How Fintech Will Rescue The Underbanked In America
At the start of the year, news of Amazon’s first-ever cashless grocery store, Amazon Go, caused quite a stir. While many Seattle natives looked forward to shopping without waiting in line or scanning items at the cash, critics worried Amazon Go represented a potentially damaging new trend in the economy. As more retailers embrace cashless payments from mobile wallets, millions of Americans who still rely primarily on cash won’t be able to shop freely.
As much as 20 percent of Americans are considered underbanked, underserved, or credit invisible — a denomination that makes it hard to participate in cash-free markets. That’s because many of the country’s biggest retail banks actively discourage the underserved from participating in the financial world. Ignored by these institutions, the underserved’s only hope in engaging in digital payments is through fintech.
Fintech recognizes the niche needs of the underbanked, and they offer alternatives that might be able to save these Americans’ ability to participate fully in the financial world. Here are some of the ways these new companies plan to help them:
1. Mobile wallet platforms
Typically, a mobile wallet—or an app on a phone that facilitates digital payments—syncs with a bank account. Apple Pay, Google Cash, and the Starbucks App let customers transfer funds from their checking account to load digital cash on these mobile accounts. The issue for the underserved is they may not have the traditional bank account that lets them load these services.
Fintech is giving them an alternative way to participate with mobile wallets. Some help those who don’t have access to the Internet, and they include the mobile wallet app owners themselves, like Amazon and Walmart. These retailers offer their cash-dependant customers a way to load their digital accounts with actual cash at participating retailers.
Other fintech companies help those who have access to the Internet but are typically disqualified from the average retail bank. Apps like Chime and Simple offer no-fee, hassle-free online accounts with fewer barriers, giving many of the underbanked a chance at opening a checking account to load their mobile wallet.
2. Online loan lenders
It’s a challenge for the underserved to access financial assistance for many of the same reasons the underbanked are disqualified from opening a bank account. Complex criteria stand in the way of securing personal loans, and branch hours are also an obstacle for those who work unusual hours or who live far from the branch’s location. An online, largely automated platform offers customers of companies like MoneyKey a simple and convenient way to apply for necessary assistance. By simplifying the traditional borrowing experience, these lenders increase the underserved’s opportunity to get help. They can download an app alongside their mobile bank’s app and check in on their status at any step of the online loan process.
3. Opportunities for the credit invisible
There are 45 million Americans who are considered thin-file or no-file consumers. That means they have a limited or nonexistent credit history. Traditional retail banks see this as a warning sign and bar the credit invisible from accessing their full line of services. In reality, many of the credit invisible are financially responsible individuals. Fintech aggregates data differently. They search beyond the traditional credit score and analyze things like transaction history and current financial situations to determine if a consumer is a low-risk addition to their company.
The underserved is a large population ignored or discouraged by the biggest banks in the US. While they may find it challenging to manage their money through traditional streams, fintech offers them an exciting new alternative. Not only will they be able to create a robust mobile wallet for cashless retailers, the underbanked have an opportunity to participate in a variety of financial services with the help of fintech.