Financial inclusion is a popular cause in the financial industry today, and for good reason. However, very few people working in finance or banking have experienced what it means to be excluded from the financial system. It’s a global problem; According to Findex, approximately 1.7 billion adults worldwide are unbanked.
There are currently many gaps in improving financial inclusion in communities. For example, a highly paid executive at a large tech company in India might decide to move to the US, but that executive will likely still have difficulty opening a deposit account because he lacks the required US documents.
The world is at a signing moment. Just as economic growth has dramatically reduced poverty rates around the world, ubiquitous, cheap, and connected technology can dramatically reduce rates of financial exclusion. It is now up to the industry as a whole to make this happen. Think back to India’s tech executive; designing for inclusion is doable, it’s just a matter of thinking differently about the problem and using the right technology to address it.
Credit unions are uniquely positioned to determine how the financial services industry can better support financial inclusion. Credit unions operate with their members in mind, prioritizing personalized and selfless service. The philosophy of “people helping others” is inherently a lifeline for people in need. However, they must act quickly. Credit unions risk losing potential members as digital accelerates and the rapid rise of fintech provides the impetus needed to rethink financial services, even when it comes to inclusion.
Savvy entrepreneurs see an untapped market in the unbanked and financially excluded, and respond with innovation. Today, dozens of startups, including Slice and Squire, seek to provide affordable financial services to these groups, such as low-cost credit cards and all-in-one operations platforms for businesses that often operate in cash in poor areas.
Another example is Venmo, which gives customers who set up direct deposits instant access to paychecks. Many financial institutions now take several days to process these deposits. For those financially excluded, this delay can mean the difference between paying rent on time and incurring a penalty. There are also a number of payment options, including Zelle, which allow unbanked users to instantly transfer money across borders for relatively small sums without incurring any fees.
For credit unions to be competitive and properly support their communities, they must prioritize financial inclusion initiatives. The use of technologies such as ATMs, artificial intelligence, mobile applications and many others can help achieve this mission. Such efforts will not only help stabilize the position of credit unions in the community, but can also reduce fees and interest rates, stimulate economic growth, and enable credit unions to expand and diversify their base of members.
Credit unions may hold the key to unlocking financial inclusion. The technology is there. The opportunity is enormous. So how can this be done?
Here are some concrete steps credit unions can take to improve financial inclusion:
- Remove common obstacles. Common obstacles that get in the way of low-income members include minimum fee balances, service fees, and overdraft fees. In fact, according to the World Bank, the number one reason unbanked people don’t have an account is simply because they don’t have enough money.
- Encourage mobile banking. According to the World Bank, low-income consumers tend to have a mobile connection rather than home Internet access. Designing banking products and mobile financial services that appeal to the unbanked will reduce exclusion.
- Expand access points to advanced digital services. ATMs are transforming into outposts of digital financial services, and as they start to behave more like smartphones and less like giant ATMs, regions without a strong banking sector suddenly have a whole new kind of branch which is more accessible and less expensive. This directly solves one of the key issues with the unbanked – transportation to a credit union itself.
- Choose prepaid products. In 2017, nearly 27% of unbanked U.S. households used prepaid cards, according to an FDIC household survey. Prepaid credit or debit cards can provide a secure path to credit history, which can solve many existing problems in accessing financial services.
- Find new ways to analyze member creditworthiness. Many companies are using AI to create alternative and more accurate credit scoring systems. For example, Upstart looks at more than 1,000 metrics to assess whether someone is likely to repay their loans, with a particular focus on identifying people who might not be eligible for credit as part of the loan repayment processes. traditional underwriting but which actually present good risks. It’s time for traditional institutions to identify new ways to unlock better access in addition to traditional criteria such as credit scores.
Credit unions are in a unique position to break down financial barriers and provide greater access to financial support. By fostering increased access to technology, greater openness in the financial system, and a more robust and fairer marketplace for financial products, credit unions can improve lives and launch a once-in-a-generation business opportunity that will benefit society. and will contribute to overall economic growth.
Ismail Amla is Executive Vice President of Professional Services for NCR, an Atlanta-based IT company serving the finance, retail and hospitality industries.
Marija Zivanovic-Smith is executive vice president of corporate marketing for NCR.