The Electronic Transactions Association (ETA)’s white paper "How Fintech Is Addressing the Financial Needs of the Underserved" highlights the many ways that financial technology (or fintech) companies use technology to provide financial services to everyone regardless of location, age, or history. Fintech solutions help the financially underserved—including small business owners and “unbanked” individuals, or people without bank accounts—to increase their financial literacy, improve their money management skills, build a credit history, and access funds. This, in turn, helps the entire economy: the more financial transactions and the greater the financial literacy of the population, the more of a “resilient and inclusive economy” we have. Fintech Helps Small Businesses Access Funding Fintech helped small business owners during the recent economic crisis by providing alternative lending options. According to the ETA, “on average, traditional banks approve only 27% of US-based small business loan applications.” That meant, in “normal” times, you may not have gotten the business funding you needed. Of course, that assumed that you could even apply for a traditional bank loan. Do your business hours conflict with banker hours? Don’t expect the loan officer to meet with you on a Saturday morning. Does your younger (less than 5 years old) business need funding? Forget about it—according to a Federal Reserve study, 70% of the owners of those “young” businesses needed capital, but only 25% received it. Were you seeking a small funding amount? Too bad, as traditional banks preferred customers requesting larger funding amounts. Enter stage left: the pandemic and initial rounds of PPP funding. Many small business owners (especially women- and minority-owned businesses) stood empty-handed, eating the big corporations' dust. Small business owners faced challenges finding a traditional bank that: \tProvided PPP loans \tDidn’t rank small businesses at the bottom of their to-do list \tHad bandwidth to process applications while PPP had funds available Fortunately, fintech recognized that small businesses respond to stimuli, and ETA members “used modern lending tools to help the Small Business Administration process and disburse nearly $110 billion to more than 1.5 million businesses.” For example, Lendio refocused its mission early on in the pandemic from “Fueling the American Dream” to “Saving the American Dream.” Lendio used its network of lending partners to facilitate 115,000 PPP loan approvals for a total of $8 billion in 2020. Those loans are estimated to have saved 1.1 million jobs between April and August 2020. The Lendio platform, like other fintech companies, uses technology and data-driven algorithms to speed up the application and approval process—no more delays gathering personal financial history and credit scores. Lendio also helps to facilitate smaller loans—with an average PPP loan size of $60,000—to connect small business owners with the funding they need. The ETA indicates that “nearly 1/3 of online small business borrowers are located in underserved communities.” Community Development Financial Institutions (CDFIs) are one solution to that problem. Lendio partnered with Lendistry, a minority-led CDFI, to further assist business owners in underserved communities. Just like the pandemic has shifted the norm for consumers (for example, online shopping and telehealth are here to stay), lending marketplace options will become the norm for future funding. The Pandemic Drives Change—Again The COVID-19 pandemic accelerated other fintech developments to help the financially underserved population. Many Americans received their stimulus checks via direct deposit into the bank accounts used for their 2019 taxes. But Americans without bank accounts needed an alternative solution. Paper checks would delay payments due to processing time and USPS delivery slowdowns, so the government collaborated with fintech companies to deliver payments to 5.7 million Americans via 2 “prepaid card programs—Mastercard’s Direct Express and Visa’s US Debit—along with P2P systems.” Fintech also provided options for children who rely on free or reduced-price school lunches for meals. FIS, a fintech company, helped create the Pandemic Electronic Benefit Transfers (P-EBT) to grant 6.5 million households access to nutritional assistance—even with schools closed. Similarly, Fiserv and the US Department of Agriculture collaborated to revise the Supplemental Nutrition Assistance Program (SNAP), traditionally an in-store-only feature, to support online food ordering for its 37 million recipients. Additionally, this P-EBT program opens the program to smaller grocers—as of Q4 2020, over 200 new grocers were implementing P-EBT services. Payments Mean More Than Cash Fintech has steadily worked to offer non-cash payment options for individuals without bank accounts. According to the FDIC, 5.4% of households in 2019 were unbanked—a welcome downward trend. Unfortunately, the FDIC expects that number to increase as the pandemic-related recession forces more people into the unbanked category. Source: "How America Banks: Household Use of Banking and Financial Services," FDIC. That’s a lot of households relying on cash to make payments on everything from utility bills to rent to phone bills. Why don't people have bank accounts? The main reason cited for being unbanked is not having enough money to meet minimum balance requirements. Other reasons include trust and privacy concerns and bank fees that were too high or unpredictable. Source: "How America Banks: Household Use of Banking and Financial Services," FDIC. Prepaid products are an alternative payment solution. We’ve all used closed-loop products, such as a gift card for McDonald’s. Open-loop products, such as a reloadable card used to make purchases or get cash from ATMs, work even better at moving the unbanked into a world of participation in online transactions. Other alternative payment options include nontraditional and peer-to-peer (P2P) payments (e.g., PayPal, Zelle, Venmo). These e-cash solutions include: \tPaysafecard: This option uses prepaid vouchers to complete online checkouts. \tAmazon Paycode: This online checkout option requires Amazon shoppers to pay cash at a Western Union location to “back up” their online purchase promise. \tPayPal Cash Mastercard: Users access the money in their PayPal account to shop anywhere MasterCard is accepted. Technology Drives It All Technology shifts drive the changes that help underserved financial customers. As cell phone and internet service become more widely available—and reliable—and technology platforms evolve, fintech companies will continue to innovate. Some of the examples of technology-fueled support include: \tMobile banking: permits a “single accessibility system” across devices for persons with a disability and gives rural and elderly customers financial access wherever they are \tMobile payments: increases financial literacy, which helps move people out of the underserved population \tPush-to-card earnings payments: gives workers (e.g., rideshare, food delivery) access to their income to reduce the use of high-interest “payday” loans and debt cycle Technology even enables interactive automated tellers: essentially high-end ATMs with video integration. For financial institutions, automated bank telling means that tellers can operate in more geographic locations as the ATM replaces a bank facility. Customers can access bank services outside of regular banking hours while still interacting with a bank employee. Interestingly, there’s a bit of the “which came first, the chicken or the egg” cycle with fintech’s accessibility evolution. Like any business, fintech companies need funding, including venture capitalist funds, to develop products and services. As fintech drives changes to help the financially underserved, venture capitalists become interested. The more venture capital funding that becomes available, the more fintech can address the needs of the financially underserved.