Bank infrastructure and inclusivity

When financial inclusion necessitates not just new products, but also inclusive infrastructure

Increasingly, financial inclusion means not just bringing consumers into the traditional banking system, but also providing them access to products and services outside it. And as more alternative financial solutions crop up, the interconnectedness between these various solutions, as well as to more traditional banking products, is becoming an important piece of inclusivity.

For better or worse, much of financial technology today depends on — and connects with — a typical bank account. Across the 11,652 federally insured banks and credit unions, the bank account remains the hub of most consumers’ financial lives. But it doesn’t provide everything a consumer might need.

The underbanked, which constitute some 20 percent of the U.S. population, have bank accounts. But they’re classified as underbanked because they seek out supplemental banking products, like money orders, check cashing, international remittances, and payday loans, from alternative service providers. These services have rapidly become critical to scores of consumers.

And financial technology is poised to make these products better, from Transferwise, which offers low-cost international transfers, to lenders such as Fig who offer better rates on emergency loans using alternative credit-scoring models. True, these services are still largely disconnected from the bank account, but the funds to pay for them can come directly from a savings or checking account.

This is where the opportunity of financial inclusivity becomes a technical problem. In many ways, building an inclusive financial ecosystem actually depends on building inclusive infrastructure. That is, it’s not enough to offer better alternative financial services, because the context and connectivity across each person’s financial footprint is a vital piece of the puzzle that will enable the un- and underbanked to fully take control of their finances.

Imagine the bank as a platform — a single place where accountholders can not only see their balances, but also access and manage a whole host of third-party services. This centralized financial picture could provide life-changing insights at critical moments to those in financial danger. Take, for example, an individual in need of emergency cash. In today’s world, the chances he looks toward a payday loan are pretty high. But imagine if he could log into his bank account, compare multiple lenders who could use his account history to better evaluate his application, and apply for the lowest-rate loan — all in one place, online.

Without a way to connect with all these institutions from a single integration, it could take app developers years before they ever turn their attention to their own solution. Or, worse still, because there tends to be so much concentration at the top, it could force developers to focus on providing services for the top financial institutions in the United States. After all, this would be a practical choice: the top 200 banks and credit unions comprise about 70 percent of all U.S. depository accounts. But small banks and credit unions remain critical for rural areas and other constituencies, such as teachers’ unions, which is why it’s important to serve as many institutions in the United States as possible.

Building an inclusive ecosystem therefore requires making it as easy to integrate with the thousands of institutions (and, for that matter, alternative finance providers) as the biggest players in the market. And that’s why, frankly, the role of trusted intermediary has become increasingly important: to ensure that the infrastructure layer that sits on top of our banking system makes it easier — not harder — for consumers of every income bracket to benefit from financial innovation.

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