The blog of the Urban Institute
August 3, 2020

Fintech Can Be a Safe Way to Access Financial Services during the Pandemic, but How Well-Suited Is It for People with Low Incomes?

COVID-19 is increasing Americans’ reliance on financial technology (fintech), such as online and mobile banking. Stimulus payments alone doubled mobile banking registration. With banks closed or operating at reduced capacity, fintech provides some Americans with a safer alternative to traditional banking.

But the pandemic has made the digital divide—or the gap between people who have access to computers and the internet—even more apparent, especially for people with low incomes. Pew Research Center estimates more than 4 in 10 Americans with incomes below $30,000 a year do not have access to home broadband services or a traditional computer and instead rely on smartphones for internet access. Americans without access to online banking have had to wait hours in ATM lines and pay fees (PDF) to alternative service providers.

Accessing pandemic relief programs is harder for those outside of the financial system too. Roughly 35 million Americans have yet to receive the first round of stimulus checks that started to go out in April, including about 12 million who do not file tax returns or receive federal government benefits. And the 14.1 million Americans who are unbanked had to wait longer to receive their stimulus checks, and after receiving those checks, had trouble cashing them.

Financial coaching—one-on-one assistance to set and reach long-term financial goals—has emerged as a prominent model to change behaviors and put low- and moderate-income clients on a path toward financial stability. Changing behaviors could include introducing clients to fintech as an alternative to traditional banking, especially as a way to improve access to financial services during the pandemic. But to be effective, financial coaches must understand fintech’s limitations and hold special considerations when working with people with low incomes and other vulnerable groups.

We recently evaluated a pilot program between four Chicago-based nonprofits, in partnership with the Financial Health Network, that distributed fintech products to clients with low incomes as part of their financial coaching. Our evaluation found that product uptake was considerably low because of a few key challenges:

  • client mistrust and unfamiliarity with fintech
  • clients being unbanked
  • products not being available in languages other than English
  • clients lacking access to computers or smartphones

Based on our research, we provide four lessons to improve fintech access for people with low incomes through financial coaching.

  1. Coaches should have a thorough understanding of how a product works from a user’s perspective (preferably as an active user themselves) before introducing fintech products to clients. Coaches should also provide clients with multiple options to ensure they can choose a product that fits their needs. Finally, after selecting a product, coaches should closely guide potential users through each phase of the distribution process (including access, registration, and use).
  2. Fintech evolves quickly, so financial coaches must stay on top of all fintech changes and constantly monitor the market, in addition to making contingency plans in case any of these challenges deem the fintech tools no longer useful or appropriate for their clients.
  3. Fintech developers also have a role to play. They can enhance their products so they are more inclusive of all potential users. This can be done by including languages other than English and making identification requirements more flexible. Our research found that asking for a Social Security number prevented many participants from adopting the products, especially immigrants, either because of privacy concerns or because they did not have a Social Security number.
  4. More research is needed on the what, how, and why of fintech use among people who are financially vulnerable, segmented by demographic groups. Funding additional fintech distribution pilots and developing communities of practice will be two important avenues to achieve this.

These lessons focused specifically on people already connected to nonprofits with financial coaching models. Though the financial coaching field has grown rapidly in recent years, the number of people who access these services is still a small subset (PDF) of the population. More research is needed on how Americans with low incomes, who are disconnected from nonprofit resources and support systems, can connect to fintech without being at risk of scams, which have been on the rise during the COVID-19 pandemic. With the possibility of another round of stimulus checks, getting relief to people with low incomes quickly will require addressing both financial exclusion and the digital divide.

Tim Robberts/Getty Images

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