Reaching the unbanked has become more important than ever as payment methods evolve.
In the past, it was not uncommon for people to be paid cash for their work. But as businesses and employers turn to digitized payments, such as direct deposit and ACH transfers, employees who were previously paid in cash must find other ways to receive their payments.
More than 7 million Americans fall into the “unbanked” category, which means they don’t have a checking or savings account with a bank or credit union, according to the Federal Deposit Insurance Corp.
Unbanked or underbanked people tend to use alternative (and more expensive) forms of financial services, such as check-cashing stores, payday lenders, and money orders to meet their monetary needs.
Since there are still huge segments of society that do not have a formal bank account, one of the best solutions for this is the accessibility that technology offers. Another thing to consider is that financial inclusion will also play an important role in the new economy once the current pandemic is over.
Using open APIs that allow third-party developers to build applications and services around the financial institution will provide options for financial transparency to account holders ranging from open data to private data.
During the wave of fintech innovation that has occurred over the past decade, innovators have been able to dispense with meaningful access to financial data and the processing ecosystem. Most of the value in North America has actually been created through basic tricks like screen scraping, as opposed to the nationally open banking programs you see in other countries. .
There has been a wide range of market-driven initiatives recently to create a platform for a North American version of open banking, and we’re seeing that progress happening more quickly.
After more than a year living in a digitally driven world, the next wave of innovators in America is eager to create new disruptive innovations. The better we provide them with the building blocks, the sooner they can contribute to our collective economic recovery through increased financial inclusion through more affordable solutions.
Open banking requires customers to give their consent before a bank can expose their data, which gives them control. Being transparent helps build a stronger relationship between all stakeholders in the ecosystem.
Initiatives like open banking would help unlock this kind of data for consumers and share it with other potential lenders. These solutions will also alleviate the technical burden of underbanked users and eliminate the need for them to have access to a computer (they can perform most of their banking transactions using a mobile phone).
The way to challenge the current situation is to allow innovation and inclusion without creating unnecessary barriers. This means that regulators urgently need to bring the unbanked or underbanked into the larger financial ecosystem as they continue to develop open banking rules. The pandemic has highlighted how crucial it is for regulators and merchants to support payment methods accessible to those without traditional bank accounts.