by Naomi Anderson, Vice President, Prepaid

Credit unions, with their long-term focus on providing accessible and affordable financial services, have played an important role in financial inclusion from their inception. Still, many people continue to face financial challenges that keep them from utilizing the full benefits of mainstream financial services. Prepaid cards address many of these challenges, which makes them a powerful vehicle for empowering people who are unbanked and underbanked.

Barriers to financial inclusion

The primary reason people don’t use banking services is because they can’t meet the minimum balance needed to have an account (Forbes). This challenge is often compounded by other factors that also keep people from harnessing the benefits of traditional financial services. These include:

• High fees and charges: High fees, interest rates, and overdraft charges make traditional accounts difficult to afford for those with lower incomes. Also, these fees are often not expressly stated upfront, which causes confusion and suspicion around financial institutions (Boel and Zimmerman).
• Lack of financial literacy: According to a study by NIH, financial literacy rates are lower among the unbanked than the general population, making them less empowered to take advantage of opportunities to improve their financial status.
• Predatory alternatives: People who are unbanked or underbanked often turn to alternative high-cost resources like cash checking stores because the fees are listed more clearly (Boel and Zimmerman).
• Internet & geographic barriers: Both these factors impact whether people have a banking account. Internet and smartphone access are associated with higher bank account ownership. Indeed, 87% of those who have bank accounts also have a smartphone versus 64% of those who are unbanked (Boel and Zimmerman). Living in areas where retail shops charge extra fees for using credit and debit cards also makes a person less likely to have a banking account (NIH).

How prepaid cards help with financial inclusion

The beneficial features of prepaid cards can help people overcome some of the barriers to financial inclusion. Advantages include:

• Fewer fees: Prepaid cards don’t have overdraft fees or interest rates for cardholders to worry about accruing, making them potentially less costly and confusing to use. Credit unions can help even more by keeping other prepaid card fees to a minimum, making them affordable for people with lower incomes.
• Real-time transaction tracking: This feature gives cardholders immediate access to account updates so they can easily stay on top of their spending and manage their budgets.
• ATM access: Prepaid cardholders can enjoy the convenience of ATM withdrawals, offering them an additional way to access their money.
• Direct deposit: Funds like paychecks, tax refunds, or government benefits can be directly deposited onto prepaid cards so cardholders can avoid the higher expense of check-cashing services while also accessing their funds quickly.

Combining prepaid card solutions with outreach

While a prepaid card is a useful tool, its impact can be strengthened by supportive outreach initiatives that enhance awareness of how it can be used to build financial wellness.

• Multilingual support: Language can be a barrier to financial service, so take steps to offer prepaid card information and support in the languages spoken within your community, particularly among the underserved.
• Financial education: In-person workshops, webinars, and educational resources distributed via direct mail, at branches, and online are all ways to empower underserved members with how to effectively manage their finances. These can include tips on how to make full use of prepaid cards to organize and stay on top of a budget while pinpointing areas of overspending.
• Partnership and community outreach: To raise awareness of your prepaid card program, reach out to underserved and unbanked communities by working with local organizations like community centers or religious institutions and by holding events in local areas where there are high populations on unbanked individuals or where many of your own underserved members reside.

Conclusion

A prepaid card is a powerful vehicle for serving the underserved and unbanked, equipping them to improve their financial well-being as well as engage in an increasingly digital economy. When combined with outreach efforts, prepaid cards can play a key role in advancing economic prosperity for everyone in the community.

Originally published on CU Insight.