CATAYLZING INCLUSION: FINANCIAL TECHNOLOGY & THE UNDERSERVED
Cataylzing Inclusion: Financial Technology & the UnderservedCATAYLZING INCLUSION:FINANCIAL TECHNOLOGY &THE UNDERSERVEDL u cy G o r h a m & J e ss D o rran ceAU G U ST 2 017
TITLEUN C Ce n te r for Co m m uni ty Capi tal
ACKNOWLEDGMENTSCataylzing Inclusion: Financial Technology & the UnderservedThe Center for Community Capital thanks JPMorgan Chase &Co. for their generous support of this research. Additionally, theauthors wish to thank everyone who so generously offered theirtime and perspectives during the course of our interviews for thisreport. We would also like to thank Sonia Garrison, Erika Brandt,Ashley Tucker, and Jennifer Rangel for their research contributionsand Julia Barnard, Eileen Harvey, and Audrie Lathrop for theireditorial and graphic design assistance.The views and opinions expressed in this report are those of theCenter for Community Capital and do not necessarily reflect theviews and opinions of JPMorgan Chase & Co. or its affiliates.The Center for Community Capital is a non-partisan, multi-disciplinaryresearch center housed within the University of North Carolina at ChapelHill, and is a leading center for research and policy analysis on the powerof financial capital to transform households and communities in theUnited States. It is part of the University of North Carolina at ChapelHill’s College of Arts and Sciences.The center’s in-depth analyses help policymakers, advocates, and theprivate sector find sustainable ways to expand economic opportunity tomore people, more effectively.ROBERTO G. QUERCIADIRECTORLUCY S. GORHAMEXECUTIVE DIRECTOR3
TABLE OF CONTENTS07E X E C U T I V E S U MMA RY13OV E RV I E W18T H E E ME R GE NC E o f F inte ch i n Co nsume r Fi nanci alS e r v ice s in a Glo b a l Context24T H E P OT E N T I A L fo r Co nsume r-Faci ng Di gi talTe ch n o lo g y to E x p a n d Fi nanci al Incl usi o na n d C a p a b ilit y fo r U n d e rse rve d Co nsume rs24Profiles of the Unbanked and Underbanked25The Reasons Consumers Give for BeingUnbanked or Underbanked26What Underserved Consumers WantFrom Financial Services Providers30Consumer Access To and Use Of DigitalFinancial Services35The Potential Advantages of MobileFinancial Services for the Underserved40Barriers Impacting the Adoption of FintechUN C Ce n te r for Co m m uni ty Capi tal
Cataylzing Inclusion: Financial Technology & the Underserved445F I V E K E Y I NV E ST ME N TS Ne e de d to Re al i ze thePo te n t ia l o f Dig it a l F inanci al S e rvi ce s toI n cre a s e F in a n cia l I n clusi o n4448Expand Research and Investment on Fintechfor the UnderservedBuild Nonprofit Capacity60Increase Access to Broadband andMobile Technology60A Balanced Regulatory Landscape thatProtects Consumers and SupportsInnovation61Modernization & Increased Security63CO N C LU S I O N64REFERENCESUN C Center for Com munit y Cap it al
TITLEUN C Ce n te r for Co m m uni ty Capi tal
EXECUTIVE SUMMARYCataylzing Inclusion: Financial Technology & the Underserved7THE PROLIFERATION of technology innovations from both incumbent, or established, financialservices providers and new entrants to the industry have enormous potential to expand financial healthand inclusion. This important opportunity can lower costs, improve transparency and convenience,and give low- and moderate-income (LMI) consumers greater control over their finances. However,progress towards these goals is not inevitable. Public, private, and nonprofit sector actors will need tocollaborate in order to prioritize inclusive development within the financial services sector.This paper explores the potential for technology innovation in the financial services sector – fintech– to increase the financial well-being and inclusion of American households and communities. Bysynthesizing research from every corner of the field and establishing an overview of low- andmoderate-income consumer needs, this paper identifies both the barriers and the opportunities facingfintech providers.Unlike many parts of the globe where consumer bankingTHE PR OLIFER ATION OF F IN T ECHis just emerging, the United States possesses a matureIN N OVATION S FR OM B OT Hbanking infrastructure accessible to most, though not1IN CU MB EN T FIN A N CIA L SERV ICESall, consumers and geographies. Despite the widespreadPR OVIDER S A N D N EW EN T RA N TSpresence of consumer financial services providers andTO THE IN DU STRY HAVE T HEproducts, however, a large share of American consumersPOTEN TIA L TO EXPA N D F IN A N CIA Lremain underserved. According to the Center for FinancialHEA LTH A N D IN CLU SION.Services Innovation (CFSI), the underserved include 91million consumers with low-to-moderate incomes, 51million struggling with volatile incomes, 121 million who are credit-challenged, and 67 million who areunbanked or underbanked.2 Beyond the financially underserved, CFSI also estimates that approximately57 percent of Americans – 137 million consumers – are financially unhealthy, meaning they struggle tomanage their day-to-day finances, establish a savings cushion, and take steps to ensure their financialsecurity and mobility.3The United States also stands out when compared with other advanced economies in the share ofthe bottom 40 percent of households with a bank account compared with the remaining 60 percent.According to the World Bank: “In Canada, France, Germany, Japan, and the United Kingdom there is nosignificant difference in account penetration between adults in the poorest 40 percent of householdsand those in the richest 60 percent – and the share of adults with an account exceeds 95 percent in thepoorer group. In the United States, by contrast, the data show a gap of 11 percentage points in accountpenetration between the two groups, with only 87 percent of adults in the poorer group having anaccount.”4See, for example: Friedline, Terri, Mathieu Despard, and Stacia West. “Navigating day-to-day finances: A geographic investigation ofbrick-and-mortar financial services and households’ financial health.” Lawrence, KS: University of Kansas Center on Assets, Education &Inclusion (AEDI). 2017; Morgan, Donald, Maxim Pinkovskiy, and Bryan Yang. “Banking Deserts, Branch Closings, and Soft Information.”Liberty Street Economics, Federal Reserve Bank of New York. March 7, 2016.2The FDIC reports that according to their 2015 survey, 7 percent of all U.S. households – approximately 9 million households with 16.5million adults – lack a checking or savings account (the unbanked). An additional 19.9 percent of households – approximately 24.5 million households with 51 million adults – rely on non-bank providers of financial services, even though they possess a bank account (theunderbanked) See: FDIC. “2015 FDIC National Survey of Unbanked and Underbanked Households .” October, 2016. P.13.3Gutman, Aliza., Thea Garon, Jeanne Hogarth, and Rachel Schneider. “Understanding and Improving Consumer Financial Health inAmerica.” CFSI. 2015. Accessed on-line: f4Demirgüc-Kunt., Asli., and Leora Klapper, Dorothe Singer, and Peter Van Oudheusden. “The Global Findex Database 2014 – MeasuringFinancial Inclusion around the World.” World Bank Policy Research Working Paper 7255. World Bank Group. April 2015.1
EXECUTIVE SUMMARYFinancially underserved households often pay a highprice for the financial services they do use. Accordingto the Center for Financial Services Innovation (CFSI),“Financially underserved consumers in the U.S. spentapproximately 141 billion in fees and interest during2015 to borrow, spend, save, and plan across 28 financialproducts in this diverse and continually growingmarketplace.”5 These costs in fees and interest paid bythe underserved undermine their financial stability andthat of the communities in which they reside. On the flipside, these costs paid by underserved consumers mayrepresent a significant untapped market for financialservices providers – traditional and non-traditional, forprofit and nonprofit – that can better meet the financialmanagement needs of the underserved and thoseworking to improve their financial health.effectively takes advantage of both the brick-and-mortarinfrastructure embodied by the home bank’s branchesand account safeguards such as customer identificationregulations that the home bank must meet.While the fast pace of change in the financial serviceslandscape requires regulators to update their oversightof non-bank providers of financial services, currentlyinnovators are able to take advantage of this openingand benefit from the cost savings.The focus on fintech aimed at personal finance orbusiness to consumer (B2C) services reflects twofactors. The first is that business systems and practicesOn the consumer side, fintech has the potentialto expand access to safe and affordable financialservices to more people. The advantages of theseinnovations include lower costs for services driven bygreater efficiencies and targeted marketing, improvedtransparency about product and service terms andcosts, greater financial control, faster and/or real-timedeposits and expenses reflected in account balances,new products and services specifically aimed at theunderserved, and improved safety and security of funds.All of these fintech advantages have great potentialand already benefit many consumers, including thosewho are currently underserved. Nevertheless, in theUnited States, the share of the consumer “bankingwallet” migrating to digital channels for all consumers,not just the underserved, is still estimated to be small – 1percent in 2016.8 However, analysts expect that shareof the consumer banking wallet to grow rapidly to 10percent by 2020.9 Already in 2016, 71 percent of accountholders reported using online banking, while 38 percentreported using mobile financial services.10can take longer to migrate to new opportunities thanindividual households who may find improvements intheir customer experience, a lower price, or access to aproduct or service that was not previously available. Thesecond is that, on the provider side, fintech innovatorscan offer products and services that sit atop existingfinancial services platforms, thus taking advantage ofavailable infrastructure without having to bear the costof duplication. For example, a fintech app from a nonbank provider that links to an existing bank accountWith the development and adoption of fintech ata flexion point, it is unclear whether fintech willfundamentally alter the financial inclusion landscape inthe United States. One possibility is that a combinationof weaker consumer regulations and a push towardsinnovation directed at the middle and higher endsof the market to underwrite the investment costsof implementing digital services will result in anincreasingly complex and confusing array of productsThere is one promising global trend that may assistfinancial services providers in expanding financialinclusion: fintech – the use of innovative technologydriving consumers and businesses towards digitalplatforms such as online and mobile banking. Globally,the investment going to private fintech companiesincreased ten-fold between 2010 and 2015, increasingfrom 1.8 billion to 12 billion.6 By far, the lion’s shareof these investment dollars – 73 percent –went to firmsand products targeting both the personal and small-tomedium enterprise (SME) sectors.7CFSI. “2016 Financially Underserved Market Size Study.” December 21, 2016. Accessed online: -underserved-market-size-study/6Citi GPS: Global Perspectives and Solutions. “Digital Disruption: How FinTech is Forcing Banking to a Tipping Point.” March 2016. P 4. Accessed online June2016: yo8Fn5CQ%3d%3d7Ibid.8Ibid.9Ibid.10Board of Governors of the Federal Reserve System. “Consumers and Mobile Financial Services 2016.” March 2016. Box 2. “Banking Status and the Use of MobileBanking and Payments – continued.” Figure A. Phone ownership by banking status and Figure B. Mobile banking and payments use by banking status. Page 11.5
Cataylzing Inclusion: Financial Technology & the Underservedand services, some of which the underserved will findhelpful but many of which they may find challenging tonavigate safely. If so, we will squander the opportunityfor fintech to play a catalytic role in expanding financialhealth and inclusion.But another possibility is that new collaborationsamong a diverse array of partners – incumbent financialinstitutions, fintech innovators, nonprofits, and thepublic sector – can transform the financial serviceslandscape and allow fintech to emerge as a true catalystfor meaningful improvements in financial inclusion. Wehighlight several such collaborations in this report. Toaccomplish this transformation, we argue that private,public, and philanthropic investments are needed in fivekey areas:1Expanded research and investment in fintechinnovation targeted specifically to the needs ofthe underserved and those wanting to improvetheir financial health;2Greater investment in the capacity of those partsof the non-profit and public sectors that areworking directly with the underserved to link themto appropriate financial products and services, toincrease their digital literacy, and to improve theirfinancial health;3Greater access of the underserved to reliable andaffordable digital technology, including universalbroadband and mobile technology;45An updated regulatory landscape that bothprotects consumers and allows for controlledexperimentation; andImprovements to the banking system, specificallya) modernization that allows faster payments andposting of deposits; and b) universal adoptionof enhanced security to address widespreadconsumer concerns about the safety of digitalfinancial services and provider concerns aboutfraud and increased levels of risk.9We believe that significant investments in these fiveareas could help to build a financial ecosystem thatbetter meets the needs of the underserved, as well asassist those struggling to reach or maintain financialhealth. However, it would be naive to think that animproved financial services landscape, in and of itself,can turn the tide for many households who mustdeal with increasingly volatile incomes, inadequateand stagnating wages, declining access to workplacebenefits such as retirement, sick leave, and healthcare,and a fraying social safety net. We cannot ignorethe broader context of what needs to be achievedto enable American households to avoid financialinstability, undermining their prosperity and that of theircommunities.This report examines the potential of fintech to increasefinancial inclusion. High-level findings are presentedin the areas of fintech investment trends, fintechadoption trends, American fintech adoption in a globalperspective, consumer views of the evolving financialservices landscape, barriers to fintech adoption, and thepotential of fintech and nonprofit partnerships.FINTECH INVESTMENT TRENDSRather than fintech companies creatingwholesale disruption, industry experts expectthat partnerships between fintech innovators andincumbent financial institutions will dominatethe future of the industry; nevertheless, fintechcompanies will change the ways that financialinstitutions do business in both the short- andlong-term.Many incumbent financial institutions havereduced their branch banking infrastructure insome areas of the country, but in others haveactually expanded branches as a customeracquisition strategy, particularly in wealthier cities.Globally, the investment going to private fintechcompanies increased ten-fold between 2010 and2015, increasing from 1.8 billion to 12 billion.UN C Center for Com munit y Cap it al
EXECUTIVE SUMMARYFINTECH ADOPTION TRENDSAdoption of digital financial services has beenfastest among consumers who are digitally-savvy,young, urban, and better-educated. Genderdifferences appear to be minimal, though this is anarea that deserves further research.A growing share of consumers now access theirfinancial information through mobile technology,and a growing share of consumers use mobilephones as their primary or sole means to accessthe internet.Despite an accelerated move to digital financialservices, consumers still want to be able to accesstheir financial institutions in multiple ways andacross multiple platforms, including meeting withsomeone in person to address problems or receiveadvice.AMERICAN FINTECH ADOPTION INA GLOBAL PERSPECTIVEIn terms of overall consumer adoption of mobileand online financial services, the United States is inthe middle of the pack when complared with partsof Asia, Europe, and Africa.In some parts of Europe, particularly in Sweden,the adoption of digital banking has been spurredby significant, long-term public investments inbroad-band technology and consumer access toaffordable computing technology. India providesanother example of this public-sector investmentstrategy in an emerging financial services system.Many view an accommodating regulatory systemin the U.K. as a key factor in spurring innovationamong its fintech firms and a model that othercountries should consider for adoption, includingthe United States.The U.S. fintech industry holds advantages inaccess to talent, capital, and consumer demandwhen compared to other parts of the globe.UN C Ce n te r for Co m m uni ty Capi talCONSUMER VIEWS ON THE EVOLVINGFINANCIAL SERVICES LANDSCAPEConsumers perceive incumbent financialinstitutions, fintech companies, and non-profitintermediaries as each possessing advantagesand disadvantages in meeting the needs ofunderserved consumers and each having animportant role to play in scaling up financialinclusion. Each category of institutions has muchto gain from collaboration.Consumers feel that non-bank fintech providershave an edge in the following areas:o Speed and ease of account openingo Convenienceo Faster access to account informationo Affordabilityo Fewer fees or no fees, greater transparencyo Innovative consumer interfacesConsumers feel that traditional financial servicesproviders have an edge in the following areas:o Security of account information and fundso Ability to receive one-on-one supporto In-person account openingo Variety of products availableConsumers feel that nonprofit financial servicesproviders have an edge in the following areas:o Higher trust-factoro Ability to receive one-on-one supporto Ability to combine financial services withother programs, such as affordable housingor workplace services
Cataylzing Inclusion: Financial Technology & the UnderservedBARRIERS TO FINTECH ADOPTIONDistrust of digital channels is fading, butconcerns related to the security of personalinformation persist and some consumers,especially non-English speakers and immigrants,remain suspicious of products and tools notoffered through familiar financial institutions,organizations, or trusted intermediaries.A lack of knowledge about a growing andcomplex landscape of available options can leaveconsumers feeling paralyzed about using any ofthem without in-person assistance to pick andchoose something that will meet their needs.The lack of a guided onboarding process cannegatively impact take-up when consumers faceuncertainty at any point during the enrollmentprocess.Issues related to data plans on mobile devices andreliable internet access create hurdles for someLMI consumers that limit their ability to take fulladvantage of some fintech products and tools.Consistent demand for cash drives consumers toutilize options like check cashers where they canget access to their paychecks immediately.Many fintech products are not adequatelydesigned for people with disabilities, meaning thatthose with visual or other impairments are oftenunable to use these tools.Many consumer
“Consumers and Mobile Financial Services 2016.” March 2016. Box 2. “Banking Status and the Use of Mobile Banking and Payments – continued.” Figure A. Phone ownership by banking status and Figure B. Mobile banking and payments use by banking status. Page 11.
May 02, 2018 · D. Program Evaluation ͟The organization has provided a description of the framework for how each program will be evaluated. The framework should include all the elements below: ͟The evaluation methods are cost-effective for the organization ͟Quantitative and qualitative data is being collected (at Basics tier, data collection must have begun)
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Dr. Sunita Bharatwal** Dr. Pawan Garga*** Abstract Customer satisfaction is derived from thè functionalities and values, a product or Service can provide. The current study aims to segregate thè dimensions of ordine Service quality and gather insights on its impact on web shopping. The trends of purchases have
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Chapter 3 Financial Inclusion – Conceptual and Analytical Framework 3.1 Concept of financial inclusion 17 3.2 What is financial inclusion and/or financial exclusion? 18 3.3 The role of rural banks in boosting financial inclusion and promoting access to credit facilities in unbanked locations within Ghana 20
4 full financial inclusion can only be achieved when the users of financial services "not only have access to a range of financial services but are able to use them regularly as well".7 Financial literacy has been recognized as a key driver for financial inclusion,8 and has been incorporated as an integral part of the financial inclusion policy agenda of many countries.
