Banking the Underbanked: How effective are non-traditional banks at supporting the underbanked
Brya Patterson, et al., Spring 2024, University of Washington, MS Information Management (MSIM)
Executive Summary
- The Mission: Investigated the efficacy of non-traditional banking (FinTech) in supporting underbanked populations, focusing on barriers like high fees and systemic distrust.
- Impact: Led a team at the University of Washington - Masters of Information Management, to synthesize qualitative interview data from stakeholders, providing a framework for financial institutions to improve inclusivity through digital innovation and regulatory transparency.
- Core Capabilities: User Advocacy, Qualitative Research, Stakeholder Management, Financial Policy Analysis.
Remediation and Recommendations
- Stabilizing Trust: Identified that "hidden fees" and lack of physical presence drive systemic distrust. Recommended moving from predatory fee structures to transparent, value-based digital models.
- Empowering Through Education: Proposed integrating Financial Literacy modules directly into banking apps to help Gen Z and Millennial users make informed choices.
- Innovating Delivery: Advocated for "Mobile-First" banking that mirrors the convenience of Venmo/CashApp but includes the safety and wealth-building features of traditional institutions.
Consumer Advocacy
Directed a "People-First" research methodology, ensuring the lived experiences of underbanked individuals drove the study’s conclusions on financial equity.
Regulatory Navigation
Analyzed the friction between rapid digital innovation and bureaucratic regulatory processes to identify sustainable paths for FinTech adoption.
Strategic Synthesis
Translated complex qualitative interview data into actionable insights for financial service providers to bridge the trust gap with minority communities.
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Overview
This study evaluates the effectiveness of non-traditional banking and FinTech services in fostering financial inclusion for underbanked populations in the United States. Utilizing the People, Process, Technology framework, the research identifies systemic barriers—including deep-seated institutional distrust, high fee structures, and the "banking desert" phenomenon—that drive marginalized communities toward alternative financial services.
Through a mix of qualitative interviews with industry professionals and quantitative analysis of FDIC and US Census data, the work examines how digital-first institutions and regulatory shifts impact financial equity. The findings suggest that while technology increases reach, true inclusion requires a multifaceted approach: addressing the socioeconomic needs of the People, simplifying the bureaucratic Processes of regulation, and ensuring Technology serves as a bridge rather than a barrier. The paper concludes with strategic recommendations for policymakers and financial institutions to better serve the needs of unbanked households in America.
Recommendations
- Usage Patterns and Behaviors - establish a baseline for measuring effectiveness through the People (Underbanked individuals), the Process (Regulations) and the Technology (Fin Techs) framework. This allows for an understanding of how underbaked individuals interact with Fin Tech and non-traditional banks and considers the existing state of the business that may need operation changes to address these consumer’s needs.
- Identify Barriers and Challenges - identify what challenges and barriers are experienced by these three key players to formulate appropriate solutions. When we can fully understand their needs, organizational leaders can direct resources to the areas of the business that require support to uplift consumers, remain compliant, and continue to innovate.
- Policy Recommendations - by considering existing policies for compliance and how closely Fin Techs adhere to these requirements, we can evaluate their effectiveness. In the current state, government policies do not regulate technology use and access to financial services. By considering existing policies for compliance and how closely Fin Techs adhere to these requirements, we can evaluate their effectiveness and understand how policy changes can support innovation for consumers that need alternative banking services as well as creating policies that reflect the current landscape of the industry.
- Financial Inclusion Metrics - establish a set of metrics to measure progress in enhancing financial inclusion: To accurately define a Fin Tech or non-traditional financial institution as effectively supporting the underbanked, there needs to be an established set of metrics and data points that can demonstrate growth of this subset of consumers, measure progress in enhancing financial inclusion, and inform policy makers to work on policy alongside non-traditional banks, to define a new inclusive era of banking.
This study not only sheds light on the current state of financial inclusion but also charts a path forward for leveraging technology to foster a more inclusive banking environment. The People, Process, Technology framework can be a supportive guide for organizations within the financial sector to consider implementing operational changes that can drive financially inclusive technologies and policies.
Read the full report here.