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.With these accounts in tow, you are considered a fully banked consumer according to the Federal Reserve <a href="https://www.federalreserve.gov/publications/files/2021-report-economic-well-being-us-households-202205.pdf" rel="noopener noreferrer nofollow">Economic Well-Being of U.S. Households</a> report — just like 81 percent of adults in the U.S.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.In many cases, the underbanked do so because they must — not because they want to. According to the <a href="https://www.jec.senate.gov/public/index.cfm/democrats/2022/8/people-of-color-and-low-income-communities-are-disproportionately-harmed-by-banking-and-financial-exclusion" rel="noopener noreferrer nofollow">Joint Economic Committee</a>, Black, Hispanic, and low-income consumers are disproportionately more likely to be underbanked. These financial inequalities can be traced back to redlining, a discriminatory practice that excludes entire neighborhoods due to their racial demographic. Although redlining is now illegal, its legacy <a href="https://www.cbsnews.com/news/redlining-what-is-history-mike-bloomberg-comments/" rel="noopener noreferrer nofollow">still impacts these communities today</a>.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.<h2 id="header-0">Credit-Inclusive Borrowing</h2>Whether you try to <a href="https://www.moneykey.com/online-loans/" rel="noopener noreferrer nofollow">get your next loan online</a> or in person at a bank, you have to fill out an application. This document releases your personal information, giving your lender data they need to perform a background check on your financials. They weigh your current financial abilities with your past borrowing experience to determine your creditworthiness.Many traditional banks rely heavily on your <a href="https://www.investopedia.com/fico-credit-scores-explained-5072985" rel="noopener noreferrer nofollow">FICO credit score</a> to make this decision. While they may look at other financial stats during the approval process, they require a minimum score from their consumers. If you fall below this benchmark, you may not be approved for the loan amount you want — and they may deny you entirely.The underbanked often carry bad or thin credit that disqualifies them from <a href="https://www.investopedia.com/terms/p/prime.asp" rel="noopener noreferrer nofollow">prime lending</a> opportunities with traditional banks. With a rejection in hand, they may feel as though payday lenders, check-cashing services, or pawn shops are the only other options.These alternative financial services provide high-cost payday loans that can be difficult to repay on time, trapping bad credit borrowers in debt cycles. According to <a href="https://www.pewtrusts.org/~/media/assets/2013/02/20/pew_choosing_borrowing_payday_feb2013-%281%29.pdf#page&#61;10" rel="noopener noreferrer nofollow">the Pew Charitable Trusts</a>, a whopping 80 percent of borrowers roll over their loan because they can’t repay what they owe within the typical two-week period.A corner of the FinTech industry aims to lower credit barriers that force some consumers into these debt cycles. Online direct lenders, the major credit bureaus, and other FinTech service providers use innovative software platforms that leverage <a href="https://www.experian.com/blogs/business-information/2021/10/20/what-is-alternative-and-non-traditional-data/" rel="noopener noreferrer nofollow">alternative credit data</a> to redefine creditworthiness.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.<h2 id="header-1">Crypto Payments and Transfers</h2>Whether you’re an avid investor yourself or just someone who keeps track of <a href="https://www.barrons.com/articles/bitcoin-crypto-markets-today-dc325890" rel="noopener noreferrer nofollow">crypto in the headlines</a>, you may consider these decentralized digital assets as investment opportunities first, payment methods second. These priorities flip for the underbanked.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.Thanks to their decentralized nature, cryptocurrencies are easier for people to access, no matter where they live. The same can’t be said for low-income people relying on mainstream banks, as many retail <a href="https://www.cnbc.com/select/bank-closures-hurt-consumers-what-you-need-to-know/" rel="noopener noreferrer nofollow">branches shutter locations</a> in lower-income neighborhoods in record numbers.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.This process can be a boon to underbanked individuals and immigrants who have family living in other areas of the world and who rely on them for income. Fast and reliable income remittance can provide <a href="https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Remittances" rel="noopener noreferrer nofollow">a lifeline</a> for developing countries.<h2 id="header-2">FinTech and Crypto Will Shape the Future of Banking</h2>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.

Inclusive Banking with Fintech and Crypto: A Win for the Underbanked?

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