When most people think of the mobile wallet, they think of a trendy app on their smartphone that lets them pay for a latte without pulling out cash. While it’s true the average mobile wallet helps the most basic get their caffeine fix, it has a larger role to play in the future of the economy. At last count, one in four US households is either unbanked or underbanked. Together, they represent an underserved population who don’t have free access to a full range of financial services. A mobile wallet, supported by a variety of emerging fintech services, may help them access a comprehensive portfolio of financial products.
The difference between the unbanked and the underbanked
Though they make up the underserved, separately they’re two very different things. The unbanked are those that have absolutely no financial account with a financial institution whatsoever. In most cases, there’s something in their financial history that classifies them as unreliable to traditional retail banks — bankruptcy or non-existent credit. Only a small percentage of the unbanked choose not to do business with these banks on their own accord.
A greater proportion of the underbanked voluntarily limits their relationship with traditional institutions. While the underbanked may have a checking account or even a savings account with a bank like Wells Fargo, they won’t turn to them for a personal loan, the line of credit, or investment options. They may also refuse any product that requires a minimum account balance or monthly fees.
The underserved are excluded from traditional services
Whether by circumstance or by choice, the underserved aren’t accessing the same financial services as the average consumer. With no checking account to speak of, the unbanked rely primarily on cash to pay bills, so they can’t shop at stores that have adopted cash-free transactions. Meanwhile, the underbanked are hesitant to borrow or invest through conventional financial channels.
Fintech helps to increase financial inclusivity
As digital payments become the norm, the underserved will have trouble participating in a cash-free economy. Ordinarily, the unbanked can’t open a checking account that will link with Apple Pay, or they can’t afford an account that links with Google Pay.
Though traditional financial institutions fail the underserved, an emerging industry of fintech companies is giving this population agency. Mobile banks with zero fees and minimum balance restrictions offer those typically locked out of checking and savings to open an online account, which they can sync with any mobile wallet. Online lenders with fewer barriers complicating their payday loans offer the underserved the best way to get a payday loan from their phone. Robo-advisors with fewer restrictions give those with less to invest a way to create a passive portfolio online.
For now, the mobile wallet is a niche product in the US, but experts forecast mobile wallet usage will grow in the next decade. As retailers capitalize on this population with more cash-free shopping opportunities, the only way the underserved will be able to shop in a cash-free future is with the help of fintech companies offering an alternative approach to the mobile wallet.