Financial Inclusion Trends in 2023 and Beyond

Financial Inclusion: Where We Are Now

The national conversation around diversity, equity and inclusion continues to expand, and financial inclusion for consumers is a key component. Financial inclusion means people can safely and easily access the essential services, tools and systems they need to manage their financial lives and reach their goals.

When people are excluded from the financial system, they may:

• Lack a safe place to store their funds
• Not have a reliable or convenient way to cash checks
• Lack a secure way to make payments or transfer money
• Not be able to access loans or borrow money at reasonable rates
• Lack basic financial literacy

In fact, according to a 2021 survey conducted by the Federal Reserve, 18.7 million U.S. households were underbanked, and 5.9 million households didn't have a checking or savings account at a bank or credit union.

Having a bank account is an important part of financial inclusion, but there are other markers, too, such as building a credit history.

"About 1 in 8 adults, or approximately 28 million Americans, are credit invisible—and another 21 million have unscorable credit," says Nicole Elam, president and CEO of the National Bankers Association. "This makes it harder for them to access financial products and achieve financial milestones [like] buying a house, a car or qualifying for an apartment. Even utility and internet companies often require a credit history."

And when people can't access basic needs through traditional financial means, they often turn to alternative products including money orders, check cashing services and pawn shops. Alternative financial products can charge exorbitant interest rates and have onerous terms, which can trap people in a cycle of debt and economic vulnerability. The impact is far-reaching.

"It's hard to build wealth without access to financial services," Elam says. "It's how we save for the future, buy a house or build a business."

John Hope Bryant, founder, chairman and CEO of Operation Hope, an organization dedicated to increasing economic opportunity and financial inclusion for underserved individuals, notes similar impacts. "You can't get a decent home loan, you can't get a decent auto loan, you can't get a business loan," he says. "What does that do to generational wealth?"

The Color of Financial Exclusion

The ability to build wealth is an integral part of financial health and stability not only for individuals but for entire communities. Accordingly, the impact of financial exclusion isn't distributed equally. Year after year, the data around the unbanked, underbanked, credit invisible and the racial wealth gap shows that communities of color are harder hit compared with their white counterparts.

In a recent advisory committee meeting on economic inclusion, Martin J. Gruenberg, acting chairman of the Federal Deposit Insurance Corporation (FDIC), said that while there is a continued decline in the overall rate of unbanked and underbanked households in the United States, disparities persist.

"It's important to point out that even as we've continued to make progress, the significant demographic disparities in terms of who is unbanked and underbanked in the United States continued, particularly for African American and Hispanic households, for lower-income households and for households with people with disabilities," Gruenberg told the committee.

FDIC survey data shows that while 13% of white Americans are unbanked or underbanked, 29% of Hispanic adults and 40% of Black adults are.

"This didn't happen overnight," Elam says, adding barriers to credit to the financial issues confronting non-white Americans. "The Homestead Act of 1862, the New Deal, government-sponsored aid, GI Bill benefits, redlining and tax breaks have all contributed to where we are today. We need to wrestle with why they are credit invisible and what are the barriers of entry. In fact, some may argue that they aren't invisible but rather excluded. Once you unpack this, you often find systemic racism at the root."

To be sure, economic class plays a role too. Bryant notes that people in rural areas and poorer white Americans face similar financial challenges. He references Rev. Martin Luther King's 1960s Poor People's Campaign as inspiration for the work that needs to be done.

"Financial literacy should be a civil rights issue," Bryant says. "It's social justice through an economic lens."

Seeing Progress in Financial Inclusion

The good news is that even slow progress is still progress. The proportion of unbanked U.S. households in 2021 was just 4.5%, the lowest since the FDIC's National Survey of Unbanked and Underbanked Households began in 2009.

Changes in economic status, work focused on increasing financial literacy and inclusion, and advances in technology and digital offerings have all contributed to the decrease in underbanked and unbanked households.

Elam says she's encouraged by the changes, noting that the national focus on financial inclusion is one of the most significant changes she's seen. "Conversations have evolved from what you call it, to what it includes, to why it matters," she says.

Bryant has also seen strides in the field. "It's considered a serious issue now," he says, explaining that in previous years, financial inclusion was approached primarily from a philanthropic angle, as a charitable cause to help. "Now corporate America believes it's a permanent part of the ecosystem."

Looking Forward: Financial Inclusion in 2023 and Beyond

While there's much still to be done in the financial inclusion space, the overall direction is positive. Most experts and activists also agree that moving the needle in the right direction requires a nuanced and multifaceted approach.

"Solutions to financial inclusion need to be driven by public policies and include layered investments between the public, private and philanthropic sectors," Elam says.

Bryant agrees that the solutions lie in partnerships between public and private entities, but that operationalizing it requires strategy. "There need to be more ‘green rooms': job creation; access to credit; access to capital; opportunity," Bryant says.

Bryant contrasts these to "red rooms," which include things like fighting oppression, discrimination and bias. He notes that there are already networks in place to do that, and that efforts need to be proactive in designing opportunities to build wealth. He says he wants to get to the point where people in underserved communities are "writing the checks, not just cashing [them]."

To Bryant, the future of financial inclusion is one where all communities benefit. "In an ideal world, everybody gets to maximize their untapped human potential at scale," he says.

In light of that, initiatives to address financial inclusion in the U.S. have commonalities that can be grouped into broad categories.

Making Banking More Accessible and Affordable

A key part of financial inclusion is helping consumers get connected to safe and affordable banking opportunities. Some examples include:

• Bank On, created by the Cities for Financial Empowerment Fund, is dedicated to helping financial institutions connect consumers to safe and affordable bank accounts. A report found that to date, more than 14.1 million Bank On certified accounts have been opened by consumers across the country. Their focus on bringing unbanked individuals into the financial mainstream also seems to be successful: In 2021, almost 80% of the accounts opened were by people new to the financial institutions. Notable work also includes a push to have more banks adopt their 2023-2024 national account standards and grant programs. In addition, Bank On pilot programs are focusing on helping high schoolers connect to the financial mainstream and helping unbanked individuals open bank accounts when they start a new job.
• The BankBlackUSA movement is focused on helping underserved communities and the general public connect to black-owned financial institutions in local communities. One notable addition: Alpha Kappa Alpha Sorority Inc. recently announced the launch of a credit union that would be the first Black-owned, woman-led, sorority-based digital banking financial institution in the U.S. It also has an economic wealth-building platform for 2023 that includes various financial wellness activities to benefit the broader community.
• Several legacy banks are continuing their commitment to invest in underserved communities through wealth-building initiatives. These include Wells Fargo's 10-year Banking Inclusion Initiative and JP Morgan Chase's $30 billion Racial Equity Commitment.

Leveraging Technology While Reducing Bias

Technology is a driving force behind advances in financial inclusion, but there's still action needed to protect consumers and ensure fairness. Initiatives focused on creating equality-focused lending data algorithms give those focused on financial equality, such as John Hope Bryant, a tentative hope.

But first, concerns about racial bias embedded in the foundational designs of those algorithms have to be addressed, particularly when it comes to artificial intelligence (AI). "AI can empower you or it can imprison you," Bryant says. "Who is it learning from? And when does it decide it learned enough?"

• FairPlay is a new tool that bills itself as the world's first "fairness-as-a-service" solution. It uses artificial intelligence to reduce algorithmic bias for people of color, women and other historically underserved groups. Companies can use FairPlay to evaluate their own algorithms that impact lending and hiring decisions.
• Project REACh, or the Roundtable for Economic Access and Change, convenes community organizations, financial institutions (including Experian) and technology firms to explore, develop and analyze credit assessment methods.
• The Alliance for Innovative Regulation (AIR) leverages technology to make the financial system more inclusive. One of the core initiatives AIR is working on this year is MDI ConnectTech, which helps Minority Depository Institutions (banks, credit unions and community development financial institutions) develop modern digital tools to serve communities of color.

Of course, the rise of digital-first banks and fintech in general has continued to expand access for low-income consumers. For example, barriers to entry into the financial mainstream could be as simple as not having transportation to a physical bank branch, or not having a computer in the home. Digital banking and fintech reduces and in some cases eliminates these barriers by creating ways to manage finances completely online or through mobile phones. In the coming years, more legacy banks will likely compete in this space to win over more consumers.

Improving and Advocating for Financial Literacy and Equity

Financial education is critical to improving financial inclusion for Americans. From understanding budgeting and learning how to save to building credit, the benefits of financial literacy touch every area of people's lives. And when people have a basic grasp of how money works in their personal lives, it's easier to advocate for changes in how it works in their community too. These organizations are working to help consumers do just that.

• Operation HOPE is one of the leading organizations in the financial inclusion space. Its work, including Financial Literacy for All, 1 Million Black Businesses and Investors' Bill of Rights, has garnered national attention. The initiative Bryant is most excited about, however, is the Community Credit Score Index. It builds on Operation HOPE's original project, the Financial Wellness Index, created in partnership with Experian. The Community Credit Score Index uses credit score data from the Wellness Index to highlight credit scores in different ZIP codes, and then shows how those differences correlate to discrepancies in earnings, social mobility, housing, education and longevity in the same area. "That's a game changer for America," Bryant says. They hope to leverage the data to identify communities most in need of financial education and develop programming and tools communities can use to build a healthier financial future.
• Prosperity Now focuses on racial economic justice. Its current initiatives in 2023 focus on advocating for Baby Bonds, Inclusionary Zoning and financial literacy.
• America Saves is an initiative of the Consumer Federation of America. It uses behavioral economics and social marketing to help Americans learn about saving money. America Saves recently launched an offshoot focused on veterans and is gearing up for America Saves Week: 2023, which takes place February 27th through March 3rd.
• The Cities for Financial Empowerment (CFE) Fund helps local governments embed financial empowerment strategies into their work. This year CFE is focusing on replicating its Financial Empowerment Center model, which trains local governments to provide professional financial counseling as a free public service to their residents.
• The Financial Health Network unites industries across business, government, technology and academia in a shared mission to improve financial health. The network runs an accelerator each year that brings startup businesses together to solve a specific financial challenge for underrepresented communities. The current challenge seeks to enhance access to social safety nets through innovative benefits and tools.

Other initiatives and organizations are also doing important work in the financial inclusion space. For example, companies are starting to collect better data on financial inclusion to help strengthen organizational capacity, build awareness and improve offerings.

Whether through the establishment of new programs or technologies, the future of financial inclusion initiatives is bright as partners work together to provide more people with access to secure financial products and literacy.

Tools and Resources Bringing Financial Inclusion to More Americans

As more awareness grows around financial inclusion, the variety of resources has increased to help individuals build stronger economic foundations and achieve their goals.

Banking

• Ready, Set, Bank provides educational videos and other content to build online banking confidence. A demo site also helps people build familiarity with online banking features that don't require personal information to access.
• Aspiration is a "sustainability-as-a-service" company that also has a banking arm. What's unusual is their "choose your own fee" model for banking services.
• Neobanks and online banks are bringing down the cost of having a bank account. The only thing better than low fees are no fees, and banks Current, Varo, Chime and Ally excel in this area.
• Credit unions, owned and controlled by their members, often offer more affordable financial products and services.
• Community Development Financial Institutions help provide access to financial products and services to people and businesses in low-income communities.

Credit

• Experian Go helps people with no credit history establish a credit report and get access to credit-building opportunities to grow their credit from the ground up.
• Experian Boost^®ø helps consumers get credit credit for bills they already pay, including utilities, cellphone, video streaming and even rent. Adding Boost can immediately raise their FICO^® Score^☉ powered by Experian data.
• FinEQUITY helps formerly incarcerated people access and build credit and education to rebuild their lives.
• Mission Asset Fund works to help low-income consumers achieve financial success through no-interest lending circle loans.
• Nova Credit provides a credit scoring solution that helps immigrants access financial services and credit without having a U.S.-based credit history.
• Accion Opportunity Fund helps small businesses that may otherwise be shut out of financing get access to capital.
• The Working World helps to grow businesses in low-income communities.
• A growing number of credit card issuers and personal loan providers are enabling people with little or no credit to get a quality credit card or loan and start building credit. These issuers and platforms use machine learning to analyze a user's digital financial record rather than just a credit score, to determine eligibility.

Saving, Budgeting and Investing

• Stackwell aims to close the wealth gap by helping more Black people leverage the stock market's power.
• SaverLife's platform uses prizes, rewards, expert resources, educational articles and gameplay to encourage savings and budgeting.
• Prism brings users' money, bills and income together in one place and allows users to pay bills directly through its application. Its main aim is to help people avoid late and overdrafts fees.
• GoalSetter gives kids and parents the tools to start saving and setting financial goals from an early age.
• Guardian Savings is another tool focused on helping youth build fundamental world financial skills.
• Digit helps users ensure they have enough money to pay their bills, makes saving easy and tracks users' spending patterns and income.
• Investments is a social networking platform that helps people get feedback about their unique portfolios without sharing the value.
• Budgeting tools can be helpful no matter your circumstances.

Financial Literacy

• World of Money empowers youth with a sound financial education through online videos divided by age group and subject.
• MoneySmart is an educational initiative sponsored by the FDIC geared toward people of all ages. It also includes a resource specifically for businesses.
• MoneySavvy Generation offers a suite of physical products, games and tools, including an award-winning app, Savings Spree, geared toward children as young as 4.
• Experian Credit Course: A Complete Guide for Beginners can help you learn what credit is, how to use it responsibly and how credit can help you reach your financial goals.

Planning for the Future

Financial inclusion initiatives have already enormously impacted the financial landscape, and 2023 will likely continue that trend. As digital and mobile technologies drive innovation in the market, legislators and other thinkers in the space will have opportunities to create both new approaches and safeguards that benefit even more Americans as they strive for an equitable and vibrant financial future.