Formal account inactivity: a global overview, causes, consequences and effect on financial inclusion

Ozili, Peterson K (2024): Formal account inactivity: a global overview, causes, consequences and effect on financial inclusion. Forthcoming in:

Abstract

It is common to hear the phrase “I have a bank account, but I rarely use it”. This phrase describes what formal account inactivity means. This study explores formal account inactivity and how it is a setback for financial inclusion. This study relies on the technology acceptance model and the technology impact model, and it draws insight from the 2021 global findex dataset. It was found that formal accounts may remain inactive if adults feel that they have no need for an account, or the bank or financial institution is too far away from them, or they don't have enough money to use an account, or they don't feel comfortable using the account by themselves or they don't trust banks or financial institutions. Women, uneducated people, unemployed people, and poor people are more likely to have an inactive formal account than men, educated, employed and rich people. Asian countries (e.g. India, Nepal, Sri Lanka, Lao DPR), African countries (e.g. Ethiopia, Comoros, Morocco), and South American countries (e.g. Ecuador) have higher number of inactive formal accounts. The consequences and costs of formal account inactivity include decrease in the financial and economic empowerment of the accountholder, increased reliance on cash-based transactions, lack of awareness about new financial services and products, increased reliance on exploitative informal financial service providers, decrease in economic growth, insolvency risk for financial service providers, and lower tax revenue for the government. This study contributes to the literature that examines the consequences of financial inclusion.

• Item Type: MPRA Paper
• Language: English
• Keywords: inactive account, formal account, financial inclusion, digital financial inclusion, mobile money account, formal account inactivity
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I38 - Government Policy ; Provision and Effects of Welfare Programs; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I39 - Other

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