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November 15, 2023
Exploring the transformative impact of financial inclusion strategies and why it is the need of the hour.
Most of us take our bank accounts and access to all its features for granted. Banking is so standard that we don’t even give it a second thought. But if we pause, we will understand how necessary it is, in a world driven by the rhythms of finance, for the banking system to lend out its deposits and help jump-start new businesses. It is also crucial for monetary stability and growth.
However, in the United States, not everyone can afford an entrance ticket that guarantees financial inclusion. A considerable part of the population is either unbanked or underbanked.
It is essential to make these services universally accessible. Doing so will allow for economic growth and individual empowerment, ensuring everyone gets a fair share of the financial pie.
Before we get to financial inclusion strategies, let’s get a clear picture of the American banking challenge. According to the Federal Deposit Insurance Corporation (FDIC), an estimated 5.4% of US households were unbanked in 2019, translating to roughly 7.1 million people having no checking or savings account at a bank or credit union.
Furthermore, about 18.7 million US households were underbanked in 2021, meaning they had a bank account but used nonbank financial products and services during the year. This disparity highlights the pressing need for financial inclusion strategies in the United States.
Access to banking services empowers individuals with the tools to save, invest, and protect their hard-earned money. It allows entrepreneurs to secure capital, families to achieve financial goals, and communities to thrive.
From limited access to income disparities and technological gaps to credit histories, the barriers to financial inclusion are as diverse as they are impactful. To dismantle these obstacles, we must first understand them.
In a digital world, millions of people still rely on physical bank branches to conduct their banking. And having limited access to said branches can leave them disconnected from essential financial services.
Low-income individuals face several financial hurdles, such as high fees, minimum balance requirements, and credit limitations. That makes banking an unaffordable or inaccessible world for them.
Only some have access to or are well-versed with digital tools. As personal finance shifts online, it excludes those without digital literacy.
Limited or poor credit histories can be a significant roadblock when accessing credit, preventing individuals from getting loans, credit cards, or mortgages.
Some individuals, especially those homeless or without a permanent address, may struggle to meet the customer identification requirements essential to open a bank account.
Those whose first language isn’t English, especially immigrants, can struggle with language and cultural differences. As a result, both net banking and personal banking become much more challenging to navigate.
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And finally, financial illiteracy is one of the significant setbacks people face when making informed banking decisions and utilizing services effectively.
The mobile banking revolution has changed the game regarding expanding access to banking services, not only in the USA but around the world. According to the Federal Reserve’s Survey of Consumer Payment Choice, 60% of Americans are comfortable using mobile banking with apps like Venmo and Zelle, making it easy for them to send and receive money. Mobile tools are vital to bringing convenience and enhancing financial accessibility, making banking more accessible than ever.
Digital payment platforms have taken the world by storm. In a report published in 2021, Statista found that more than four out of 10 US smartphone users had used contactless payment at least once.
PayPal, an app with more than 400 million active accounts worldwide, has given countless individuals the freedom to shop online, transfer money, and manage their finances on their phones. And during the pandemic, mobile wallet apps like Apple Pay and Google Pay became standard options for daily transactions.
CDFIs play a crucial role when it comes to addressing financial inclusion barriers. Such community-based financial institutions are certified by the US Department of the Treasury. They can offer banking services, loans, and financial counseling to underserved communities.
The fintech industry has not only changed the market but also brought innovative solutions to the financial services sector. Platforms like Chime, Varo, and SoFi create access to no-fee banking, high-yield savings accounts, and easy access to credit. According to a survey conducted by Ernst & Young in 2019, 64% of consumers have used two or more fintech services or platforms.
The government has been doing its part by launching several initiatives encouraging financial inclusion. The Community Reinvestment Act (CRA), enacted in 1977, supports banks in meeting the credit and banking needs of their communities, including low- and moderate-income districts.
Another national initiative is Economic Impact Payments, commonly known as stimulus checks, which get distributed to citizens to provide financial relief during difficult times.
Then, there is also Bank On, which encourages banks and credit unions to offer safe, affordable financial services to unbanked and underbanked individuals. The initiative includes 38 programs across the country.
In cities like San Francisco and Los Angeles, Bank On programs have seen thousands of residents open their first bank accounts. This has improved the financial skills of underprivileged individuals and shown them new economic prospects. Such stories showcase how grassroots efforts transform the financial trajectory of the country, one bank account at a time.
These initiatives have not only changed the lives of individuals but also expanded the economic horizons of communities. In cities and districts that have accepted these programs, small businesses have seen a massive boom, and job opportunities have multiplied. This, in turn, has raised the standard of living for entire neighborhoods, creating a positive growth effect.
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.
Arya Chatterjee is a freelance writer and consultant from Mumbai. With a background in journalism and over five years of creative writing experience working with legacy media like Architectural Digest and Femina India and brands like The Label Life, ThinkRight.me and Macy's, she crafts unique and compelling stories that engage the readers. She enjoys writing about health, beauty, fashion, and lifestyle and exploring the symbiotic relationship between thriving businesses and happy employees through her writing. She is always looking to explore new avenues to expand her creative energy.
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