How community banks can foster (and benefit from) financial inclusion


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While the inclusion rates of financial services have increased over the years, the harsh reality is that millions of consumers and small businesses are not getting any support from a reputable financial service provider.

According to Federal Reserve data, more than one in five Americans do not have a bank account and rely on alternatives such as check cashing services, payday lenders and pawn shops. Many small businesses also use non-traditional sources of credit and banking services.

A major influence contributing to this is cultural: minority and immigrant populations are more likely to avoid large banks and may assume that local financial institutions are the same. In addition, these groups are targeted by new fintech applications offering the ability to easily send international payments, a much requested need.

If community financial institutions make some specific adjustments and efforts to meet the needs of these consumers, they could end up with a whole new set of customers.

The American population outside the banks

Who is this underserved population? According to Fed data, those earning less than $ 40,000 a year were the most likely not to have a bank account or to resort to other methods. In contrast, those who earn $ 100,000 or more per year rarely avoid banks. It is naturally more difficult for a low-wage employee to keep a savings account or to benefit from certain banking products.

Access point:

Minority and immigrant populations are both heavy users of smartphones, which makes it an essential way to serve them, if your app is up to date.

In the small business world, many entrepreneurs shy away from traditional financial institutions because of a lack of access, minimum requirements they can’t or won’t meet, or even a perception. Minority populations were also found to be significantly less served. In fact, black business owners statistically face more rejection, higher interest rates, and other forms of discrimination than non-minority owners, reports CNBC.

This trend extends to personal banking services. According to the Fed, only 50% of black consumers and 66% of Hispanic consumers were considered fully banked, meaning they use an accredited bank for all of their financial needs and are not dependent on other loan services or lenders. on pledges.

These statistics paint a grim picture, as alternative financial providers can prey on those in need of quick cash with high rates and unfavorable terms.

The smartphone phenomenon

While underbanked populations are historically stuck in a cycle of dependence on expensive alternative financial services, this is changing with the prevalence of smartphones. Of these groups, a large percentage have access to a mobile device or the Internet, making them prime candidates for financial institutions or third-party applications offering mobile financial products, according to Ernst & Young.

The problem is, many credit unions and community banks are lagging behind in the digital space compared to banks and larger fintech competitors. This suggests that while their personalized, low-cost branding could strongly appeal to this group, the lack of digital access could inadvertently push their business elsewhere.

The factor of international payments

As mentioned, many underbanked consumers are immigrants with families or businesses overseas. Americans send far more money abroad than any other country. In fact, an incredible $ 148 billion was sent overseas from the United States in a single year, according to the Pew Research Center. Just like alternative financial products, there is a wide range of money transfer services available with varying costs.

Small Latino-owned businesses are the fastest growing entrepreneurial segment in the United States, but they also have the lowest rate of access to traditional banking loans and services. If community banks and credit unions want to capture this audience, the opportunity is there.

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What Community Banks and Credit Unions Can Do Now

Small financial institutions have long prided themselves on serving the community and providing opportunities for those the big banks overlook. Yet, part of the American population does not have the support of a bank in their professional and family life. This leaves a void that community banks and credit unions could fill, with a few small adjustments. Here are four suggestions on how they can tap into this market.

1. Targeted awareness. If financial institutions want to reach out to minority communities, they must first consider the obstacles these people face. By offering campaigns in other languages ​​and recognizing the additional challenges these groups face, these potential clients will feel more at ease and at ease.

2. Financial education. As mentioned, some of the gaps in financial inclusion are due to a lack of awareness or misinformation. Many unbanked consumers associate small financial institutions with large banks, not realizing that these small organizations are more favorable to small businesses and local families.

3. Digital first. Many underbanked communities are targeted by fintechs due to the widespread use of smartphones. These digital methods may be more appealing to this group because it is a more transparent way of doing banking: they do not need to travel, live near the institution, or face financial difficulties. prejudices. Community institutions must be able to match these offers, possibly through partnerships.

4. International services. Immigrants with international connections are no strangers to foreign payments. Many regularly send remittances abroad, and minority groups lead the creation of small businesses. Providing a convenient way to access these services is a good way to onboard new customers and introduce them to other products.


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