The Future of Banking: Banking the Unbanked

Imagine it’s Friday. You’re at work, it’s about 5pm, and you’re ready to go. The day is winding down, so you prepare to leave, hoping to avoid your boss, who has impeccable timing for piling on work at the last minute.

Sensing that she/he is occupied, you turn off your computer, grab your items, and head for the exit. It’s been a long week. You’re exhausted. Perhaps you’re too tired to gauge the extent of it. You’ve worked hard. Really hard. Sadly (typically), it’s likely gone unnoticed, much lesss appreciated.

But that matters not, for you’re about to clock out. You did your fair share — and then some. You deserve to rest. And rest you shall. But it’s not a typical Friday; it’s also payday — a day truly deserving of the title: TGIF.

Have you been there? Good. Keep reading.

Now outside the office and approaching your car, you hear your phone vibrate. You check it and are relieved to find it’s not your boss. Rather, it’s your direct deposit, which is synced to your smartphone. You simply received a notification that you were paid. And good thing you were, for your money has been tight — your earnings barely cover your expenses these days. In fact, it wouldn’t be a stretch to suggest that you’re living paycheck to paycheck. However, you’re hopeful that better days are on the horizon — but you won’t hold your breath.

Before going home, you must head to the bank. You need cash for a home renovation project. It’s an expensive job (a week’s salary), but you know it must be done. Because of the amount of cash involved, you go inside. Safety before convenience, you always say.

Once inside, you notice a decent-sized line has formed. Fortunately, it appears to be moving, and anything is better than being stuck at work, so you deal with it. After a ten-minute wait, it’s your turn. You saunter to the counter, eager to get your money, eager to go home.

The teller greets you with a smile, a real one, to which you respond in kind — or so you try. You both exchange pleasantries, after which you inform her of the purpose of your visit.

You explain to her that you need to make a withdrawal, she asks how much, and you tell her $3k.

She hands over the money, but after taking a quick glance, you sense that something is missing. Indeed, your intuition is correct: you’re $150 short. You bring this to her attention, certain of the mistake, confident that it will be addressed.

With that same warm smile intact, she indicates that no error has occurred. Rather, under the bank’s new policy, she explains, each check or payroll deposit is subject to a 5 percent fee.

In other words, your bank gets paid (by you) before you do. This arrangement harkens back to the times of tributary states, a period when lesser powers offered tokens to their more powerful counterparts. A form of subservience, if you will. This new provision, notwithstanding its motivations or similarities, is not at all consistent with the banking system you’ve come to know.

Clearly, you’re the subordinate in this relationship, one that confesses in no uncertain terms the asymmetric power balance at play, the tenuous, failing cards that you’ve been dealt. The elaborate facade of influence you thought you possessed has been shattered, hobbled, dismantled — replaced with the cold, unsympathetic realization that your earnings are not necessarily yours alone.

Unnerved by this policy but unable to challenge it— you need the money and are not in a position to object— you take your cash, net the 5 percent fee, and head home.

As you drive away, you shake your head in shock over what just transpired. That was your money; you worked hard for it. Under no circumstances can you afford to just give it away. Yet, your wishes seem to matter not, for your cash left your hands sooner than it arrived.

Seems unfair, right?

If you agree, well….you’re certainly not alone.

This aforesaid scenario is eerily similar to the plight of the unbanked in the US — the 37 million adults who lack access to mainstream financial products (checking and savings accounts) and who are subject to the usurious whims of powerful financial institutions.

Left with few commercial alternatives and exposed to mounting financial obligations, the unbanked turn to expensive alternatives (check cashiers, payday lenders, and pawn shops) out of necessity.

These institutional bodies place a high premium on filling the financial void left by mainstream financial institutions and providing timely, instant liquidity.

Unfortunately, this form of liquidity doesn’t come cheap, with the full extent of the cost only emerging through the passage of time, through the fleeting process of taking from the future and giving to the present.

Indeed, according to the Federal Reserve Bank of St. Louis, unbanked households with net earnings of $20,000 pay as much as $1,200 per year for alternative financial products, which encompass check cashing, money orders, prepaid debit cards, remittances, etc. Further, sixty-five percent of the unbanked make less than $25k per year.

So understandably, I’ve fixated on the following questions.

• How can the financial services industry better serve the unbanked?
• In what ways can technology introduce new paradigms that accommodate all parties involved?
• How can technology be used to combine the best of the financial services ecosystem: the instant liquidity of check cashers and the security of mainstream financial institutions, albeit at affordable, inclusive rates.

Indeed, I’m fixated on these questions. But just as important if not more, however, I’m fixated on finding workable solutions.

I doubt that the current menu of consumer financial products is exhausted — nor do I believe that affordable, timely liquidity is a contradiction.

So it’s time… time for a friendlier, sustainable option, a choice that marries the interest of financial service provider and consumer — not one that flames friction and begets distrust.

It’s time for consumer financial products that allow for liquidity, affordability, and immediacy — not just to the well-to-do but to everyone along the income spectrum.

The unbanked deserve better: a fairer shake, a better bargain, a better capitalism.

And so when the time is right, I’ll share more.

Stay tuned…