Payment Innovations Driving Financial Inclusion

For immediate release: September 23, 2019

Financial innovation and technology are allowing people to choose how they pay, using methods beyond cash, check, or card—but whom are the tools reaching? As more people use fintech to pay and be paid, how can the industry ensure that the payment methods are accessible to people who have limited access to banking products?

These questions were the focus of a recent PeachPay meeting at the Federal Reserve Bank of Atlanta. The meeting, titled "Payment Innovations Driving Financial Inclusion," provided insight into how the Atlanta Fed views payments and financial inclusion, presented case studies, and described research into how and when people use cash for payments. It ended with a discussion about the role of innovation hubs and business incubators in linking payments technology to financial inclusion.

Atlanta Fed president Raphael Bostic and senior vice president Mary Kepler opened the event with remarks on the Atlanta Fed's focus on payments innovation and economic mobility. They noted how technological changes increase financial inclusion, which in turn boosts economic mobility. "Fintech products and solutions have the potential to help low-income people better manage financial affairs, improve credit ratings, and access less costly, low-dollar financial services," said Bostic. As an example, he noted that some apps alert people that a payment will trigger an overdraft fee while others provide an option to prepay bills like utilities, allowing consumers to make informed choices about how and when to make purchases or payments.

The first panel featured a discussion of case studies on financial inclusion efforts. One of the panelists, Andrew Dunn, senior data associate at the Financial Health Network (formerly CFSI), discussed a report of his company's research into financial health. The report says that 28 percent of the population are financially healthy; 55 percent are financially coping; and 17 percent are financially vulnerable. Dunn noted that the report also describes how financial institutions can promote financial behaviors that lead to financial health.

Another panelist—Matt Helfrich, senior program analyst at the U.S. Department of the Treasury's Bureau of the Fiscal Service—discussed the bureau's efforts in transitioning benefits payments from checks to electronic. The bureau increased the percentage of electronic benefits payments from 80 percent in 2007 to 98.2 percent currently by educating recipients on the safety of electronic payments and providing unbanked recipients with a prepaid debit card, called the Direct Express Card. Helfrich also discussed the importance of PayPerks, a rewards-based program that the Treasury launched to educate cardholders about financial literacy as well as how to use the Direct Express Card.

Jeffrey Weinstein, senior financial economist with the Federal Deposit Insurance Corporation (FDIC), shared information from the FDIC's most recent National Survey of Unbanked and Underbanked Households. The survey found, for example, that in 2017, 6.5 percent of U.S. households, or about 8.4 million households, were unbanked. Almost 19 percent were underbanked. The survey also found that mobile banking has increased considerably. Further, while the use of bank tellers has slightly dropped, 73.6 percent of banked households used them at least once in 12 months. The 2017 survey also found that even more banked households—86 percent—visited a branch at least once during that same period. Some households may visit bank branches for activities other than accessing an account, such as resolving a problem or asking about products or services, which could explain the larger percentage.

The discussion turned to cash as two Federal Reserve experts discussed how people use it, and what that means to fintech. Claire Greene, a payments risk expert with the Atlanta Fed, said that according to the Atlanta Fed's Diary of Consumer Payment Choice, cash payments declined from 14 per month per person on average in 2016 to 11 per month in 2018. Cash is still preferred for low-value payments, she noted. Oz Shy, an Atlanta Fed senior policy adviser and economist, shared his research on cashless stores, which found that people with lower incomes have less access to payments cards. Shy's research also found that 59 percent of people choose to pay with the instrument they consider the least costly while 64 percent choose what they perceive to be the most convenient method.

The event ended with a discussion on sandboxes and innovation hubs as way to test financial innovations that can help with financial inclusion. Dave Allen, product general manager of innovation and transformation at NCR, said that NCR's use of regulatory sandboxes is not the company's primary strategy because the company creates global products and services, and sandboxes have a limited geographic reach. Tracy Chin, assistant deputy for supervision at the Consumer Financial Protection Bureau (CFPB), said the CFPB seeks technological efficiencies and better compliance while recognizing that risks come with technology. She added that the CFPB looks for ways to connect with other regulators but the focus is on the consumer. Victoria L. Edison, chief compliance officer for the Americas at Ant Financial, stated that, for her company, inclusion means looking at how a tool improves the world for ordinary people who don't have access to financial systems. She offered some insight into Ant Financial's experience in the Hong Kong sandbox, where the company has successfully tested payment innovations, collected data, looked at regulatory issues, and then launched products.

For more information about fintech and financial inclusion, read "Technology Extends Payment Innovations' Reach to Underserved" on the Atlanta Fed's website.

Contact: Marc Fordham 404-498-7324