4 steps to fostering financial inclusion
FinTech has reached mass adoption with nearly 9 in 10 Americans reliant on some kind of FinTech app to help manage their financial lives. From mobile banking to peer-to-peer (P2P) lending and personal budgeting tools, FinTechs are leveraging technology to put affordable and convenient financial services within reach of all consumers, including the underbanked and unbanked.
Making services accessible to the under and unbanked
According to the Federal Reserve, 18% of Americans are either underbanked or unbanked. These individuals usually pay for things in cash and rely on alternative financial services, such as payday lenders, check cashing services and prepaid cards to take care of their finances. With the vision to “democratize” financial services, FinTechs are empowering this vastly underserved segment of the market with banking products, loans and other financial opportunities that contribute to their overall financial well-being and long-term security.
FinTechs look to acquire the coveted Gen Z
Generation Z (Gen Z), the term used to describe Americans born between 1997 and 2012, is one of the most sought-after customer segments in FinTech. Why? Spending power. It is forecasted that 42.9 million Gen Zers—with $360 billion in disposable income and growing—will use mobile banking by 2025. Ironically, while they promise to be the most lucrative generation in American history, Gen Zers along with Millennial consumers, make up 61% of the underbanked population.
Additionally, Gen Zers, similar to being un/underbanked, are also “credit invisibles” or thin files—they don’t have a credit report or credit score. The reason: Gen Zers are more risk-averse than their parents. Because they are less likely to take on debt and more likely to participate in the gig economy, it can be challenging for them to obtain a loan, be approved for a credit card or secure financing. In fact, 27% of Gen Zers report being turned down when applying for their first credit card—a rate twice as high as any other generational group. Despite Gen Z’s weak credit footprint, a proliferating number of FinTechs are looking to lock in this next generation of consumers. Acquiring and nurturing these customers now—early in their financial journey—is a profitable opportunity to help influence positive financial habits and build brand loyalty.
Every person deserves access to digital financial services
Having the right technology and oversight in place makes financial inclusion possible. By following these best practices, FinTechs can verify more real customers with less friction, extending inclusion and access to more customers while also driving revenue. This includes many key demographics including the un/underbanked, those new-to-country and younger generations.
01. Use data sources that go beyond credit bureau data
Because traditional identity checks that rely on credit history end up turning away a significant number of legitimate customers, verifying identities using a wealth of authoritative public data sources can help close the gap on Gen Zers who may not have access to credit, utility payments or other documents that help build credit records.
02. Take a seamless multi-layered approach
Research shows that Gen Z has the highest drop-off rate of any generation. Nearly 58% say they drop off if account registration is too complex. For all demographics, it’s important to streamline the onboarding process—establishing custom escalation paths for suspect identities while reducing friction for real customers. Consumers want businesses to keep them safe online, but not at the expense of a fast and seamless onboarding experience.
03. Make the process non-intrusive
Opening a banking account requires a documented, verifiable identity. Employing a user’s smartphone camera to capture an ID image or snap a selfie can help to make identity verification feel as familiar as any other everyday task. Combining document and consent-based biometric verification in one automated workflow reduces customer friction while better enabling businesses—and customers—to transact with trust.
04. Establish trust and transparency
Customers must know their data privacy is valued. An IDology survey found that 68% of consumers rank a secure process as most important to them when opening a new account online. And when FinTechs go the extra step to verify them with confidence, they are showing customers they are committed to protecting them—and not just the business—against fraudulent transactions.
Digital identity verification bridges the gap
Digital identity verification has the power to unlock financial inclusion and ensure that every individual can access affordable, high-quality financial services. Like all financial institutions, FinTechs need a way to verify and authenticate customers, especially when it comes to deploying Know Your Customer (KYC) checks to prevent money laundering and the funding of illicit activities. By integrating digital identity verification—using data, documents and biometrics—into banking services, FinTechs can streamline operations and meet industry regulations, while providing customers access to the financial services they need and want.
Read our Guide to Identity Verification for FinTechs to learn how FinTechs can leverage a comprehensive identity proofing solution to overcome onboarding challenges.