Financial inclusion is one of the more ambitious goals countries, leaders, businesses, communities, and individuals around the world are trying to achieve. Little by little, financial inclusivity is causing progress to happen in pockets and is making a difference. And it’s all being supported by a mixture of ingenuity, technology and disruption.
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This problem can’t be solved too soon, either. Case in point, look at the high number of people who would be considered unbanked. Around 25% of Americans are either unbanked or underbanked, meaning they have no or limited access to traditional financial systems. While one-quarter of the population is still too high, it’s a smaller percentage than it was a decade ago. Between 2017 and 2019 alone, the number of underbanked people fell by 1.3 million.
Being unbanked, underbanked, or unable to access traditional financing isn’t just a theoretical shame. It creates a multifaceted ripple effect that undermines society in numerous ways. For example, adults without financial accounts don’t have credit scores, making it hard for them to buy cars or start businesses. Plus, without the ability to work with financial teams, households may struggle to grow wealth or set aside emergency or retirement funds.
The good news is that financial inclusion is on the worldwide radar, which means it’s finally getting its fair share of conversation. Yes, we’re still far from achieving a sense of financial equity and inclusivity across all demographics. Yet we’re creeping ever closer to the possibility of truly fair access to everything related to finances. A few important initiatives are helping to drive us forward, as noted below.
Offering Attractive Incentives for First-Time Entrepreneurs Without CEO Experiences
The dream of owning a business can feel overwhelming, especially for those without money to launch a company. Banking platform Nearside is supporting first-time founders by offering loans up to $10,000 without an application credit check. This allows nearly anyone to apply for a Nearside debit card with an unlimited 2.2% cash-back rate on eligible purchases in 2022. Entrepreneurs like perfumer of color Chavalia and Generation Z baker Morgan Davis credit Nearside with helping them realize their visions of starting a business.
Innovative card products have only begun to appear in recent years. Not only are they lowering barriers to entry for dreamers but they’re also helping them steward their resources. At the same time, they’re allowing them to build positive credit histories as they embark on entrepreneurial ventures.
Using AI to Move Past the Need for Classic Credit Scores
From a historical perspective, many people could never get approval for loans because financial institutions considered their credit scores as subprime. Usually, a score of 670 or less indicates that a potential borrower falls into the subprime category. However, credit scores only tell part of the story. AI-powered fintech solutions can paint a more holistic picture of someone who is applying for funding.
Far from being resistant to this change, many businesses are welcoming the opportunity to work with underserved consumers. In fact, financial institutions and lenders are becoming more interested in evaluating borrowers via non-traditional data points. Consider a possible borrower’s rent payment history. A record of paying rent on time can be a meaningful indicator that the payer could be a decent credit risk.
The government has even begun to incorporate different types of verification and evaluation into its lending processes. Fannie Mae has baked rent history into its underwriting. As FHFA Acting Director Sandra L. Thompson has said, “There is absolutely no reason timely payment of monthly housing expenses shouldn’t be included in underwriting calculations.”
Opening the Door to Digital Currency
Many experts feel that the future of money may be paperless and digital. The rise of and interest in cryptocurrency is spurring this feeling that crypto like Bitcoin and Ethereum may become more mainstream within the next generation. One thing’s for certain now: Many professionals in the finance industry are touting digital currency as more inclusive than paper-based money systems.
What makes cryptocurrency more inclusive? For one, investors can come from any walks of life. As BlockFi’s Flori Marquez has mentioned, plenty of crypto investors are new to the investment world. Crypto is the first financial asset they’ve decided to own, perhaps because it’s so easy to purchase and exchange online. Even banks are getting into the crypto act, albeit in smaller numbers. They’re dabbling in bringing crypto services in-house to attract new consumers.
To be sure, cryptocurrency is still in its infancy. Nevertheless, it might provide another avenue to temper the ever-expanding wealth gap. In time, crypto might have an equalizing effect that brings people up from lower-income situations.
Focusing Strongly on Accessible Financial Education
As with any topic, finance can seem complicated to those who have had limited experiences dealing with money. The simplest way to unravel the complexities of finance is through education. And social media is not only a way to provide education but maybe even a path to earning money for anyone.
For instance, take PJ Uscreen founder PJ Taei’s videos. During the pandemic, Taei made a point to help entrepreneurs find ways to monetize live streaming. He shares tips and advice designed to give all budding Creators the insights they need to boost their followings, build their brands, and impress on any budget.
Wells Fargo has announced that some of its bank sites in major metropolitan areas will house HOPE Inside centers. Each HOPE Inside space will offer free financial coaching and resources geared particularly toward the unbanked. Darlene Goins, head of Wells Fargo’s Banking Inclusion Initiative, has gone on record as explaining that “financial education and guidance, and an individual’s sense of inclusion and trust, are all important factors in bringing more people who are unbanked into the formal banking system.”
Bringing Inclusivity Into the Financial Services Sector
A final — and critically essential — means of bringing about financial inclusivity is the movement to hire more diverse financial services personnel. The reasoning is that as more people of color and those from minority backgrounds move into finance, the more welcoming finance will be for all.
Employees who come from marginalized families may be able to introduce new concepts as well, especially if they’re working with people unfamiliar with the problems related to financial inclusion. Consider the recent embrace of personalized money-transfer platforms like Zelle. Providers like Zelle have made quick transfers via smartphones part and parcel of modern living. They’ve enabled people to exchange wealth practically instantly, eroding barriers to rapid money access such as being able to get to a physical ATMs.
To date, the initiative to bring representation into finance has been working, at least on an entry level. More than half of entry-level financial staffers are female. Nevertheless, the positive representative tends to drop off later. At the C-Suite corporate ladder, the number of women of color plummets by 80%. But many people have hope that despite the fact that 77% of certified financial planners are male, the tide is turning.
Financial inclusivity isn’t undergoing an “overnight success” experience. It’s becoming more of a reality with each passing day, though. Each year, more innovations begin to take hold within the global financial community. It’s only a matter of time before all these disruptions add up to one amazing calculation: The access to financial services — and perhaps even freedom — as a human right.
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