FinTech solutions represent a lynchpin in global financial inclusion efforts, bridging the gap between the underbanked and critical financial services.
Like most people reading this article, you probably rely on a major bank or credit union for most of your financial needs. You carry a typical checking account, hold a line of credit or mortgage, and access a full suite of financial products from big-name branches.
The underbanked represent 13 percent of U.S. adults who are forced to do things differently. While they may hold a checking account with a brand-name retail bank, they seek personal loans and money transfers elsewhere.
Unaffordable fees, bad credit, or geographical constraints disqualify the underbanked from using typical bank services. The need for these services doesn’t disappear with disqualification, so many underbanked individuals seek out payday cash advances and cash-checking businesses in emergencies.
FinTech and crypto services establish another avenue toward financial participation for the underbanked. From credit-inclusive borrowing options to crypto payments, these digital-forward services provide affordable and convenient access to a range of financial activities.
Credit-Inclusive Borrowing
Alternative data may include your income, employment history, and rent and utility payments. While the average phone bill doesn’t impact your traditional credit score, it establishes a record of responsible money management. Under this new system, individuals who don’t have good credit but always pay their bills on time may find it easier to qualify for personal loans.
As FinTech lenders prove they can successfully vet consumers with non-traditional data, other financial institutions may fold these criteria into their own processes.
Crypto Payments and Transfers
For the first time since its inception in 2013, the Federal Reserve includes cryptocurrencies in its Economic Well-Being of U.S. Households. Their findings show that three percent of U.S. adults rely on cryptocurrencies for purchases and money transfers.
While this number may represent a small portion of the population, the underbanked are more likely to rely on transactional use of cryptocurrencies than fully banked consumers. Moreover, 6 in 10 transactional users of crypto make less than $50,000.
For those who are underbanked due to their location — that is, they live too far away from a branch or lack reliable transportation — cryptocurrencies offer a convenient alternative.
Cryptocurrencies also provide a low-cost way to transfer money across borders. While most mainstream financial institutions slap transfer fees on international money orders and transfers, cryptocurrencies apply minimal costs and insignificant holds, if any.
FinTech and Crypto Will Shape the Future of Banking
FinTech solutions and crypto payments show promise for financial inclusion. With alternative data opening borrowing options and international crypto transfers reducing transaction fees, these digital services provide a convenient alternative to mainstream banking.
For the underbanked, these additional options may complement their traditional bank accounts, empowering them to participate fully within the financial world. But the fully banked will benefit from these growing services, too. As FinTech and crypto become more profitable, traditional banks will be forced to adopt similar policies and services.