Figures from the Board of Governors Of The Federal Reserve reveal that 13% of Americans fall into the 'underbanked' category. Put simply, these individuals have bank accounts but often rely on alternative financial services outside of the conventional banking system. Yet, 6% are completely 'unbanked', outside the bounds of traditional banking altogether.
In other words, 1 in 5 Americans make up the underserved financial population. Digital financial inclusion is all about bringing formal financial services into the digital age, making them accessible via smartphones and computers. This modern approach includes everything from digital payments to mobile banking, transforming the way we think about financial transactions (Sahay et al., 2020).
Grab your favourite mug, settle in, and let's explore how FinTech is stirring the pot for the better. For this, we look at the answers to the following 3 key questions:
Now, let’s talk numbers to understand who are the underserved and underbanked:
For those earning less than $25,000 a year, an eye-opening 17% remain unbanked, a stark contrast to the less than 0.5% in the over $100,000 bracket. Age plays a role, too, with young adults aged 18-29 leading the pack at 10% unbanked. Race and ethnicity factor in as well, with 13% of Black and 10% of Hispanic adults not using traditional banks (Tipalti, 2022).
Proper and equitable financial inclusion opens up a world of opportunities for marginalized and low-income individuals by providing access to essential resources like savings, credit, and insurance.
As McKinsey points out, “Financial inclusion is when everyone can access financial services that can help them build wealth, including savings, credit, loans, equity, and insurance.”
But there's more to this story. It's not just about access; it's about the empowerment that comes with it. When marginalized and low-income individuals have the tools to save, invest, and protect themselves financially, they gain a newfound sense of control over their lives. They become architects of their destinies, capable of making informed financial decisions that can shape their futures.
And financial inclusion doesn't operate in isolation - it ripples through communities and economies. When more individuals have access to savings, credit, and insurance, they become more resilient. They can weather economic downturns, invest in education and healthcare, and participate actively in the formal economy.
Traditional banks have long held the keys to financial services. But who has access to these vaults? Not everyone. FinTechs, on the other hand, swing the doors wide open.
Through unprecedented innovation and higher accessibility, FinTechs can offer more accessible, user-friendly, and affordable services than traditional banks, tailored to the specific needs of these underserved groups. Here is how banks, businesses and individuals integrate FinTech:
Banks deploy FinTech for both back-end efficiency and consumer-facing solutions. This includes real-time monitoring of account activity and the seamless experience of checking balances on mobile apps.
Businesses lean on FinTech for crucial functions like payment processing, facilitating e-commerce transactions, and streamlining accounting processes. Additionally, they seek assistance in navigating government aid programs such as the Payroll Protection Program.
Individuals embrace FinTech platforms for everyday tasks like depositing checks via smartphones and accessing funds internationally. Beyond the basics, they explore more complex financial concepts, including peer-to-peer lending and cryptocurrency exchanges.
Frankly, by stepping in, FinTech leaders contribute to greater financial inclusivity and tap into a vast market of potential customers, driving both social impact and business growth. As more people tap into these services, FinTech actively contributes to the economy, boosting savings, fuelling investments, and energizing the entrepreneurial scene.
For FinTech companies willing to bridge this gap for the underbanked and facilitate financial inclusion, here is the game plan:
And as we take our last sips of Fintech Coffee, let's raise a cup to financial inclusion, FinTech, and a brighter, more inclusive financial world!