Credit Unions Play a Critical Role in Financial Inclusion

Financial inclusion is a popular cause in the financial industry today, and for good reason. However, very few people working in finance or banking have experienced what it means to be excluded from the financial system. This is a worldwide issue; roughly 1.7 billion adults globally are unbanked according to Findex.

There are plenty of gaps that currently exist when it comes to enhancing financial inclusion in communities. For example, a highly paid executive at a major technology firm in India could decide to move to the U.S., but that executive will still likely face difficulties opening a deposit account because they lack the required U.S. documents.

The world is at a signature moment. Just as economic growth has dramatically reduced global poverty rates, ubiquitous, cheap and connected technology can dramatically reduce financial exclusion rates. It is now up to the industry as a whole to make that happen. Think back to the tech executive from India; the design for inclusion is doable, it’s just a matter of thinking differently about the problem and using the appropriate technology to address it.

Credit unions are uniquely positioned to drive how the financial services industry can better foster financial inclusion. Credit unions operate with their members top of mind, prioritizing personable, altruistic service. The “people helping people” philosophy is inherently a lifeline for people in need. However, they must act fast. Credit unions risk losing potential members as digital accelerates and the rapid rise of fintechs drives the impetus to rethink financial services, even when it comes to inclusion.

Savvy entrepreneurs see an untapped market in the unbanked and the financially excluded, and are responding with innovation. Dozens of startups today, including Slice and Squire, seek to provide affordable financial services to these groups, like low-cost credit cards and all-in-one operations platforms for businesses that often run on a cash basis in impoverished areas.

Another example is Venmo, which is allowing customers who set up direct deposits to instantly access paychecks. Many financial institutions today take multiple days to process these deposits. For the financially excluded, this delay can mean the difference between paying rent on time and incurring a penalty. There are also a number of payment options, including Zelle, that allow unbanked users to instantly move money across borders in relatively small sums without incurring fees.

For credit unions to compete and properly support their communities, they must prioritize financial inclusion initiatives. Leveraging technologies like ATMs, artificial intelligence, mobile apps and more can help drive this mission. Such efforts will not only help stabilize credit unions’ positions in the community, but can reduce fees and interest rates, boost economic growth, and allow credit unions to expand and diversify their member base.

Credit unions can hold the key to unlock financial inclusion. The technology is here. The opportunity is massive. So, how can it be done?

Here are some concrete steps credit unions can take to enhance financial inclusion:

• Remove the usual obstacles. A few common hurdles that stand in the way of low-income members include minimum fee balances, service fees and overdraft fees. In fact, according to the World Bank, the primary reason the unbanked cite for lacking an account is simple lack of money.
• Incentivize mobile banking. According to the World Bank, lower income consumers tend to have a mobile connection rather than home-based internet. Designing mobile banking and financial services products that appeal to the unbanked will reduce exclusion.
• Expand access points to advanced digital services. ATMs are morphing into digital financial services outposts, and as they start to behave more like smartphones and less like giant cash dispensers, regions without robust banking sectors suddenly have an entirely new type of branch that is more accessible and lower in cost. This directly addresses one of the key issues with the unbanked – transportation to a credit union itself.
• Emphasize prepaid products. In 2017, nearly 27% of unbanked U.S. households used prepaid cards, according to an FDIC household survey. Prepaid credit cards or debit cards can offer a secure path to credit histories, which can solve many existing challenges to accessing financial services.
• Find new ways to analyze members’ creditworthiness. Many companies are using AI to create alternative and more accurate creditworthiness assessment systems. For instance, Upstart looks at over 1,000 indicators to assess whether someone is likely to pay their loans back, with a particular focus on identifying people who might not qualify for credit under traditional underwriting processes but are in fact good risks. It’s time for traditional institutions to identify new ways to unlock greater access besides traditional criteria such as credit scores.

Credit unions are in a unique position to break down financial barriers and offer greater access to financial support. By fostering increased access to technology, greater openness in the financial system, and a more robust, fair marketplace for financial products, credit unions can improve lives and jumpstart a once-in-a-generation business opportunity that will benefit society and contribute to overall economic growth.

Ismail Amla is EVP, Professional Services for NCR, an Atlanta-based IT company serving the financial, retail and hospitality industries.

Marija Zivanovic-Smith is EVP, Corporate Marketing for NCR.