The Very Point of Sale: From Underserved to Understood
Why would financial institutions, with rich reserves of consumer data, artificial intelligence and advanced sense-making technology, paint marginalized communities with a broad brush? Aggregating all types of underfinanced individuals into one amorphous “underserved” demographic seems odd, especially in financial services, an industry that champions personalization at scale. Examples of personalization on a massive scale might be an app notifying a user that a favorite brand will be going on sale, or a store beacon pinging a nearby customer with a compelling, time-sensitive offer. While millions of consumers experience these connections, the moment may indeed feel intimate, as if “my brand really gets me.”
That warm and fuzzy feeling, however, is not one that underserved consumers associate with banks. And their lack of confidence in banks is hardly surprising, given big banks’ brand messaging, which has been anything but personal. To begin with, banks tend to view marginalized consumers as one great big group, not as individuals with diverse perspectives, challenges and needs. However, researchers and consumer advocates are seeing improved attitudes and messaging in banking and fintech sectors.
Recent studies by the Electronic Transactions Association and the U.S. Faster Payments Council indicate fintechs and financial institutions are getting better at understanding consumers who have been bypassed by traditional financial services and becoming adept at designing products and services that address their needs.
The ETA’s white paper, Creating a More Inclusive Economy: How Fintech Advances Digital Resources for Underserved Communities, published in February 2022, described payments industry initiatives that drove economic recovery by helping consumers and business owners connect, engage and transact during the pandemic. “ETA members played a leading role bringing swift financial aid and innovative offerings to businesses, consumers, and underserved communities when it was needed most,” said Jodie Kelley, CEO of ETA. “As the leading trade association for the digital transactions industry, ETA encourages policymakers to support continued innovation and the use of technology to improve financial outcomes for all members of society.”
Close service gaps
The FPC’s white paper, Faster Payments and Financial Inclusion, published in July 2022, made a case for tailoring faster payment schemes to marginalized communities. FPC researchers cited the following service gaps between underserved individuals and financial service providers:
- Design: Product design is not currently targeted to needs of the financial lives of the underserved.
- Liquidity constraints: Tight budgets mean a delay, interruption or loss of funds can lead to a cascade of adverse financial consequences.
- Cash in/cash out: People without bank or credit union accounts face costs to get cash into and out of faster payments.
- Trust: Trust in financial services providers may be low. It may be undermined in the absence of strong customer service and language access, and by apprehension about fees.
- Mistake prevention: The customer’s ability to absorb loss of funds due to a mistake is limited.
- Fraud prevention and remedy: The customer has limited ability to absorb loss of funds from fraud.
- Security: Concerns remain about the security of funds and impact of security procedures on inclusion.
- Interoperability for ease of use: Concerns remain about how to use faster payments efficiently when payees and payors may use different payment methods that do not connect.
“The data about usage of faster payments shows that there is room for much more financial inclusion,” FPC researchers wrote. “Government statistics about person-to-person payments via payment apps show both strong growth and a big divide in who is using these forms of faster payments.”
ETA researchers noted financial institutions and tech providers have focused on providing high-quality, affordable financial services to the broadest possible set of consumers. Progress has been made over the past decade, they stated, in terms of expanding access and lowering barriers to entry. This has resulted in 88 percent of Americans using fintech to manage expenses, up from 58 percent in 2020, they added.
“The unprecedented recent advancements in technology highlighted in this white paper continue to provide significant benefits to underserved consumers, as well as the broader economy,” ETA researchers wrote. “ETA members are constantly developing and deploying new products and services, bringing together traditional players and new participants.” ETA authors further noted technology innovations are shortening product development, from design to delivery, while supporting an inclusive financial system. These next-gen offerings benefit the digital commerce ecosystem, they added, by expanding access to high-quality, responsible, secure, and affordable financial services.
The ETA white paper is available for download at www.electran.org/wp-content/uploads/ETA-Creating-a-More-Inclusive-Economy-2022.pdf.
FPC researchers emphasized underserved citizens, whether unbanked, living paycheck to paycheck or running small businesses, deserve the same individualized attention as well-to-do consumers. Global adoption has increased access to secure, agile, intelligent digital commerce, they stated, but not for everyone. “Lack of access to resources, services, or devices deemed to be ‘common’ among consumers by financial institutions and other financial ecosystem players also increases barriers to participation while simultaneously lessening individual security by and for the underserved,” FPC researchers wrote. “For example, financial offerings may depend upon personally owned smart phones with up-to-date encryption or require a small business to purchase and maintain a particular vendor’s point-of-sale technology, and overwhelmingly there is an assumption of reliable, fast, and ‘always on’ Internet access.”
FPC researchers further noted that improving access to financial services is a societal issue that exceeds the faster payments sector’s scope or responsibilities. Individuals without access to bank or credit union accounts pay heavily to move funds, and many pay exorbitant fees to cash checks and reload prepaid accounts, they stated, adding that closing service gaps will require a concerted effort from all financial services stakeholders in what they termed a “long-term, resource intensive, community-based effort.”
A copy of the FPC white paper is available at http://fasterpaymentscouncil.org/userfiles/2080/files/Financial%20Inclusion%20White%20Paper_7-29-2022_Final.pdf.
As ETA and FPC researchers noted, everyone participates in financial inclusion. Whether you run a small business or global enterprise, your products and services can make a difference. Whether those needing improved services are single parents working multiple jobs, teachers living paycheck to paycheck, or otherwise underfinanced individuals, fintechs and banks want to help. If their brand messaging is not on point, let’s help them get it right.
This article originally appeared Aug. 22, 2022, in The Green Sheet: http://www.greensheet.com/emagazine.php?article_id=7026
Dale S. Laszig, senior staff writer at The Green Sheet and managing director at DSL Direct LLC, is a payments industry journalist and content strategist. Connect via email [email protected], LinkedIn www.linkedin.com/in/dalelaszig/ and Twitter @DSLdirect.