At the Intersection of Fintech and Financial Inclusion


Jean Roark: Hello, and welcome to the Federal Reserve Bank of Atlanta's Talk About Payments webinar. Today we'll discuss fintech and financial inclusion. I'm Jean Roark from the Federal Reserve, and I'll be your facilitator. Before turning our call over to the speakers, I'll run through our call logistics on slide two.

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So with all those logistics out of the way, it's my pleasure to turn our call over to Nancy Donahue.

Nancy Donahue: Thank you, Jean. Hello, and welcome to another episode of the Atlanta Fed's Retail Payments Risk Forum Talk About Payments webinar. I am Nancy Donahue, project manager with the Retail Payments Risk Forum, and this afternoon we are discussing the role financial technology, or fintech, plays in financial inclusion.

With me today is Catherine Thaliath, project management expert in the Risk Forum with me, and also Dr. Sophia Anong, associate professor in financial planning, housing, and consumer economics at the University of Georgia.

Catherine and Sophia, good afternoon.

Sophia Anong: Good afternoon.

Catherine Thaliath: Good afternoon.

Donahue: Sophia, thank you for taking the time to join us for today's conversation. Please tell our listeners a little bit about yourself and your area of research.

Anong: Thanks for having me, Nancy. Well, I'm originally from Zimbabwe, and I went to school there. I have a background in agricultural economics, which I studied in Zimbabwe at the undergrad level, and then I came over to the United States and did a master's in agricultural economics. And then for my PhD, I transitioned to consumer economics, which was not really a big transition. In fact, with some departments they're housed in the same department.

The reason why I transitioned is because of my interest in the general economic well-being of individuals. Growing up in Zimbabwe... My mother's a retired teacher, and growing up, I noticed how hard it was for her, even though she was a professional, to make ends meet. She insisted on private education for me and my brother, but you could tell that it was really hard for her to make ends meet. Never really had any financial socialization, personally—myself—from her. but it was just observing her, and even my grandmother, and how they interacted with institutions.

My grandmother, for example, even though she lived in the rural areas of Zimbabwe, had a savings account. but I never really had any discussions with her about it, so I've always been curious about that. My current research now lies in continuing to try to understand more about consumer economic well-being, and as a graduate student I came across a paper about how there were people in the United States who are unbanked. And that blew my mind, because as I said, my grandmother had a bank account through the post office savings bank in Zimbabwe at the time. And so I became curious about that, and over time I've started drawing parallels between the unbanked situation and mobile money in Zimbabwe and other developing countries in Africa, and also the unbanked here in the United States.

Donahue: That's interesting. And how long have you been on the faculty at the University of Georgia?

Anong: This will be nine years. I started in 2010.

Donahue: Excellent. Well, thank you.

So just a little bit about the Retail Payments Risk Forum. The mission of the forum is to detect, identify, assist, and encourage payments and payments risk mitigation in the payments system. And so how do we do that? Through forums like this. Through primary and secondary research, collaborating with the industry, and convening with various stakeholders in the payments industry.

In addition to this Talk About Payments webinar series, we also have our Take On Payments weekly blog series. And you'll see links in the slide there where you can view our current and previous blogs and webinars, subscribe to our blog series, and then links to our other research on the Retail Payments Risk Forum website on the Atlanta Fed website.

And then real quickly: we have a meaty topic to cover today, but I just wanted to give our general disclaimer that the views expressed in this presentation are those of the presenters, and do not necessarily reflect the views of the Atlanta Fed or the Federal Reserve System.

So, jumping right in... Catherine, start us off and tell us, what exactly is "financial inclusion"?

Thaliath: Well, great question, Nancy. So according to the World Bank's definition, financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs, delivered in a responsible and sustainable way—and these include transactions, payments, savings, credit, and insurance. And to add to that definition, the World Bank states that financial inclusion is also a key enabler to reducing poverty and boosting prosperity. And I'll also point out that the FDIC and the Federal Reserve define financial inclusion in very similar terms as well.

So with that being said.. Sophia, is there anything you'd like to add to that definition?

Anong: I think that definition suffices. However, regarding the last statement:,financial inclusion is indeed an enabler, but net prosperity is not always an outcome. That's the intention. That's the goal. It's definitely a tool. We're finding in developing countries that increased access to credit through fintech, through mobile money (which is trending overseas), has also unfortunately increased over-indebtedness. So it's good to have access, and fintech has played a role in that, but we're now also seeing some issues coming up.

Donahue: Sophia, I often hear "economic mobility" and "resilience" mentioned in the same conversation with "financial inclusion." Can you explain to us how those different terms are related? What's the interplay between economic mobility and financial inclusion?

Anong: Financial inclusion is a useful tool for achieving economic mobility. Economic mobility is upward, or downward, trajectory in one's standard of living. Achieving and sustaining financial security—and asset, wealth accumulation—is facilitated by relationships with financial institutions, which is financial inclusion.

Donahue: Thank you for laying that foundation. And by "financial institutions," do you mean traditional institutions such as depository institutions and insurance companies, or more broadly just financial service providers and companies, both traditional and nontraditional ones?

Anong: Yes. I mean both mainstream deposit institutions and community development financing institutions, such as microfinance institutions, which operate much like credit unions, both here and in developing countries.

Donahue: Okay. So, Catherine, some other terms we often hear are "unbanked" and "underbanked," which are also grouped together under an umbrella as "underserved" by some organizations. So what do these terms mean?

Thaliath: That's right. Oftentimes we hear the terms "unbanked" and "underbanked" also grouped together by some as "underserved." But to be more specific, "unbanked" are those who do not have a checking, savings, or money market account with a traditional bank, whereas "underbanked" are those who have a bank account but also rely on alternative service products to conduct certain financial transactions to providers other than traditional banks. Some of those products, which we'll talk about in more detail later in the presentation, include check cashing services, pawnshop loans, and paycheck advances.

According to the most recent Report on the Economic Well-Being of U.S. Households, about 6 percent of adults in 2018 were unbanked and about 16 percent of adults were underbanked.

Donahue: So those are very interesting statistics. I'd note that same report also states in 2018 that two-fifths of unbanked adults used an alternative financial service product like the ones that you mentioned. So although these alternative services are often accompanied by fees and rates higher than those of traditional financial institutions, consumers may choose these options because the fee structures are more predictable or easier to understand.

So considering some of the high fees associated with these alternative financial services, Catherine, what are some of the reasons or factors that keep people outside of traditional financial services?

Thaliath: Well, as you can see on the screen, this graph is from the 2017 FDIC National Survey of Unbanked and Underbanked Households. And it shows some of the common reasons that were cited for being unbanked. The most common reason cited was just not having enough money to keep in the account. And it was also the most common main reason that was cited at 34 percent, as you can see in the light blue. Some of the other common reasons cited included not trusting banks, privacy concerns, as well as account fees being too high and unpredictable.

Donahue: And that's true, like we talked about the other day in our PeachPay forum, that some people just don't want bank accounts, and choose to be unbanked for whatever reason. So the FDIC's report on Opportunities for Mobile Financial Services to Engage Underserved Consumers identified seven needs for underserved consumers. These range from control, access to money, longer-term financial management, security, customer service, affordability, and convenience.

So when we think about these different needs—control: unpredictability of funds availability, "When will my money be deposited/withdrawn?" Knowing how much money you have to spend, how much money you have to access at any given time—just those delays in posting of a deposit or a withdrawal can lead to NSF fees, bounced check fees, et cetera, which becomes a financial hardship for some consumers, and directly impacts their financial resilience.

So switching to the role of traditional financial institutions in this conversation: in recent years, we have all seen news reports about bank branch closures in rural and semi-urban areas, and know that one of the causes of that is the high fixed costs to banks to provide personal customer service and keep that branch in that area. And this is also the case when accounts are high-transaction, low-balance accounts, making it difficult for traditional depository institutions to service the un- and underbanked at a profit.

Thaliath: Thanks, Nancy. That's really helpful context for framing our conversation. And now that we've discussed the differences between unbanked and underbanked, and the current landscape of traditional versus alternative financial services: Sophia, what are some of the key benefits to financial inclusion, and why is access to financial services so important?

Anong: Being financially included means one can secure their deposits, their cash. If you think about the cash risk that lies in people carrying around their cash—or even saving their cash under mattresses, for example. Being able to have a bank account and secure your cash is an advantage, and especially if it's with an FDIC-insured institution.

It also gives you access to credit. If you have a relationship with a financial institution, you're more likely to be able to approach the bank for a mortgage or a car loan, or other short-term loan. You can make investments; you can use their investment products and if you're financially included, you're more likely then to maybe also seek out insurance products—not necessarily, obviously, through banks, but maybe through insurance companies. That's also part of being financially included.

Donahue: So broadly speaking, it's increasing the potential to build wealth for consumers.

Anong: Yes. And with security.

Donahue: Right. So how do the rates of financial inclusion in the United States compare to those in other industrialized countries?

Anong: According to the World Bank, the U.S. is at par with other high-income countries. The World Bank has this Global Findex database, where it tracks about 140-plus countries' financial inclusion indicators. And as of 2018, in their 2018 report, the U.S. was—of those aged 15 and older, 93 percent of that population had a financial account, and that compared to 93.7 percent of the similar population in other high-income countries.

Thaliath: So bringing things a little closer to home: Sophia, I know you're currently analyzing data from interviews that you conducted with low-income unbanked and underbanked individuals in Georgia, as well as triangulating those findings with the FDIC study. Can you tell us a little bit more about your findings?

Anong: So the interviews are a bit dated. They were focus group interviews in Georgia, in various cities in Georgia, and they were conducted in 2012 in south Atlanta metro and Savannah. Three samples were interviewed separately. And without revealing the other cities in south metro, in one of the cities the interviews were conducted with residents of a public housing authority. And the usual attitudes about what you've already mentioned, about why people don't have bank accounts—distrust, not having enough money to justify having a bank account—emerged from those interviews. And that was no surprise.

But I also heard for the first time about the RushCard, which is a prepaid debit card, one of the pioneer cards at the time. And I've found prepaid debit cards very fascinating, but that was the first time I was hearing about it, not being a user.

And so since then—remember, this was 2012—so since then we know that the prepaid debit market has exploded, and what we've been doing is triangulating with data that's emerged from FDIC (their first round started in 2013), and we used a pool of three rounds of their data: 2013, 2015 and 2017. These are cross-sections. They're not following the same people. [They are] different samples each time they've done their surveys. But we wanted to see what the themes are that emerged in our qualitative data, what the relationships were, if there were any significant relationships with prepaid debit card use and their banking status.

In the literature, some scholars say that prepaid debit cards... Or even some practitioners and policymakers are suggesting that prepaid debit card use is a temporary solution, which could help lead to banking, would help people transition to banking. Others say that they actually could be a permanent alternative, given the way that that niche market has evolved in terms of the features that are available for prepaid debit card users on their accounts.

So we presented the findings of our study in May at the American Council on Consumer Interests conference in D.C. And we actually found in that study that prepaid debit card use was associated with the intention to open a bank account within 12 months of when the people in the FDIC surveys were interviewed. And they had defined "prepaid debit card use" in those surveys as having used a prepaid debit card in the last 12 months.

But what was also interesting in our study is we also controlled for banking history, or any previous experience with banking. And it turned out that our FDIC sample had all previously been banked for those who are unbanked, and they—in fact, the whole sample, we had delimiters to only include people who were presently unbanked at the time of the survey.

And the FDIC had actual measures in there where they ask whether they just had become unbanked in the previous 12 months of the survey or had been unbanked longer than 12 months. So people controlled for that banking history. And it was really slight, in terms of the probability. It was those who had used a prepaid debit card recently were only five percentage points more likely to say that they intended to open a bank account in the next 12 months.

So it is slight, but we continue to look at it and make some robust analyses to see what those associations are. This is not a longitudinal study. The FDIC is not longitudinal, as I mentioned before, so we don't have the benefit of being able to go back to the people to track them and see if they actually did open the bank account.

It was a sample of about 4,000 people in the study, and we controlled for those attitudes. We had the distrust measure, distrusting banks, as well as money being too low for banking, which was, as your data shows us... Those are the two most common reasons for people not having bank accounts. So this is even after controlling for those attitudes that recent prepaid debit cards users were saying—some of them were saying—that they'd most likely open a bank account.

But then the other thing I will add about that is that there was also information regarding the banking history. Those who were more recently unbanked were the ones who were more likely to say they were going to open a bank account in the next 12 months, compared to those who had been unbanked for longer than a year. So that probably would speak to what I alluded to earlier about maybe for some people prepaid debit cards are a permanent solution for their relationships with financial services.

Donahue: So for the people that have gone for more than 12 months without a traditional bank account, do you think that they just develop other habits and just get used to that new way of handling their finances? Do you think it's a matter of that?

Anong: Yes. And the fact that they probably are using prepaid debit cards and are finding that they meet their needs and what they want to do. Now, I don't know if any of you are prepaid debit card users. I'm not—probably should be, as a participatory observant of the service. But we do know that you can do more about check deposits with prepaid debit cards. You can do, essentially, mobile banking like you do with your traditional bank accounts.

So there are a lot of bank-like features that are being mimicked by prepaid debit card issuers, and so maybe it's enough. Right now, they probably don't see the need to then go find a traditional bank account, to open a traditional banking account.

Donahue: And with the new mobile apps that are coming out, it's almost... Now we're seeing cardless accounts, where it just lives on the phone. There's no physical card to go with that, so you do everything on the phone now.

So you mentioned the RushCard, and I had not heard about that before you first mentioned that. So can you tell us a little bit more about that?

Anong: So, the RushCard: my interview participants were actually surprised

I did not know what the RushCard was, and who the person behind it turned out to be—Russell Simmons, who is a clothing designer, entertainment industry mogul. So he established the RushCard in 2003. It was one of the first prepaid branded cards that focused, and his focus was targeting minority customers and to charge lower-than-average fees.

Donahue: Wow. I mean, that was over 15 years ago. And in our Federal Reserve Payments Study we have tracked prepaid, I think from around that time—2003, 2004—and there's been a long, slow growth trend of prepaid that's been interesting to follow. But there are so many more choices of general purpose, reloadable prepaid debit cards available to consumers now than there were in 2003, and across all of the major card brands and networks.

So talking a little bit more about the rates of unbanked and underbanked households—one of the things that the FDIC National Survey of Unbanked and Underbanked Households showed in 2018 was that rates decrease with age, meaning that younger consumers are less likely to have a bank account than older consumers. So here on this slide, we see those unbanked rates by age group. But one interesting call-out to me when I looked at this data—and this is comparing 2015 to 2017—was that for the "over 65" category, the rate increased between those two years. I thought that was interesting, a trend. Or not necessarily trend, but just an interesting change between those two years.

And then here on this next slide, we see underbanked rates—and again, just like in the unbanked, we see those rates decrease as the age categories increase. And of course, in those younger age categories—the millennials and the gen Z-ers are, of course, very technically savvy and their influence can frequently be seen in fintech offerings as a result. But what does your research show about the choices and habits of older underserved generations, as it relates to fintech?

Anong: I haven't decomposed the impact of fintech across generations thoroughly yet. but in the prepaid study we did find significant descriptive differences, as you're showing up there. Prepaid debit cards are used mostly among the 25–35 age group, and much less among 55 and older. So, for example, among the prepaid the greatest group of users—that was 28.66 percent for those aged 25 to 35, and then only 6 percent for those 65 and older, 14 percent for those between 55 and 64.

Donahue: That's interesting. Then you have some other examples, other research, about older Americans as well. So, the Pew Research Center?

Anong: Okay. Yes. So I recently came across a study out of the Pew Research Center where they found that older Americans are less likely to access the internet, to use social media, or own smartphones. And then I also read another study about the similar trends in Europe about older customers and their use of fintech.

Donahue: Sure. And I think we probably have all seen examples of that in our own lives with our parents, and older relatives [laughter]. They need the grandchildren to help them with the phones, right?

So talking about some of the financial products used by the underserved, it kind of spans the gamut, from cash, checks, money orders, the prepaid cards because some may have a checking account but some don't and may elect to do walk-in bill pay, go to those retailers and pay their bills in cash. And that's why the financial providers used by the underserved again kind of spans the gamut between the traditional and the alternative financial service providers—from banks, to payday lenders and pawn shops and check cashing.

Thaliath: But now, there are new technologies and products available—thanks to fintech—to address some of those specific needs that we talked about earlier of the underserved. And one example is the Square Cash app, which allows users to send peer-to-peer payments, store money, and receive payroll deposits if their employer uses Square, without having to connect to a bank account. And another app is the Prism app from Prism Money, which also addresses some of the concerns we discussed earlier related to those unexpected and high fees, specifically addressing the issue of bank overdraft fees. And the way the app works is, it tries to solve this issue by collecting information on bank accounts and it tracks monthly bills, including due date and the amount that you need to pay. And it notifies users when a proposed payment will trigger an overdraft fee.

And then another example is Chime, which is an online bank account, and they advertise on their website that you can get paid up to two days earlier compared to most other traditional banks. Having that advance funds availability typically benefits those who are living paycheck to paycheck, and allows them to have more control over their finances. This actually reminds me of an article that I read that came out a couple of weeks ago in the Wall Street Journal. It was talking about how rappers and hip-hop artists, for several years, talked about "making it rain" with actual dollar bills—you know, a hard currency—whereas nowadays you hear artists talking about "making it rain" with Cash App or Venmo [laughter].

But it's interesting to see that shift, and those references to different payment apps, even in pop culture.

Donahue: So it seems like having access to the internet is imperative to accessing these new products, and we've seen different states pass laws aimed at providing greater accessibility. The state of Alabama, right here in our Sixth District, just passed two new laws in the last couple of months for this purpose, for rural and underserved communities. And then at the federal level, in 2015, the HUD ConnectHome program was launched to address the homework gap for students in grades K–12 living in public and Indian housing.

So Sophia, in your view, how is internet critical to financial inclusion?

Anong: I think it's very critical to banking. We can see it even with alternative financial services, like the prepaid debit cards. Whether the internet is accessed through a mobile device or computer, providers realize that they can reach both the banked and unbanked customers directly, much faster and cheaper than providing storefront services, like as you alluded to earlier. For both bank and prepaid debit cards, you can open and fund accounts online. You can perform transactions, including (like I mentioned) mobile deposits, and manage your account. You can get alerts, and all that. It's really crucial.

I think it's also critical for consumers who are now so conditioned to be able to search for information on the go, to comparison shop—even for financial services. And hopefully to be more aware and savvy about that landscape, even if it's coming from their peers through social media, like you mentioned, or through music, where they hear about the Cash App.

Donahue: Sure. So according to the Federal Reserve's Consumers and Mobile Financial Services report for 2016, 87 percent of adults in the U.S. had regular access to a mobile phone as of November, 2015. And it also reported that although 9 percent of consumers were unbanked during the time period of the survey, 40 percent of the unbanked had access to a smartphone—and then those who were underbanked with mobile phones, over 50 percent had used mobile banking.

And as we've mentioned earlier, the Fed's report on economic well-being reported over 22 percent of households being either un- or underbanked. So what's the role, Sophia, of mobile phone providers, as it relates to economic mobility and financial inclusion?

Anong: I think it's played a key role. Telecom-led financial inclusion and mobility has been more of a revolution in the developing world out of necessity, because of having a more limited branch network for financial services. But when the mobile phone revolution took on, that really revolutionized financial inclusion there. But I think we see it happening here as well. This year, T-Mobile, if you've been paying attention, has announced that they'll provide mobile money—which is what it's called when it's a telecom-led mobile financial account. In the developing countries, they call that mobile money.

So now that's here in the U.S., and that's because we have many more options in industrialized countries. So we haven't seen that being much of a revolution, and taking up as quickly as it did in the developing world.

But I also want to take you back to my study, where I'm just remembering that we actually added a control for mobile phone, whether or not somebody had a mobile phone, when we did the FDIC prepaid study. And that was significant. It actually was associated with an increased likelihood of somebody having used a prepaid debit card. But then it was not significant, though. It wasn't a significant factor for opening a bank account. But we thought it was interesting. Because of the way we analyzed our data, we simultaneously analyzed the likelihood of opening a bank account in the next 12 months as well as the likelihood of having used a prepaid debit card in the last 12 months. And so that second equation actually showed the significant relationship between prepaid debit card use and mobile phone ownership.

Donahue: That's interesting. And Catherine earlier touched on just a few of the fintech products that could address the financial needs of the underserved, but more broadly, we know from the research that we do here, mobile payment adoption has had a slow growth curve here in the U.S. Your research includes adoption and impact of mobile-enabled services by low-income groups, so could you share a little bit of your findings with us?

Anong: When I did the surveys here in Georgia, I was interested in drawing parallels (like I mentioned before) in how the unbanked here in the U.S. manage their finances compared to those in Zimbabwe—and how receptive they were here to mobile financial services, given that that had picked up quite rapidly by the unbanked and banked in Zimbabwe.

I asked the participants here about if they would be receptive—and this is years before T-Mobile announced T-Mobile Money. So after I explained that scenario to them, they were not particularly interested or excited about it. In fact, they were a bit suspicious. So this is why I'm really excited about it. Definitely it would be worth following the take-up of mobile money here, who's taking it up, doing studies on that to see what the impact is on where the people transition from mobile money to banking, just as we've been trying to study where the people are transitioning from alternative prepaid debit card use to traditional banking.

Thaliath: Interesting. So as payments researchers, it seems news about new payments technologies and solutions comes to your inbox every day. And a lot of these solutions are driven by what is marketed as "AI" or "machine learning," and offer predictive actions based on the individual consumer's behavior. Some of these include low-balance alerts or bill payment notifications, and it seems like these types of automated tools would be beneficial to the financially underserved population. So, Sophia, in your view, what ways do these types of apps support economic mobility and resilience?

Anong: I think mobile payments support real-time convenience, but improved technology doesn't necessarily translate to better support for economic mobility and resilience. In fact, currently there's a concern about digital payments in that they might actually promote loss of touch with financial well-being and management and being conscious tracking of one's finances. So while mobile payments promote convenience and automation, there may be a downside for managing finances, as providers and apps facilitate that automatic tracking and spending analysis for you, putting things in categories with minimal planning or oversight.

So an example that I can give is, I teach a large class. It's an introduction to personal finance and budgeting at UGA. And in there, I have a project where I ask students to reflect on using the monthly Excel budgeting sheet I make them do versus using a mobile budgeting app like Mint. And what we've found—some of the students even commented themselves, that they actually saw the disadvantage of not being forced to have to manually put things into the app, especially if it's an app that lets them link to their bank accounts.

So with many digital solutions available to consumers, it is harder for financial educators and advocates to educate consumers on the importance of conscious pre-planning, budgeting, controlled spending, and saving for long-term mobility and resilience.

Thaliath: Nancy, earlier you mentioned the long, slow rise of prepaid card growth, and this slide gives a breakdown of the annual growth rate by card type. But what's important to note is in the last three years' reports, the Federal Reserve Payments Study reported that prepaid debit card transactions by number were slightly under 16 percent of total debit card volume. And on the flip side, the Fed's Payments Study fraud report, which was released last October, showed that prepaid debit card fraud by number accounted for 5 percent of fraudulent debit card payments.

And for the underserved consumer who primarily uses prepaid, prepaid can result in financial hardship. So, Sophia, what are some of the consumer protections that exist for them?

Donahue: If I can just interject here—so we have listed here the main changes related to the recently enacted amendments to the 2016 prepaid rule. So I guess I would just say, just in the interest of time, are there any implications from the new prepaid rule that people need to be aware of?

Anong: The only implication that I can think of is the registration step. So for people to be able to make a claim against unauthorized use of their prepaid debit card's deposits, they would have to be identified. And so the way it works right now is all the issuers pool their deposits into one pool, all the prepaid debit card issuers—and that doesn't necessarily mean that everybody's tied to that pool, unless they identify themselves.

So the registration step is important, and not all consumers follow that. In fact, the Pew Research Center has numbers showing that only 58 percent of all prepaid debit card users do this registration step. And so consumer protection needs to be ramped up. The education about the importance of doing that step needs to be also ramped up, in terms of showing people the importance of doing it and connecting them to the possibilities of them having the protection, should something happen to their card.

Donahue: Right. It takes that action on the consumer's part to register that card. It's not automatic or passive, like when you open up a checking account—you don't have to request that FDIC insurance, if you're with an insured institution. But it also goes back to again, that desire for privacy that exists with some consumers. And it's an important step, but it's a choice that they have.

So, Catherine, we hear a lot in the news about the rise of the cashless society. How does fintech facilitate ecommerce for people who primarily deal in cash?

Thaliath: Well, according to the 2019 Diary of Consumer Payment Choice (this is based on 2018 data), this year's diary reported that debit cards was the most frequently used payment instrument for the first time. Previously, cash was the most frequently used payment instrument. However, this year debit cards accounted for 28 percent of payments, and cash was a close second, used 26 percent of the time. And it's also interesting to note that about half of the transactions under $10 were conducted using cash.

And thanks to fintech, there are a number of products and services that can help facilitate ecommerce and online shopping for people that primarily deal in cash. One example is Amazon Cash. This program allows users to shop online without a debit card or credit card. And all you need to do, you simply need to go to a participating location, such as a gas station or grocery store, and give the cashier your unique barcode or phone number, and add cash directly to your Amazon account, and those funds will be available for use immediately on

And PayPal has a very similar program, where users can load cash into their PayPal account from a participating retailer—and this could be particularly beneficial for those who are unbanked and who don't have a debit or credit card available to make purchases online.

Donahue: Absolutely. So, Catherine, real quickly before we turn to our Q&A and open the floor up to some questions—we have some links at the end of the presentation, but where can people go to learn more on research about financial inclusion?

Thaliath: Sure. One great resource is the FDIC's site,, where you can find lots of great research on unbanked and underbanked households. Another great resource is the Consumer Financial Protection Bureau at, which offers data from their Financial Well-Being Survey and tools for consumers to measure their own financial well-being. And another great source is the report on Consumers and Mobile Financial Services, which is located on the Board of Governor's website at

So continuing on the subject of...

Donahue: I think we're going to get now to the Q&A portion. We're running a little bit short on time, and want to give everybody an opportunity to ask some questions. So just to mention the logistics again: there's an Ask Question button in the webinar tool, or you can email a question at that email address listed here. And then if you have any questions you would like to direct to Dr. Anong directly about her research, or to either one of us, I have links to our email addresses.

But I will open up to some questions. We've got some questions, it sounds like, that have come in.

Roark: All right. Thanks so much, Nancy, I appreciate the transition. Like she said, please do submit your questions now and we'll get them queued up for our presenters. I'll go ahead and start with a couple that we have received. The first is for Dr. Anong. You mentioned the difficulty in educating the unbanked or underbanked on the financial management tools that might be available to them. What is the best way to accomplish that, and which stakeholders have the primary responsibility in doing so?

Anong: Thank you for that question. I don't know if I am the authority in selecting what the best way is. I could speak on what's been suggested, and maybe what we even do at the University of Georgia. We work with extension agents who are part of the community who have "money matters" programs and different types of similar programs, focused programs, depending on the partners that they work with in the community. I mentioned we did our interviews at the public housing authority in south metro, and they actually had reached out to us since then to do programs for them. And one of the programs they want offered—maybe two, three years back—in cohorts of about five-week workshops, was a program that focused on self-sufficiency, and a key component of that program was financial coaching.

And what we realized when we were developing that program was that it was important for them to see somebody who looked like them, somebody like themselves, who had experiences with the kinds of issues that low-income, unbanked residents face—and who was willing to spend time with them and actually get to know them, and really be quite personal with what they were willing to share about the drawbacks they had with trying to be financially included.

And so that is a challenge. Whenever we as consumer advocates try to advocate and do outreach programs, it's always about finding the right match, the right coach. We're very deliberate. We work with our graduate students who we train to be these financial coaches, and it was always important to make sure we found the right match in terms of a person who understands the group that they were serving.

So the best is not a top-down approach—I'm sure you've heard this before with any program—it's more about meeting people at their level and trying to really understand, in a conversation type of setting rather than lecturing and preaching, about where they're coming from and actually hearing them out. And then from there, trying to come up with solutions together.

Donahue: Well, you mentioned the extension service. I am familiar with the extension service through agriculture, and I didn't realize that the University's extension service offered those types of programs. That's interesting.

Anong: Yes. So I'm with the College of Family and Consumer Sciences, and we have what are called FACS agents. And actually if you think about even the high school program, they are FACS educators. They're the ones who are teaching high school students. I'm in Fayette County, and I know at my son's school they have FACS agents that are doing childhood development. They are the ones who are introducing students to early childhood development programs. That also affects discipline, as well as... Unfortunately, financial education in high school is not mandatory. It's not a state mandate in the state of Georgia, unlike other states like Oklahoma. but those would be the same people, in the high schools, to also offer financial education.

Donahue: And just to tag on to that—I have a niece that's in high school in Tennessee, and it is a graduation requirement to take a financial... It is a state mandate, and it is so important for them to learn that.

So do we have another question?

Roark: We do. Thank you, Nancy. Our next question is: Is there any data tracked on how many nonbanked consumers thought to open a bank account and decided not to?

Anong: Hmm. That's a great question. There might be. I don't know. I'd have to comb through the FDIC. I don't remember ever seeing that question. Are you aware of any?

Donahue: I don't remember that in the FDIC, but we will take that as an offline question and put an update.

Anong: But I will say, that's the kind of information that would come out of qualitative studies as opposed to a survey. So it would be... I'm not sure what the interest is for the person that asked the question, but it would be good to look up qualitative studies. I think somebody out of the Kansas...

Donahue: The Kansas City Fed?

Anong: Yes. They did a qualitative study a few years ago. I didn't ask that. I didn't see that emerge out of my qualitative interviews.

Donahue: Okay. We'll take that as an offline question, and then we can send an email out to the group. Anything else, Jean?

Roark: Yes, we sure do. Okay, the next question. In discussing financial inclusion, how do you account for quality? Just because someone has a bank account or a prepaid card does not mean the product is the best for them, or well-designed for their needs.

Anong: That's a great question. Actually, I'm going to go back to some stats that I came across: when we were talking about the United States and comparing it to other industrialized countries, they have a statistic there in that Global Findex database that actually tracks inactive accounts over the past year. And they want to find out the percentage that have a financial account but did not make a deposit or a withdrawal from that account. And that was very small. It was 3.8 percent of those who are 15 and older in the United States—sorry, it was 2.9 percent in the United States compared to 3.8 percent in other industrialized countries.

So I don't know if that speaks to the quality, or whether, even though they keep their accounts open, if it speaks to the perceived quality of the service of that bank product. Or maybe there's not enough money in the account, but they still are able to maintain minimum requirements so it stays open? I feel that's an in-depth question that you can really only tease out in qualitative interviews.

Donahue: Sure. And I think, again, at our PeachPay event earlier in the week, we talked about how the best way to understand the right type of products and services for these groups, to your point, is to interview those groups and not take a "round peg, square hole" type of approach, and really understand their needs.

Well, are there any other questions?

Roark: There is one more question, Nancy, if you guys are willing to take it.

Donahue: Sure.

Roark: Okay, great. The question is, how does the cost of these payments solutions affect the decision process?

Anong: Which payment solutions? I'm assuming the prepaid payments?

Donahue: I think generally cost is a factor, particularly for consumers on the lower side of the income spectrum. Cost is a factor, when you think about service charges—even if you're talking about prepaid, the cost to activate the card, the cost to reload the card, the cost to draw money out of an ATM machine, if your card doesn't allow for free ATM withdrawals.

So cost is a factor, as far as that goes—the same as with alternative financial service providers. And when you think about why people opt to utilize those services versus utilizing traditional services, it oftentimes comes down to cost and transparency about those costs: "I can pay X percent at the time I cash my check, versus the uncertainty of: what if I overdraw my account, and then I have bounced check fees?"

I think that's kind of what the question is getting to.

Anong: Okay. But I also want to add that I think the people who are low income and unbanked who use alternative financial services are not as sophisticated as to always be thinking, "Oh, if I use my prepaid debit card now, or I go to cash my check at Walmart (or whatever it is), it's cheaper than..." They don't do that calculation every time. I think there's also an aspect of just present-focused, present-meeting—whatever the present need is in terms of needing the cash, or needing to make a bill straight away.

Because there's always a lag with traditional accounts. Even if you're mobile-depositing a check, you have to wait. Even if you go to the ATM and put in your check, you have to wait for it to clear, whereas they operate more in terms of present need, present demand for the cash, or for the transaction to take place.

And even if they see that as a cost, it's just a "per-transaction" cost that they look at—but not for comparison shopping but just to know that, "Okay, I'm going to have to have enough on my card to cover that immediate cost." But in terms of looking at the accumulation of all the costs, I don't think they are that sophisticated to always think of it that way.

Donahue: Right. Got it. Well, thank you again, Sophia, for joining us today for this conversation. It's been a pleasure getting to know you, and working on this webinar with you.

And once again, I'd like to thank everyone, all of our webinar participants, for joining us today for this conversation. Please visit the Retail Payments Risk Forum on the Atlanta Fed's website at, where you can find some of the payments research that we referenced today. In addition to our weekly blogs, we will also be posting a transcript of this webinar in the presentation materials up there in a couple of days.

And lastly, we hope that you will take a moment to complete the post-session participants' survey, which will be sent to you via email. But thank you all very much, and we hope you'll join us again.