Financial inclusion is one of President Lai's major policy proposals, turning the sector into a force for social stability. The Financial Supervisory Commission (FSC) also recently released the 2023 Financial Inclusion Indicators, which showed excellent performance on a number of measures. The number of banks and ATMs per capita exceeded international standards, and the percentage of adults with a bank account reached 92%, much higher than the global average of 76%. After years of progress, it is now easy for the public to access financial services, fulfilling the promise of financial accessibility.

Financial inclusion can be further refined

However, while recognizing Taiwan’s proud achievements, we must also realize financial accessibility has also given rise to a number of new problems. The most worrying of which is the proliferation of financial fraud and the challenge of the Shandao monkeys (moonlighting overdrafts by young people). These have become the tasks if the next stage of financial inclusion.

Our past understanding of financial inclusion was mostly based on service access and coverage, with less attention paid to whether the public had sufficient ability to properly use finance to improve their well-being. Worse still, the promotion and expansion of the use of financial products has resulted in misuse and abuse by those who do not have sufficient ability to understand these tools – for example, encouraging the convenience of buy now, pay later (BNPL) has led to excessive consumption without pain, causing the public to suffer before they can benefit. Therefore, the new government’s goal of promoting financial inclusion should focus on enabling the public to improve their well-being through finance.

The three pillars of financial inclusion

Financial inclusion includes three pillars, as shown in the figure. The first is regulation, which ensures that financial services are not meaningless and unaffordable. The second is consumer protection. We certainly expect financial institutions to be autonomous enough to say that they will treat their customers fairly and act in their best interests, but this is wishful thinking. Consumer protection mechanisms are needed to prevent consumers from being harmed by the use of financial products due to asymmetric information.

Finally, the third and most important pillar is public education. No matter how well consumers are protected, or the strength of regulation, the first two pillars will probably not be of much use if consumers themselves are poorly educated and misinformed. The purpose of public education is to enable consumers to be sufficiently educated to effectively resist fraud. Therefore, better policies in terms of supervision, consumer protection and education will be the key to improving inclusion in Taiwan.

Figure: Strategies for more inclusive growth in Taiwan

Financial literacy is an urgent KPI

Financial literacy is the weakest of the three pillars. At this stage, Taiwan does not suffer from scarcity in financial services, but rather from misuse due to a lack of public literacy. Of course, the lack of financial content in formal education is a problem, but unlike general knowledge subjects, financial literacy is a lifelong training program combining three dimensions: knowledge, attitudes, and behavior. Especially with the development of fintech, financial products and channels are becoming increasingly confusing. Just as exercise is used to maintain physical health, therefore, continuous enhancement of public financial literacy is one of the most urgent issues for financial inclusion.

Modern society has developed a complete financial system which includes four elements, each of whose basic survival condition is trust: financial markets, financial institutions, financial products, and financial services.

In March, TABF President Hank Huang had the honor of participating in a panel on the “feminization of poverty” in New York for the UN Commission on the Status of Women. During his presentation on financial inclusion, he noted the development of “parallel worlds” of haves and have-nots. According to historical experience, a financial system in which some people are served well by financial services while others are excluded from them will only create wealth inequality.

A more inclusive financial sector will help achieve trust in markets, and allow people to invest safely and confidently, which will ultimately lead to financial sustainability and public benefit. It is up to the financial sector to ensure that the benefits of saving and borrowing are felt by all groups in society.

The author is Group Head & Assistant Vice President of the Financial Inclusion Group of TABF