Solving the Issue of Financial Inclusion Globally, One Community at a Time
It's a reality that plays out in lower-income households around the United States.
A single mother has to pay her bills, but because she doesn't have a bank account, she doesn't have direct deposit and must take her physical paycheck to a store, paying a substantial fee to cash the check. She then places money orders to pay her bills – more high fees. She buys postage to put the money orders in the mail – more costs.
It's also a reality that, unfortunately, hasn't changed much over the years. Dondi Black, vice president and senior strategist at FIS®, experienced it herself while growing up in rural Tennessee.
Black's mother, a single parent, worked as a teller at a bank. Despite being a long-standing, full-time employee there, she couldn't get a loan at her own bank.
In the U.S., around 7% of households don’t have access to a bank account.
"They were very rigid at looking at what was in her credit file, and the fact she was an unmarried female in early 1970s meant she was perceived as too great a risk for a loan," Black says. "She had no credit history because she wasn't allowed to have it."
Financial exclusion continues to deny millions of U.S. households basic access to affordable, appropriate and convenient financial services. In the U.S., around 7% of households don't have access to a bank account. An additional 20% of "underbanked" individuals have bank accounts but rely on alternative financial services, such as payday lenders and check cashing services.
The problem cuts across gender as well as race and class. Black and women-led families are disproportionately impacted by financial exclusion. Almost half of Black American households are underbanked or unbanked.
The result of so many people being outside of the financial system has substantial negative effects on communities because underbanked and unbanked populations tend to live in the same communities.
"You can often predict where populations of unbanked individuals live because they align with low- or moderate-income communities," describes Black. "Concentrations of unbanked and underbanked citizens and taxpayers speaks to the long-term sustainability of a community, and it needs to change."
Beyond its impact on families and the communities where they live, the problem of the unbanked and underbanked also has economic consequences for the financial industry in terms of lost opportunities for serving a large swath of the population.
In fact, according to McKinsey®, if Black American households had the same access to financial products as white Americans, the financial sector could pull in an additional $2 billion per year. If Black American wealth equaled that of white Americans, the sector could realize $60 billion per year in revenues.
First step to change: financial literacy
Given the impact of financial exclusion on the local communities where the underbanked and unbanked live, it's perhaps unsurprising that local and regional banks are taking the lead in tackling the problem. Industry experts say their work could serve as a model for significantly reducing the problem and its effects on a larger scale.
First Citizens National Bank® in rural Tennessee is tackling financial exclusion by focusing on three pillars: financial literacy, affordability and increasing access through technology.
In Dyersburg, where the bank is headquartered, the poverty rate is 25.1%, more than double the national average. Judy Long, First Citizens National Bank's president and chief operating officer, says her bank sees itself as an extension of the local community that it has served for 130 years.
"Our bank is critical to offer financial services, but we are also critical because of our contributions and goodwill to the communities we serve," says Long. "Not just our money contributions, but the time our staff dedicates to our communities is just enormous."
One way these bankers give their time is by providing free financial education focused on bridging the financial literacy gap for women and preparing younger generations for the future.
"I thought to myself, ‘I am a banker. I have a finance degree. I have been in this industry for more than 40 years, and this is still complicated stuff,'" describes Long. "I spoke to many women who did not have my background, and they didn't know what to do financially. One woman I went to college with, who just finished putting three kids through college on her single salary, told me that she was struggling to avoid bankruptcy at this stage."
After hearing these stories, two years ago Long gathered many of her fellow women colleagues at the bank and formed the Smart Women Program with the goal to help navigate women through their financial challenges.
The timing was fortuitous, coming shortly before a pandemic. The Smart Women Program has helped more than 1,300 participants, some of which were men who also needed the program's courses aimed at retirement planning, finance management and credit score education.
Additionally, First Citizens National Bank has a free educational program that provides financial education to young students. Through Smart Kids®, powered by the youth-focused online financial education service Banzai!®, resources are provided to teachers to help students as young as 8. The courses run through high school graduation, when young men and women find themselves suddenly responsible for making life-changing financial decisions on student loans, credit spending and living expenses.
"We held focus groups at the bank, and we quickly realized that many younger generations didn't know how to – literally – balance a checkbook. They weren't taught those things in school like I was," says Long. "That is why we have always gone out to the classroom to teach them how to manage their finances.
"We do this because we care about the people in our communities. We want them to do well. Because when they do well, we do well, and financial education has a big impact on everyone's success."
The change: affordable, mobile solutions
Yet, literacy alone won't help foster financial inclusion. That's why First Citizens National Bank provides a range of financial services, including small-dollar loans and free cashing of Social Security checks to lower-income customers, bringing financial access closer to those who need it most.
"These services don't make the bank a lot of money, but it is just the right thing to do," says Long. "Not only do we bank local businesses and our largest employers, but we also bank the unbanked through an Easy Access Account®, and we bank seniors without charge. And it is important that these services include free online and mobile banking because almost everyone, even the unbanked, has a phone."
While not extremely profitable, small-dollar lending and other similar financial services have the advantage of helping the bank build long-term loyalty with lower-income families as their financial picture improves.
"Once people have access to these financial tools, we have seen their accounts and our relationships grow over the years," says Long. "We have seen people with $100 account balances grow to $8,000. And as that balance grows, so does the person's ability to get a better loan."
The power of partnerships
Beyond the work of individual banks such as First Citizens National in their communities, experts are encouraged by a growing trend in the country to bring together local governments and community partners, community and regional banks, and technology to provide a systematic approach to tackling the problem of financial exclusion.
Enter initiatives such as Bank On®. Created by the national nonprofit organization, the Cities for Financial Empowerment Fund®, Bank On provides a certified set of standards for banks to offer access to low-cost, robust financial services to unbanked and underbanked Americans.
The Bank On program has become a national movement. More than 60 financial institutions with over 28,000 branches now offer Bank On-certified accounts for low- and moderate-income households. Programs certified as meeting the national standards are available in all 50 U.S. states and nearly every large metro market.
The nation's core system processors, including FIS, are providing the operational backbone for the initiative by simplifying the process for their bank customers to create and offer accounts that meet Bank On standards.
Dondi Black at FIS is already seeing the impact of these programs. She serves on the board of the Memphis branch of Habitat for Humanity®, which builds homes and services mortgages for those in need.
"I can't tell you how many families spend years getting their credit cleaned up so they can prove to Habitat they will be able to pay their mortgage, and at the end of it, they still can't get a bank to open up a checking and savings account for them," she says. "So, we've had to get very creative, and we've found a few partner banks in the community who are also partners with Habitat that said they'd help out. The Bank On program is one of those."
This type of individual change has knock-on effects in communities. Access to banking services, research from the White House shows, improves health, reduces inequality and boosts entrepreneurship. Hence, the effects of increasing access have the potential to make positive transformative impacts in communities.
Black says that while a lot of progress still needs to be made in the area of financial inclusion, she is encouraged by what she is seeing in the financial services industry. Initiatives such as Bank On, or the work of First Citizens National Bank in her home state of Tennessee, remind her why she got into the financial services industry in the first place, despite the struggles experienced by her mother.
"The bank was the power center in the community," she said. "They not only gave people like my mom a job, but they also supported the local school and they helped new businesses. They made it possible for people to build better lives. They helped the community grow, and I wanted to be a part of that. I still do, because I see the potential to make the world a better, more inclusive place."
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