As a credit union, you have the power to support your community with their financial needs—whether it be a loan, savings goal, or more.
However, there is a group of individuals who may not be fully utilizing your services: the underbanked. These individuals often turn to alternative financial resources instead of traditional banks or credit unions, and they especially need your help.
Why Are People Underbanked?
Being underbanked limits access to essential financial services, like affordable credit and savings accounts, forcing individuals to rely on costly alternatives like payday loans (Investopedia). This creates financial instability, making it difficult to save, budget, or access digital financial tools, which further widens economic inequalities and long-term insecurity.
There are many reasons why people remain underbanked, relying on money orders, check-cashing services, and payday loans rather than engaging with traditional financial institutions. Here are some common reasons why people are underbanked:
Bad Credit Score
A poor credit history can deter individuals from seeking out traditional banking services, making them reluctant to engage with financial institutions that might impose stricter credit requirements.
Lack of Trust
Negative experiences with financial institutions or perceived risks can lead to a general distrust of banks and credit unions. This mistrust can prevent underbanked individuals from seeking out or benefiting from traditional financial services.
Keep Reading: 5 Proven Ways to Build Solid Member Trust
Language & Literacy Barriers
Many underbanked individuals face challenges with language or literacy that make it difficult to understand banking terms and processes. This can create a barrier to accessing and utilizing banking services effectively.
Privacy Concerns
Worries about personal data security and privacy may deter some individuals from adopting digital banking. Ensuring robust security measures and transparent privacy policies is crucial in addressing these concerns.
Lack of Money
A lack of money can cause someone to be underbanked due to minimum balance requirements, high fees, and poor credit access. This leads people to rely on alternative financial services like payday loans or check-cashing services, which are more accessible but come with higher fees and fewer protections.
How Can Digital Banking Improve Financial Literacy and Inclusion for the Underbanked?
For many underbanked individuals, a lack of financial literacy is a significant barrier to using traditional financial services. Digital banking tools offer a solution by providing easy access to resources that promote education, budgeting, and personalized financial support.
- Educational Resources: Your digital platform can include tutorials on managing finances, understanding credit, and setting savings goals. Offering webinars, articles, and interactive content can empower underbanked members to take control of their financial futures.
- Budgeting Tools: Integrated budgeting apps help members track their income, expenses, and goals, promoting responsible financial habits. Features like expense categorization, spending alerts, and goal-setting can assist members in managing their finances more effectively.
- Financial Wellness Programs: Implement programs that offer personalized tips for saving, reducing debt, or improving credit scores.
Tailored advice based on individual financial situations can help members make informed decisions and improve their financial well-being. - In-App Assistance: Live chat or chatbot support within your digital banking platform can provide real-time guidance to members who need help navigating financial services. This feature can enhance user experience and ensure that members receive timely assistance.
With these tools, your credit union can be a key player in promoting financial inclusion and helping underbanked individuals gain confidence in managing their finances.
Support Underbanked People with FLEX Technology
By leveraging digital banking tools and adopting strategies to serve the underbanked, your credit union can play a pivotal role in promoting financial inclusion and improving financial literacy.
One of the most effective ways you can help the underbanked population in your community is by helping them raise their credit score. You can accomplish this by utilizing our SavvyMoney integration, which provides financial education and instant access to their credit score.
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