For America’s Unbanked, Mobile And Digital Save The Day

For Unbanked, Mobile And Digital Save The Day

A recent Federal Deposit Insurance Corp. (FDIC) study found that the number of unbanked U.S. consumers will likely start rising again as a result of the pandemic recession. Keeping these consumers engaged in the broader financial system is essential to the collective good.

PYMNTS’ November 2020 Disbursements Tracker®, done in collaboration with Ingo Money, states that “FIs that support digital and mobile payment tools could help these consumers access financial solutions without using traditional accounts, but many FIs must address age-old challenges before they can roll out such tools.” What are those challenges?

In a word, “legacy.” Systems, that is. Banks and financial institutions (FIs) have been layering patches and tools on top of outdated core banking systems for so long that it’s become a Frankenstein’s monster of tech entanglement. New approaches are about simplicity.

“FinTechs and third-party services with newer infrastructures and digital payment solutions are in many cases better-suited to serving unbanked consumers’ needs than legacy banks, a developing reality that could lead to significant changes in the financial ecosystem,” per the new Tracker, containing a trove of insights on how FIs are retaining account holders.

Mobile Wallets Get Their Moment

Supplying a much-needed conduit and line of communication with the unbanked and underbanked is the ubiquitous smartphone. Mobile payments capabilities are a prime avenue for this population and others to access hot banking tech, or to just get paid faster.

“It is important for FIs to note that most unbanked individuals have smartphones, even though they may still be wary of traditional bank accounts,” per the Tracker. “Eighty-one percent of U.S. consumers owned smartphones as of 2019, and the use of mobile solutions that do not rely on bank account access — including mobile wallets — is also increasing. Thirty-one percent of U.S. consumers are now using some kind of P2P mobile application, such as Venmo.”

Ingo Money CEO Drew Edwards echoes the sentiment, recently telling PYMNTS, “there is no doubt mobile wallets are already relevant and picking up steam, thanks to the pandemic. PayPal alone has almost 300 million registered users, many of [whom] would be considered unbanked or underbanked. This is leading more of our clients to instruct us to ‘turn on’ PayPal and other wallets in their customer experiences because it is relevant.”

Edwards added that “we see mobile wallets like PayPal as a significant and material component in the future of disbursements and payee choice for all consumers and small businesses, including the unbanked segment. Rather than think of people and businesses as banked or unbanked, I think the new terminology should be ‘digital versus analog’ transactors.”

A Positive Trend In A Tough Year

A focus now on unbanked and underbanked Americans takes advantage of momentum in the digital payments space as more connected and interoperable services come online. Because for those with a smartphone but not a bank account or charge card, life is extra tough right now.

“The number of consumers who are classified as unbanked or underbanked is growing for the first time in several years as the health crisis drives widespread job losses and lowers incomes globally,” per the Tracker. “Many individuals lack emergency savings on which to fall back, with 35.8 percent of all American households stating in one recent study that they were not saving for emergencies. Lacking access to bank accounts is making it more challenging to save.”

Making mobile and digital payments accessible and seamless will go a long way toward financial inclusion in America, while meeting the urgent need for funds during a time of economic difficulty.

“Mobile is becoming the primary way for a rising share of banked consumers to interact with their bank accounts, growing from 15.6 percent in 2017 to 34 percent in 2019,” the Tracker states. “The pandemic is accelerating this growth, with new mobile banking registrations ballooning 200 percent in April, and this trend will likely continue through year’s end.”