Financial technology, or fintech, is no longer a futuristic concept. It’s here. Everyone has heard, by now, of at least one example — such as Bitcoin, Square, or the Paypal app. Contactless cards, and even mobile rent and mortgage apps, are becoming familiar. Will they replace cash? That’s already happening. More important: Can they make financial opportunities more inclusive?
Banks Are Becoming Less Central
The general idea is to make physical banks less central to the way we live. Today, a person who has a PayPal account can purchase insurance, pay rent and utility bills, and, of course, buy things online. Financial tech makes it simple to set up an account on a phone, then fund a cash card from it. And by plugging in a name and income, anyone can apply for a basic line of credit from PayPal and have the electronic credit card stored on the phone.
Those who don\’t have money in physical banks are known as unbanked (or underbanked) people. In D.C., thousands are unbanked, including about a fifth of Black households. Many District residents — mainly immigrants, gig economy workers, and economically stressed people, and some who do not trust financial institutions — fully depend on cash. Better channels for people to connect with each other financially, without banks, are overdue.
Time for a Cashless Culture?
Mobile money, exemplified by Venmo and the Square Cash App, allow people to simply exchange value. Many small business owners have adopted these platforms. Mobile money apps let them make business listings to share links by email, chat, or social media. Using the shareable links, others can safely pay small service providers and vendors. And mobile money lets regular people trade ordinary goods or services or simply help each other without having to get cash from a bank.
In any case, cash has always been a magnet for robbers. Ask a commercial driver or a restaurant owner. Workers who have to carry cash and make change are at some risk when doing their jobs. With the rise of mobile payments, some believe it’s time for a cashless culture.
What Are Digital Banks — And Will They Actually Help People?
Some say a society without banks and cash will do more harm than good for underbanked people. Then again, fintech can be inclusive. The best financial tech strives to offer practical, easy alternatives to cash dependency. For example, inclusive financial technology should work on mobile phones — which most people have.
A digital bank is an accessible option. People can use it to open accounts, get fairer rates than check-cashing counters offer, and not deal with the complicated, stuffy bureaucracy of the traditional bank. Digital banks don’t have built branches, and they don’t have cash machines. All exchanges of value happen online. Digital banks also allow for sending money internationally at fairer rates than traditional channels allowed. Lower overhead allows cost savings to be passed on to users. New, user-friendly mobile apps by services like Remitly and WorldRemit offer new ways — and more options — for sending and getting money.
Financial Tech for People Recovering From Disruptions
More people than ever are in dire straits, as the Covid-19 disruptions have hit many jobs hard. Small business owners and workers in the entertainment, travel, and food industries have suffered lasting damage. Financial tech can step in and help people by making access to funds easier.
For example, PayPal is one of the mobile money apps that allows its users to apply for a loan from the federal Paycheck Protection Program. This creates a way for underbanked or unbanked people to apply for urgent PPP funding if they meet the qualifications. To make the loan access happen, PayPal works with WebBank. Funds are safely managed; WebBank is a member of the Federal Deposit Insurance Corporation (FDIC).
Financial tech also makes it possible for workers to get advances or part of their wages. For example, workers who have put in, say, five days of work can get part of their monthly wages through apps like Wagestream or M-Pesa without waiting for their normal payday to take care of essential needs.
Let’s Go With It, But Let’s Be Inclusive
Traditional banking tends to have cost thresholds that leave many people excluded. For financial technology to improve on the old system, it has to do away with, or seriously lower, the costs of access. It has to be simple to use without steep interest rates, gotcha charges, or hidden fees.
Word travels fast these days, with everyone checking out others’ experiences. Workable services make themselves known, and user reviews make them better. It’s quite possible that an evolving set of cash-free, mobile money exchanges will level the financial playing field, and offer a greater array of options for everyone.
Find out More
5 Types of Fintech Startups That Can Drive Financial Inclusion (21 Aug 2020). Originally published by Terence Tse, Andrea Cosentino, and Mark Esposito in MIT Technology Review Insights. Available at: https://www.weforum.org/agenda/2020/08/financial-inclusion-fintech-underbanked-technology
How A ‘Cashless’ Future Could Leave Many D.C. Residents Shortchanged (Aug. 2018). By Ally Schweitzer for The Affordability Desk (WAMU – American University Radio). Available at: https://wamu.org/story/18/08/29/cashless-future-leave-many-d-c-residents-shortchanged/
Banking the Unbanked: Lessons from the Developing World (Feb. 2020), by Scott A. Burns, American Institute for Economic Research. Available at: https://www.aier.org/article/banking-the-unbanked-lessons-from-the-developing-world/