Payments Can Change the WorldBy Inigo Rumayor Belausteguigoitia | Thu, 11/19/2020 - 13:00
The last decade, just as many before it, has brought about a great deal of change to our daily lives. Setting aside the obvious implications of coronavirus, innovations in the past decade have changed how we communicate with each other, order food, hire transportation - even how we date! And, more specifically, it has radically changed how people bank.
Consider how the majority of the population would deposit a check in 2010, for example. A person would have to take said check to their nearest bank branch, wait in line, bring the check to the teller and then have the funds transferred to their preferred bank account.
Flash forward to today; people can deposit a check directly from their phone using their banking app. However, nowadays, it is more likely that the person never even received a check. Instead, someone probably sent them a payment via a popular digital payment app, something that didn’t exist 10 years ago.
However, there is one major consideration that is missing from this equation. Although many people have access to modern banking systems and technologies, there are still a great deal of people who do not.
I’ve seen firsthand the impact financial technology can have on a person’s life and it is my firm belief that everyone, everywhere has a right to access it.
Understanding What it Means to be “Underbanked”
People often don’t know what it means to be unbanked or underbanked, as it is not something most people know about unless they have experienced it. Unbanked or underbanked individuals manage their finances through cash transactions instead of traditional financial services methods such as bank accounts, credit cards or loans. This can be due to myriad reasons, such as insufficient banking infrastructure, a lack of convenient or affordable access to banking services, distrust in banking systems or just plain preference for using cash.
The real problem lies within the fact that people who fall into this population are at a disadvantage. They are paying more time and money on financial-related tasks, such as paying bills, securing a line of credit, depositing or cashing a check. For the underbanked population, these things are not just inconvenient and inefficient: they are expensive. In fact, a Financial Health Network report showed that in the US, unbanked and underbanked individuals spent $189 billion in fees and interest on financial-related products.
Beyond this, underbanked and unbanked people run into greater risks when it comes to keeping their money safe and planning for the future. They also don’t have the same access to lines of credit, mortgages or a host of other financial benefits that would help them improve their financial health. Living paycheck to paycheck makes it really hard to save and access cash for the future.
I know this all too well. When I first moved to the U.S., I could not get a credit card and didn’t have enough money to pay the security deposit for my apartment. I applied to every credit card I could find and was only to get a line of credit for $300.
Sizing Up the Problem
It amazes me that in a world where we’ve managed to figure out how to deliver groceries in under an hour, we are still trying to provide people with access to basic financial services. It is very difficult to ignore the gap between the haves and have nots when discussing access to banking.
A 2017 FDIC Report estimated that approximately 8.4 million households in the United States were underbanked. According to the World Bank, approximately 70% of Latin America’s population is underbanked or unbanked. Worldwide, it is estimated that there are 1.7 billion people who are unbanked.
That means nearly a quarter of the world’s population does not have access to a bank account. That may not seem like a big deal but consider how much more difficult it would be to attain financial security and wellbeing if you weren’t able to access banking services?
Many of us take for granted having access to financial service since we have always been in a world where our cash was secure. When we needed a loan there was always someone ready to give it to us. As an immigrant entrepreneur, I have seen how having access to banking services has allowed our company - and me - to take off. Having a loan to go to university changed my life, so I know how it can change the life of others. Helping the underbanked and underserved become part of the system will be a building block for many families looking for opportunities that otherwise would not be available to them. And, having access to the financial system is a fundamental building block of the American Dream.
The Path to Banking the Underbanked
Financial technology holds the answer to solving the challenges of the underbanked. Payments, and more specifically, Payments-as-a-Service (PaaS) has completely changed how financial products and services are created, developed and go to market. PaaS has made it easier for anyone, financial institutions and non-financial companies alike, to launch financial products and services.
The effect: it is much easier for companies to reach and serve customers that have historically had trouble accessing banking and financial services. Now, with the help of fintech, if a customer has a cell phone, they can access banking services directly from the palm of their hand.
We are seeing more non-financial services players expanding into the space and meeting customers where they are, whether they have a bank account or not. These companies recognize they can solve critical challenges for their existing customers and reach new customers who fall outside of the financial system. For example, in Mexico, Walmart launched Cashi, an app that helps shoppers without bank accounts make online payment transactions using Arcus’ PaaS technology. Rappi, an on-demand delivery startup, is leveraging Arcus’ PaaS platform to provide their customers with mobile bill pay services. And, these are just a few examples. There are so many more companies seeing the value in entering the category.
I have said it before and I will say it again: Payments have the power to drive lasting change and improve lives. Financial technology can break down the barriers of the existing failing financial ecosystem and build bridges to connect people to new ones. After all, everyone, everywhere has a right to access exceptional financial services - and we can make it happen.