Focusing on Financial Inclusion
How Financial Institutions Can Better Support Financial Inclusion and Wellness
The pandemic has underscored many issues and gaps within the financial services industry. For banks and credit unions, a key concern is how to help ensure that some consumers (and potential customers and members) are not left behind – or ultimately left out – when meeting their financial needs. And while financial institutions may look towards developing these capabilities internally, there are also a host of emerging fintechs and businesses specializing in financial wellness and inclusion that can provide institutions with an effective way to meet demand and address the problem head-on.
The Push for Inclusion
Regarding financial inclusion, banks and credit unions today tend to fall into one of three general categories:
- Those that already work directly with underserved and underbanked communities. They have extensive, first-hand experience of these customers and members' financial issues and needs and are usually actively engaged with them regularly.
- Those institutions that recognize the problem and feel compelled to address it but have yet to act in a meaningful way. Often, this group wants to actively seek ways to support and/or create programs to address the problems, and their efforts can sometimes become a more significant driving force behind the FI’s overall mission.
- FIs that, while recognizing the problem exists, may only approach the issue in light of public concern or scrutiny, which can then run the risk of being perceived as "virtue signaling" by many.
The challenge for those FIs that want to act is identifying how to better serve the financial needs of underbanked and/or underserved consumers in a risk-responsible way that enhances their experience; effectively meets their needs and establishes and builds trust. Serving these markets best may mean that institutions initially provide more value to the relationship than they are pulling out, but they recognize this as a good investment for the future.
For example, payday lenders often serve this very community, but their rates and fees tend to be very steep, and their practices can sometimes border on unethical. Community financial institutions represent a much better alternative yet may have penalties of their own related to services (i.e., minimum balance requirements, etc.) that prohibit engagement. Regardless of the reasoning, these factors can create a barrier for those who want -- and need -- a relationship with a bank or credit union, which only exacerbates the underbanked issue.
The Next Generation
The shifting demographics of today’s population are impacting how the industry views this problem. As the years pass and more members from the younger generations become account holders (and bank and credit union employees), this gradual shift brings new perspectives. Many Millennials and Gen Z consumers feel as if they are not entirely set up to be financially successful over time and are generally more empathetic to those who would currently be classified as “underbanked” as a result. Additionally, these younger generations of customers and members have demonstrated a propensity toward choosing providers who demonstrate a clear commitment to corporate social responsibility and contributing to what they view as the social good.
The Rise of CFDIs
In many areas, community development financial institutions (CDFIs) are fulfilling this need. With a focus on social responsibility, these institutions tend to serve more rural, often poorer, communities, offering much-needed opportunities for those communities to have access to banking accounts and loans.
According to data from the Opportunity Finance Network, there are currently over 1,100 CDFIs operating across the country, managing more than $222 billion in assets. While not all these institutions function as banks and credit unions, they all can offer the underbanked better solutions to fit their needs. In addition to the direct consumer services, many CFDIs also support financial literacy and inclusion by acting as sponsor banks for fintechs producing technology to address these issues. Both Sunrise Banks and Central Bank of Kansas are great examples of CDFIs that support fintechs in this way, further helping the underbanked customers in their communities.
Having a tangible presence in the community is a crucial first step. In many of the underbanked markets, options such as check cashers and payday lenders are more common than bank and credit union branches. What’s more, these businesses are often more accessible to the community through extended service hours or providing....-->
How Financial Institutions Can Better Support Financial Inclusion and Wellness
The pandemic has underscored many issues and gaps within the financial services industry. For banks and credit unions, a key concern is how to help ensure that some consumers (and potential customers and members) are not left behind – or ultimately left out – when meeting their financial needs. And while financial institutions may look towards developing these capabilities internally, there are also a host of emerging fintechs and businesses specializing in financial wellness and inclusion that can provide institutions with an effective way to meet demand and address the problem...