For many vulnerable communities, traditional banking is an inaccessible luxury. According to a 2019 report by the Federal Reserve, 63 million Americans are either unbanked or underbanked, relying on alternative financial services for basic needs. Relatedly, in 2018, 4 in 10 adults noted facing hardship when presented with a basic needs scenario that cost an unexpected $400. What does this mean for the future of accessible emergency aid and cash assistance programs? Beam's, formerly Edquity, platform tackles this issue head-on with a product designed with equity in mind, working to mitigate barriers that applicants may face when receiving assistance or aid.
Who are the unbanked and underbanked?
Unbanked individuals are persons without a checking, savings, or money market account. In contrast, underbanked individuals have a bank account but rely on alternative financial services (such as check-cashing services, payday loan providers, or tax refund advances) for their basic financial needs. The Federal Reserve report data shows that the unbanked and underbanked are more likely to be low income, have less education, or be in a racial or ethnic minority group.
Unbanked and underbanked communities directly reflect the gaps in our nation’s current financial infrastructure and the lack of trust in government that vulnerable and disadvantaged populations often feel. Moreover, Dr. Lisa Servon, author of The Unbanking of America: How the New Middle Class Survives, argues that “right now we’re all underbanked…because the banks that hold most of our assets do a lousy job of serving us. Mainstream banking especially doesn't make sense for many people who are financially insecure.”
What are the access barriers to traditional banking for vulnerable communities?
Unattainable Minimum Deposits
Most banks have minimum deposit requirements for opening accounts, making it difficult for low-income households to explore traditional banking options. According to the Federal Reserve report, 14% of households making less than $40,000 are unbanked compared to 3% of households exceeding that amount.
Costly Bank Fees
A 2021 report by the Consumer Financial Protection Bureau notes that, in 2019, banks and credit unions collected $15.5 billion from their customers through overdraft and insufficient funds fees. For vulnerable communities, bank fees are an added barrier as many are unable to pay regular maintenance fees nor qualify for fee waivers as most waivers rely on maintaining account minimums or specific monthly deposit amounts.
Lack of Trust
Lower-income, undocumented, and many people of color have long been unable to rely on banks due to exclusionary practices, including lending discrimination, redlining, geographic barriers, and other systemized practices that hinder access to capital. Because of this distrust, unbanked and underbanked communities do not have the same access to resources as the banked community.
These are a few reasons why unbanked and underbanked communities rely on alternative financial service providers for financial solutions. However, as more institutions and governments explore and pilot cash assistance programs, how can we best provide accessible emergency cash assistance to these communities?
What Beam does differently
At Beam, we’re advocating for the most vulnerable populations by bringing dignity into their vulnerable situations. Our platform is an end-to-end cash administration solution for governments and institutions to quickly and equitably administer emergency aid to people experiencing vulnerable moments. For the unbanked and underbanked, this looks like offering pre-paid cards as one of our disbursement methods.
Our pre-paid cards offer emergency aid recipients access to their funds without needing a bank account or disclosing bias-inflicting data. The cards have a 3-month expiration date, and recipients are able to use them the same way they would an average debit card to pay for basic necessities. Pre-paid cards place the power of emergency aid back into the hands of the people who need it most.
Challenges with pre-paid cards
While pre-paid cards are a viable alternative payment method, they do come with their own challenges. At this time, individuals are unable to withdraw the emergency funds directly from their cards, which can present a challenge for users when their remaining balance is low and they’re unsure how or where to spend the funds. Timeliness is also a factor as card processing times can vary due to production and postal mailing, and it could take up to 10 days before recipients receive their emergency aid. If someone is facing an overdue payment, 10-day waiting periods before receiving aid are not ideal.
While pre-paid cards are not a perfect solution, they do provide a payment method for those who cannot rely on direct deposits as an option. Nevertheless, we’re committed to exploring additional disbursement methods to get emergency aid to vulnerable communities quickly and efficiently while eliminating significant barriers and hurdles. At Beam, we’re redesigning the safety net for all Americans in need, and that includes the unbanked and underbanked.
