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Access to Financial Services is Necessary to Fully Participate in the 21st Century Economy

Today, households are experiencing unprecedented inequality and limited economic mobility. These experiences are made worse in part by differences in the resources and opportunitiesavailable within their communities. Undeniably, these differences and their consequences are felt most poignantly by households in lower-income communities and communities of color, where there is disproportionately less access to financial services. For example, metropolitan areas with higher percentages of Black, Latino, and lower-income households also have fewer banks and credit unions relative to AFS. Without bank or credit union branches in their communities, these households have limited access to products such as a savings account that could be used to pay for unexpected expenses or to invest in the future. Households in these communities also lack access to affordable mortgages and small business loans, hindering the investment and entrepreneurship needed to drive local economic growth.

Of course, the quality of financial services also needs to be improved alongside efforts to expand access in communities and promote financial inclusion. A household is not necessarily better off financially just because they live in a community with a bank or credit union instead of a payday lender. Costly fees charged by banks and credit unions, such as maintenance and overdraft fees, can undermine a household’s financial health. In fact, the vast majority of banks do not meet guidelines for safety and affordability. Only nine percent of banks have entry-level checking accounts with features that meet the core set of safety and affordability guidelines, such as point-of-sale capability, low or no minimum opening deposit, and low or no monthly maintenance fees.

Multiple and complementary strategies will likely be needed in order to promote financial inclusion in the 21st century. For instance, some have called for reinstituting postal banking, and there is evidence that post offices are located in rural, lower-income, and minority communities with fewer banks and credit unions. Nonprofit and government efforts are operating in cities around the country and providing an impressive array of safe and affordable financial services in communities, such as Individual Development Accounts (IDAs)tax-time savings and Volunteer Income Tax Assistance (VITA) programs, Community Development Financial Institutions (CDFIs)Bank On coalitions, and financial opportunity centers. And, while their potential has not yet been realized, technology like mobile banking and financial technology (or fintech) innovations are poised to offer new and complementary ways to access financial services. 

Online and Mobile Banking can Improve Financial Access…

There is some question about whether the locations of financial services matter in our technologically-advancing society. Technological advances—especially in the fintech industry—are certainly changing how individuals and households access and use financial products and services. Every year, more people use online and mobile banking platforms to manage their bank accounts. In fact, for the average account holder, online banking recently surpassed tellers and ATMs as the primary method of access. If these trends continue, then online and mobile banking may provide very real solutions for those without convenient access to brick-and-mortar financial services.  

…AND Brick-and-Mortar Locations Still Matter.

Despite the increasing use of online and mobile banking, brick-and-mortar financial services are still important. In fact, a large portion of lower-income and minority households relies on these brick-and-mortar financial services in order to conduct their day-to-day transactions. Half of all lower-income households and one third of all households headed by Blacks and Latinos/as visit a teller as their primary method for making transactions. Also, lower-income consumers conduct more transactions in cash than higher-income consumers. Indeed, having brick-and-mortar financial services in their communities may be especially important for households with limited resources. For lower-income households, living in communities that have greater concentrations of banks and credit unions is associated with their better financial healthincluding the ability to afford monthly bills and invest in the future.

The physical locations of AFS in households’ communities also impact their financial health, even as AFS products and services are being increasingly offered onlineLower-income households tend to rely more heavily on AFS when there is a greater concentration of these services within their communitiesHouseholds struggle to repay their debts and afford other expenses when they rely on these high-cost services to make ends meet, which may weaken their financial health. For example, every additional AFS in a lower-income household’s community is associated with decreased probabilities of affording their monthly bills and having health insurance.

Technological and Financial Access are Closely Intertwined

Even though increasing percentages of the population use technology like smartphones with internet connectivity, households have to pay to use these services. Sometimes households can’t afford these costs, and higher percentages of low-income households have disruptions in their phone and internet service. This means that a person could simultaneously lose access to financial services and their money when their phone and internet services are disrupted—an experience disproportionately detrimental to low-income households. Thus, technological and financial access are closely intertwined. Connectivity problems need to be solved so that online and mobile banking and other fintech innovations can reach their potential, especially for lower-income households. Importantly, households today cannot afford to wait for technological solutions to financial access to achieve their full potential.