Both businesses and consumers are still attempting to deal with the financial hardships brought on by the ongoing pandemic.
In the United States, 8 million consumers have fallen below the poverty line since May, for example, movement that severely reduces the access these consumers may have to financial tools.
Consumers in financial straits may find it difficult to maintain the balances necessary for them to keep their checking accounts open for one example, causing them to become unbanked. The number of unbanked individuals has been declining for years but still represents a significant portion of the global population. In the U.S., 7.1 million households lacked access to bank accounts as of 2019.
Becoming unbanked also means losing access to other credit products or the ability to receive digital payments or disbursements via traditional channels, further reducing the money these individuals can save in an attempt to bolster their financial standing. Finding ways to ensure these consumers can in fact access their funds is therefore critical.
In the November Disbursements Tracker®, PYMNTS examines how the pandemic is reordering the financial ecosystem in the U.S. and why it appears to be pushing the percentage of unbanked consumers up. The Tracker also examines how mobile and instant disbursement tools could be essential to making sure these individuals are still able to participate and transact within the digital banking world.
Around The Disbursements World
The jump in the unemployment rate, as well as that of poverty figures due to the pandemic, will drive up the ranks of the unbanked in the U.S. for the first time in several years, according to a study released by the Federal Deposit Insurance Corp. (FDIC). This represents a noted reversal from trends of the past decade. The percentage of unbanked households in the country had previously fallen to 5.4 percent in 2019, its lowest rate in a decade since the FDIC first began tracking this statistic in 2009. The full extent of the pandemic’s effect on the financial status of many Americans is still unknown. The excepted spike in unbanked consumers is thought to mirror the financial impacts of other similar events to the health crisis however, the report continued, most crucially those of the Great Recession.
The ongoing pandemic is also having a measured effect on the adoption of digital and mobile banking tools, something that could potentially help financial institutions (FIs) keep these unbanked consumers engaged within the wider financial ecosystem. Another FDIC report found that 31 percent of American consumers are now using peer-to-peer (P2P) mobile wallet apps, for example. These P2P wallets allow transactions without traditional bank accounts and could thus be one way that unbanked individuals could transact and receive disbursements digitally. Mobile payments could also come to occupy a more critical role in banking, something that is especially notable as this opens a gate to FinTechs or mobile payment providers to more closely compete with the legacy financial institutions (FIs) offering traditional bank accounts.
Legacy FIs must navigate several challenges to be able to offer mobile payments support with the same seamlessness as third-party FinTechs. One major hurdle is these banks’ continued reliance on legacy infrastructure, which is simply not set up to be able to deal with the processing of such payments on a larger scale. Yet FIs are still reluctant to make sweeping changes here, since that would require reordering how they conduct many of their operations, explained Drew Edwards, CEO of Ingo Money in a PYMNTS interview. Legacy banks looking to compete must therefore weigh that familiarity and the costs of upgrading their infrastructure against the growing number of individuals — unbanked or otherwise — tapping mobile for their financial needs.
For more on these and other stories, visit the Tracker’s News & Trends.
How Phlatbed Is Leveraging Mobile To Ease Unbanked Disbursement Challenges
Unbanked consumers have more access to digital technologies than ever that could help them manage their money even without bank accounts. Yet many of these alternative solutions are running into challenges during the ongoing health crisis, such as prepaid cards. These cards allow unbanked consumers to access money at speed but they often come with limits for how much money can be placed on them at one time.
This means unbanked workers that want wages or other funds sent to these cards need to spend in order to make room for more funds, explained Alani Kuye, CEO of on-demand moving platform Phlatbed in a PYMNTS interview. This month’s Feature Story examines how this effectively halves any benefits attached to prepaid cards, meaning that companies wishing to pay their unbanked workers must find other solutions that allow them to keep the bulk of their funds. This is where mobile devices and wallets could potentially come into play.
To learn more on how mobile devices may be critical to unbanked consumers’ ability to receive disbursements, visit the Tracker’s Feature Story.
Deep Dive: How Supporting Mobile And Instant Disbursements Can Keep Unbanked Customers Digitally Engaged
The pandemic has pushed millions of people below the poverty line in the U.S. alone, limiting their ability to access traditional bank accounts. Much of this is because they may not be able to maintain the account balances required to keep checking accounts at major banks. One study found that 29 percent of unbanked consumers pointed to such balance requirements as the reason they do not have bank accounts, for example.
In this month’s Deep Dive, PYMNTS examines why figuring out ways to keep these consumers engaged is critical and could mean adopting new tools, such as mobile devices to help bring disbursements or payments to the financially disenfranchised with the necessary speed. Registrations for mobile banking have increased over the past few months, such as the use of P2P payment tools that do not require bank accounts and that send funds in real time.
To learn more about why supporting mobile and instant disbursements could enable key financial benefits for unbanked customers, visit the Tracker’s Deep Dive.
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