The Role of States in Financial Inclusion
In our daily lives, many of us take our cards for granted. Handing a credit card to the cashier for a cup of coffee or running a debit card at the gas pump has become second nature. It’s simple and fast, and for many of us, the convenience of cards has almost completely replaced other payment methods.
But for millions, the convenience of cards is out of reach. An estimated 17 million U.S. adults don’t have bank accounts, and they rely largely on cash to pay for their everyday expenses – not just coffee and gas, but clothes, utilities, groceries, and everything from child support to the cable bill.
Unbanked and underbanked Americans are often disadvantaged in these transactions. Cash just doesn’t fit smoothly in the modern cashless economy. If you have a bank account, you simply deposit your paycheck into that account – if you don’t already have this automatically taken care of with direct deposit, skipping the hassle of conversion entirely. But without a bank account, you’re at the mercy of check chasing services, which generally charge hefty fees. Individuals who are already having trouble making ends meet can ill afford to lose those precious dollars.
This is a problem for individuals, right? You might be asking: what can state governments do about it?
In many cases, they’re already doing a lot. Prepaid, state-issued cards are being used to deliver funds to recipients of state tax refunds, Social Security benefits, unemployment insurance and more. In Alabama, for example, the Department of Human Resources puts child support payments totaling more than $25 million into the hands of 68,000 people every month. By making the switch from mailing checks to delivering the monthly payments via card, Alabama is ensuring its child support recipients are able to participate in today’s cashless society – and it saved about $1 million during the first year of the program.
These cards are connecting people who are otherwise disenfranchised from the banking system with what so many of us take for granted – easy, speedy access to their money. These programs also help states dramatically reduce their administrative costs, so they can use their scarce resources to improve services for their citizens. This is innovation at its best.
But there’s much more states can do. Smart use of disruptive technologies such as mobile, social media, data analytics, and the cloud can connect unbanked people with today’s financial systems. We’re just beginning to see how these technologies can revolutionize the interaction between state governments and their citizens. As I think about the future and application of these technologies, I can see card solutions for utility providers, public housing agencies, or even health and wellness agencies. There’s so much room for this area to grow.
For many of us, disruptive and innovative technologies permeate just about every aspect of our lives, just like cards do. Mobile technology in particular is already having a dramatic impact on the way we live and work. But new technologies can take a longer time to get traction in the public sector, where they could significantly improve the way people live. Now is the time for states to take a comprehensive look at how they can help address the problem of financial exclusion, and include unbanked and underbanked citizens in today’s economy.