How the smartphone can help reinvigorate financially underserved consumers
By Dan Puterbaugh, senior legal advocate, Adobe
Most Americans think of their smartphones as a useful tool, but for people who are underbanked or unbanked, a mobile device can be an essential first step to a better financial situation.
Estimates on the number unbanked consumers vary from 7 percent to 15 percent of the population.
They're unbanked either by choice — they don't trust banks or are avoiding garnishment; by necessity — banks won't accept them because of their poor financial history; or by fear — they want to avoid overdraft fees.
The percent of the underbanked is higher. Some 20 percent of consumer have bank accounts, but still choose to use alternatives such as payday loans and check cashing services to get access to their funds sooner than is possible through a traditional bank. Yet many of these financially underserved consumers have a financial tool in their pockets they could use to access the same services as their wealthier peers, which in turn would improve their long-term financial outlook.
Smartphones aren't a luxury anymore, and they haven't been for the past decade.
In fact, more underbanked households (75 percent) have access to a smartphone than banked households (71 percent). The outlook is less rosy for those who are completely unbanked, with only 43 percent of this cohort having access. And this is hard to explain, because even the most impoverished can get smartphones through the Lifeline Assistance program, famously nicknamed the Obamaphone, and about 12.4 million of them do. In most states, eligibility to this program hinges on a maximum income of 135 percent of the poverty rate or participation in any federal or state benefits programs, such as SNAP, SSI, or Medicaid.
Government agencies are aware of these numbers, and now they're seeking ways that the electronic disbursement of benefits may help guide financially underserved consumers toward financial security.
Plastic and prosperity
Since many financially underserved consumers are also government benefits recipients, agencies are seeking ways these constituents can use smartphones to apply for and manage their benefits.
Options such as the Direct Express Debit MasterCard and the Visa prepaid card are prepaid debit cards that automatically add government payments to the card balance so cardholders can use their money right away. These cards do not require the cardholder to open a bank account, but they do offer many of the benefits of having an account. They require no sign-up or monthly account fees and can be used at any ATM, retail location, or online store, just like any other debit card. There are no overdraft fees; if a card is overdrawn, the funds are taken from the next check. And there is no fear of rejection since these cards are designed for financially underserved consumers.
In addition to helping the unbanked gain financial stability, prepaid debit cards save money for taxpayers by cutting the significant costs associated with paper checks, vouchers, and cash payouts. Last year, administrative costs for SNAP alone came to $3.6 billion. Inaccurate reporting is another problem for state and county agencies, with costs per case spanning the range of $10 to $34. Electronic disbursements not only reduce the costs associated with paper, but they are also trackable, so problems can be identified and rectified with greater accuracy and speed than a paper system would allow.
Make a call, send a text, buy a house
While a prepaid debit card is not tied to a traditional bank account, once a person is using the mobile banking app associated with the card, it opens up new possibilities that are afforded to consumers with regular bank accounts. Consumers with bank accounts have access to advice, services, and—most importantly—credit, which is not only the first step toward the American Dream of home ownership, but is protection against the small catastrophes that cause major setbacks in the lives of the impoverished, such as car breakdowns or dental emergencies.
The beauty of tying benefits disbursement to smartphone use is that mobile functions eliminate hurdles that prevent many people from opening bank accounts. There is no need to take time off work or pay a bus fare to visit a bank in person; through the use of electronic signatures, the application process is secure and quick when completed on a mobile device.
Once a person has the debit card and can rely on regular replenishments, a world of cost-saving financial services becomes available. For instance, fees for sending money through an international money transfer service start at $5, but transferring money through online banking services to friends and family can be free. Bills can be paid automatically, eliminating late fees. Alerts can be set to keep the cardholder notified of changes in the card's balance.
Technology that matters to everyone
We do a lot of things with technology, and for the most part, our technological advancements make people's lives better… but not directly. There aren't many instances where we can draw a straight line between the latest tech and a kid getting a winter jacket.
Using mobile devices and electronic signatures to give benefits recipients easy entry to banking services and control over their funds is that straight line. When financially underserved consumers can put their pay to use right away without having to give a percentage to a check cashing business or when they can borrow against their next disbursement without having to take out a high-interest payday loan, then technology is making their lives better. While the decision on whether to keep a bank account or not is and should always be a personal choice, we'd all agree that paths to financial security should be available to everyone.
Dan Puterbaugh is Senior Legal Advocate for Adobe Document Cloud. As an attorney for over 20 years, he has written and spoken extensively on issues related to electronic signatures and records. He is Chairman of the Electronic Signature and Records Association and a member of the California Bar Association. Prior to joining Adobe, he was assistant general counsel at Intuit.