From sending money to a friend using PayPal to making passive investments with a Robo-advisor, even the most tech-shy person has probably used fintech before. As fintech continues to grow as a popular force within the financial world, it may even replace many of the day-to-day banking services you take for granted.
And it’s all thanks to disruptive startups offering online alternatives to traditional banking. But while these startups offer a convenient alternative for people like you, they provide a rare avenue for the underbanked to achieve financial agency. By serving the underbanked, fintech challenges everything we know about the financial world and has the opportunity to transform it entirely.
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Who are the underbanked?
According to the FDIC (Federal Deposit Insurance Corporation)’s 2015 National Survey of Unbanked and Underbanked Households, 19.9 percent of American households were underbanked. Amounting to roughly 24.5 million people, this group represents those individuals who have a checking or savings account with a typical bank, like Wells Fargo, TD, or Bank of America. Yet despite these accounts, they weren’t able to secure additional financial products like personal loans or investments through these banks.
Why do they shy away from traditional financial services?
There are many reasons why people are underbanked. Many of the underbanked are purposefully locked out of these financial services by banks. These traditional institutions have strict criteria that prevent those with limited or bad credit from taking advantage of typical lending or investment options. Some fail to keep the minimum balance requirements of even the most basic accounts. Others face barriers that prevent them from accessing these branches, as banks are closing their local offices in low-income communities at an increasing rate.
Fintech provides three major online alternatives to the underbanked.
Though fintech varies in terms of services, each company is unified by its commitment to providing convenient, online solutions – many of which rely on automation and machine learning.
#1: Mobile banking
Mobile banking from companies like Chime provides an online platform that consumers can access 24/7. Without a physical branch that its customers have to visit, a mobile bank like Chime gives customers a way to complete common financial tasks anywhere they have Wi-Fi. They can deposit checks and complete e-transfers without relying on an ATM or brick-and-mortar location.
#2: Online direct lending
Similarly, an online direct lender like MoneyKey doesn’t have a local branch in each state. Instead, it offers an online platform that automates much of the borrowing experience. Customers don’t need to physically meet with an advisor and discuss their options. They only need to submit basic financial information over their website, and they could secure an installment loan as soon as one business day once approved. A lender like MoneyKey sends approved installment loans through direct deposits, and its customers repay these personal loans online.
#3: Automated investments
Automated investment apps like Betterment provide the digital version of the typical stockbroker or financial advisor, with fewer fees, less red tape, and less direct involvement on behalf of its consumers. Robo-advisors rely on machine learning to evolve along with the needs and expectations of its customers, offering a hands-off way to invest in a diversified portfolio of ETFs tailored to your risk tolerance. Few companies are like Betterment, which requires no minimum starting deposit, making it possible for those who have relatively small investment dollars a chance to participate.
These services make the biggest difference in underbanked’s lives by offering a way to access banking services, secure cash loans, and create investments. But these changes have a domino effect. Fintech offers innovative fast, convenient, and easy solutions for anyone tired of the traditional banking experience.