminate any barriers and avoid falling into the concept of "walled gardens." With this, we could practically eliminate cash, and there would no longer be an excuse not to transfer money to your friend when they pay the bill, even if they use a different institution.

Although traditional banks have made significant efforts with applications like Transfiya, obstacles remain for users unfamiliar with these types of transactions. The key is for services to be intuitive and immediate, so that BDO's data continues to be increasingly positive.

Spanish version